Songkick Detour And The Middle Class Musician

 Songkick today announced the official launch of Detour, which it has been successfully trialing in a small invite-only beta until now.  At risk of over simplifying, the basic concept of Detour is enabling fans to help artists decide where to gig by pledging in advance for concert tickets, much in the same way PledgeMusic works but for live. In the trial 1,000 fans made 10 concerts happen in London (you can read Songkick’s Ian Hogarth’s blog here).

I am a big fan of Songkick and the company is one of a relatively small number of digital music start ups that are genuinely changing some of the fundamentals of the music industry.  With Detour, Songkick is harnessing the power of its highly engaged music fan audience and using it to deliver real value back into the business. 

Obviously it is still early days and Detour is still currently focused on London, but crowd funding of concerts is an area with growing momentum with specialist sites like Gigfunder and Queremos! all growing this emerging marketplace.  Crowd funding concerts is a very natural next step from crowd funding albums and EPs.  For middle ranking artists who aren’t big enough to be on a big label but are bigger than the amateur and semi-pro tiers of artists, tools like Songkick Detour and PledgeMusic are increasingly important.  They empower artists to build sustainable careers, making the most of scarce resources and squeezing out every last drop of their potential.

But perhaps most importantly of all these tools strengthen the bond between fans and artists.  Something that is inherently less easy for a superstar artist to do.  Sure the likes of Lady Gaga do a fantastic job of making their global fan bases feel close, but that proximity can never be as genuine as a band whose just come to London to play a gig off the back of 80 dedicated fans pledging their support and hard earned cash. So the long-term outlook becomes one of increasing divergence between the aristocracy of the superstar artists and the middle class of hard working, hard gigging artists.  Think of it as a democratization of music, with the intimacy of the artist-fan relationship the currency of success and authenticity.

Detour has got a long way to go, but that is only because it has so much potential.  Now the fun really starts.

The Curious Case of the South Korean Music Market

(NOTE: you can download and keep this blog post as a pdf report by clicking on the report image at the bottom of the page)

Psy’s ‘Gangnam Style’ might have catapulted the South Korean music market into the global consciousness but to industry observers like myself it has long been a market of particular interest.  Being the first major music market to pass the 50% digital mark – in 2006 – South Korea has been held up both as a digital trailblazer and as a canary in the mine for the global music industry.  Strong growth over recent years hinted at a brighter international future, but just as ‘Gangnam Style’ was propelling South Korean music to unprecedented global heights the South Korea music market went back into decline.

The South Korean music market is one of contradictions and idiosyncrasies, but crucially it also holds many lessons that the global music market would do well to pay heed to

Bucking Global Trends

According to the IFPI’s invaluable Recording Industry in Numbers, South Korean recorded music revenues declined by 5% in 2012, breaking a run of four years of successive growth. But unlike the global market, it wasn’t the CD that was to blame for the fall but digital.  Physical revenue grew by 19%, the third successive year of growth, while digital actually declined by 25%, dragging the entire market down with it. The mirror opposite of the global music market where 7% digital growth wasn’t enough to prevent a 5% physical decline drag down total revenues by 1%.

2012 wasn’t the first year that South Korea stood out from the pack though, indeed the last 13 years have been vastly different from the global market (see figure):

• Revenue collapse: between 2000 and 2005 South Korea lost a whopping two thirds of its value while the global market shrunk by a more modest 18%
• Digital crossover: in 2006 South Korea became the first major music market to become more than 50% digital (the 2012 global rate was just 38%)
• Subscription dominance: a vast 74% of digital revenues were subscription in 2012, having hit 22% back In 2008 (the global rate was just 20%)
• Physical boom: physical revenues have risen all years but one since 2007, compared to a global market decline every year since 2000

A Tale of Booming CD Sales and Tumbling Download Revenues

There is no single explanation for the unique picture that South Korea’s last 13 years of music history paints, but there are a few key factors:

