Google Hits Play On Subscriptions

As expected Google just announced their music subscription service: Google Play Music All Access.  To cut a not-so-long story even shorter, it’s another $9.99 streaming subscription service.  To be fair it looks like a solid offering with clean, mobile optimized flat design aesthetics and some nice features, including:

• ‘radio without rules’: fully editable auto-programmed radio based on tracks your listening to
• blended algorithmic and curated programming
• 30 days free trial
• seamless integration with the cloud locker service

The locker service integration is a great move and transforms a relatively isolated product concept into a natural extension of the music experience.  Of course locker services are a transition product aimed at helping consumers migrate from the ownership mindset to remote access, so the life cycle of the product is inherently limited.

The ‘uniquely Google’ recommendations and discovery are designed to ‘know exactly what you want’.  The proof of the pudding will be in the eating, but there is a risk of creating an ever shrinking filter bubble where the range of recommendations narrows the more the service learns about you.

A Great v1.0 But….

Make no mistake, it looks like a great version 1.0, streets ahead of where its peers were at 1.0.  But is it enough?  There are many things that Google could have done to stand out, including innovative pricing, Google+ and YouTube integration, a Motorola device bundle etc.  But of course Google never needed to push the envelope on this one.

The streaming market is only just getting going with 20 million global paying subscribers in 2012 paling compared to Apple’s half a billion iTunes accounts.  Streaming and subscription accounted for just 20% of global digital revenues in 2012 and only 8% of US digital revenues.  So Google’s view, correctly, is that this is a market waiting to happen, so focus on refining the model rather than reinventing the wheel.  That’s exactly what Apple did in 2003 when it launched the iTunes Music Store.  The market was pretty crowded with download stores back then, but how many people remember any of them now?

But that’s not to say though that Google is going to do for streaming what Apple did for downloads.  In fact it faces a number of key challenges:

• Don’t pay won’t pay? Google’s consumer base is predominately built around ad-funded free access and associate Google with free. Even though it will not be offering a free tier, Google still face the freemium challenge of convincing swathes of free users that they should pay for something.  By contrast Apple has the largest single addressable audience of paid content consumers in the globe.
• Paid subscriptions don’t drive ad revenue: for all of Google’s desire to diversify its business and revenue streams, advertising pays the bills. Whereas initiatives like Android, Google+ and YouTube all help drive advertising, premium subscriptions do not. And given that premium subscriptions are a low margin business, the profit rate Google earns from subscription services will be less than it gets from ad supported consumers, even if total ARPU is higher.  So there seems little reason for All Access to become a strategic priority for Google.
• $9.99 is not a mass market price point: Google’s biggest asset for the labels is its unrivalled scale and reach, the potential to take digital music to the mainstream. But 9.99 is not a mainstream proposition, it is in fact what the top 10% of music buyers spend in the UK.  Spotify et al have done a great job of engaging the higher spending music aficionados, but there is a finite pool of them, especially in the increasingly crowded US market.  Unless Google plans on stealing everyone else’s subscribers it is going to find mid term growth potential limited (though expect some near term surge from pent-up demand among Google aficionados).
• Balkanized organizational siloes: on paper Google has the most fantastic combination of music service assets (Play, YouTube, Google+, Motorola, Android etc.).  Tie all of those assets together into a 360 degree music service and you have a world beater on your hands.  But Google can’t. It can’t because these business units operate so autonomously and because each one has business conflicts and commercial constraints that prevent them from being fully unified.  For example, ‘doing an Apple’ with Motorola and turning it into a closed Google Play ecosystem would alienate Android partners.  While YouTube’s music licenses are wholly different and distinct from Google Play licenses. 

 What’s In A Name?

