By now, you have already heard about the new music streaming service called Tidal. It's created and backed by a whole slew of superstars, like Alicia Keys, Arcade Fire's Win Butler and Regine Chassagne, Beyonce, Daft Punk, Jack White, Jason Aldean, J. Cole, Jay Z, Kanye West, Deadmau5, Madonna, Nicki Minaj, Rihanna and Usher.
Apparently, they will save the music industry, bring back royalties to the artists, and... kill Batman (if you are to believe the internet).
But will they? ... or have they just created a Spotify clone? And what about all the other platforms?
Well, aside from the obvious design similarities, it's actually a surprisingly difficult question to answer. But let's take a look at the economics of all these 'platforms'. Not just Tidal and Spotify, but also services like Netflix and the ones trying to do the same for newspapers.
What are the trends involved. What are the challenges they face. And what is the future outlook, from an economic perspective, for each?
The main problem with many of these services is that they are asking for far less money than people are willing to pay. Netflix is a perfect example of this.
If we go back to the time before Netflix and we looked at how much people were willing to pay for TV/movies, we find that it was around $0.5 to $1 per hour. The way I calculate this is by looking at the average cost of a TV package in the past, divided by the number of hours people spend watching TV during the same period.
This gives us a baseline for how much people are willing to spend. Roughly, $1 per hour of basic entertainment.
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