…and it means it: the pictures below are of Deezer branded bus stops in rural Mauritius. With Spotify also having announced a bunch of new markets this week, and Apple and Nokia already having an extensive network of global digital stores, 2013 really is the year that digital music should start to see some meaningful ‘rest of world’ traction.
Subscriptions are still only a small share of the music market but their time is coming. That time is long over due (I and my former Jupiter colleagues David Card and Aram Sinnreich first started making the case for subscriptions back in 2000) and a slew of big players are getting ready to play ball now that subscription look ready for primetime. But they will find it far from plain sailing.
Spotify, Deezer, Rhapsody, Muve, Rdio, WiMP etc. have done much get the market moving and although there are still major challenges ahead (e.g. 9.99 not being a mass market price point) a host of new entrants are poised to make their moves. The much mooted / touted (delete as appropriate) Daisy is one of the more eagerly anticipated ones (see my take here) but focus has recently turned to potential moves from big players like Amazon and Google, while Apple’s arrival in the subscription market is becoming Godot-esque.
All of these companies bring fantastic assets to the subscription market –scale being the most important – but they will all find the subscription transition difficult. However good their technology assets, however big their marketing spend, however big their customer base, none of these companies have subscriptions running through the DNA of their products nor, most importantly, their customers. Here are the key challenges each will face:
- Apple: Apple was the music industry’s digital beachhead but now Apple has a problem. Downloads were a transition strategy with one foot in the digital future and one foot in the analogue past. Apple has built a paid content customer base founded on ownership, a la carte transactions and downloads. Meanwhile it tiers its hardware pricing by hard-drive capacity. In some ways this latter point matters most: in the streaming era consumers download less which means there is less need for higher capacity devices, which in turn means that demand for the higher priced, higher capacity devices tails off. Apple can use subscriptions to address this issue by creating bundles e.g. iPad Gold, a $200 price premium with device-lifetime access to an iTunes music, video and Apps subscription. This sort of tactic will be crucial for Apple because the concept of digital content subscriptions is alien to the vast majority of its 400 million iTunes customers. If anyone can make subscriptions work, it is Apple – and I believe they will – but currently its customer base, hardware pricing and content offerings (iMatch and movie rentals excepted) are simply not the right foundations for building a subscription service on. A lot needs to change before Apple and its customers are ready for subscriptions.
- Amazon: Amazon’s content-device strategy is the mirror opposite of Apple’s: Amazon is selling devices to help sell content. Amazon needs to be a key player in the music and video business because these low price point items are the bottom rung on the purchase ladder that Amazon hooks new customers in with. Subscriptions though, are high consideration items. Amazon is hoping it can nudge customers up to monthly subscriptions in the same way it can nudge customers from a CD to a laptop. But it isn’t the same transition. Most Amazon customers have a lot of one-night stands with the retailer rather than a relationship: it is where they go to get stuff, not to immerse themselves in experiences. Of course Amazon is trying to change that – particularly with video – but it requires a fundamental change in the relationship with its customers. As with Apple, a device / subscription bundle strategy will deliver best near-term results.
- Google: Google has the most diverse set of assets at its disposal. In YouTube it has the most successful streaming music service on the planet and in Google Play it has, well, not the most successful digital content store on the planet. Launching a subscription service on YouTube is an obvious option and the sheer scale of YouTube means that even with highly modest conversion rate it can easily become a major player very quickly. But the fact that YouTube is free is core to why it is so popular, so the vast majority of its users have little interest in paying fees. Thus Google will have to ‘think different’ to make subscriptions work on YouTube. But where Google could really make the subscription play work is, well, on Play. Not Play by itself though but instead as a tightly integrated subscription – device ecosystem with Motorola. A while ago I wrote that Google ‘needs to do an Apple with Motorola’. It still does, but it should do so in a manner fit for the cloud era by hard bundling a Play subscription service into Motorola handsets. (You should be spotting the theme by now).