Let’s assume that Google has got an ambitious roadmap for All Access that will include innovation on price, product and channel, perhaps even rolling version 2.0 within 6 to 9 months.  Even then, all of the above still apply, and it is the organizational challenge that clips Google’s wings the most.  Even the elongated name hints at the organizational quagmire: Google Play Music All Access. Doesn’t roll off the tongue in the way Spotify, Deezer, Rhapsody or Rdio do does it?  ‘All Access’ is the service, ‘Music’ is the division and ‘Play’ is the strategic overlay and of course ‘Google’ is the company.  Just to get to where it has, All Access has had to coalesce numerous internal Google fiefdoms.

Google is Becoming Microsoft

Google is beginning to look for music what Microsoft did 10 years ago.  Up to and beyond the launch of the iTunes Store everyone expected Microsoft to be the dominant player.  It held most of the cards in the deck, including the industry standard media player and DRM system.  Then along came Apple with the aces.  Try as Microsoft might to compete, it simply couldn’t get over itself.  It couldn’t pull together the disparate business units that needed to cooperate and it was scared of harming other revenue streams and relationships. Microsoft feared that if it pushed too hard with its own service it would alienate the business partners that relied on WDRM for their music services.  All this begat strategic paralysis.  Much the same is happening to Google.  Fear of alienating Android partners precludes them from doing-an-Apple with Motorola (which I suggested they should do).  Also, pulling together YouTube, Google+ and Android into the All Access mix appears to be a step too far.

Google is at a similar stage of its corporate evolution as Microsoft was ten years ago.  It is a big company that is still learning how to actually be a big company.  Before Google can fulfill its vast digital music potential it needs to learn how to get the best out of its organizational structure first.

Here’s looking forward to version 2.0.

Making Streaming Work (Fixing Playlists and Churn)

UPDATED 28/3/13 (see sections labelled ‘UPDATED’

During my SXSW panel I presented a slide that showed the distribution of paid, active free, and inactive users of the two big streaming services Spotify and Deezer based upon the latest data for both services.  What the numbers show is that inactive users is a big problem for streaming services, which in actual fact means that churn is a bid problem for streaming services.  (Something I discussed last week).

Paul Resnikoff at Digital Music News and Stuart Dredge at MusicAlly have since written pieces about the data and something of a debate is emerging.  But the important point is not whether Deezer has more inactive users than Spotify, but that streaming services as a whole have a problem with churn.

To illustrate the fact that this is not a Deezer problem I have created a new chart (below) that uses the latest available official numbers for all three types of users from both services.  The most recent total user numbers for Spotify are Facebook app users and are therefore not official stats.  The most recent official Spotify data for all three metrics is from year-end 2011 – when these numbers were filed in a company report – and for Deezer this means early 2013 when the numbers were quoted in the press.

UPDATED: Note that Spotify only ever mentions its total registered user number in company reports while Deezer have quoted theirs more frequently. So the Deezer numbers below are a more accurate representation of the current scenario whereas Spotify’s user base dynamics have changed markedly since end-2011.  (Whether that translates into more or fewer inactive users we’ll have to wait and see.)

Retention is a Freemium Issue not a Spotify or Deezer Issue

What is clear is that both services have essentially the same distribution of users, with the vast majority of both services’ installed bases being inactive users.  If you spread Spotify’s 2011 numbers over the course of the year, from the end of 2010 base numbers, this translates into Spotify acquiring 1.9 million new users every month but only keeping hold of 200,000 of them.

Again, this is not a Spotify problem, it is a fundamental issue with the freemium music model: many more people decide its not for them than continue using the service.  Over time this effect will soften, as people become more familiar with the idea of on-demand streaming.  But it will always be a key part of the mix for both free and paid users.

UPDATED: It is also not even just a music service issue.  As I discussed in a previous blog post about Facebook, social networks like Google+ and Twitter also have a big issue with inactive users, as this chart illustrates. In fact only a quarter of Google+ users are active, as are less than half of Twitter users.  As Daniel Ek correctly identified on Twitter, this is a problem that affects all businesses that have a free tier that requires registration.

