August 12, 2013 at 4:39 pm

Why Netflix (Probably) Won’t Do a Music Service

netflix music

Netflix is amassing lots of new subscribers as television watchers “cut the cord,” and each generation of graduates faces the question of whether to tack on television channels as part of their monthly internet bill, or just stick with the internet and save the rest for ramen burgers. These are the same people who might arguably subscribe to a music service, and yet that probably won’t happen, due in part to differences in how music and movies are licensed.

Netflix’s popular video subscription service added 1.2 million users users in the second quarter of 2013. If Netflix were a music service, that increase alone would make it the second most popular on-demand music subscription service. Netflix’s overall numbers are even bigger, of course: about 30 million paying subscribers in the U.S., and another 8 million or so in other countries.

Hot exclusives like Orange Is The New Black, House of Cards, and the latest season of Arrested Development haven’t hurt Netflix’s chances. Now that it has its own content bargaining chips, Netflix can begin to dictate the terms, at least a little bit, in negotiations. Owning those shows, to a small extent, gives Netflix a seat at the content table — a good place to be for a company in the process of proving that a standalone, streamed, vertical content subscription can succeed. Another reason for its success is all of the other stuff you can watch on-demand on Netflix, and that Netflix has proven pretty good at delivering that experience, including all the way to the television set (see Apple TV, Roku, Google Chromecast, etc.).

Upwards of 37 million people pay Netflix for video. Why not roll out an add-on that would let them do the same for music? Rdio’s trying to move in the other direction, with Vdio, and Netflix has more subscribers who are potentially ripe for conversion.

Many of the people who pay for Netflix are the same people who are thinking about subscribing, or already subscribe to a music service, or at the very least, might be counted among the same target market: people who want to pay an online distributor a monthly fee for a fairly wide selection of entertainment to be streamed to them online.

Doesn't Netflix want a piece of the music subscription market? ABI says this is going to happen to it (attribution below).

This is a lot of people, and the world makes more of them every day. One optimistic estimate (see chart) of the music subscription market claims that nearly 200 million people will pay for an on-demand music subscription in 2019, with healthy annual increases until then.

Even if that number is too high, music subscriptions are going to make money for someone — why not Netflix, which already has billing relationships with a lot of those people, and is already in the streaming subscription business? Who knows, Netflix might even be able to make a music+video offering a little bit cheaper by offering a “bundle” (this would be ironic, given that Netflix foe cable television practically invented  content bundling).

We ran the idea of Netflix rolling out a music subscription up the flagpole, and it appears the company isn’t interested.

“One key part here is that music is licensed in a very different way,” said a source familiar with the situation.

Part of the issue is that the lawyers who do music and movie licensing aren’t the same people, and part of it is that the companies doing the licensing are different, and yes, music and movies aren’t the same.

But they’re not so different, in terms of “commercial, creative works that are delivered on-demand, en masse, for around ten bucks per month.” As such, it says something about the continued difficulty of licensing music that Netflix isn’t looking to do a music service, but this could be good news for the companies that already are.

(Top image courtesy of Netflix; chart courtesy of Digital Music News)