• Piracy: piracy is of course just one contributory factor to the downturn in music revenues (albeit a crucial one) but the effect was felt particularly keenly in South Korea.  The South Korean government was an ardent supporter of the telco sector in the 1990’s and early 2000’s, resulting in some of the best high-speed broadband infrastructure on the planet.  However this support came at the cost of the government effectively turning a blind eye to rights holder concerns.  Unsurprisingly piracy boomed with file sharers and networks alike operating with near impunity.   South Korea became a perennial fixture on the US Trade Representative’s piracy watch list but finally the government started to redress the balance from 2007/8, introducing new copyright legislation, including a graduated response initiative in 2009.  And since 2007 the market has grown by an impressive 58%, nearly reaching 2000 levels by 2011.  But just how much of this can be attributed to government action is open to question as music revenues had already grown by 84% in 2006 alone.   (The rate of growth in 2006 is however skewed by the fact digital numbers were not reported in prior years).
• Subscriptions: the central force in South Korea’s digital market is SK Telecom’s MelOn subscription service which was the first in the world to amass a million paying subscribers and now numbers 2 million paying users and 18 million registered users.  MelOn was competitively priced (less than $3.00) and included mobile downloads from the start, enabling it to have immediate impact.  South Korean subscription revenues more than doubled between 2009 and 2012.  Rights holders have not been entirely happy though, including Lee-Soo Man (founder of K-Pop power house SM Entertainment) who claimed that 1 million tracks consumed on MelOn do not cover the costs of making a music video for a single.  The pressure resulted in government intervention and in January 2013 MelOn doubled its subscription rate to 6,000 won (about $5.60).  Time will soon tell whether the increased revenue per user is cancelled out by the likely decline in number of users.
• Download collapse: MelOn’s price hike of course came after 2012 digital decline, which instead was caused by a collapse in music download revenue, dropping by a staggering 71% in 2012.  The download collapse was the single biggest driver of the overall decline in revenue in 2012.  In fact, if download revenue had remained flat, total revenues would have grown by 6% in 2012.  Much of the decline is attributed to a tough year for another of SK Telecom’s properties, the social network Cyworld.  Once the dominant Korean network, Cyworld enables users to buy music tracks to personalize their profiles but it has struggled to compete against Facebook and spent 2012 bleeding users.
• Physical longevity: physical revenues have bucked the global trend, with 2012 revenues 128% bigger than their 2006 low.  This compares to a 14% rise for digital (though the 2012 collapse obviously skews the rate down). It is not a unique trend though, with Japan also experiencing a physical uptick in 2012. What links these two markets is the way in which the respective local pop sectors (K-Pop and J-Pop) have created ardently loyal fan bases that eagerly buy lavishly packaged CD products, often with merchandize extras, and frequently resulting in fans buying multiple editions of the same release.  Thus for all the surge in digital, the South Korean and Japanese pop markets have found a way to deliver unique, tangible value with physical products.
• K-Pop: though the success of K-Pop has been key to South Korean market growth there is growing criticism of this highly manufactured genre. Artists complain of being ‘contract slaves’ while others point to the huge concentration of power in the K-Pop talent agencies. A cultural critique is that this industrialized pop methodology places too heavy an emphasis on presentation over content, and too strong a focus on ‘safe bet’ lowest common denominators.  A clear echo of the American Idol and X-Factor phenomenon in the West.  Whatever its issues though, there is no denying that K-Pop is central to the resurgence in South Korean music revenues.

Lessons for the Global Market

South Korea is a truly unique music market and, just as with Japan, one has to tread carefully when attempting to project trends onto western markets.  But even with that caveat there is clearly much that can be learned from the South Korean experience:

• It is possible for music revenues to return to 2000 levels (if only for a fleeting moment)
• Subscriptions can reach significant scale when competitively priced (sustainability issues aside)
• Physical revenues can be given new impetus with smart product strategy (though don’t expect Westerners to start behaving like K-Pop fans)
• Concentration of any one segment of digital revenue in a single player can leave a market highly vulnerable

But perhaps most importantly of all, just like in the disclaimer of a financial services advert: music revenues can go up and down.  Even when a market eventually starts to grow again, don’t expect that to mean that the corner has been permanently turned.

To download a pdf report version of this blog post just click on the image.  You can find more free reports to download here.

 

Why Twitter #music Should Only Be Considered a Small First Step

So finally Twitter leveraged its We Are Hunted acquisition and today launched the much expected, if not necessarily much anticipated, Twitter #music.  I say ‘not necessarily much anticipated’ not so much because Twitter isn’t a big deal in the digital music ecosystem (it is) but more because few expected Twitter to do anything particularly groundbreaking here.

Making Twitter’s Music Experience 3 Dimensional

Twitter #music is a neat integration of Twitter music content, such as artists’ Twitter accounts and tweets, integrated with iTunes previews streams and (for Rdio and Spotify users) full audio playback.  All of which undoubtedly brings genuine additional value and turns the Twitter music experience from something pretty superficial and two dimensional into a three dimensional music experience.  But in doing so (some nice UI and discovery algorithms aside) Twitter is essentially just doing a Facebook.  It is leveraging its audience’s behavior as a navigational front end for existing music services.