Currently Deezer and Spotify are in growth stage and are more focused on acquisition than retention, but sooner or later they’re going to have to recalibrate their metrics if they want to move towards sustainable financial models.  It can be done, as Rhapsody shows us, but it is not an easy task, and it also doesn’t leave a lot of spare cash in the kitty for aggressive growth.

Any established subscription business – such as a cable or satellite TV provider – will tell you that managing churn is the overriding strategic objective.  Any subscription service – especially a nice-to-have like music – is going to be vulnerable to churn.  But this does not mean that the music subscription business is fundamentally flawed, rather that the industry needs to start thinking in terms of a much more fluid movement of users than was ever the case for downloads.  In the download model Apple locked in its customers with devices.  Streaming services have no such asset – at least not yet.

Playlists Belong to Users not Services

With time, clear blue water will emerge between the value proposition of streaming services, and this should be considered not just as a loyalty driver, but also as reason for people to swap and change subscription services just as people swap and change cars.  And for that to happen streaming services need to stop thinking about users’ playlists and libraries as the property of the streaming service to be used as velvet handcuffs and instead as the transferable property of the user, and by extension, the communal property of the marketplace.

Locking music consumers into devices sort of made sense for companies like Apple that were largely using music to sell hardware.  But for companies like Deezer and Spotify that are just in the business of selling music – or at least access to it  – there is no such justification.  The subscription market is only just getting going and there is far too much green-field opportunity for services to get bogged down in internecine conflict.  As MusicAlly’s Dredge correctly identifies, opening up Playlists could prove to be crucial to the long term validity of streaming and subscriptions (and Tomahawk is a great first step). But to really work, streaming services need to stop thinking about Playlists as their property and instead as the property of their users.  That’s when services like Tomahawk could come into their own and it is when mainstream music fans will view streaming services with less scepticism.   In the words of ShareMyPlaylists: Long Live The Playlist!

SXSW Presentation

Yesterday I spoke at EMI’s Consumer Insight panel at SXSW.  It was an engaging debate with lots of great questions from the audience. You can read a write up here: http://www.billboard.com/biz/articles/news/1552283/consumer-data-shows-old-ways-still-most-profitable-sxsw-panel-says

Mulligan SXSW Presentation 14 3 13

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 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.

View From the Top: 10 Streaming CEOs on 2012 and 2013

A special feature for the end of what has a been a big and often controversial year for streaming.  Here are the views of 10 CEO’s of of the top streaming services and of the leading multi-room streaming system, on the following two questions:

1 – What was the most important thing to happen to the streaming market in 2012

2 – What is the most important issue that the streaming market must address in 2013

Daniel Ek, CEO and Founder – Spotify

2012: Growth – both in terms of the number of people who are now paying for music again and the growth in payments back to artists as a result. 2012 was the year when people realised the future growth in the music industry is coming from streaming services.

2013: The abundance of choice. How do you make sense out of 20 million songs?

Axel Dauchez, CEO – Deezer

2012: The streaming market continues to progress at breathtaking speed and we’ve seen some incredibly positive developments in 2012. Most exciting for us, is the fact that targeted online content has developed into something much, much more sophisticated than just algorithm-generated recommendations.  We’re seeing the focus now shift towards personalised music curation. At Deezer we’ve gone a step further, developing really bold new product innovations that are designed to put integration with apps, social media and digital services at the forefront of our new user experience. Our aim is to help music fans discover and share music and promote new artists.  That’s why our local editorial teams work hard to create suggested playlists and recommendations to give music fans a more personal and individual service.

2013: Getting as many people as possible to find out about services such as ours! We’re convinced that the future of digital music will rely on music discovery and re-establishing the emotional connection between music and people. Our mantra is to help people rediscover music, through recommendations by real people all over the world. Our locally-based editorial teams share new music from upcoming local artists, not just in their own countries, but with the other editorial guys around the world – another example of Deezer taking music even further regardless of boundaries. Now our biggest challenge is to get people everywhere to find out how intuitive – and fun! – it is to use Deezer, and we hope to make great strides on this in 2013.

