Return of the Muzak: With Apple Music, B2B is back in business
The unsexy in-store music streaming sector is posed for multibillion-dollar growth — and big-tech companies want in.
In December 2018, it was revealed that Apple had filed trademarks for “Apple Music for Business” in the U.S. and Jamaica. While speculative, the coverage at the time suggested that Apple was planning to expand on the rapid rise of its consumer-facing music app with a separate offering for enterprise customers.
Let’s pause for a second and quickly define “B2B music”: we’re specifically talking about a type of license pertaining to music played over business and retail environments, like literal brick and mortar stores, as opposed to music consumed by everyday individuals. According to Apple's Media Services agreement, everyday consumers are allowed to use Apple Music and other owned services "only for personal, noncommercial purposes"—a phrase replicated in the end user agreements for Spotify, Amazon Music, Tidal and their competitors. In other words, streaming these services in retail stores, which draws a direct line between music consumption and sales of other products, violates these terms and requires a separate, more extensive public-performance license from a local performing rights organization (PRO).
In Apple’s case, it may warrant building an entirely separate app altogether. And what hasn’t yet been reported, until now, is that Apple Music for Business already exists.
The company has been strangely quiet about its new enterprise app, which has been in beta-testing mode since October 2018 and is available in the iOS App Store for a select group of unnamed retail customers. Screenshots suggest that the user experience centers on pre-curated playlists that are already available in the consumer-facing Apple Music app (e.g. Acoustic Memories, Future Sounds, #OnRepeat), licensed properly for a commercial environment.
You may notice, however, that Apple doesn’t actually own the technology powering its enterprise music app. Instead, the company is licensing the backend technology from PlayNetwork, one of the world’s oldest, largest in-store entertainment service companies, which was founded in 1996 to bring businesses up to speed with digital music downloads.
Now, this arrangement isn’t particularly novel: PlayNetwork competitor Mood Media, the parent company of infamous elevator-music brand Muzak, currently powers Pandora for Business and formerly ran iHeartRadio for Business. In fact, it’s pretty common for mass-market media brands to partner with third-party companies to operate their B2B products instead of handling everything in-house, perhaps because the licensing and infrastructural heavy-lifting required is more than newcomers—even valuable corporations like Apple—are prepared for.
Apple and Pandora aren’t the only public tech companies investing in B2B music streaming. Earlier this month, Sonos launched a technical integration and revenue-share agreement with Soundtrack Your Brand, an independent in-store music service that’s currently active in 70 markets and has direct licenses with most labels and publishers. This makes the sound system company one of the first in its field to diversify its income streams by directly monetizing third-party digital-media subscriptions. Sources tell me that one out of 10 paying clients of the Soundtrack Your Brand service were asking for a Sonos integration, making it a natural partnership with respect to meeting consumer demand.
A growing number of independent music companies are also launching their own in-store streaming products. This Saturday (June 1), MENA-based service Anghami will start a beta test of its curation service for brands called The Grid, which the company’s VP of Partnerships Rami Zeidan announced last week on LinkedIn; then on June 6, generative music startup Mubert will be debuting its AI-generated, royalty-free offering for stores, titled Mubert Business, in the U.S.
This seems like an unusual flurry of investment and activity around a topic that—if we’re being real—is rather mundane, rooted in legacy practices (hello Muzak!) and might not matter that much to everyday shoppers and consumers. But like music metadata at large, it’s an urgent issue with a ten-figure price tag.
According to a recent study by Nielsen, the recorded-music sector is losing nearly $2.7 billion every year because retail companies aren’t streaming properly licensed music in their stores. This is partly an awareness problem: the study claims that 71% of small business owners in the U.S and 60% of those in the U.K. believe they can legally use a B2C streaming service like Spotify for background music in their stores. Moreover, that $2.7 billion pie historically wasn’t easy to access for independent artists because of slow-moving, legacy processes for how that money was collected, a task spread across a fragmented landscape of regional PROs.