- Samsung / HTC / Nokia et al. By this stage any readers from a non-Apple and non-Motorola handset business might be beginning to wonder how on earth their companies are going able to squeeze themselves into the subscription equation. It is a very good question. Most mobile handset companies are at a crucial juncture, they now face the same problem as ISPs did in the mid-2000’s: unless something changes mobile handset companies are going to become ‘dumb devices’ just as ISPs ‘became dumb pipes’. Nokia recognized this earlier than most but got the solution wrong – or at least the implementation – with Ovi and is slowly clawing its way back. But all of them have a huge task ahead them if they are to avoid becoming helpless observers as other companies build robust digital businesses on the back of their hardware. If they can harness the carrier billing relationship then they have a truly unique asset for building a music subscription market, but that is much, much easier said then done (remember Comes With Music?).
All of these business have the potential to be successful subscription businesses but none of them will find it an easy transition and none of them are guaranteed success. Not only will they have to transform their products, pricing and customer bases, but they will also have to develop entirely new business practices. To some degree or another, all of these companies have to make the transition from being retail businesses to being subscription businesses. Being in the subscription business is all about managing churn. It doesn’t matter how good a job you do of acquiring customers if you can’t keep hold of them. These are the skillsets that Rhapsody has been quietly perfecting for years and that Spotify is quickly learning. A successful subscription business can appear like a duck, slow moving above the water line, but feet moving furiously fast below.
The Churn Killer: Device Subscription Bundles
Any business that is new to subscriptions – whatever they may say to the contrary and whatever talent they might hire in – is going to be learning the ropes. Which is another reason why hard-bundling subscriptions with hardware makes so much sense for these new entrants. Besides the consumer benefits of turning an ethereal subscription into a tangible product, they allow the providers to plan for 12 to 24 months worth of customer life time value rather than worrying about subscribers churning out after just a month or two.
Even though downloads and CDs will still dominate global music revenues by the end of 2013, it is going to be a big year for subscriptions. Whether the new entrants can help turn that into a big decade remains to be seen.
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.
Mobile apps can stake a pretty solid claim to being the single most important shift in consumer product behaviour in the last 5 years. Sure the devices themselves are pivotally important, but were it not for the apps consumers install on them, they would just be better versions of the feature phones and early smartphones from half a decade earlier. Apps have transformed consumers’ expectations of what digital experiences should be, and not just on connected devices. But Apps have also transformed product strategy, in two key ways:
- Apps have replaced product strategy with feature strategy
- Apps have created a renaissance in the consumer software market
Apps have replaced product strategy with feature strategy
Though there are a good number of apps which can be genuinely held up as fully fledged products (Google Maps, Angry Birds, WhatsApp etc.) many are in fact product features rather than products. Shazam for example is a fantastic feature, so fantastic that it should be as ubiquitous in music products as a volume button, but it is nonetheless a feature not a product. Don’t mistake this for a derogatory critique: indeed feature strategy is virtually the core DNA of the app model. After all apps rely upon the core product of the smartphone or tablet itself to do much of the hard work.
Apps co-exist with the core functionality of the device in order to layer extra features on top. Instagram uses a phone’s camera and web functionality, Layar uses the camera and GPS and so forth. In short, apps add features and functionality to hardware products. That does not make them inherently any less valuable for doing so, but it does make them dramatically different from pre-App products. Even the majority of utility apps, such as those that track rail and flight schedules, or the weather are at heart browser bookmarks on steroids. Games are perhaps the only app category which in the main can be considered as self-contained products.
This shift from product strategy to feature strategy has slashed the time it takes for products to get to market and has dramatically reduced development overhead, but it is a model riven with risk. Consumers and the device ecosystem companies are winners, but many app developers are exposed. On the one hand they have the insecurity associated with platform dependency, on the other they know that if their features are that good that they will likely be integrated into the device’s core OS or into the featureset of another app with broader functionality. Sometimes those scenarios will be achieved via favourable commercial avenues (such as an acquisition or licensing) but sometimes it will just be flat out plagiarism.
The lesson for app developers is clear: if your app is a feature and it is good, then you need to plan for how to turn it into a product, else plan for what to do when your app has become someone else’s feature.