This is of course a good thing, pulling together the disparate social, graphic and audio elements of the digital music landscape into a cohesive whole.  But it is also so much less than what Twitter, Facebook and Google+ could and should do.

What Twitter, Facebook and Google+ Could and Should Do

Between them Twitter, Facebook and Google+ have a cumulative 2 billion registered users and 1.5 billion cumulative active users.  In short, just about every online and mobile music fan.  These three social powerhouses between them also provide homes to the majority of artists online. This sort of power, influence and reach is staggering. And yet so far all that the three have seen fit to do is plug into other music services.

Now that might be the most sensible core plank of their respective digital music strategies, but there is also so much more that they could do that would complement, and add to the core digital music services currently in market.

For example:

• Google+ could create a standard ‘plug and play’ portfolio of creative tools such as remix, karaoke and live jamming apps that artists and fans could plug into hangouts and profiles
• Twitter could allow fans to follow the journey of a song from its original tweet right through to how it got to them
• Facebook could create a virtual jukebox app that would use Gracenote database look-ups to create service-agnostic playlist and digital collection data from users streamed music that would auto-port to any other music service via Facebook

These are all of course tactics, not strategies, but collectively they add up to something much bigger.  The strategy of the social powerhouses has to be: bring new, unique value that genuinely moves the needle.  Simply creating another suite of discovery tools is not enough. Twitter #music adds audio to the visual music discovery journey and in doing do runs the risk of making much of the discovery journey the destination.  Which is great from a user perspective, but much less so for artists and labels unless some robust additional commercial models are added.  The harsh reality is that if you give a social user too much value in the social context, the opportunity for converting engagement into transaction is reduced.

The digital music market needs social’s big three to start ramping up their respective music games. Twitter #music is a cute first step, but not the end game.

Putting 2012 Digital Revenues Into Perspective

Note: this post has been updated to reflect some clarifications provided by IFPI.  Thank you to Gabi Lopes IFPI for the guidance.  Changes are noted below.

The IFPI today announced that for the first time ever growth in digital trade music revenues outpaced the decline in physical trade revenue.  (The emphasis on ‘trade’ is important as we’re talking about revenue to the industry rather than consumer spending and so can include income such as advances paid by services in anticipation of sales.)  That caveat aside, this is clearly a key industry milestone that has been a long time coming and is a sign of a digital market that is beginning to reach some degree of maturity. However this is a long way from mission accomplished, here’s why:

• 57% of music revenues still come from physical (see figure). With the exception of the US the few other markets that have surpassed the 50% digital mark (e.g. Sweden, India) are minor music markets in revenue terms.  The simple fact is that the majority of music buyers still buy CDs. And to be clear, I said the majority of ‘music buyers’ still buy CDs, not the majority of ‘people’. So even forgetting for a moment the consumers lost to the music industry through piracy and other means, the majority of its core customers have still not seen reason enough to go 100% digital.  And the interesting additional factor here is that the vast majority of people who are buying digital still buy some music on CD. So even among the vanguard of digital customers, the CD’s embrace is a lingering one.
• CD sales decline will likely accelerate.  Among the top 10 largest music markets in the world CD revenue decline will likely accelerate markedly in the next few years.  In France and the UK leading high street retailers are on their last legs while in Germany and Japan the vast majority (more than 70%) of sales are still physical.  So the challenge for digital is can it grow as quickly as the CD in those markets will decline?

But there is hope.  Streaming services present meaningful opportunity and despite the fact 9.99 is far from a mainstream price point (it is in the entire monthly spend of the top 10% of music buyers) it is a great way to deliver disproportionately high revenue from a small base of consumers.   If that model can be effectively transitioned to the mass market via more telco partnerships like Telia Sonera and Cricket then we may just have a mass-market digital music proposition on our hands.

The Continued Dominance of Apple

But while premium streaming offers future potential, it is expected to total no more than 10% of 2012 digital revenues.   By contrast, Apple is the here and now.

Downloads meanwhile are close to half of all digital revenues with about $3 billion.  (The remaining 40% of digital revenue is a mixed bag, including ring tones, advertising and probably advances.) So with downloads by far the largest single digital revenue source Apple is the here and now – though we have to do some forensic work to find out just how big a role it plays…

The IFPI reports that the total number of paid downloads for 2012 was 4.3 billion units.  (The IFPI have clarified that albums are counted as single units are not counted as total number of tracks). Earlier this month Apple reported reaching the milestone of 25 billion songs sold, with the previous reported number being 16 billion in November 2011. Allowing for January 2013 being a particularly strong month (following all those Christmas iPad and iPhone sales) that gives an annual sales number of about 6.6 billion.  This translates translates to $3.9 billion which is about 70% of all digital revenues.