Jon Irwin, CEO – Rhapsody

2012: Looking back, 2012 was the year that streaming became mainstream. We’ve seen a rapid evolution since streaming music was freed from the PC and became a constant companion via smartphones, to this year, when streaming made its way into the living room and into cars—the two places where people listen to the most music. Streaming services are everywhere! This heightened awareness has resulted in more consumers embracing the model and eschewing their old beliefs around the need to own their media; which has given rise to more investment in the sector, innovation around business models and M&A activity. After spending the past 10 years forging the path and taking those proverbial arrows, we are finally seeing the realization of streaming music’s promise.

2013: The most important issue of the mainstreaming of streaming is that artists are paying more attention to how they’re being paid on the various streaming services. Artists are seeing a lot of streams, but are not seeing a lot of cash for them. This makes them justifiably nervous that streaming services are getting popular at the expense of digital sales–and in some cases withholding their music from streaming–a detriment to the growth of these services, just as they become popular. The solution of the problem is twofold. First, we need to do a much better job at education about how artists are compensated and creating transparency around where streaming revenues flow. Streaming services have a responsibility to innovate around artist compensation to get more money into artists’ pockets and help them understand how their music is being consumed. I think there is a lot more that we can—and should—do to ensure that artists are fairly compensated for their music and are extracting maximum value from streaming services.

Steve Purdham, CEO and Founder Investor – We7

2012: Two things, in the UK, the silent landmark in 2012 was the launch of the BBC iPlayer Radio app this has the potential in 2013 to be the catalyst for mainstream adoption of streaming, without the need to know its streaming and secondly the driving momentum of smart phone and tablet adoption reaching what I believe was a tipping point in 2012.

2013: In 2013 the dream would be easier licensing, more flexible pricing plans removing the artificial technical and commercial barriers with  the ability to demonstrate clear ROI’s but in reality for any of the models to work they need the true internet scale that is possible and to achieve that we need to find the means to enable mass market adoption. This is the elusive jewel in the crown that we all should be really seeking to solve.

Ben Drury, CEO and Founder – 7 Digital

2012: Streaming cloud locker services from Google and Amazon

2013: Globalised rights

 

 

Drew Larner, CEO – Rdio

2012: Social media has had a profound impact on the way music is shared, which is something we anticipated when we first built Rdio. 2012 also saw the entry of services into global markets (with our own service expanding to 17 countries). The continued growth of mobile around the world with faster speeds and better phones also contributed to the rise of music streaming in 2012.

2013: Awareness is still a key factor moving into 2013. We’ve seen a big shift in 2012 with more services opening up globally, but we aren’t truly mainstream yet. Innovating on discovery is a key focus as well. With all the songs in the world at your fingertips, creating fun ways to decide what to play next is a challenge. We built Rdio with human powered music discovery at the heart of the experience and we’ll continue to enhance discovery across platforms moving into 2013. Another key issue moving into the new year is the our responsibility to the artist community. We’ve started to address this through the recently launched Artist Program and will continue to work closely with artists to help them create new revenue streams and tap into new opportunities generated by the streaming music model.

Nick Massey, CEO – Rara

2012: The introduction of frictionless music sharing across social networks has led to a massive increase in the adoption of music streaming in 2012.  62.6 million tracks were played 22 billion times across Facebook in the first 12 months of open graph coming to the network.  In the UK UMG reported that 7.5bn tracks had been streamed in 2012 to mid November; a 700% increase on the 1.1bn tracks streamed in 2011.

2013:  Despite the huge rise in popularity of streaming, there’s a lot more work to do before the mass market transitions from music ownership to the access based streaming music services.  Increasing adoption of tablet computing is making it easier for people to consume digital entertainment content while high speed broadband and 4G mobile networks deliver more data to us faster.  However it will be the ways in which streaming services enable simple but engaging access to music through recommendations, sharing and curation which will be key to driving wider consumer uptake in 2013.