Apps have created a renaissance in the consumer software market
It is sometimes easy to lose sight of just what apps are: software. In the PC age software was for most people one of three things:
- Microsoft Windows and Office
- An anti-virus tool
- A bunch of free-trial bloatware shortcuts preinstalled on their desk top pre point of sale
Mainstream PC behaviour was defined by Microsoft functionality and browser based activity. Sure, software from the likes of Real Networks and Adobe supported much of those browser based experiences, but they were to the consumer effectively extensions of the core OS rather than software products themselves. A premium consumer software market did exist but never broke through to mainstream. Consumers didn’t know where to look for software, whether it would install properly, whether it would work on their PC, and then on top of all this they were faced with having to provide credit card details to small companies they knew nothing about.
Mobile apps changed all of that. App stores simultaneously fixed the discovery, billing, installation and compatibility issues in one fair swoop. Apps have enabled the consumer software market to finally reach its true opportunity. Just in the same way that the iPod allowed digital music to fulfil its potential.
Apps continue to transform consumer behaviour and expectations
So where will feature strategy and the reinvigorated consumer software business take us? What is clear is that consumers are getting exposed to a wider array of digital experiences and are evolving more sophisticated digital behaviours due to apps. Apps are also enabling consumers to do things more effectively and efficiently, and are empowering them with more information to make better decisions, whether that be getting the best flight price or choosing the best local plumber. They are also making consumers expect a lot more from a device’s ecosystem than just the devices. How often do you see a phone company advertise its handsets with the screen turned off? It is the apps that count. For now, however good Nokia might be able to make its smartphones it knows that its app catalogue and ecosystem struggles to hold a candle to Apple’s App store and ecosystem (the same of course applies to all other handset manufacturers).
Apps have become velvet handcuffs for connected device owners
But what happens if/when consumers start to shift at scale between ecosystems? For example, say Apple finds swathes of its iPhone and iPad customers switching to competitors in the future, what sort of backlash will occur when consumers find they have to expensively reassemble their app collections to reconstruct the features they grew used to on their Apple devices? Perhaps a smart handset manufacturer would consider investing in an app amnesty, giving new customers the equivalents of their iOS apps for free on their new handsets.
For now though, Apple’s market leading app catalogue behaves like velvet handcuffs on its customers and gives it a product strategy grace period, in which it could get away with having a sub-par product generation, with customers staying loyal because of not wanting to lose their App collections. But not even the strength of Apple’s app catalogue would not enable them to keep hold of disaffected customers much longer than that. After all, apps are features, not the product itself.
Following the disappointment of 2010, 2011 was always going to need to pack more punch. In some ways it did, and other ways it continued to underwhelm. On balance though the stage is set for an exciting 2012.
There were certainly lots of twists and turns in 2011, including: disquiet among the artist community regarding digital pay-outs, the passing of Steve Jobs, Nokia’s return to digital music, EMI’s API play, and of course Universal Music’s acquisition of EMI. Here are some of the 2011 developments that have most far reaching implications:
- The year of the ecosystems. With the launch of Facebook’s content dashboard, Android Music, the Amazon Fire (a name not designed to win over eco-warriors), Apple’s iTunes Match and Spotify’s developer platform there was a surge in the number of competing ecosystem plays in the digital music arena. Despite the risk of consumer confusion, some of these are exciting foundations for a new generation of music experiences.
- Cash for cache. The ownership versus access debate raged fully in 2011, spurred by the rise of streaming services. Although we are in an unprecedented period of transition, ownership and access will coexist for many years yet, and tactics such as charging users for cached-streams blur the lines between streams and downloads, and in turn between rental and ownership. (The analogy becomes less like renting a movie and more like renting a flat.)
- Subscriptions finally hit momentum. Though the likes of rdio and MOG haven’t yet generated big user numbers Spotify certainly has, and Rhapsody’s acquisition of Napster saw the two grandaddys of the space consolidate. Spotify hit 2.5 million paying users, Rhapsody 800,000 and Sony Music Unlimited 800,000.
- New services started coming to market. After a year or so of relative inactivity in the digital music service space, 2011 saw the arrival of a raft of new players including Blackberry’s BBM Music, Android Music, Muve Music , and Rara. The momentum looks set to continue in 2012 with further new entrants such as Beyond Oblivion and psonar.