Which is still 2.3 billion more than the global total reported by the IFPI.   The most likely explanation is that Apple’s February press release headline “iTunes Store Sets New Record with 25 Billion Songs Sold” was misleadingly incorrect – just as I suggested in fact at the end of this blog post – and that the actual numbers instead actually refer to ‘purchased and downloaded’ (i.e. a mix of the two).

Apple remains the biggest and most important game in town.  And even without Apple getting into the streaming game this is still good new for the music industry.   As I posted a few weeks ago, Apple’s growth in iPad and iPhone sales has driven an upsurge in iTunes downloads, which coupled with iTunes’ expansion into multiple new emerging markets will bring even further digital growth.

Finally, for some additional perspective, if you add Apple’s $2.6 billion to the $10.9 billion in CD sales, Apple and the CD combined accounted for 90% of music industry revenue in 2012. So for all the talk of streaming and new service innovation, in 2012 the CD and Apple remained the bedrock of music sales.

Here’s What Daisy Could, and Should, Look Like

Beats’ codenamed Daisy subscription service has been getting a puzzlingly large amount of coverage for a service that isn’t even launched yet. Beats’ Jimmy Iovine has somewhat smartly positioned Daisy as a challenger in what he has portrayed as a dysfunctional market in which the incumbents are flailing around, unable to even understand what the big issues are, let alone try to solve them.  Discovery, transparency, reporting, these are all great issues that do need addressing but they are also the exact issues Spotify et al are all busy trying to fix right now. The fact they haven’t points to the complexity and scale of the problems, and also the limitations of what any one music service can achieve on its own.

But rather than get distracted by the grandstanding and hyperbole (from all sides) it is worth taking a look at the what the next generation of music subscription service could look like, building upon some of the challenges that are faced today. These could be done by any streaming service, but they are also all natural extensions of Daisy’s already unique set of assets and DNA. These features are:

• Artist Led Discovery: one of the big issues with streaming services is that they subjugate the artist brand.  In the single or album model (physical or digital) the fan is seeking out an artist specific experience.  With streaming services the value proposition is all the music in the world so the artist brand and relationship is inherently diluted.  So the next generation of music subscription service will be a confederation of artist sub-sites, combining the benefits of vast catalogue with mainstaining artists’ profile.  Back in the day, MySpace understood the value of unifying disparate artist specific communities with portal-like navigation.  So in the next-generation service you will still be able to use traditional tools like searching by genre, but you will also follow individual artists. This, combined with Spotify-artist app-like experiences would give Daisy a genuinely unique take on streaming discovery and navigation.
• Artist Communities: again taking a lead from MySpace, the natural next step of artist-led discovery is to let users gravitate around their favourite artists.  To follow them, join communities, join discussions, chat with the artist, get virtual-VIP access.  Currently this sort of fan engagement happens one step removed from the music on Facebook and artist pages. Bring it all together and you turn a disjointed discovery-to-engagement-to-consumption/purchase journey into a seamlessly integrated experience, where each of those previously discreet activities becomes an indistinguishable part of a new whole.
• Empower the Artist: and a further logical next step would be to then allow artists to plug directly into this platform and engage with their fans here just like they do on Facebook. This would not mean giving them full exposure to how often their tracks are getting played or how much they’re getting paid (labels deals just don’t permit this) but it would translate into self-serve analytics dashboards and powerful CRM functionality.
• Merchandize and live: and if you’ve got your fans engaging with your music then of course you are going to want the ability to sell them other stuff like vinyl, box sets, merchandize and tickets for gigs. This is where Ian C Rogers’ expertise and the TopSpin hook up will become core assets for Daisy. Expect full eCommerce integration. Also don’t be surprised to see full Songkick integration either.

So what emerges is a picture of a MySpace / Spotify / TopSpin / SongKick / Facebook mashup, as 360 degree music experience platform, joining the dots in a fragmented digital landscape.  If Daisy, or anyone else, pulls this off, we will have a true next generation music subscription service.  One that recognizes that streaming is not a business model, but instead simply a technology means of getting music to people on the devices of their choice. A service that understands streaming is the foundation stone upon which rich, immersive music experiences can be built, but not the product itself.