Mike Bebel, Head of Music – Nokia

2012: 2012 was a year when many of the mainstream music service providers realized that the typical mobile music consumer is seeking more effortless and delightful entertainment. This is something we had already understood and rolled out to over 20 markets around the globe with Nokia Music, the most satisfying and compelling mobile music experience to date.

2013: In 2013, we expect others will follow our lead and work hard to remove barriers to usage and some have already announced that they also need to solve the consumer issues that we identified long ago. Rest assured that Nokia Music will continue to innovate and deliver the music that people love in the most satisfying and intriguing mobile experiences. We welcome all to discover and enjoy it.

Espen Lauritzen, CEO – WiMP

2012:  The beginning of consolidation in the industry, which I believe we will see more of in the coming year.

2013: The big discussion on sustainability of the business model throughout the value chain.

 

John MacFarlane, Founder and CEO – Sonos 

2012:  In 2012 we’ve seen streaming services go mainstream. With the proliferation of innovative services such as Spotify, RDIO, Pandora, Rhapsody and QQ, we now have access to more music than ever before. At Sonos we’re dedicated to providing music lovers with the simplest way to enjoy all the music on earth in every room and our partnership with such popular music services has ultimately seen our customers consume twice as much music.

2013: 2013 must bring a healthy debate on the value chain of artist to consumer within streaming, and it’s essential that this is resolved to ensure the artist gets paid and the consumer gets a great experience. We are just beginning this dialogue but it absolutely needs to be continued in earnest over the next year.

My take

2012: It was streaming’s big year.  Finally the confluence of ubiquitous connectivity, and smartphones and tablets going mainstream has created the necessary market conditions for streaming to step up to the plate.  It is still very early days and streaming revenues are dwarfed by download and CD revenue, but finally there is the glimmer of a ‘digital plan B’. The artist streaming debate was a useful coming of age for artists, but too much data has too often been misinterpreted, creating a confused marketplace.

2013: 9.99 is not a mass market price point, somehow (bundling, discounts, pricing innovation, partnerships etc) that price must come down to drive wider adoption.  Also the value chain must work out a transparency solution that can work within the restrictions set by commercial relationships.  Artists may never get the full picture, but it is in the interest of all parties that they get as much of it as is possible to help them make informed opinions. Finally, the elephant in the room remains YouTube.  More catalogue than any of the other services, video (of course), great functionality, on every smartphone and tablet, and all for absolutely nothing.  That creates a playing field that is anything but level for the rest.

How Much Streaming is Really Worth to Artists: a Consumption Analysis

The streaming debate has been a watershed moment in artist empowerment, a discussion which has allowed them discover that they can have a meaningful voice in the digital debate.  Crucially it has also been a democratization of the artist voice.  In the days of Napster it was only the superstar artist who got airtime to argue for (Chuck D) or against (Lars Ulrich) file sharing.  Now in the days of social media the playing field has been levelled.  The streaming debate has also been a coming of age for artists as business people, coming to terms with the wealth of analytics and sales data they now have at their fingertips.

Messy Data

All of this has been good and positive, and it is an evolution that I look forward to seeing continue.  However there has been an unfortunate by-product of the process.  With an artist posting their latest streaming versus download income data practically every week the focus has been on quantity of data not quality and, most importantly, data has often been misinterpreted and stripped of crucial context.  The situation is compounded by the murkiness created by the mass of moving parts that determine how much an artist gets paid. These include: what sort of deal the artist is on, whether they are recouped, whether the artist is just a performer and/ or a songwriter, whether the label is redistributing all of its advance payments from the streaming services with artists, whether the artist is paying additional fees to distributors / aggregators and how good a deal those organizations have struck with streaming services.

The transition from the distribution era of selling units of stuff – whether that be downloads or CDs – to the on-demand consumption era is without doubt a highly disruptive process.  As the overused cliché of corporate managers goes ‘change is difficult’, and the future can look even more daunting when the new world is viewed through the same eyes we understand the old one.  So as much as the ‘how many track streams an artist needs to equal one download’ comparison is understandable, it is not the most useful analysis.  It measures consumption models by distribution model metrics, which is as useful as comparing the speed of a car to a plane.