While the current competitive landscape is crowded, I think there’s still ample opportunity for newer entrants like Apple Music for Business not just to help educate business owners about the value of music in their stores, but also to influence how those billions of dollars on the table will be distributed among artists, labels and publishers.
WHO IS APPLE'S COMPETITION?
Before diving into why the music industry should care about in-store streaming, I think it’s worth summarizing who else aside from the companies above are currently active in this space. The table below is by no means exhaustive, but it hopefully gives a general overview of the sector’s most interesting and recognizable players—and who is surprisingly missing:
The typical pricing model for an in-store music service includes a standard monthly subscription for access to curated content, plus a one-off, sometimes optional purchase of hardware to enable consistent streaming quality and/or offline listening. Revenues from said hardware, which can account for around 30% of these companies’ total sales from first-year customers, are not shared with music rights holders.
Some outliers to note:
- Funnily enough, the most expensive subscription on the list is the one that doesn’t require any hardware or royalty payments: Mubert for Business’ copyright-free offering will cost stores $479.88 a year, with none of that money going to recorded-music companies.
- Jamendo is the only service on the list that tiers its pricing based on square footage. While potentially difficult to enforce, it’s an important variable that PROs use to determine whether a store even needs a performance license in the first place (according to ASCAP, the lower threshold is 3,750 square feet).
- Despite being two of the most popular apps for (illegal) in-store music streaming, neither Spotify nor YouTube currently has a fully-owned enterprise offering. While Spotify is an active shareholder in Soundtrack Your Brand—which previously powered the branded B2B service “Spotify for Business”—the two companies now operate separately and Spotify for Business does not exist. IMO this is a significant missed opportunity for both platforms to gain more mindshare among consumers.
WHY SHOULD THE MUSIC INDUSTRY CARE?
There are three main reasons I think artists, labels and publishers should take the B2B music streaming sector seriously:
While the consumer-facing music subscription market continues to expand globally, its annual rate of growth is projected to slow from 20% in 2019 to 7% in 2026, as markets including Sweden, Australia, the Netherlands, the U.S. and the U.K. reach their saturation point of paid streaming adoption.
In-store music streaming could potentially help reignite this growth. According to the aforementioned Nielsen study, the global brick-and-mortar small-business market encompasses 29.4 million total organizations (an estimated 72% of which don’t stream music legally in their stores). Say each of these organizations operates an average of two physical locations. Even if only twenty people were to walk into each of those locations per day, that amounts to a potential daily audience of nearly 1.2 billion people—a casual and fleeting audience, for sure, but definitely more reach than Spotify and roughly the equivalent reach of Instagram.
For this reason, many proponents of B2B and in-store music streaming are trying to call brick-and-mortar stores “the new radio,” in terms of their power to put up-and-coming artists in front of new ears. “If you’re a band on tour, you can work with a company like Soundtrack on a campaign to over-index your songs in certain markets six months before you tour there,” one employee at Soundtrack Your Brand tells me, speaking on condition of anonymity. “Or maybe you’re trying to target a specific demographic, like 15-year-old girls in Southeast Asia, and you can promote your music in the stores where they tend to go.”
Even people who have been working in the music industry for decades are often confused about the complex landscape of music licensing, so I won’t try to explain all of its elements here. Instead, I’ll focus on two hypothetical scenarios that demonstrate key legal obstacles from the perspective of artists and labels specifically around in-store music streaming, and how technology could potentially help overcome them.
Scenario #1: Say you’re an independent artist living in Brooklyn, New York whose song just happens to get played across 100 cafes in Stockholm, Sweden. The Swedish collecting society STIM earns over 200 million Swedish kronor (US$21 million) annually in background music licensing income, according to its most recent annual report. But many of the tens of thousands of stores in the country don’t give STIM concrete, detailed reports on what music they actually play in a given month—at which point the collection society needs to make an educated guess based on adjacent "analogies" (e.g. playlists on terrestrial radio stations) on what songs were played, and how the pie should be divvied up. These "unreported" analogies accounted for over 84% of STIM's background music payouts to rights holders in 2017.
