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Don't just ask whether Tidal will survive. Worry about Spotify, too.

Members of Tidal at the awkward press event.
Members of Tidal at the awkward press event.
Getty

The obituaries are already being written for Tidal. Jay Z's streaming platform launched in March with a strange press conference, a list of high-profile celebrity backers, and a pretty terrible product. For $20 a month, consumers got access to higher-quality audio; for $10 a month, they could have access to a streaming service almost identical to Spotify.

Less than a month later, critics are calling Tidal a failure. Gawker described it as an awful user experience, a criticism with some merit. TechRadar made a list of everything wrong with the platform, and its points are all valid. The CEO was replaced shortly after launch and 25 employees were fired, and that's certainly concerning. Then on Tuesday BGR made an absurd claim that Tidal was already dying based on the fact that it fell out of the top 20 in the Apple App Store.

But if Tidal fails, it won't be solely because of its low app sales (or even its poor user experience). The company's biggest problem by far is that streaming is a fragile business in which it's incredibly difficult to succeed. The odds of failure for Tidal are high. But so are the odds of failure for Spotify or Rdio or any other of your favorite interactive streaming services.

Why it's so difficult to succeed in music streaming

Building a music-streaming service isn't like setting up any other tech company. It's true that all startup companies face legal hurdles, difficulties getting funding, and trouble finding a user base.

But in the music technology sector there are a lot of additional legal hoops to jump through — because the product these companies want to provide actually belongs to someone else. Every song has separate copyrights for the written composition of the song and the performance, which means different people (often several people) have to be paid for every play of every song.

And the hurdles companies like Tidal or Spotify face are especially difficult.

The streaming industry is divided into two types of services — interactive and non-interactive — that follow different laws and have different challenges. Non-interactive services like Pandora have to try to predict what users want to listen to next. That's difficult. But on the plus side, because they function like AM/FM radio (users can't pick which songs to listen to in which order), they are covered legally by Section 114 of the Copyright Act and can pay a set statutory rate for all performers, whether it's Taylor Swift or an unknown local band. That means their costs to pay for music are pretty much fixed.

Then there are interactive services like Tidal or Spotify. Here, the users choose what they play. But that also means the services have to negotiate rates directly with every single artist. If they want big artists like Taylor Swift or Rihanna, they have to spend a lot of money. In 2013, Spotify paid an estimated 70 percent of its revenue in licensing fees.

"There’s a ton of value for consumers [in services like Spotify or Tidal]. But because there is no statutory license, getting an interactive service off the ground takes an average of two years, a ton of upfront cash, and probably some of your equity," Casey Rae, vice president for policy and education at the Future of Music Coalition, told me back in September.

This is why it's hard to compare these different services just by looking at their App Store sales. The BGR piece noted that Tidal dropped out of the top 20 apps in the Apple Store, whereas Pandora and Spotify occupied the third and fourth spots. But we can't really compare Tidal (or even Spotify) to Pandora. Because these companies have such different legal playbooks, it's impossible to tell which businesses are succeeding solely based on their popularity.

spotify

Spotify might be in the same camp as Tidal. (Getty)

Interactive music streaming is incredibly competitive — but the audience is tiny

Not only does Tidal have to deal with higher payout rates for artists, and more legal hurdles, it's also in a much more competitive market than Pandora. Every major tech company, it seems, wants to get into interactive streaming. Apple purchased Beats Music for $3 billion. Amazon is launching its own streaming service, and Google has created one, too. On top of that, there's still Spotify and Rdio.

That's a minimum of seven major names (including Tidal) all competing for the same market of listeners: those who want to choose which songs they play in which order, build playlists, and maybe gain access to some exclusive content.

The biggest problem? That's actually a tiny portion of music listeners in the country. Most people don't own extensive record collections or have vast libraries full of music. Instead, they're content to listen to whatever the radio puts on. According to a 2014 Pew Report on audio listening in America, almost 92 percent of the public is still listening to AM/FM radio. That percentage hasn't changed a ton even with the invention of the internet. The next most popular services are online radio, which 39 percent of Americans listen to, and satellite radio, which 23.9 percent of Americans listen to.

The Pew Report doesn't provide data for non-interactive streaming listening in the United States, but even if we take monthly active uses as a good estimate, all of the non-interactive streaming services combined wouldn't add up to Pandora's.

pandora versus spotify

(Data from the Pew Report 2014)

So not only is Tidal in a marketplace with a huge legal hill to climb, it's also competing for a tiny market of users in a very tight competition.

Tidal and Spotify also have a PR problem: artists don't like them

As if the deck didn't already seem stacked against interactive streaming services, they also have a huge PR problem. Artists are outspoken about the fact that they feel underpaid for their work by Spotify and other services.

Here's Jeffrey Boxer, the executive director of C3, a coalition trying to bring artists together to fight for fairness in the industry: "So many people in music want to maintain the illusion that it’s sex, drugs, and rock 'n' roll and that everything is great," he told me. "People have great albums and they’re incredible artists, and they’re filling out an Uber application because they can't make enough money to live."

It's a common story at this point. Aloe Blacc talked to me in January about his struggle to get paid for the work he creates. Taylor Swift removed all of her music from Spotify in protest of how little money she made.

Whether streaming actually is bad for artists is a long and complicated question that I wrote about earlier this year. But this perception is a huge problem for Tidal, and it's one the company didn't really help itself with. Tidal originally claimed to be a site "for artists" — but it only seemed to represent the stars who already make enough money to live on.

That said, artists are still reluctant to abandon the streaming model entirely. "Let’s say today we all said, 'Spotify’s awful. We’re going to take all of our music down.' Where is the consumer going to go?" Charles Caldas, the CEO of the indie-label network Merlin, told me. "Are they going to buy it again? Or are they going to steal it again?"

That's the biggest fear for artists. As little as they get paid for streaming, it beats consumers downloading music for free on Napster. And it's entirely possible that if consumers had to pay more or use different systems, they would just go back to torrenting.

rihanna Tidal

Rihanna signs the Tidal bill of rights. (Jamie McCarthy/Getty)

The big question: can Spotify and Tidal possibly survive?

The questions about Tidal's viability are really questions about this entire sector of the music industry.

"It is the standalone services that are the most vulnerable. It’s not that we have to make sure they last, but I would love to see the opportunity for innovation to happen in the marketplace that is good for artists," Rae told me. "That was the promise of this internet age."

All interactive streaming services are vulnerable and all have the opportunity to fail dramatically. It's not just Tidal. It's Spotify, and Rdio, and Beats and Google Play. None of these companies are more than 10 years old, and none of them have the stability to guarantee them success in a marketplace that has changed dramatically in consumption in the last 15 years, but not so dramatically legally.

Back in October, when I spoke with Rae about the battle around streaming following Taylor Swift pulling her music from Spotify, he mentioned that high-quality streaming might be a service that survives. "Curation has a lot of value. Not only is new music a huge thing, but you’re competing against the entire history of music. Like I might be interested in a really well-curated system that was subscription," he said.

But even that's no guarantee. Tidal is trying to be a curated system with celebrity-made playlists and exclusives. But as it turns out, it's incredibly difficult to succeed in a market that is intensely competitive, held together by outdated legal structures and difficult royalty payment plans, and completely unstable.