Setting the Right Benchmark for Assessing Streaming

This week economics academic David Touve compared downloads to radio instead – something which I did back in February.  It is a useful exercise in that it places streaming in a range, somewhere between downloads and streams but it is still only part of the story. After all, radio is meant to be the discovery journey, not the consumption destination.  Artists cannot afford to live off radio alone (especially not in the US).

At the other end of the scale the 1 stream = 150 to 200 downloads comparison is fraught with problems.  Indeed, if you multiply the streaming average of $0.005 by 150 you get a value of $0.75 which is virtually the entire retail price of a download. Clearly this cannot be right.  The retailer needs to take their cut from a download sales, then the label, then the publisher, then collection agencies, distributors, aggregators etc etc.  Only a very small share of artists will ever get near that sort of rate: DIY singer songwriters. And it is no coincidence that they are the ones who have been most active in ingesting data into the streaming debate.  A standard label artist can expect closer to $0.09 from a download (as publicised by Chuck D a year ago) which is only 18 times the streaming pay out rate. Though of course some artists (who are also songwriters and are on 50/50 net receipt deals, that are fully recouped) could hope to earn nearer $0.40 per download.

What is clear is that the ‘moving parts’ of individual artists’ commercial terms are so variable and so complex that they prevent meaningful comparisons between streaming and downloads.

The Consumption Analysis

So to create a more useful set of metrics to work with I have created a comparative methodology called the Consumption Analysis.  This  creates a like-for-like comparison between the value of a stream and a download to artists and strips out entirely the artist’s commercial terms ‘moving parts’.

This is the basis of the approach:

a)      First, downloads are paid for once but played many times, so a price per listen is needed.  This is determined by establishing the lifetime value of a purchased track and dividing the sale price by the total number of plays it will receive after purchase. (I have set this at a modest 12 plays per track over 3 years)

b)      Next the multiple moving parts that confuse the streaming debate need stripping away to enable like-for-like comparison.  Streaming and download services both pay approximately 70% of income to rights owners.  We then work out how much money per stream is paid out to rights owners ($0.0112) and what the average $0.005 artist pay out is as a share of that (45%).

c)       The resulting net-neutral artist-to-rights owners ratio can then be applied to downloads, and then averaged out by the total number of plays a track receives in its life time (i.e. 12 plays in 3 years)

(For sake of complete transparency you can download the entire Excel document here - please go ahead, play around with some of the key levers and feel free to post your own findings.)

Downloads and Streams are Much Closer Than The Current Debate Suggests

The net result is, working on a pure like-for-like basis, the per-play value of a download to an artist is $0.033 compared to $0.005 for streaming.  Downloads are thus 5 ½ times more valuable to artists than streams.  Of course this is still a disparity but it is much, much less than the 150 to 200 times value that has become common currency.

It is also worth noting that the artist streaming pay out rate ($0.005) is actually 45% of the rights owner pay out rate ($0.0112).  So artists are earning nearly the same out of streaming as the labels and publishers.

None of this is meant to belittle what is a massively important issue for artists, rather it is intended to help them understand where a path to solution might lie and to have a more balanced understanding of the value of streaming. Clearly there are many complex issues that need to be addressed between artists and the numerous parties they have commercial deals with and who therefore take a cut of their digital income. There appears to be more ‘noise’ in the revenue transition from music service to artist for streaming than for downloads.  It is likely that much of this is related to the fact that the streaming model is still finding its feet and that levels will balance out over time.   But there is certainly a case for artists taking charge of their own destinies and getting to the bottom of their individual situations.  That does not just mean with the record labels either, it means each and every platform, agency, rights body and rights holder they have commercial agreements with.

