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-ekDaniel 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-dauchezAxel 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-irwinJon 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-purdhamSteve 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-druryBen Drury, CEO and Founder – 7 Digital

2012: Streaming cloud locker services from Google and Amazon

2013: Globalised rights

 

 


drew-larnerDrew 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-masseyNick 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-bebelMike 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-lautizenEspen 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-macfarlaneJohn 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.

Omnifone and the Bundled Music Opportunity

I spent this morning listening to Omnifone’s CEO Jeff Hughes and CFO Matthew Bagley rounding up what has been a good year for the white label music service provider.  Omnifone have been in the game for a lot of years and have seen their fair share of ups and downs.  Now 10 years on from being founded they have turned their first annual operating profit, from a record full year revenue of £29.5 million.

When Omnifone first came to market it had no shortage of direct competitors. But as the first wave of digital music services, powered by Omnifone competitors such as OD2 and MusicNet, smashed against the rocks of the new upstart iTunes Music Store, the marketplace soon consolidated.  Omnifone wasn’t quite the last man standing, but it certainly had a lot more competitive leg room.  Over the intervening years it has managed to establish a solid reputation for providing the back end infrastructure for music services for global brands such as Sony, Blackberry and Vodafone.

Over the last year or two though, Omifone has been quietly repositioning around the streaming zeitgeist.  The most visible ouput of this strategy to date has been the formation of the direct to consumer streaming service Rara, which has since been spun out of the company.  Hughes says of streaming music that Omnifone has “built a racetrack and now we want to put horses on it”.   This, he adds, will not just mean working with big global companies but also starting to work with a select number of ‘interesting’ start-ups, up to 5 a year.

Hughes points to bullish streaming and cloud music revenue forecasts by the likes of Strategy Analytics and ABI Research as an indicator of the market opportunity.  Although these forecasts are optimistic (to put it mildly) there is clearly a pronounced pivoting towards streaming consumption.  As regular readers will know, I have little faith in 9.99 ever being established a mass market consumer price point and it will certainly never drive the numbers some people are forecasting.  But work with a hardware company to absorb some or all of the cost of the music into a device or car (or even a home as Hughes suggested) then you start to have the ability to drive mass market adoption.

Four years ago I proposed the creation of digital music box for the living room, to halt the steady demise of the home hi-fi.  Back then the economics of the proposition had to be engineered around pre-installed downloads, making it nigh on impossible to make the concept work at mass market price points without dramatic license rate discounting.  Streaming changes all of that.  Now the concept of a $/€/£250 hi-fi unit with a year’s worth of fully integrated unlimited music is a genuine opportunity (and one that some one should address with urgency).  Omnifone is exactly the sort of company who could make it happen with the right device brand.

Of course Omnifone no longer has as much competitive leg room as it once did, with the likes of 24/7, 7 Digital and Aspiro all contributing to an increasing competitive marketplace.  But as streaming continues to help drag digital music out of doldrums, Omnifone could yet play a key role in the future of digital music. Though the ISP bundle opportunity appears to be diminishing with every month that passes, mobile carriers (e.g. Cricket Wireless) and handset manufacturers (e.g. HTC) are showing growing enthusiasm for bundled music strategy.  Once the dust settles on Spotify’s stellar year, and it is clear just how much all the other streaming service ‘boats’ have been risen by Spotify’s ‘high tide’, I expect we’ll see an even stronger case for the bundled music service, and in turn more demand for the services of Omnifone et al.

Why The Access Versus Ownership Debate Isn’t Going to Resolve Itself Anytime Soon

Earlier this week I was at 7 Digital’s Annual Media and Partners Meeting.  At the start of the year 7 Digital hit their 7 Year mark, which in Internet Years is probably equivalent middle age.  7 Digital now have 3 million registered paying customers (of which 30% are active) but what is most interesting is the impact of mobile downloads on their business.    Since launching direct-to-mobile paid downloads the segment has become 7 Digital’s most dynamic growth area: in November 2010 mobile device sales accounted for just 1% of total sales, 1 year on and that share has rocketed to 44%.   (Online sales also grew, so this is a case of strong growth in both relative and absolute terms).