- Total revenues still shrank. By the end of 2011 the European and North American music markets will have shrunk by 7.8% to $13.5bn, with digital growing by 8% to reach $5 billion. The mirror image growth rates illustrate the persistent problem of CD sales tanking too quickly to allow digital to pick up the slack. Things will get a little better in 2012, with the total market contracting by just 4% and digital growing by 7% to hit $5.4 billion, and 41% of total revenues.
Now let’s take a look at what 2011 was like for three of digital music’s key players (Facebook, Spotify and Pandora) and what 2012 holds for them:
2011. Arguably the biggest winner in digital music in 2011, Facebook played a strategic masterstroke with the launch of its Digital Content Dashboard at the f8 conference. Subtly brilliant, Facebook’s music strategy is underestimated at the observer’s peril. Without investing a cent in music licenses, Facebook has put itself at the heart of access-based digital music experiences. It even persuaded Spotify – the current darling of the music industry – to give it control of the login credentials of Spotify’s entire user base. Facebook’s Socially Integrated Web Strategy places Facebook at the heart of our digital lives. And it’s not just Facebook that is benefiting: Spotify attributed much of its 500,00 new paying subs gained in October and November to the Facebook partnership.
2012. Facebook is quietly collecting unprecedentedly deep user data from the world’s leading streaming music services. By mid-2012 Facebook should be in a position to take this to the record labels (along with artist profile page data) in the form of a series of product propositions. Expect whatever is agreed upon to blend artist level content with music service content to create a 360 user experience. But crucially one that does not require Facebook to pay a penny to the labels.
VERDICT: The sleeping giant of digital music finally stepped up to the plate in 2011 and will spend 2012 consolidating its new role as one of the (perhaps even *the*) most important conduit(s) in digital music history.
2011. It would be puerile not to give Spotify credit for a fantastic year. Doubts about the economics of the service and long term viability remain, but nonetheless 2011 was a great year for the Swedish streaming service. It finally got its long-fought-for US launch and also became Facebook’s VIP music service partner. Spotify started the year with 840,000 paying subscribers and hit 2.5 million in November. It should finish the year with around 200,000 more. Its total active user base is now at 10 million. But perhaps the most significant development was Spotify’s Developer platform announcement,paving the way for the creation of a music experience ecosystem. Spotify took an invaluable step towards making Music the API.
2012: Expect Spotify’s growth trajectory to remain strong in 2012. It should break the 3 million pay subscribers mark in February and should finish the year with close to 5 million. And it will need those numbers because the funnel of free users will grow even more dramatically, spurred by the Facebook integration. But again it will be the developer platform that will be of greatest and most disruptive significance. By the end of 2012 Spotify will have a catalogue of music apps that will only be rivalled by Apple’s App Store. But even Apple won’t be able to come close to the number of Apps with unlimited music at their core. More and more start ups will find themselves opting to develop within Spotify rather than getting bogged down with record label license negotiations. Some will find the platform a natural extension of their strategy (e.g. Share My Playlists) but others will feel competitive threat (e.g. Turntable FM). If Spotify can harness its current buzz and momentum to create the irresistible force of critical mass within the developer community, it will create a virtuous circle of momentum with Apps driving user uptake and vice versa. And with such a great catalogue of Apps, who would bet against Spotify opening an App Store in 2012?
VERDICT: Not yet the coming of age year, but 2011 was nonetheless a pivotal year paving the way for potentially making 2012 the year in which Spotify lays the foundations for long term sustainability.
2011. Though 2011 wasn’t quite the coming of age year for Spotify it most certainly was for Pandora. In June Pandora’s IPO saw 1st day trading trends reminiscent of the dot.com boom years. By July it had added more than 20 million registered users since the start of the year to hit 100 million in total and an active user base of 36 million, representing 3.6% of entire US radio listening hours. But Pandora also felt the downs of being a publically listed company, with flippant traders demonstrating their fear that Spotify’s US launch would hurt Pandora.