The Decline and Fall of the Top 10

The impact of technology on the music business is well understood, but it is also having a dramatic impact on the music buying population, which in turn is changing the face of mainstream music.  Digital music has so far been a journey for the more engaged, technology savvy music fan.  Some of these have discovered free music, others a la carte, others streaming.  All of these behaviours have eaten away at sales of the music industry’s core product: the album.   Yet the CD album remains the music industry’s number 1 global music product and in key markets like Japan and Germany it accounts for approximately three quarters of sales. The problem of course is that CD buyers are steadily falling out of the market (10.5 million people have stopped buying music entirely in the UK and US since 2008).  Though re-releases and discounted catalogue sales have helped bump up volumes in some markets, the net result is that new release album sales are dwindling.  Even more interestingly though, the abandonment of the album by engaged music fans is changing the face of the top 10 (see figure).

Looking at how the US top 10 albums chart has evolved since 2000 reveals a few key trends:

• Sales have tumbled sharply: the top 10 albums accounted for 56.4 million unit sales in 2000, by 2012 this had dropped by 38.7 million to 17.7 million (a 69% drop). 
• Some genres have fared better than others: the average number of sales per top 10 album for Rock, Pop, and Urban all fell by 75% between 2000 and 2012.  Country only fell by 66% and Adult by just 30%.  Adult, with artists like Michael Bublé, Adele, Susan Boyle and Josh Groban represent the new ‘safe’ market for album sales. These artists appeal to older music buyers who still predominately buy CDs and often rely upon mainstream outlets like Walmart. 
• Genres have fluctuated: although Pop is more pervasive than ever and now represents 41% of top 10 album sales, the sales for today’s Pop artists pale in comparison with those of the 2000 peak.  One Direction’s 1.6 million and 1.3 million sales and Justin Bieber 1.3 million in 2012 compare miserably with ‘N Sync’s 9.9 million, Britney Spears’ 7.9 million and the Backstreet Boys’ 4.3 million in 2000.   Urban has also steadily declined over the period, from a high of 50% of top 10 sales in 2005 to zero in 2012, while Country has steadily grown its share from zero in 2000 and 2001 to 19% in 2012. Rock, following a few strong years from 2006 to 2008 has been relegated to a niche of no more than 8% every year since, disappearing entirely in 2010.

Of course the top 10 album sales are not the whole music market, but that is sort of the point: the top 10 is becoming ever less of a measure of broader music buyer tastes and even further from the tastes of more engaged music fans.  Streaming and a la carte are empowering the music aficionados to deep dive, if not into the long tail, then certainly into the full torso of music, bypassing the short head of the top 10.  Leaving the top 10 as the pulse of the dwindling mainstream.

Apple Hits 25 Billion Downloads: What it Means for the Music Industry

Yesterday Apple announced that it had reached the milestone of 25 billion songs sold.*  The number is impressive by any means and brings yet more important context to the current scale of streaming versus downloading.   But of course music downloads are just one part of Apple’s business, and not a hugely important one at that.  Apple sells downloads to improve its device proposition.  As I have written before, it is effectively monetized CRM, and interestingly in these days of increased investor scrutiny, music sales are actually a low margin revenue stream for a company which prides itself on high margins.  Which means the better that music sales do, the more they dent Apple’s profit margins.

But the really interesting trend that the 25 billion downloads reveals is that the surge in iPhone and iPad sales has brought a very significant boost to iTunes sales (see figure).  This has major implications for the music industry.  In 2008 digital music sales fell off a cliff when iPod sales started their long term decline (see my previous chart here).  But now, following an inter-product cycle lull, music sales are up again. The impact of Apple’s device sales on music sales is huge.  When declining iPod sales started pulling digital downloads growth down I wrote that ‘when Apple sneezes the music industry gets a cold’.  Now it is also clear that when Apple smiles, the music industry grins from ear to ear.

There are other factors at play too (such as the impact of all those new Apple stores coming on stream in markets such as Russia and India).  But the data does show that we are some way yet from streaming denting download sales. Largely because downloads are a much more natural entry point for new digital music consumers.

For some final context though, as significant as the surge in iPhone and iPad sales has been on music sales, it has had an even more marked impact on App downloads.  Which is a timely reminder that these devices are built for multimedia, interactive, visual experiences.  While the music industry’s main product for iPhones and iPads remains a static audio file.  That problem needs fixing fast.

 

*For long term Apple watchers the use of the word ‘sold’ is significant. The language Apple usually uses is that in the opening paragraph of the release ‘bought and download’ which has long been assumed to be worded to capture free downloads also.  The interesting question now is whether the use of the word ‘sold’ in the release headline is a clarification of terms, or an over eager copy editor.