Ownership isn’t dead

7 Digital’s CEO Ben Drury used the data shows that ownership isn’t dead.  He has a point.  In these days of cloud and streaming dominated debates it is easy to be led to believe that ownership is an outdated legacy of the analogue era.  Of course in many ways it is, but the unavoidable fact is that we are in a transition phase in which both ownership and access matter and it is a stage which has many years to yet to run.

In simplistic terms there are two key dynamics which determine the pace of the shift from ownership to access:

  • Technology-led change
  • Generational-led change


Generational-led change

The generational changes are slowest moving, almost glacial in pace.  Yet they give the impression of being quicker than they actually are, because such a small subset of the total population is currently active in digital music.  These 10-20% of consumers (of which I and probably you are part) are not representative of the total consumer base.  But even among us there are discreet groups.  I am of the age group that grew up with CDs.  I am part of the transition generation that has enthusiastically adopted digital but still understands the value of physical media and ownership. The Digital Natives however (i.e. those consumers who have grown up in the digital age without ever having learned the habit of buying physical media) have entirely different concepts of ownership.  These are the true vanguard of the shift towards access based models.  But they are young, so time rich as they might be they are also currently cash poor.  Thus they are opting for free alternatives, such as YouTube, Pandora, Spotify Free.  Only when they start to acquire increased spending power will they start to be the dynamic force in adoption of paid access based services.

Meanwhile, the digital hold outs – i.e. the majority of the total population – are being left behind as the digital music bandwagon rolls on.  Out of habit some of them still buy CDs (some of them even buy a lot of CDs) but most are just falling out of the habit of buying music.  Their sense of ownership however remains unchanged.  In their world view you either buy music and own it, or you listen to it on the radio or TV.  Their worldview remains wholly un-muddied by cloud and streaming services.

Technology-led change

If Generational-led Change is the slow moving backdrop to the access / ownership debate, then Technology-led Change is the fast moving current, the rip tide.  It is technological change which underpins Spotify’s conversion of 2.5 million paying customers (Napster and Rhapsody both offered portable rentals years earlier, but not cached streams).  It is technological change which Pandora has to thank for its 100 million users (adoption only truly lifted off with the launch of the Pandora iPhone App).  Better technology and better connectivity are making the constraints of access based services less visible.

Yet almost paradoxically Technology (in both its advances and limitations) is simultaneously building the case of access and extending the life span of ownership (see figure):

  • Pay once. Whether subscription fees are hidden or premium, users know that access to content ends when the subscription does.  Paying individually for a la carte downloads and CDs might be intrusive and clunky, but the fact remains that consumers know they then have guaranteed lifetime of product ownership.  Consumers still ‘get’ ownership and paying (or indeed downloading for free) once and owning for ever is an exceptionally easy concept to communicate. Score: Ownership 1, Access 0
  • Play on anything. Subscription services have made great strides in device ubiquity, primarily via smartphone apps, but non-smartphone users are left out in the cold, as are non-paying streaming users. MP3 is the common currency of digital music.  MP3 files play on virtually every connected device consumers have.  Ownership gives the greatest chance of device ubiquity.  Score: Ownership 2, Access 0
  • Play anywhere.  Consumers can take their MP3 playing devices with them most places and not have to worry about network connectivity.  However memory size restraints often mean they can only take a portion of their music with them.  Smart use of local device stream caching is freeing subscription services of the chain of the PC but network connectivity remains core to their value proposition and we are far away yet from the ephemeral promise of ubiquitous connectivity.  Score: Ownership 3, Access 0
  • Play everything.  Download stores and CD stores have great catalogue, but access is as metered as it gets.  To fill your iPod with paid downloads costs tens of thousands of dollars.  To fill it with subscription music costs less than $10 a month.  It is in the context of unlimited access to vast catalogues of music that streaming services come alive, leaving ownership casting covetous glances from afar. Score: Ownership 3, Access 1
  • Share with everyone.  Music has always been an inherently social experience (from the earliest prehistoric musicians playing around the fire through to mix tapes).  But in the digital age music is massively social.  Or at least it is for streaming services.  Sharing owned music means making or lending individual copies.  For streaming services, playlists, APIs and Facebook  place social connectivity at the core of the streaming experience.    Score: Ownership 3, Access 2

So it looks like a narrow victory for ownership, but I’d argue that a tie is a more accurate assessment, because ‘Play everything’ and ‘Share with everyone’ are so important that they carry extra weight.  These factors are core to what makes music different in the digital age.  They are foundations stones for building new pillars of value around music in the post-physical era.