2012: And those investors do have something of a point: whatever founder Tim Westergren may say, Spotify will hurt Pandora. A portion of Pandora’s users used Pandora because it was the best available (legal) free music service. Those users will jump ship to Spotify. This will mean that Pandora’s total registered user number will not get too much bigger than 100 million in 2012 and the active number will likely decline by mid-year. After that though, expect things to pick up for Pandora and active user numbers to grow again. The long term outlook is very strong. Pandora is the future of radio. It, and services like it, will get an increasingly large share of radio listening hours with every month that passes in 2012, and with it a bigger share of radio ad revenues. Pandora will be better off without the Spotify-converts, leaving it with its core user base of true radio fans. Spotify’s new radio play will obviously be a concern for Pandora but this is Pandora’s core competency, and only a side show for Spotify. Expect Pandora to up their game.
VERDICT: Since launching in November 2005 Pandora have fought a long, dogged battle to establish themselves as part of the music establishment, and 2011 was finally the year they achieved that. There will be choppy waters in 2012 but Pandora will come out of it stronger than it went in.
In the excitement of Nokia’s announcement of its first Windows phones today, one would be forgiven for missing the announcement of Nokia’s first major move in the music space since Comes With Music: Mix Radio.
Nokia’s post-Comes With Music strategy was always going to be a difficult one to get right. Regular readers will know I was a big fan of the Comes With Music, subsidized-music-on-handset model but that I thought it might be someone else who makes it a success (Boinc will certainly have a good go at it). Nokia paid the price of being the first mover – as Apple’s successes attest, it’s the early follower who normally wins out. Nokia bore the brunt of a lot of criticism for Comes With Music, some of it warranted, some not, and then cleared the decks, with key figures like Liz Shimel moving on. Music still matters to Nokia, a lot, as it does to most CE companies. But Nokia got burned by investing heavily in a highly disruptive model that delivered negative ROI. Meanwhile Apple stuck with a basic download store and continues to clean up.
This is the world into which Nokia’s post-Comes With Music strategy was born. And the result? Nokia Mix Radio. No subscription, no download fees, no log in etc. You simply tap the home screen and music starts playing and you can even select to listen to the music offline. Comes With Music exit stage left, make way for Comes With Radio.
Nokia Mix Radio is certainly no Spotify challenger and it is certainly no Comes With Music. But that’s the point. Nokia’s post-Comes With Music, music strategy is all about looking at how to get the best ROI on delivering differentiated on-device music experiences without having to try to change the world.
Of course, expect Nokia’s music strategy to ramp up, and for Mix Radio to be a stepping stone – there may even be a Microsoft play – but don’t expect Comes With Music take two.
[Please note that this post first appeared on the Forrester Consumer Product Strategy blog. Over the coming month or so I will be migrating all of my activity there. I will soon be posting new information here for you to amend your feeds and subscriptions. Thanks]
[Posted by Mark Mulligan]
Real Networks yesterday announced that they intend to spin-off music subscription service Rhapsody as a stand alone business. Rhapsody has long been held up as the best of breed music service, but in the age of Spotify and Comes With Music it and other premium rentals have increasingly struggled to maintain relevancy. Spotify and Comes With Music each may have
fundamental business issues and are very different offerings, but they both provideunlimited music free at point of consumption. Once you have that proposition in the marketplace selling 9.99 rented streams looses its shine, however good the discovery and usability may be.
This time two years ago Rhapsody, Napster and Yahoo had about 1.8 million paying subscribers between them. Since then Yahoo got out of the game (passing its subs onto Rhapsody), Napster got sold and the total count is now around 1.3 million. So just as the music industry is meant to be booming online, its premium tier sheds over a quarter of its value across its heavyweight proponents.
The simple fact is that charging 9.99 or more a month for music that often only sits on your PC is not a mass market value proposition. It’s great for aficionados but mass market consumers aren’t used to buying music that way.
So is this the end for subscriptions? No, not at all, in fact they’re doing better than ever, it’s just the old guard that is struggling to keep pace. A new generation of subscription services are being built that place portability at their core and that often hide some or all of the end-cost to consumers.
