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Questions dog Jay-Z's Tidal as service hits 1M subscribers

Jacob Rudman, a 32-year-old Long Island lawyer who attended a recent concert celebrating Tidal's one-million subscribers, was one of several thousand music lovers who poured into the Barclays Center eager to catch a glimpse of music's power couple, Jay Z and Beyonce.

As big of a fan of the couple as Rudman is, the attorney—who likes to use Tidal's streaming media competitor Pandora—confessed to being completely ignorant about the subscription music service created by Jay-Z and other mega-artists.

"I don't know what the hell it is," he told CNBC, shouting over thumping music that filled the corridors of the Brooklyn-based arena. He joked that it might have been the name of a musical group he'd never heard of.

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Rudman's lack of awareness of Tidal — which Sean "Jay-Z" Carter created in March amid much fanfare — underscores why some industry watchers and music lovers remain skeptical of the platform's staying power, an endeavor that, thus far, has defied the golden touch of its music mogul owners.

Even as Tidal assembled a wave of celebrities at the Barclay's Center on Wednesday, the service remains dogged by skepticism about whether it can go toe-to-toe with competitors like Apple Music, Rhapsody, Pandora and Spotify.

When Jay Z, Beyonce, Madonna and several other megawatt artists took over Tidal earlier this year, it was seen by some as an industry game changer, one that would give artists greater equity in the business and more of the royalties.

However, some say the owners appear to be facing a tough lesson in running a startup in the hot yet mercurial technology sector: star power doesn't always equal success. This is especially true when you're competition is Apple, Google and Spotify, and music consumers still insist on receiving at least some services for either free or cheap.

"No one is going to join a site just because famous artists own it for the same reason that no label can succeed selling music from its own website," said Peter Alhadeff, music and business management professor at Berklee College of Music.

For example, Tidal's 18 artist-owners, which also count Nicki Minaj, Kanye West and Usher as owners, collectively have more than 100 million followers on social media sites like Instagram. Still, Tidal subscribers are less than one percent of that.

Part of the problem, said Alhadeff, is that Tidal "is the most expensive service. People like to shop where they can find all the new and old music they are looking for in one place and at the best price," he added.

This was the case for some of the concert goers surveyed by CNBC, who found Tidal "too pricey" and not as "convenient" as Spotify. Tidal offers a $9.99 membership price—on par with Spotify—but it's "HiFi" rate costs $19.95 per month. A spokesperson told CNBC that more than 45 percent of Tidal's users have opted for the higher priced service.

Donna Reed, for example, drove in from Philadelphia with her three friends to attend the concert. All four said they really wanted to see Jay Z and Beyonce perform. The 26-year-old and her friends said they used Tidal, but also check out other streaming music platforms.

While previous reports have swirled that Tidal suffers from marketing and communications issues, some industry experts say the service may be struggling from the star-power itself. They argue that Tidal's artist-owners need to behave more like owners of a startup. As Alhadeff said, they need to appear to take it more seriously and "have real skin in the game."

Of the 18 owners, only a handful showed up to perform at the celebratory Tidal concert, while only one of them, Beyonce, walked the red carpet—and that was well after the red carpet window closed and the concert had already begun. Co-owners Usher, Nicki Minaj and Jay Z, who was tapping a show with Jimmy Kimmel, skipped the pre-concert festivities, while Madonna was away on her Rebel Heart Tour.

And Kanye West, still owner of Tidal despite rumors that he was distancing himself from the service, was mum on the one-millionth subscriber milestone.


Rapper Clifford “T.I.” Harris
Source: David Montalvo
Rapper Clifford “T.I.” Harris

Berklee's Alhadeff cited a recent report in the New York Times that found that Jay Z "forgot" to list Tidal in a court appearance where he described his body of work.

The omission suggested "he doesn't care, and that Tidal is not high in his priorities," Alhadeff added. It was a sentiment echoed by some of the fans at the Brooklyn concert.

Doubled as a charity fundraiser, the concert was giving away Tidal-branded bags and T-shirts to anyone who would download the app. However, Rudman said he wasn't given any description of what the app is or what Tidal does, so was reluctant to jump on the bandwagon.

"They should have had a brochure or a pamphlet," he said, adding that it felt "unprofessional." Some of the staff behind the swag tables, CNBC later observed, were giving away the merchandise without verifying if a Tidal app was downloaded.

There was also very little information in terms of the charity connection.

Rudman, who took his brother and mother to the concert and paid $750 for the three tickets, said, "I don't know what the charity is or where the money is going." It was a view that was shared by several other concert attendees.

In a statement provided to CNBC, Tidal would only say that the more than a dozen artist at the concert "put on an incredible show, donating their time and talents towards social justice efforts," wrote Tim Riley, senior vice president of artist and label relations at Tidal. He noted that the evening raised nearly $1.5 million for the Tidal X 1020 Fund at the New World Foundation.

Tidal did not say how many app downloads the concert added.

Singer Nick Jonas
Source: David Montalvo
Singer Nick Jonas

Analysts point out that, unlike many of its competitors, Tidal does not offer a "freemium" service that allows subscribers the option of using the service without cost. The platform does allow users a 30-day free trial, however.

Meanwhile, its one million subscribers lag far behind the 6.5 million paid users on Apple Music, and the 20 million who pay to use Spotify.

"Once the subscription market scales" at about 50 million to 100 million subscribers, John Kellogg, assistant chair of music business management also at Berklee College of Music told CNBC, "there will be more money to adequately compensate music recording creators," he said. That includes artists, record companies, songwriters and publishers.

Although he harbored some doubts about Apple Music, Kellogg was more optimistic about Google's new plan to offer an ad-free YouTube subscription. "I hope they roll it out smoother than Apple," he said, and achieve a 5 to 10 percent conversion of its millions of users to subscription. "If so, it has all the making of being the game changer I think this industry needs."

For Tidal to be game-changer, Alhadeff said, it will need to really focus on attracting consumers to its site and take a cut on the amount it pockets through subscriptions. Additionally, he added, Tidal may need to hike the percentage of royalties paid on all music that is streamed—and not just for future recordings that Tidal artists own.

Some experts think that perhaps Tidal and its owners may not actually be out to change the game for all artists, but rather seek something much bigger for themselves. It's a critique that's dogged the service since its inception.

Still, the service has to contend with fickle consumers like Rudman, who finally understood what Tidal was and how the app worked after a full explanation by CNBC. He wasn't immediately sold.

"I'll look at the app," he said, "eventually."