Ownership and Access will co-exist for years to come

And so we have a situation where the case for Access is building all the time, driven by advances in technology (especially mobile), but those same advances also bring limits which extend the case for Ownership.  Mobile is becoming core to the digital music experience, and will only become more so over the coming years.  Right now it is simultaneously encouraging people to buy downloads to guarantee portable access to their music as well as allowing subscription users to take their streaming experience with them on the go.

There is no doubt that Access based models are the future of music, but there are many, many years yet in which Ownership based models will continue to play a pivotal role.  Ownership and Access better learn to get along together, because they are going to be roommates for a long time yet.

Just How Important Do You Think iTunes Actually Is?….

I’ll let the chart do most of the talking.

The key takeaway  is that two of the oldest models in the digital marketplace (radio and retail) dominate in terms of users.  Persistence certainly pays off for Pandora and Apple.

The iTunes Store is of course more important than Pandora for music industry revenue as its core function is to sell music.  More than eight years after launch the iTunes Store remains by far the biggest success story in digital music sales, which given Apple’s relative lack of interest in innovating iTunes compared to their hardware, says as much about the competition as it does Apple.

There used to be a line of argument that Apple was a unique case because in its base of iPod owners it had converted the majority of the engaged, tech-savvy music aficionados that there were to be had.  That Apple had already grabbed the addressable market for competitor services.   Prior to the launch of the iPhone that base represented 88 million iPods sold.  Since then though Apple has sold 0.4 billion more devices.  The old argument just doesn’t hold water.  Apple is doing something right – or rather many things right – that can turn (relatively) mass market consumers into savvy and engaged consumers.  Something that the competition is patently not managing to do when it comes to digital music.  And as much as it may be that Apple’s largely closed ecosystem is core to converting this behaviour into paid content behaviour, it is clear that the rest of the competitive marketplace needs to start learning how to better compete with Apple if the balance of power is ever to be altered.


Some methodological notes:

  • YouTube is not included because although it is by far the largest online music destination it is not a pure music service.
  • There is a mixture of paid and total users numbers in here.  This chart is intended to give a sense of relative scale of service adoption across a diverse range of user experiences and business models.
  • The list is illustrative, not exhaustive.  So there are major players such as Amazon, MelOn and smaller players like Sony Music Unlimited, rDio, MOG, 7 Digital, MusicLoad, We7 etc who are not on here.
  • The estimate for Apple’s total regular music buyers is based upon an assumption of 40% of the unique owner installed base of iPods, iPhones and iPads.  That is to say that installed base numbers have been created for each device using replacement and new sales assumptions, and that then a unique installed base number was created using assumptions about multiple device ownership etc.  The assumptions were cross referenced and checked in multiple ways including calculating the average number of downloads per buyer, cross referencing against total market level statistics for buyer penetration and digital download sales.  The number is an informed directional estimate not a definitive measure.

Waiting For Facebook

As the market collectively holds its breath in anticipation of Facebook’s much (over?) hyped music service launch this coming Thursday, it is instructive to take stock of where we are at the moment to better understand the eager expectation.

Digital music is stuck in a rut

At the start of the year I made a speech at Midem, positing that digital music was at an impasse.  Now, with the best part of a year gone, it still is. Granted we’ve had some important and encouraging developments (Spotify’s US launch and 1 million+ paying subs and Pandora’s IPO among them) but the fundamentals remain unchanged (see figure):

 