Let’s take a quick look at the numbers, here are total paid subscribers by territory (all numbers are approximate):
- Europe: 1.25 million (key players: Spotify,Vodafone, Napster)
- US: 2 million (key players: Rhapsody, Napster)
- ROW: 5 million (key players: Melon)
That gives a global total of about 8.25 million, which is promising though still short of where they need to be. If subscription services are to help digital music break free of the iPod orbit and go mass market then two things need to happen:
- Premium subscriptions need to be unlimited MP3
- Mass market subscriptions need to have channel partners such as telcos and device companies hide some or all of the cost to consumers i.e. subsidized subscriptions (For the record I think the ‘cost to consumer’ price point for unlimited music should be 3 euros/dollars/pounds a month.)
The first generation of music subscriptions may have been niche also rans, but the next wave – given the right business models – could be much more important.
[Please note that this post first appeared on the Forrester Consumer Product Strategy blog. Over the coming month or so I will be migrating all of my activity there. I will soon be posting new information here for you to amend your feeds and subscriptions. Thanks]
Lots happened in 2009 but it wasn’t a vintage year for digital music (in fact it was the year it well and truly lost the digital buzz to eReaders). All in all I’d give 2009 a 6 out of 10, with the launch of Spotify accounting for at least couple of those points and the following as the 5 key disappointments:
- Comes With Music under-whelmed (as did Play Now plus)
- ISP services didn’t get off the ground (including unlimited MP3’s nearly but not quite moment)
- Apple’s new killer music format was….oh iTunes albums
- imeem gave a master class in how not to make money out of social music
- The big boys (MySpace, Apple) snapped up the innovative competition (Lala, iLike, imeem)
So will be 2010 be any different? Though I don’t think it will be the year digital music will really come of age (that’s at least a couple more years away) I do expect it on balance to be a stronger one than its predecessor. Leaving aside the few specific developments I’m not able to talk about here are a few of my predictions:
- Apple launches a major refresh to the music experience. (I’ll caveat this first prediction with the disclaimer that Apple make a habit of proving wrong those of us foolish enough to try to second guess them.) With that said, there are many things Apple could do with music in 2010. Whatever they do, they have to do something significant if they are to stay on top of their game. They’ve spent much of 2009 collecting user data via the Genius app and they’ve acquired some top notch streaming and programming expertise via the Lala acquisition. And of course they’re busy developing with content partners for the forthcoming touch screen note book. Here’s hoping that this will all add up to something like an integrated on-device, connected, interactive and immersive music experience where the cost is bundled into the price of the device (perhaps with the touch screen note book as the flagship device for the offering). Apple wouldn’t be in the game of hiding the cost of music to the consumer (a la Comes With Music) but they may use content subscription bundling as a way to maintain premium price points and differentiation for their devices.
- MySpace deepens its focus on music. Though MySpace will spend most of 2010 simply ingesting iLike and imeem, the acquisitions form part of a longer term strategy to breathe much needed new life into MySpace’s music role. The new management talent is tasked with pulling MySpace from the brink of becoming a garbled also ran and dragging it by the collar into the 2nd decade of the century. Though they’re unlikely to admit it, the mainstream social networking race against Facebook is as good as over. By contrast they remain the #1 destination for artist communities online, yet without a major reinvention they’ll start to feel the competitive pressure bite there also.
- Spotify scales back its US launch. Spotify appears to be paying the price for the major labels having second thoughts about ad supported on-demand content. Those pesky US licenses have been proving tough to tie down and I’d expect to see Spotify’s US launch to be more strongly focused on the premium tier than it is in Europe. If so, it could actually prove to be something of a blessing for the Swedish upstart, allowing it to consolidate the monetization of its core user base rather than building a US ad business from scratch whilst millions of free US subscribers add cost to the bottom line. Whatever the case, Spotify’s European revenue fundamentals should improve in Europe in 2010.
- ISP music services don’t pack a killer punch. I’m a firm believer that ISPs will become established as a core element of the digital music value chain and the best way of fighting piracy head on. In 2010 we’ll see more services launched both in the US and in Europe, especially the UK. But I don’t see anything yet to suggest they’ll be adequately provisioned to flourish. It’ll take another year or two of revenue pain decline for the labels to adjust their license requirements sufficiently. What do I think will work? 5 pounds / euros / dollars a month for household access to near unlimited (i.e. fair use) MP3.