The Tale of Nokia, Mobile First and Sonic Augmented Reality

At Midem this last weekend Nokia announced the launch of Nokia Music Plus, a premium iteration of its free Nokia Mix Radio offering.  For €3.99 per month subscribers get an enhanced personalized radio service including unlimited track skips, unlimited offline playback and lyrics streaming.  From a pure specifications perspective none of that is particularly groundbreaking, but what is interesting is Nokia’s execution as a truly mobile first music service.

When Mobile First Means Anything But 

Many digital content providers are positioning themselves as being mobile first these days, but the results often suggest they are anything but.  Mobile first does not mean simply having most of your customer engagement happening via mobile, nor does it mean focusing your development costs on mobile, heck it doesn’t even mean only being available on mobile.  None of these factors constitute being mobile first, instead they should be natural outputs of a mobile first approach, success indicators of a mobile first strategy.  Being a mobile first consumer offering, at least if we use the term in a strategically meaningful sense, should be about meeting a consumer’s mobile needs in a uniquely mobile way. One that does not just leverage mobile functionality but instead has it at the core of its DNA.  That creates an experience that is so good on mobile that it would be an inferior experience on a PC.

Too often the mobile apps of music services either:

• look like little more than a PC screen squashed into a mobile screen
• repurpose the PC user journey for mobile, splitting it across multiple screens to create a fragmented and disjointed user experience

And When It Really Is

Despite being a mobile company first, Nokia hasn’t always delivered mobile first experiences.  Indeed one of the failings of the much maligned but nonetheless visionary Comes With Music was that it delivered a clumsy and squashed PC experience that masqueraded as a mobile music experience.  But with Mix Radio, Nokia have delivered a truly mobile first experience that sets the bar for others to follow. There is nothing particularly revolutionary in the service, but that misses the point. Nokia have taken the Apple mantra of delivering elegant, seamless user experiences and have run with it.  As the screen shots in figure one show, Mix Radio does not try to cram the screen with metadata and information but instead uses the screen inventory to deliver uncluttered, visually rich content.

I’ve been trying out Mix Radio on a Lumia 920 (which by the way is IMHO Nokia’s best device since the N95 8 Gig.  It is great to see that Nokia has got its hardware mojo back, let’s hope it isn’t too late). On the Lumia 920’s large screen, Mix Radio is a music experience that genuinely feels like a mobile music experience and that does not leave one wanting to switch to a PC screen as soon as is possible.  It isn’t a perfect service, and I am not convinced that the beefed up Music Plus offering will get much traction as a premium offering, but it does set a standard for what a mobile first music experience should be.

Sonic Augmented Reality 

One other feature that Nokia launched on Saturday, but with little or no fan fare, is one of the most fun digital music features I have seen in years: NFC Activated Mixes. The user simply points their phone at one of the NFC targets (see graphic below) and a mix starts playing instantly as soon as the he or she accepts the mix. NFC music is far from a brand new concept but the value of the feature is again all in the execution: point, touch, play.  All in an instant.  And this isn’t just for promoting music, users can use NFC stickers to create their own mixes and leave them anywhere they like.  It is also just as easy to dump a mix onto a sticker as to listen to one – with all the actual music files residing in the cloud so it is only metadata that is being transferred.   And of course, it is again a genuinely mobile first experience.

The opportunities for personal sharing as well as commercial uses are boundless. Cafes could have them at the counter so customers could chose a mix with their coffee. Bars and clubs could have them on their doors to give passing clientele the opportunity to hear what sort of music they can expect inside. (Use cases similar to those, by the way, that Swedish start up TunaSpot has also been working towards with its Spotify / 4 Square API mash-up app).

Though only a small and fun feature, Nokia’s NFC Activated Mixes nonetheless represent the potential of a profound extension of music consumption: making location and context genuine parts of the music experience.  Augmented Reality apps such as Layar have focused, understandably, on augmenting the visual world with mobile context, but this is Sonic Augmented Reality. The next obvious step for music experiences is to then blend sonic and visual elements, but in many ways that will detract from the elegant simplicity of Sonic Augmented Reality. Nokia’s NFC Activated Mixes work because they are quick, simple and non-intrusive.  It is as easy as picking up a free newspaper from the stand at a train station, whereas traditional Augmented Reality apps require a strong degree of consumer involvement.

Nokia are not necessarily reinventing the digital music market – after all they tried that with Comes With Music and got their fingers burnt through to the bone.  But what they are doing is using the already available assets in the digital music landscape to set new standards in mobile first music experiences. Welcome back to the fold Nokia.