  • Paid downloads are an Apple micro-economy not a marketplace. Despite valiant efforts from the likes of 7 Digital and Amazon, the 99 cent download just isn’t translating well outside of the iTunes ecosystem.  Why?  Because the tail is wagging the dog.  iTunes downloads are an extension of i-devices not vice versa.   The iTunes 99 cent download is effectively monetized CRM.  Deep, elegant device integration is crucial for any digital music experience, especially so paid downloads. 7 Digital’s Music Hub build for Samsung’s Galaxy Tab is the sort of implementation needed, but both 7 Digital and the market as a whole need a much wider addressable base than Galaxies alone (retail embargoes notwithstanding).
  • Premium rentals are an evolutionary dead-end. Despite Spotify doing a most admirable job of breaking the 1 million premium subscribers mark – which all other services had spent years failing to do the fact remains that 9.99 rented music is a high-end aficionado market.  Spotify have done a great job of building on the fantastic pioneering work of Rhapsody but in doing so they have developed the ‘faster horse’ that Henry Ford said his customers would have requested instead of the Model T if he’d asked them what they wanted.  Rdio and Mog both have great user experiences but have struggled to make headway because the basic value proposition of 9.99 a month for rented music just doesn’t appeal to most consumers.  Heck, 9.99 a month for owned music doesn’t even appeal anymore to most consumers anymore.  Mass market consumers may be willing to pay much more than 9.99 a month on TV, broadband, mobile etc. but they won’t for music. It may not be pretty but this is the harsh reality that must be accepted. As far as music is concerned the contagion of free is legion and the best way to fight free is with free itself (or at least something that feels like free – see my previous post on subsidized subscriptions for more).
  • Digital music is cluttered and complex. There is so much choice of catalogue and services that paradoxically there is no choice at all for consumers, unless you’re a savvy aficionado willing to wade your way through the clutter. Mass market consumers need the digital dots joining.  Back in my days at Forrester I wrote about the need for 360 Degree Music Experiences, where the disparate parts of the digital music journey get pulled together by an interconnected ecosystem.  The case for this is even stronger now.

Music: Facebook’s user lock-in

And this is where Facebook comes in.   As I wrote earlier this year, it doesn’t make any sense for Facebook to try to ‘do a MySpace’ or for that matter to ‘do a Spotify’ or ‘do an iTunes’.  Facebook is becoming a launch pad for our online lives just as Google is.   But whereas Google largely gets us to places we don’t yet know, Facebook is what (and who) we do know.  And in that lies a massive asset for digital music and an even larger platform for Facebook’s future growth.

I expect Facebook to join music’s digital dots and become a social dashboard for digital music activity.  By plugging our music activity into our social graph Facebook can both enrich those services and tap into the tastes of our friends.  The net result will be a richer digital music experience across multiple services and – most crucially for Mark Zuckerberg – one more reason why we’ll want to stick with Facebook when the Facebook-Killer finally raises its long overdue head.

Samsung and Meeting The Device Use Orbit Challenge

Two pieces of Samsung related news hit the wires this week:

Samsung might not be one of the big players in digital music but this mixed service portfolio approach indicates a strategic pragmatism that is crucial for anyone trying to compete with Digital Music’s Triple A of Apple, Android and Apple.

But the approach – and 7 Digital’s broader mobile success – is also indicative of an increasingly important strategic imperative for digital music services: namely navigating consumers multiple and interrelated device orbits (see figure).

Ubiquitous connectivity is, to put it mildly, some way off and the stream isn’t going to fully replace the download anytime soon.   And yet, more people are using more devices to listen to music in more places than ever before, and these usage patterns are creating an increasingly complex mesh of usage orbits.  Consumers are becoming more and more adept at developing specific and distinct use cases for their growing number of devices.

Historically, music allowed itself to be pulled across different devices, responding to consumer needs.  This was a perfectly adequate first stage but now music services need to do more than just deliver music to where consumers are.  To prosper in the next stage, music services need to tailor music experiences and value propositions both to specific use cases and be designed for co-existence within multiple, interrelated device orbits.

Coexistence Strategies

Of course some services will hope to simultaneously address every device use orbit (good luck on getting the licenses for that).  But the smart services will design nuanced co-existence strategies that ensure the core use case not only fits alongside a consumer’s wider digital music activity but establishes itself as an indispensible complement to it.  For example getting onto Sonos’ new Play:3 will likely be a more valuable route to the living room than trying to develop integrated hardware from scratch.  Similarly delivering mobile Facebook playlist support and integrating discovery tools like the Hype Machine will prove every bit as important to the consumer experiences as securing the rights to deliver the music itself.

Consumers will continue to have more devices, more content and more music service choices. The challenge that music services and device manufacturers such as Samsung must meet is helping join those digital dots by navigating consumers’ device use orbits.