[This is the first in a series of posts addressing innovation within the music industry.]
Innovation is a much overused and often misused term, yet when considered in its truest sense it is arguably the single most important issue that the music industry must address if it is ever going to rediscover long term, sustainable revenue growth.
Of course the modern day music industry is a complex and diverse collection of entities with equally disparate innovation trends, not however starting from a base of zero, despite what some may think.
Indeed, we all do innovation. Even the least innovative of companies do some form of innovation, at some level, at some pace.
The three metrics which determine whether a company is in balance innovative or not are:
- Degree of innovation pursued
- Culture of innovation supported
- Rate of innovation achieved
Performing strongly on all three of these Innovation Performance Indicators (IPI) IPIs will not guarantee a company success (external factors such as consumer demand, marketing, finance will all help determine that). But excelling at all three IPI’s will ensure that a company has the frameworks for creating product strategies that have the agility and adaptability necessary for success.
The major record labels have been much maligned for not having performed strongly enough across all three IPIs but in recent years they have upped their respective games markedly. However innovation comes less naturally to some companies than others. Record labels are like most media businesses in that they have traditionally relied upon channel partners to drive transformational innovation. The compact cassette, the DVD, BluRay, HDTV, PVRs, Ring Tones, Games Consoles etc. all transformed media business models for ever, but they were shaped by technology companies not media companies.
Apple’s sub-par rate of music service innovation
And this is where the elephant in the room raises its hand.er…trunk: Apple’s sub-par rate of music service innovation is probably the single most important reason why digital music growth has slowed in the last couple of years. Before you begin thinking I’m losing my mind, let’s be clear, I am not questioning Apple’s innovation credentials, indeed they are the marketplace exemplar, instead, and specifically, their music service innovation performance. In fact it is exactly the exceptionally high bar set by Apple’s rate of device innovation which throws their rate of music service innovation into stark contrast (see figure).
In this chart each product innovation (or set of product innovations) has been given a score using the scale described in the key. What is abundantly clear is that Apple’s rate of device innovation has consistently far outpaced its rate of music service innovation, which in turn has also significantly lagged the total market rate of music service innovation. Apple’s overall rate of innovation has accelerated in recent years driven by the launch of the iPhone and iPad, but interestingly, also by a upturn in music service innovation with new products such as Genius and Ping.
Because Apple is the majority of the online digital music market, the impacts of its rate of music service innovation are felt market, and indeed industry, wide. When Apple shifted its attentions from music to video and apps – which better demonstrate the capabilities of their devices than audio files – digital music growth began its now established slowdown. Apple didn’t fall into this position accidentally, it was a series of orchestrated strategic decisions.
Dominant as it may be, market share is not the measure of success for Apple’s music innovation
As I explained in a previous post, Apple is in the business of selling hardware, not music. The ROI of music service innovation for Apple is not measured in digital music ARPU, but instead in sales of i-devices. Dominant market share is a nice-to-have symptom of success, not the measure of it. So Apple innovates music experiences only as much as it needs to, namely as much as is required to help sell its core innovations. Apple’s recent mini-flurry of music service innovation happened only because its music innovation rate had fallen so far below the market average that the Apple i-device music experience was beginning to look sub-par. i.e. there was a risk that i-device sales might suffer without music service innovation.
The music industry needs Apple to start taking music service innovation seriously again because Apple has as its customers the majority of the digital music market’s most valuable customers. The music industry needs iCloud to be one of a series of near-term music service innovations that are transformational in collective impact, rather than it being a solitary sustaining-innovation that does just enough to keep the i-device music experience sufficiently strong to continue to help drive sales. And the rest of the market also needs Apple to start playing a more active role because Apple’s innovations drive entire markets, dragging the competition along by the scruff of the neck. As they say, a high tide rises all boats.
Innovation must engage the untapped market not just re-engage the aficionados
And speaking of competition, the music industry also needs the other two members of Digital Music’s Triple A - i.e. Amazon and Android (Apple makes the third) – to up the innovation ante and play their role – as part of the uber-financed-trinity – to start pulling new customers into the digital market rather than competing for the same early adopter aficionados.
The rate of consumer device innovation is outpacing that of music services, and that will always be the case but that gap needs narrowing, fast. That quickness depends upon Apple narrowing the gap between its respective rates of innovation, and the record labels are going to need to give Apple incentive to do so. They have not always been the most accommodating of innovation partners for Apple (remember when they licensed MP3 downloads to anyone who wasn’t called Apple?) but unless that approach changes they cannot expect Apple’s rate of music service innovation to change either.