Aspiro was acquired in January this year for $56m and is now worth $250m thanks to the relaunch of its subsidiary streaming service Tidal. 15 of the world’s biggest artists each own 3% equity in Tidal with Jay Z, another investor and record labels owning the rest. However, despite its star-studded New York conference, Tidal exists with an inherently flawed business model in a market that will only become more competitive.

Why does Tidal exist?

To understand the reasoning behind Tidal, it is important to understand why content streaming exists. As a very brief background, the widespread availability of the internet in the 2000s allowed for the heavy piracy of mp3 files whereby downloaders uploaded and downloaded content without payment. With the development of faster internet speeds, this led to huge losses by the record labels and, out of what seemed to be their ashes, arrived the legal streaming services. The key streaming platforms include Spotify, US-based Pandora, Deezer, YouTube and the upcoming Beats and YouTube Music Key.

Although these streaming services do generate revenue, their profit margins are low and artists have complained that the little royalty fees that they receive dilute the value of their music. As an example, Taylor Swift notably removed her discography from Spotify in protest in 2014. It is within this context of artists’ dissatisfaction that Tidal exists. Under the guise of providing lossless quality music and exclusive content, Tidal addresses artists’ concerns by placing control back in their hands with a paid-subscription model.

What are Tidal’s flaws?

Tidal’s business model is inherently flawed because of its strategies regarding high pricing and exclusive content. The highly competitive streaming industry is also not conducive to Tidal’s success.

The service’s concessions to the artists come at the expense of consumer satisfaction. Unlike YouTube and Spotify which offer free ad-based content, Tidal’s membership options are fixed at $9.99 and $19.99 for standard and lossless quality music respectively. The high costs are unappealing to the average consumer who can use alternative free services and the lossless quality option will only be appreciated by audiophiles with specific equipment. These high price points also go against the very reason why streaming is so popular – streaming was born from piracy which is itself a product of people being innovatively frugal. As a result of how much it costs, not only will consumers not be attracted to Tidal but fears that this will lead to an increase in piracy may eventually come to fruition.

Without free memberships, Tidal promises exclusive content in an attempt to allure consumers away from other services, but it is doubtful how much this will compensate for the service’s pricing strategy. What sort of content will be exclusive – a song, two songs, a whole album? As much as these artists may love creating and sharing music, they are in a business driven by sales. If an artist produces an album exclusive to Tidal that can incur costs in the millions, this limits the amount of investment that can be recovered to just the income from Tidal’s membership fees. This is absolutely unsustainable and it is far more profitable to release an album to the masses. It is therefore more likely that exclusive content will be in the form of a standalone songs and it is very doubtful that a significant number of consumers will care enough about this exclusive content to subscribe to Tidal.

Rather than its competitors needing to be worried, Tidal should be extremely concerned about what is happening in the market: i) Spotify will soon be raising $400m from investors including Goldman Sachs and the Abu Dhabi Sovereign Wealth Fund, thus valuing the company at $8.4bn (33 times more than Aspiro); (ii) YouTube, one of the world’s largest social media platforms, is preparing to launch its own paid subscription membership; and (iii) Apple, with over 500m credit card details and also currently negotiating with artists for exclusive content, is also expecting to relaunch the Beats platform this June. Competition is drastically increasing and, though there is money to be made, the increasing competition will decrease the potential for profit which may eventually price Tidal out of the market – yes it may be the more glamorous option, but it lacks the financial infrastructure of a Spotify, YouTube or Apple that is required to withstand consumer pressure.

Had Tidal entered into the market earlier, the streaming landscape would be dramatically different. However, it is currently in an industry that is nearing saturation with consumers’ memberships being fiercely fought for.

Conclusion

Unless it drastically changes its model to include a free membership option, Tidal will not become a key provider of content. If it does vary its pricing strategy then it defeats the very purpose for which it was created (to provide artists’ with more control and a higher return on their music) which may ultimately result in artists’ removals of content. The increasingly fierce competition will also add pressure on Tidal and its future looks bleak. Granted it is still very early on its life, but its inherently flawed model will not institute the sea change in music streaming that its star-studded entrance suggested.

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