Drake signing a deal with Apple is another shot fired in the battle over exclusive music

Drake didn’t sign on to Jay Z’s high fidelity music streaming service. When Tidal launched in March, and a slew of famous stars from Madonna to Chris Martin to Nicki Minaj to Jack White stood on a stage and presented their new product, Drake wasn’t there. Billboard reported that Drake was supposed to be there, but he pulled out two days before.

In a March 30 Q&A with Billboard, Jay Z said that Apple had been courting artists to use as advertisement for their own new music streaming service, which is supposed to be announced during Apple’s 2015 Worldwide Developers Conference next week (June 8-12). Their artists, as rumored in the New York Post on May 31 and confirmed by Billboard yesterday, will be Drake and Pharrell.

“I think that’s just his competitive nature, and I don’t know if he’s looking at the bigger picture: That it’s not about me and it’s not about him; it’s about the future of the music business,” Jay Z said in his Q&A with Billboard.

Right now, Tidal and Apple are trying to build exclusivity as the future of the music business, but it’s a model completely foreign to the way the industry operates, and one that probably won’t work.

Having exclusive artists distinguishes Tidal and Beats from Spotify

Music is an industry with fans that are loyal to people more than genres. Drake, for example, has fans that might not like all hip hop, but like him. What Tidal and Apple are banking on is that by recruiting fan favorites to represent their product, they will also recruit their fans into allegiance.

By hiring Drake and Pharrell to represent Apple’s new streaming service, the battle for exclusivity has become direct combat between Tidal and Apple. The market that these companies are trying to win in is a small portion of the streaming industry, and one filled with competition.

Spotify, Rdio, Tidal, and Apple’s Beats, among other smaller companies, are all competing in the same game. These are interactive streaming services. They aren’t services like Pandora, which pay different types of licensing fees. (For more information about the distinctions in types of streaming, read here.) Instead, all of these companies have to negotiate for direct deals with record labels and pay higher premiums for music.

On top of having a more complicated licensing process and more difficult negotiations to play music, these companies are also all competing for one of the smallest market shares in music. According to recent reports, Tidal has 900,000 subscribers (but industry analysts suspect that number to drop as 2-week free trials end). Beats has about 100,000. Neither is at the level of Spotify, which has somewhere between 50 and 60 million users (2 million United States subscribers).

But interactive services aren’t really how Americans listen to music. Pandora has 80 million active users. 200 million Americans listen to the radio.

Because these services are at such a disadvantage financially — and face such steep competition — they need something shiny (a popular star with a large fan base) to draw users over to their side of the war. That’s why we saw Tidal dropping an exclusive video for Nicki Minaj’s “Feeling Myself” featuring Beyoncé. It’s why Rihanna premiered “American Oxygen” on Tidal. And it’s why Jay Z performed a private B-sides concert for his biggest fans where he rapped, “I don’t take no checks / I take my respect / Pharrell even told me ‘Go with the best bet’ / Jimmy Iovine offered the safety net / Google came around with a crazy check.”

Jay Z decided that Tidal was his best bet over Apple, Google, and whoever else might have talked to him. Pharrell, it seems, chose to go with Apple.

In an interview at the Clive Davis Institute of Recorded Music at NYU in March, Jay Z and Tidal executive Vania Schlogel, discussed the future of the company:

“Again — there will be other things. This isn’t just about music; it’s also about concert ticketing. It’s a holistic place where the artists will live in. You may be able to download a song for free, but you’re not getting into concerts for free. There are different things that we offer. It’s not just songs — we’re offering value.”

But it’s unclear how consumers will be expected to decide between the “values” that individual services are offering. It’s even more unclear how these services intend to guarantee this exclusivity in the first place.

Exclusivity is impossible the way the music industry is structured right now

Exclusive content doesn’t come cheap. Services have to pay artists for promoting their product, but they also have to pay for the music that they are streaming on their service. The way the music industry is structured makes it basically impossible for services to own exclusive rights to albums.

In a June 1 interview with Real 92.3, rapper 50 cent said, “They probably could’ve did something more exciting if they reached out, because the people you saw there don’t even own the rights to their music. So they can’t say it’s gonna come out of Tidal. It has to go everywhere.”

He’s right. Most artists do not own their own music. That seems insane, but it’s the way the music industry works. When an artist signs a contract with a record label for promotion and distribution and representation, they agree to house their copyright with that label for a certain amount of time. Sometimes, those terms run out and artists (if they have made enough money) are able to buy back the copyright to their music and become the sole holders of their music, like Jay Z did earlier this year.

But for most artists, even the ones on Jay Z’s promotional stage at the Tidal event, where their music is played is out of their hands. For example, Beyonncé is a Sony artist. Her music is represented by the Sony music label, and they decide where those songs are played. That means that her music could be pulled from Tidal if the two can’t strike a deal on price. “I’m pretty sure most of the artists that were at the press conference don’t control their own streaming rights,” Peter Mensch, co-founder of Q Prime, the talent agency that manages the Red Hot Chili Peppers and Metallica, told Devin Leonard at Bloomberg.

So most artists probably can’t have exclusive deals even if they wanted to, and that’s the other problem with this business plan. The music industry has never, ever functioned on exclusivity. For consumers, finding a band before everyone else, or having a rare album that no one else has, garners you cool points, but that has never been the goal of performing artists. As much as artists want their fans to love their music, what they want more is complete domination.

Exclusivity is the bait streaming companies are using to lure fans right now, but unless the entire industry gets restructured, it’s not a viable business model, and it won’t win consumers. What will distinguish Apple’s Beats from Jay Z’s Tidal from Spotify from Rdio isn’t what music they play, because most likely, they will all play 90% of the same catalog of music. No one knows what that distinguishing factor will be, but it certainly isn’t having Drake as a spokesperson.