Taylor Swift, subscription services will be singing your praises.
Swift, arguably the planet's biggest mainstream music artist today, warned Sunday she would keep her hit album "1989" off the Apple Music subscription service because of a royalty loophole: zero payments during a three-month free trial.
That facet of Apple's contracts had spurred an outcry from independent labels and artists for more than a week. Less than 24 hours after Swift posted the message on her blog, Apple's head of software and services, Eddy Cue, tweeted that the electronics giant would capitulate and pay all artists for every stream during the trial period.
It's reminiscent of Swift's high-profile pull-out of Spotify, a rival music subscription service, in November. Spotify compensates artists for the listening that occurs during free trials, but it has a tier that is free for listeners all the time, paid for with advertising rather than a member's subscription. Spotify, and it has gone without Swift's tunes ever since.
Fortunately for streaming services, Swift's bad blood couldn't be better for business.
The best way that services like Apple Music and Spotify can win paying subscribers is simply by getting people to try out their product. A diatribe by Swift does more to bolster mainstream familiarity with these new models than any ad ever could. And unfortunately for musicians, mainstream consumers are more interested in value and convenience than the size of an artist's royalties check.
Apple Music "is going to do what the Taylor Swift-Spotify thing did last year: hundreds of thousands of people who hadn't been streaming are going to try it," said Alex White, the chief executive of music data company Next Big Sound, speaking Monday at the recording industry conference New Music Seminar in New York.
One of the primary hurdles for streaming is simply educating mainstream consumers, he said. Who's a better teacher than Taylor Swift?
Exhibit one: Spotify
In November, Swift pulled her entire catalog of music off Spotify just as her latest album, "1989," was released. The record went on to sell 3.66 million copies in the final nine weeks of 2014, more than any other record sold in the full year, according to Nielsen.
Explaining her withdrawal, she said she was unwilling to contribute her life's work to an experiment that doesn't fairly compensate writers, producers, artists and other music creators. Specifically, her complaint centered on Spotify's free tier, which allows people to listen to particular songs on demand with advertising instead of paying outright. Curiously, she let some of her music remain on other free services such as YouTube, which not only dwarfs Spotify by number of users but also pays a lower percentage of its revenue to creators.
Life sans Swift has been sweet for Spotify. The period of time without the catalog of last year's biggest selling artist also coincided with one of the greatest growth spurts in the company's history.
Earlier this month, Spotify revealed that it has more thanand more than 75 million active users. It took more than five years to grow to 10 million paying members and just one year to reach 20 million. The majority of those additional 10 million paying members joined up after Swift evacuated Spotify.
"While a lot was likely organic growth, I'm convinced the saga created awareness for Spotify that helped build usage," said Russ Crupnick, an analyst for researcher MusicWatch. He noted that prior to the Swift plotline, only about one out of three people in the US could even identify Spotify, based on an twice-yearly survey he conducts. "The focus clearly added name recognition."
For Spotify, getting people to learn about its service -- and, more importantly, try it -- is its best customer acquisition tool.
"It's not that consumers don't understand the model per se, it's about making the leap" to paying a monthly subscription, said Steve Savoca, Spotify's head of content, at the New Music Seminar conference. The overwhelming majority of subscribers to Spotify's $9.99-a-month commercial-free plan join after using the free version with ads for a period of time, he said. "Our free tier is everything in that regard."
Spotify declined to discuss the effect Swift's withdrawal had on its service. A representative for Swift wasn't available for comment.
Exhibit two: Beats Music
Traditionally, the straightforward way to build name recognition is, of course, outright advertising. But Apple Music's foundation -- the service Beats Music -- shows how even the most high-profile ads tend not to work well for streaming music services.
Beats Music was the $10-a-month streaming music service launched by headphones maker Beats in January 2014. Unlike Spotify, it lacked a free tier, though the service offered free trial memberships to let people try it out. Apple bought the entirety of Beats for $3 billion last year, signaling that its resistance to a subscription music model would soon end. Apple Music, the reboot of Beats Music, is set to launch next week.
As a maker of headphones, Beats was extraordinarily successful at marketing itself. Largely through keen product placement with celebrity athletes and superstar hip-hop and pop artists, Beats grew to nab 60 percent of the $1 billion premium headphones market since it launched in 2006, according to NPD Group.
But product placement won't work for a service like Beats Music -- nobody can tell what service LeBron James is listening to when he's training shirtless in his high school's gymnasium just by watching him.
So Beats Music took its message to the biggest advertising arena possible: the Super Bowl. It ran reportedly sought $4 million for a 30-second spot. (That's $133,333 per second.)during the football bout that broadcaster Fox
Despite the high-profile commercial, as well as full-page ads in the New York Times and partnerships with AT&T and Target, Beats Music had only 250,000 paying subscribers by the time Apple agreed to buy it in May 2014.
The reason Beats product placements worked and the Super Bowl commercial didn't? "You don't have to explain to people what headphones are," said Ethan Rudin, the chief financial officer of Rhapsody, a service that pioneered the subscription model for music more than a decade ago. "There's an education process that needs to happen."
The blessing of a Swift diatribe is that it forces that education.
With an editorial in the Wall Street Journal last summer, her high-profile protest against Spotify in the fall and a blog post criticizing Apple Music in the last week, Swift has spurred more public discussion of streaming music and its purveyors than any other figure. While that debate often focuses on how these services treat artists, it necessitates a conversation about how these services treat consumers.
The surge in music piracy in the days of peer-to-peer file sharing like Napster taught the world at least one lesson: listeners loves artists -- they just don't care as much about how artists are paid when it's time to hit play.
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