What the Consumption Analysis reveals is that on a like-for-like basis, streaming services are clearly much closer to download services than the current debate suggests. The 150 to 200 range is neither useful nor accurate.  All of this should hopefully help build some more confidence in a future in which streaming plays a key role.  This is even before considering the oft touted scale argument that underpins the case for streaming.  Factor that in and we start getting towards a picture of an industry that could genuinely grow after years of decline, if streaming does indeed go mainstream.

I am not suggesting that streaming is the answer to all of the music industry’s ails but it can certainly bring a lot more right across the value chain than the current streaming debate suggests.

Spotify’s Bold New Transition from Streaming Music Service to Music Platform

Spotify today gave an update on the year to date and announced a host of new features.

5 Million Paying Subscribers

As expected Spotify has managed to hit the 5 million paying subscriber mark which is a fantastic achievement, as is the 1 million US paying subs also announced.  That translates to 1 million new paying subscribers in just 3 months.  Back in May I predicted that Spotify would hit 8 million paying subscriber in May 2013.  It looks like that prediction is going to be in the right ball park.  Spotify’s official active user count is now 20 million, which interestingly is much closer to the Facebook reported 24 million – those numbers have been very far apart for the last 9 months or so.  Which indicates that Spotify’s marketing funnel has got bigger as its profile in the US has grown.  i.e. more people are trying out the free service. (See the graphic at the bottom of the page for a summary of Spotify’s numbers).

Spotify also announced it has paid out $500 million to rights owners, which is impressive, but to keep a sense of perspective is about 2% of all digital music service money paid to record labels globally since 2009 when Spotify burst onto the scene.

A Bold New User Experience

But of more interest, to me at least, was a slew of new features that collectively transform the Spotify experience.  Spotify has made a bold UI transformation from a list-based approach to a rich visual experience with modules of music content (which visually looks like a cross between Rdio and Pinterest).  These include music, artwork, bio information, reviews from Pitchfork, Songkick gig information, recommendations based on your behaviour.  In doing this, Spotify has made a subtle but powerful transition from streaming music player to immersive music platform.

Spotify Thinks the Discovery Question Does Need Answering

Spotify also announced, as TechCrunch had correctly predicted, a new social discovery tool called Follow, whereby users can follow people’s whose music tastes they want to keep up with. People can follow friends or music influencers such as artists, music bloggers, music journos etc. pretty much in the way they would on Twitter, but here they get sent playlists of music to listen to instantly rather than 140 characters of static text.

Spotify are trying to answer the big discovery question which has so far gone largely unanswered, despite plenty of well-intentioned efforts to come up with a solution.   Discovery has been the centre of some pretty heated debate of late – as this and this post show – but whether or not it gets fixed in the wider music industry it is a huge issue for streaming music services.  What is the point of having all the music in the world at your fingertips if a search bar is all you have to find your way around.

Good music discovery happens in two main ways:

1. Someone who’s reputation we trust (DJ, cool friend, family) makes a recommendation
2. We serendipitously fall upon a piece of music that we love

Why Discovery Matters So Much to Streaming Services

Unlimited music services face the paradox of their being so much choice that there is in effect no choice at all.  People need a way to navigate through immensity of the music world. Spotify’s Follow function is a way of addressing this issue. It’s a smart way to do it, because good music discovery isn’t ‘we’ve seen you like this song, so we think you’ll like these three songs too’.  It’s much subtler than that.  Following people who have great music taste can be exactly that sort of subtle discovery.  But this isn’t a new idea.  Beyond Oblivion had built their entire service around the concept of following influencers (and they had a pretty cool atom-like visual navigation to let you get from influencer to influencer too).  Of course Beyond never got to market, but Spotify have picked up the idea and run with it. Rdio also have the feature.  In fact if I were Rdio I’d be feeling a little as if some of my clothes had been stolen.

Spotify’s Follow feature gets really interesting in an artist context.  If an artist posts a music playlist to his followers it gets delivered straight into their music collections.  A great way to launch a new album direct to your fans.  Though it does raise some interesting questions about whether this will increase or decrease album sales?  Does getting your favourite artists’ latest album delivered straight into your Spotify player sate your appetite straight away or simply whet it?

