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.

What Angry Birds Teaches Us About the Future of Media Products

At Midem this weekend I spent some time talking with Peter Vesterbacka, CMO of Rovio, the company behind the phenomenally successful Angry Birds game.  Angry Birds continues to enjoy approximately 1 million downloads a day and as Peter pointed out, that daily download count is more than the majority of music singles ever reach. The conversation got me thinking about why a mobile game can have so much more success than the majority of artists.

Digital Era Products are Tailor Made for Digital Era Devices

To be clear, Angry Birds is not the representative sample of mobile games, to the contrary it is the runaway success story.  And the fact that Rovio hasn’t yet been able to build a new brand franchise to rival Angry Birds emphasizes the uniqueness of the brand.  Nonetheless, Angry Birds illustrates what happens when you build a content product that is tailor made for the digital devices it is intended to be consumed on.  Angry Birds is a content product that does not just utilize the functionality of the smartphones and tablets but depends upon them.  Angry Birds is a 21^st Century content product build for 21^st Century content devices.

Think about when Apple launch a new iPad, they don’t wheel out a senior record label exec with a hot new artist to show off the device, instead they get EA Games to show off a new game that leverages the functionality of the device: graphics accelerator, Retina Display, Accelerometer, Multi Touch etc.  Even the best iTunes LPs do not come close to doing that job, let alone a static audio file, which remains the dominant product that the music industry sells on iTunes and other stores.

Analogue Era Products in Digital Era Clothes

But there is something more fundamental at play rather than simply a technology skills gap between record labels and games publishers, and it isn’t just a record label problem either. The inescapable fact is that record labels, publishers of books, magazines and newspapers and even TV and movie studios are trying to shoehorn analogue era products into digital era technology.  These companies’ products were built for sitting on shelves and for being consumed in single purpose, non-interactive devices.  Games and apps though, are digital era products at home in digital technology while traditional media products are lodgers not yet quite able to keep up the rent payments.

This does not mean that traditional media products cannot have a vibrant future. They can, but they have to truly understand what makes digital era content products work:

• Interactive and Dynamic: digital era content products don’t just leverage the functionality of the devices they are consumed on. They make that functionality core to the content experience itself, to the extent that the content product would not be able to exist without it.
• Visual Experience: digital era content has a visual element at its core. This puts video products at a distinct advantage, but video is an asset that print and music products can leverage too. No coincidence that YouTube is the most successful digital music product in the globe.
• Context and Relevance: digital era content products are increasingly embracing the context of location, social group and time.  They both understand the consumer demand-gaps that these factors combine to create, and they also enrich their experiences by meshing these factors into the products themselves.

None of these three areas are insurmountable hurdles for traditional media companies, but at the same time they are not natural paths for many of their products.  Embracing these objectives often requires an entirely different approach to product development, rethinking what makes the content valuable in the digital age.  For example the audio file in the YouTube video is much less valuable to young teens without the video than with.  The video is as important in that product as the music itself.  Yet the music product development cycle revolves around creating the audio file, not the video.

Embracing digital era product principles also requires an understanding that just because you can does not always mean that you should.  Not all features are appropriate for all types of content.  Not even digital era content products use all the device features available to them e.g. Real Racing relies more on accelerometer functionality while Angry Birds leans towards multi-touch.

Learning lessons from digital era products is a must for all traditional media products.  Most digital versions of traditional media products are digital adaptations, not genuinely new products. Trying to squeeze the round peg of analogue era products into the square hole of digital era devices clearly is not a long-term solution. Until the circle is squared though, digital era products will continue to leave digital adaptions of analogue era products in their slipstream.

Kim Dotcom’s Just Getting Started

Self-styled digital Robin Hood Kim Dotcom’s highly effective PR machine successfully secured him vast media coverage this week for the launch of his new locker service Mega, which as the Register’s Andrew Orlowski correctly points out, isn’t actually anything particularly new or innovative.  But in some ways that doesn’t even matter. Kim Dotcom matters most to media companies now because he is a focal point of anti-media-establishment sentiment.  He’s the plucky start up taking on the fat cats of the media industry.  Except of course that he’s done a pretty impressive job of establishing himself as an fat cat too as this and this reveal. Ironically Kim Dotcom has made his money using the same assets as the media fat cats: i.e. music, movies and TV shows.  The difference being that Kim Dotcom doesn’t finance the creation of the content. But Dotcom’s supporters are willing to turn a blind eye to his play boy ways because it is all done while sticking a proverbial finger up at the old guard

But all this is old news and obscures why the media industries should actually be afraid of Kim Dotcom, very afraid.  Dotcom has the vision for a differentiated consumer experience that no other ‘piracy’ innovator has yet had.  Prior to his much publicized FBI raid and the closure of Megaupload.com, Dotcom was on the verge of launching a new, interactive, multimedia content service called Megabox.  It didn’t happen, but – judicial wrangles permitting – it will, and will likely be built upon the foundations of the newly launched Mega.

Piracy Cold War

To date file sharing (by which I mean all forms of unlicensed content downloading and uploading, not just P2P) has been in a secrecy arms race with the media industries.  Every time the media industries have caught up with file sharing, the networks and services have devised new means of evading policing and enforcement.  Although media companies have always inherently been trapped in reactive mode, unable to set the terms of engagement, this strategy has nonetheless been highly effective at keeping file sharing services on the back foot.  As with the cold war two super powers have expended vast resources staying still, investing heavily in being armed to the teeth.  The net result is that piracy has continued to grow but hasn’t been through any transformational innovation in years.  Also the sites and services have become progressively more complex and sophisticated to use and navigate. Pushing them slightly further away from the mainstream.

But what happens when someone finally decides to innovate the file sharing user experience?  When someone scales down the combat zone investment and focuses instead of delivering a great user experience in the way that licensed services do.  That is when media companies need to start worrying.  As I wrote back in February last year:

The nightmare scenario for media companies is that the pirates turn their attentions to developing great user experiences rather than just secure means of acquiring content.  What if, for example, a series of open source APIs were built on top of some of the more popular file sharing protocols so that developers can create highly interactive, massively social, rich media apps which transform the purely utilitarian practice of file sharing into something fun and engaging?  If you though the paid content market was struggling now imagine how it would fare in the face of that sort of competition.

Kim Dotcom has the requisite combination of vision and balls to take piracy through a user experience revolution.  If he does then piracy will become a vastly more worrying adversary for media companies than it currently is.

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

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.