Another Nail in the CD Coffin: HMV Call in the Administrators

Perhaps the greater surprise is how long UK high street media retailer HMV has been able to hang on rather than the fact HMV today formally announced it was calling in the administrators.  HMV of course has been on borrowed time, with suppliers having come to its aid a year ago, pumping in cash and taking an equity stake in return. HMV’s group revenues have been in decline since 2009 but its music sales have been tumbling since long before that.   And despite belated revenue diversification strategies such as moving into the live sector, taking a smart strategic investment in 7 Digital, and some other recent smart initiatives, HMV has been unable to halt the inevitable.

Of course HMV’s problems are far from unique.  Retailers across the globe have struggled to come to terms with the transition from the distribution era of selling physical units of stuff to the consumption age in which consumers value access to digital experiences.  Even the most innovative retailers have found it difficult: just look at the travails of France’s Virgin Mega, arguably the single most innovative and ambitious of high street retailers couldn’t make it work.  But for every Virgin Mega who tried to seize the digital bull by the horn there are ten Fnac’s (the other leading French media retailer) who did far too little too late. In fact, somewhat depressingly, one could argue that if the end result is the same, why bother expending all that strategic effort trying to change?

But what brought HMV and other retailers to their collective knees was a fatal combination of irresistible momentum and strategic error.  Piracy, tumbling CD sales, and competition from new competitors (supermarkets, online retailing and Apple) all played their part.  But even collectively they need not have added up to an HMV death sentence in 2013.  Don’t get me wrong, I am not arguing that there is a long-term vibrant role for high street music retailing, but there could be at least a few good years left.

Despite Apple having been in the market for a decade, the CD remains the bedrock of music sales, and a very significant share of music buyers still buy music offline.  For HMV, if it survives in some guise, perhaps half of its 230 odd stores will be able to eke out a solid enough business for another couple of years. The problem though is that those stores will be serving the lowest value part of the music buying population.  HMV used to be the destination of the music aficionado now it is the last refuse of the mass market, tech-wary passive music buyer.  These consumers are numerous but incredibly low value: the bottom 60% of UK music buyers account for just 18% of total UK music spending.  But nonetheless it is a customer base there for someone to serve.

Unable to Kick the High Street CD Habit

Of course, HMV should never have let itself get into the position of relying on bottom feeder revenue.  HMV reacted too slowly to the rise of digital, and in doing so was little different from most other music retailers.  HMV did not recognize the seriousness of the threat of Amazon and Apple until it was too late.  The irony of the piece is that there was a growing strategic awareness of the Apple threat but strategic paralysis prevented HMV from doing anything.   While HMV busied itself rolling out ill fated digital stores and services it was unable to play the ace in its pack: deep integration with CD retailing in the high street.  But because HMV’s digital revenues were a miniscule share of the total business, the digital team never won the argument against the main retail business who would have effectively been signing away their core proven revenues to an unproven internal upstart.  HMV was deeply addicted to high street CD revenue and it was simply unable to kick the habit.

The Missed Digital Opportunity

Back in the mid-2000’s this could have helped transition a very meaningful share of still-physical-but-soon-to-be-digital customers to HMV digital rather than to iTunes. Of course HMV would have needed MP3 catalogue at this stage too, but they were strong enough to get this years before it actually happened, if only they’d been willing to expend political capital getting the licenses from the majors.  MP3 mattered but simply wasn’t a big enough deal for HMV in 2005.

The dominant influence of the high street retail business had another unfortunate effect: just when HMV should have been battening down the hatches against Apple, it instead gave Apple a free pass to steal its customers by stocking iPod accessories and iTunes gift cards in its stores. Of course this all made absolute short-term revenue sense, but it was long-term strategic idiocy.

If HMV had acted early enough – i.e. 1999 /2000 – and used its political weight to get the right deals out of the labels and partnered with a good device manufacturer, then we might have been looking at a digital success story now.  Even if HMV had missed that strategic-visionary boat, and had instead fought a proper rear guard action from the mid-2000’s then it would have a meaningful digital business by now.  Instead HMV’s fortunes remain inextricably tied to the slow, painful demise of the CD.

Regrets, it’s had a few and, unfortunately, it did it its way.

If you are a journalist and would like to talk about this story please email me at mulligan_mark AT hotmail DOT COM

Why Google Needs to ‘Do an Apple With Motorola’ to Make Play a Success

2012 has been a fantastic year for smartphones, with penetration pushing past the 50% mark in key markets such as the UK and US (some estimates even put US penetration as high as 70%).  Apple’s iPhone is the leading smartphone in most key markets but Google’s Android Operating System (OS) has much larger market share: c. 70% compared to c. 20% for iOS (Gartner estimated global market shares to be 64% and 19% respectively back in Q2 2012).  But these market share statistics can be misleading, particularly when it comes to understanding the digital content and services marketplaces.