Spotify’s Follow feature is not the answer to the discovery question, but it is certainly one important step in the right direction.  In fact there won’t be a single answer to discovery, because we all like to discover music in different ways.  Some of us want to dive in and have an immersive experience, others want something music less. Some of us want both, but at different times.  And Spotify recognize that by offering multiple other new ways of recommending music, ranging from recommendations based upon user behaviour, collaborative thinking and context such as the age of the user.

Spotify is Now A Music Platform

This set of new features is the most important change in Spotify’s user experience, period.  It transforms Spotify from an excel spread-sheet streaming app into an immersive, multimedia, context rich music experience platform and app ecosystem.  Back in November 2011 I suggested that with the launch of its API platform that Spotify was taking the first step towards making music the API, and towards transforming Spotify into a music platform.  Now just over one year on we can see the fruits of that labour.

Much of what Spotify has done isn’t unique, but they have executed it in a manner akin to Apple in its digital music prime.  Execution is everything.  Spotify has just set the digital music experience standard for other music services to aspire to.

Streaming Music Apps – Three’s Not A Crowd

You wait months for a streaming music app announcement and then three come along on the same day….buses come to mind.

Deezer App Studio

Deezer have just announced the launch of a Spotify-like app platform ‘App Studio’ for third party developers and will soon also launch an ‘App Centre’ for users to discover apps. It is a welcome development from Deezer and as I have said for some time, streaming services can play an invaluable role of providing the infrastructure and music content on which third parties can then develop innovative and differentiated user experiences.  Streaming itself is not a product, it is a delivery mechanism.  Streaming apps turn the streaming user proposition into a rich set of products and features.  Of course Spotify set the agenda here and Deezer’s announcement is almost a year to the day later than Spotify’s app announcement (read my take here on Spotify’s bid to turn music into the API).  This isn’t the first time that Deezer have followed Spotify’s lead and they need to be careful they do not develop a reputation for shadowing Spotify’s strategy.

PLAY GUETTA

Meanwhile on Spotify’s app platform comes the launch of David Guetta’s ‘PLAY GUETTA’ app. Back when Spotify launched artist apps back in June I said that they were a great start on the rod to relevance for streaming music services and music discovery but that there was a long distance to go (which was a polite way of saying that the first wave of apps weren’t very good).  The David Guetta app is a different kettle of fish altogether.  Whereas the first wave of apps had an air of unfulfilled promised ‘PLAY GUETTA’ is a rich, immersive and – crucially – massively social app.  As a testament to the importance of Spotify’s app ecosystem, ‘PLAY GUETTA’ is built using the Soundrop SDK, itself a Spotify app.  ‘PLAY GUETTA’ demonstrates three crucial elements of value that streaming apps can deliver:

• Coalesce fan communities of likeminded fans: leveraging some of the core Soundrop functionality Guetta fans can help shape what music is played and recommended, even at a country level (see graphic).
• Create immersive experiences: apps allow streaming services to focus on the business of acquiring customers while third party developers can develop cutting edge user experiences.
• Open up the long tail: for an artist like Guetta who has an extensive back catalogue, artist apps create a fantastic opportunity for connecting fans with older material.  For the consumer, because they have unlimited music access, listening to older albums is a pure added value rather than added cost, but for the artist and the label it is extra revenue.

‘PLAY GUETTA’ shows the potential of what streaming music apps can achieve.

 

Rdio iOS and Android Apps

The third and final streaming app announcement of the day was the launch of refreshed iOS and Android clients for Rdio.   Though obviously a different type of app announcement than the previous two, Rdio deserves credit for forging their own way in the streaming space, focusing on building a differentiated user experience.  Rdio do also have their own API, but they have worked hard to create a user experience that is rich and immersive out of the box.

It is perhaps a little overblown to claim that the future of streaming music depends upon apps, but be in no doubt, apps will play a major role.  Expect this space to hot up in 2012.