In its first month, Turntable.fm has generated a tremendous amount of buzz. It’s the first truly social web music service; it’s addicting, viral, and easy to use. This weekend the service hit its first hiccup as it closed the service to users outside the US. This led to disappointed international users who had spent the last few weeks falling in love with it. Before addressing the licensing issues, I think it’s worth considering exactly what Turntable has accomplished and what it could become.

THE TURNTABLE OPPORTUNITY

In an industry with dozens of music services that have struggled to scale, the company has already demonstrated strong product / market fit. They’ve reached 225k+ Monthly Active Users. Daily Active Users today are 48k, which is the highest yet (and this is AFTER closing the service to international users). If you login to the site, you’ll see between 1.5k-2k concurrent users, which is the constraining load factor at this point. This is a synchronous streaming service and they need to scale the infrastructure before it can handle tens of thousands of concurrent users. But it appears pretty apparent the demand is there once they can handle it.

The service is extremely viral and the gaming elements encourage engagement and retention. What does that mean?  Assume for argument’s sake the service remains global.  It’s a social application built to leverage Facebook and Twitter, with content that is universally accessible. Cityville, the top Facebook App, hit 26 million MAU in its first 2 weeks, and is currently at 88 million MAUs. Its DAU are 17 million (#1 rank overall). The next 3 highest-ranked FB apps are other Zynga games, each with 30+ million MAU and 7+ million DAUs. Given the nature of the service and the wide appeal of music, it’s entirely possible that Turntable could achieve this kind of reach with this level of engagement. As an industry, one of the biggest battles we are fighting right now is the battle for consumer attention - and it would be valuable to have an application with music at its core competing for attention with Cityville and Empire & Allies. This could be an opportunity to build a social music service and community reaching tens of millions users in a very short time period.

As a point of reference, the top music app on Facebook is the Roots Music Band Page, a player that many artists install on their FB page. It has 32 million MAU users (#6 rank).  However it had only 1.7 million DAU yesterday (#29 rank). So while it has reach, it has relatively low engagement.

While Turntable can be a very engaging experience, there is also a passive use case. A lot of the big rooms regularly have 150+ users (meaning most users are just listening). Room titles like “Coding” and “Indie While You Work” suggest that people are using Turntable like radio while they are working. You can see in the graph below that usage picks up around 8 am on the East Cost, peaks at 10 am (room capacity is 200) and stays there throughout the workday. This is important because radio still makes up 85% percent of music consumption and this passive use case makes the service relevant to this a wider audience. Turntable wouldn’t just be a game that a user played for 20-30 minutes a day; it could be a service users listen to for hours on end.

CODING SOUNDTRACK LISTENERS (GMT)

via Turntable Dashboard (6/25)

Turntable is a social network with music at its core. What really sets Turntable apart is the ability to assemble social communities where experiencing music in real-time is the primary application. This is the digital equivalent of hanging out in the record store, listening to music in a college dorm room, or going to a show. If you look at the early users of the site, these are clearly music lovers. A service at this scale would build a significant social music taste graph. Turntable would understand user taste profiles and also be able to identify tastemakers/influencers.  If you’re serious about transforming how music is marketed, this is a critical piece of the equation. Imagine if every time a song played on Z100 you could identify in real-time who heard the song, who liked it, their level of influence, and their social graph and then target them with a relevant marketing message/offer.

This could be huge. I’m really excited to see what Turntable can build.

TURNTABLE GOES US ONLY

As I mentioned above, this weekend Turntable restricted its service to US users. Unfortunately, the licensing restrictions aren’t a surprise. Turntable is operating as a non-interactive internet music service, just like Pandora. The US is the only country with a statutory licensing structure in place, which is why Pandora only operates in the US. (On the bright side, it seems its non-interactive status isn’t being challenged right now, since it’s still operating in the US). The US-only restriction obviously impacts long-term growth potential, but I think it also adds an additional risk by compromising the user experience (While Pandora has a US-only restriction, it hasn’t altered how one experiences the service.)

Introducing a territory restriction means I can’t experience music with friends outside the US (or at all if I’m outside the US). If Turntable is limited to the US for an extended period of time, some US users may look for alternatives if a significant portion of their social network is outside the US. The international users who would love to get in today might never come back. It feels like a huge missed opportunity.

Could Turntable be licensed globally? Under the status quo, its seems unlikely.  Here’s how Pandora describe the situation in their IPO prospectus:  

“Currently, the licensing terms offered by rights organizations and individual copyright owners in countries outside the United States are prohibitively expensive. Addressing licensing structure and royalty rate issues in the United States required us to make very substantial investments of time, capital and other resources, and our business could have failed if such investments had not succeeded. Addressing these issues in foreign jurisdictions may require a commensurate investment by us, and there can be no assurance that we would succeed or achieve any return on this investment.”

Since Napster dragged the music industry into the internet era 12 years ago, the industry has struggled to enable consumer friendly internet music services within the framework of a complex and arcane licensing structure.  Repeatedly, the industry seems to focus on risk mitigation (DRM, unsustainable royalties, negative incentives) rather than maximizing the new opportunities. What may seem like reasonable trade-offs in the context of a contract negotiation can have a real impact on how a consumer experiences a service. While a service may agree to make compromises to the experience they deliver to users, we can’t force consumers to use these services.  We may be achieving short-term gains at the expense of the long-term size of the market.

In addition to the economics of deals, there is the challenge that multiple stakeholders are involved in the discussions: labels, publishers, rights organizations, etc. We’re suffering from an industry-wide strategic misalignment between the licensing status quo and the current market place.  We can’t expect start-ups with limited resources to solve a structural problem like this for us.

IT’S ALL ABOUT THE CONSUMER

A new approach should start with the following assumption: “If we do right by the consumer, it will benefit us in the long-run”.  This doesn’t mean giving the store away for free, but it does mean evaluating trade-offs thru the lens of the consumer.  We need to enable services that appeal to the widest possible audience and respect the physics of the web.  We need to lower the barrier to entry for new services to launch globally.

This would require coordination of many different entities to offer licenses on sustainable terms.  Just thinking about non-interactive services, the current US situation for webcasters could serve as a template - focusing on where the situation ended up, not the process it took to get there.  There is a statutory regime place: anyone can offer a non-interactive service provided they pay the established rates, which are not cost prohibitive, and no advance is required.  The current rates are “non-precedential” and up for negotiation in 2015.  In other words, let’s allow the market to develop more and then we can revisit later.

There are plenty of reasons why an approach like this wouldn’t work on a global scale - you’ve got multiple labels, publishers, rights organizations, governments, etc. involved in the discussion, all with conflicting short-term agendas.  But that’s not the point. Every music industry stakeholder has a vested interest in fixing this situation and 12 years post-Napster it’s long overdue.

(Note: These views are my own and was written before I joined Turntable.fm.  At the time of writing this, I was unaware of any conversations that Turntable.fm had, or hadn’t, had with rights holders or their agents or the current timing of their int’l service beyond what they’ve said publicly.)