Android Fragmentation Complicates Content Strategy

The fragmented nature of the Android landscape is well documented but close analysis of key metrics reveals some startling trends with significant implications for content providers (see figure):

• 60% of iOS devices are on the latest version of the OS (iOS 6) compared to just 3% of Android devices on the latest flavour of Android (Jellybean). Additionally, 88% of iOS devices are concentrated in 3 versions of iOS while Android devices are spread across 10 different versions of the OS, of which 54% are on a version that is 4 releases out of date (Gingerbread).
• There are 260 different Android phone and tablet models, compared to just 6 iOS tablet and phone models.
• There are more than 50 different official Android stores, but just one Apple App Store

Of course there are many mitigating factors, but that simply does not matter from a consumer perspective nor indeed from a content owner’s perspective.  Both iOS and Android have got vast App catalogues (750k and 650k respectively) and both have vast numbers of apps downloaded (35 billion and 25 billion respectively).  Both also have huge installed bases of devices: 450 million iOS devices and 600 million Android devices.  But there is only one clear leader in paid content: Apple.

Looking just at music sales, Apple’s music annual music sales (based on the last reported 12 months) equate to approximately $4.00 per iOS device, compared to just 50 cents per Android device.  Apple wins in part because of its longer presence in market, but more importantly because it exercises complete control of the user journey in a closed ecosystem.

The Importance of Closed Ecosystems

The success stories of paid content to date are closed ecosystems: iTunes / iOS, Playstation, xBox, Kindle.  Though the controlled nature of these ecosystems may limit user freedom, they guarantee a quality of user experience.  In these post-scarcity days of content, the quality of experience becomes a scarce experience which people are willing to pay for.  Google simply cannot exercise that degree of control because of its pursuit of a less-closed (but not wholly open) ecosystem strategy.  It depends upon device manufacturers to determine the user experience and also gives other value chain members much more control, such as allowing operators (Vodafone) and retailers (Amazon) to open their own Android stores, as well as, of course handset manufacturers (Sony).

Smartphones with Dumb Users

In a pure mobile handset analysis this doesn’t matter too much.  But from a content strategy perspective it matters massively so.    The problem is compounded by the fact that that as smartphones go mainstream the user base sophistication dilutes.   With so many consumers increasingly buying smartphones because they are cheap and on a good tariff, rather than for their smartphone functionality we are ending up with a scenario of smartphones with dumb users.  (I am indebted to my former Jupiter colleague Ian Fogg for this phrase). This factor arguably affects Android devices more than it does Apple devices because a) they are more mainstream b) they are often cheaper.  This matters for content owners because the more engaged, more tech savvy smartphone owners are also the ones most likely to pay for content.

Google Needs to ‘Do An Apple’ and Not ‘A Microsoft’

With growth slowing in the digital music space, it is clear that new momentum is needed.  Google is potentially the strongest opportunity to bring mass market traction to the digital music space, but currently its music strategy, and paid content strategy in general, is falling short due to all of the reasons outlined above.

Google does however have an incredibly strong set of assets at its disposal, in terms of installed based and growing adoption.  If Google is serious about making its Play strategy a success then it needs to start putting itself first.  Back in the early 2000’s Microsoft expected to be the dominant force in digital music because Windows Media Player was the #1 music player and Windows DRM was the industry standard rights protection.  But instead of pushing ahead with a bold Microsoft music offering it relied upon its hardware and services partners to do it for them.  Just as Google now is sensitive to the concerns of its commercial partners, so Microsoft was then.  Of course Microsoft lost the battle and their softly-softly approach was powerless to fight off the rapid onslaught of iTunes.   Microsoft eventually realized that it needed to go it alone, launching Zune, but it was too little, too late.  Interestingly there wasn’t much of a backlash from commercial partners when it did so. Launching a standalone music strategy was actually compatible with being a platform partner.

Now Google has an opportunity to learn from both Microsoft’s mistakes and Apple’s success by turning its recently acquired asset Motorola into a closed Play ecosystem to rival iTunes.  This doesn’t preclude Android partners from continuing to build their own devices and app stores, but it does create a paid content beachhead for Google, from which it can build a base of highly engaged digital consumers who will quickly learn to value the benefits of a high quality, unified content and device experience.  In a Motorola ecosystem Google can truly allow Google+ and Play to become the glue that binds together its diverse set of valuable assets.  Without it though, Play will continue to struggle for relevance in a fragmented and confusing Android user journey.