Without significant market share, indie and up-and-coming artists are arguably at an inherent disadvantage within the framework of these educated guesses. Solving this analytics issue would require direct licensing deals with labels and publishers, which is unfortunately still an anomaly rather than the rule in the B2B streaming world (with the exception of Mood Media and Soundtrack Your Brand).
Scenario #2: Imagine if you downloaded dozens of Netflix films for offline screenings at local cinemas, charged admission to those screenings and kept all the proceeds without prior approval from Netflix. Given that Netflix is meant only for “personal and non-commercial use,” that setup would obviously be illegal on a technical level.
An analogous case can be made for stores that have blanket, non-interactive licenses from PROs, but then download songs from streaming services for offline playback. Every time you download a song on a service like Spotify, you are technically making a second copy of that track on your hard drive, which requires a direct mechanical license from the publishing company behind that song. But nearly none of the current legacy B2B streaming providers have direct deals with publishers; instead, their only deals are with PROs like ASCAP, BMI, SESAC and SoundExchange, which are limited to covering performance royalties, not on-demand mechanicals. As written on the Soundtrack Your Brand website, this is an act of using “cheaper, non-interactive licenses [on] a product that requires a more expensive full-interactive license.”
It’s unclear whether PlayNetwork has the proper mechanical licenses to legally white-label its services to Apple Music for Business, which could explain why they’re so quiet (Apple did not respond to a request for comment by press time). In any case, the companies that are able to streamline this licensing picture while improving direct reporting to rights holders, not just stores, in one simple interface could potentially open up millions of dollars for the music industry. Securing these licenses is especially important in markets like the Middle East and North Africa where copyright protection is much more loosely enforced and PROs are relatively underpowered (if they even exist at all), such that initiatives like Anghami’s The Grid can play a direct role in driving systemic change in local industries.
We just spilled a lot of ink on the business side of things, but pulling this off also takes a lot of science. Since the 1980s, psychologists and other researchers have published countless studies showing the impact of music choices on consumer behavior in retail environments.
Trying to productize and automate that science in the form of a user-friendly app, however, is much easier said than done. “Listening to music through your headphones is a completely different use case from playing music in a social, commercial environment,” one B2B streaming exec tells me. “Consumer services create a library for you to find and listen to music for yourself. That’s the main use case that Daniel Ek and his team are building at Spotify. But music in a social environment has to be relevant for a specific place at a specific time for a larger group of people. As a store or restaurant, you have to start asking yourself questions like, ‘what should my brand sound like on Fridays during lunchtime?’”
While most B2B streaming services are hands-off with respect to curation—and some, including Anghami’s The Grid and Soundtrack Your Brand, give small-business customers the ability to import their personal playlists from consumer-facing services—others are working hands-on with stores to help craft their distinctive sound and could offer bespoke “curation deals” as an upsell down the line, tapping into the growing audio-branding market. Soundtrack Your Brand also offers an automated function that will create an instant playlist for any brand based on a group of mood-, activity- and genre-based parameters that users can select themselves.
As to which artists will be included, and hence compensated, in these kinds of features, the jury is still out. The playlists used by older legacy B2B music companies seldom represent the forefront of youth and indie culture the same way that consumer-facing streaming does. For instance, the 2018 end-of-year PlayNetwork charts leans heavily toward Caucasian pop, rock and country artists on major labels, with no hip-hop or electronic music in sight.
This is where Apple Music for Business, if it gets enough adoption, could bring in a particularly strong sea change. The consumer-facing Apple Music regularly features emerging artists on its playlists, on Beats 1 interviews and in its Up Next initiative, and could continue supporting those artists by promoting their music to millions of store-owners around the world. In this vein, I would argue that Apple’s primary motivations behind moving into B2B are not just to generate more revenue for its parent company’s increasingly important Services vertical, but also to maximize ownership over entertainment and pop-culture curation—and, in tandem, over the entertainment market as a whole. 🌊