ADW's, Critical Mass, & Value

I read an interesting article on Techcrunch the other day about Spotify, the online music streaming portal.

Spotify, which in 2018 will likely IPO, pays royalties per listen to artists, and has amassed a more than 50 million person listener base (from just a handful at startup, in 2008). Early on, the company had to pay about a 70% royalty, but that's changing. Because of their critical mass, they now command value, and are negotiating lower and lower rates.

These lower rates can, and probably will, work, because of volume, and reach through convenience. 

•  While at first glance, Spotify paying less for per stream might seem worse for artists trying to make a living on music. But the success of Spotify and the path it could forge for streaming services is also in the interest of those artists. Not only could royalty rates start to climb closer to CD sale revenue if it grows big enough. Spotify is also incentivized to help artists use streaming to promote their merchandise and ticket sales....

During the disruptive phase with music and the internet, the music industry was playing checkers. They shut down Napster, and pushed customers to websites for music which were disparate, scattered and impossible to gain any revenue from. They essentially drove an entire new business underground.  Since that point they've tried other tactics (owning their own portals, downloads, etc) to no avail. Now, with the marketing, critical customer mass and dynamism of a Spotify, there has been progress, and there will continue to be hope to achieve even (ridiculously high) CD-type revenues.

With ADW wagering, the prevailing thought in horse racing is - like the music industry at one time - "we own the product, thus we should get all the money".  That's, in my view, fantasy.  ADW's like TVG are Spotify. They provide value through critical mass, marketing and give racing a chance to achieve peak revenues. Resellers in a static industry which is not capable of innovating are worth more and more over time, not less.

I believe that, maybe 10 years on, racetracks will not be earning more from each dollar bet through ADW, but less. If the shackles are taken off (regulatory and through industry intransigence), racing, perhaps like Spotify, can gain the volume to make up for it.