- Semi-pro sites and services prosper. I’m not sure I’d go as far as to say 2010 will be their year, but it will certainly see continued growth for the likes of SellaBand, MyMajorCompany and Tune Core. These sites that create a route to audiences for artists either not good enough or not yet good enough for record deals, play to the strength of the Internet as a social channel for artists and fans. Which of course is all the more reason for MySpace to be watching its back.
To conclude, 2010 will be another year in which digital music continues to find its feet, but significant progress will be made.
I have to admit to being a bit under whelmed by Apple’s announcements today. I’d been hoping for something a bit grander from a music perspective. I’ve spoken about the iTunes Album launch and explained my thinking that it falls short of what it could have been. But on the other hand there is an argument that Apple’s relatively modest tweaking might be part of a bolder strategy: that of establishing iTunes as a platform that explicitly coexists with the big name social platforms, namely YouTube and Facebook.
Apple is all of course all about selling devices. But part of that strategy is building compelling user experiences that establish and reinforce the value of usage scenarios of their portfolio of devices. This is the context into which to consider approving the Spotify app, enabling posting of iTunes song information into Facebook and Nano captured video into YoutTube. From that perspective Apple is playing a smart game that builds the social context of their devices as explicit extensions of the value proposition of the iPod an iPhone ranges. Take it one step further and you could even build an argument that Apple are building a range of devices that are flexible enough to mould around the degree of social engagement the user wants. Interestingly this strategy echoes much of Nokia’s current positioning and also establishes a scenario in which iTunes builds as a media platform coexisting with the large established social platforms. Social context is what defines and reinforces the position of iTunes and Apple devices. Sounds a lot like Nokia’s World view? I think so. Perhaps finally Apple are taking some of Nokia’s vision rather than vice versa?
Today the triumvirate of Universal Music, UK broadcaster Channel 4 and UK mobile operator Orange announced a Pay As You Go (PAYG) mobile music service called Monkey. The service is aimed squarely at younger consumers, which matches the demographic of PAYG users and Channel 4’s audience. The underlying principle of the service is that it has a low barrier to entry: it utilizes the voice network rather than data network and is thus available across all handsets and does not require any application download. Instead consumers simply dial 247 to listen to playlists streamed at 64 kbps. Most of the more sophisticated behaviour, such as playlist creation, music discovery etc., is expected to happen online, using a cloud based player, where tracks will be streamed at 128 kbps. Playlists can also be shared using widgets for major social networks and via text.
So what impact is this offering likely to have? It’s clearly aimed at enticing young consumers away from file sharing and the positioning point is effectively ‘free music when you top up your phone’. I think there is a risk of worst of both worlds here. Firstly, I don’t buy into the argument that streaming reduces file sharing penetration. It may cause file sharers to download less from P2P networks, but it’s unlikely to entice them away from them as they’ll still want music for their MP3 player, to burn onto CD for their friends etc. Granted, Monkey steps closer to being a replacement in that it has a portability story (of sorts) and it has a sharing story (of sorts). But it doesn’t provide true portability (what do you do when you’re underground for example) and it only offers partial catalogue.
The killer point though is that it uses voice minutes and the cost of calls is 20p per minute. So it will cost about 70p to listen to a single and an entire 10 pound top up will give you about 1 album and no time left for talking. So consumers are paying the same amount as an iTunes single download (even more for an album) but only getting a low quality analogue audio stream. (And what happens when somebody wants to call them when they’re listening over the voice line?)
*Orange just called me to clarify their press release. The press release reads:
- “Monkey customers can access the service on their phones by dialling [sic] 247.”
- “Calls cost 20p per minute”
However, following my phone call from Orange it transpires that the per minute pricing applies to voice only and not music calls, even though this isn’t actually explained in the release.
Also another interesting detail emerges: the service is actually a limited mobile music service, not an unlimited mobile music subscription, hence the careful use of the term ‘access to music’ in the release. Customers are only allowed to listen to 600 minutes of music per month on their phone (again not in the release), which translates into 14 albums. If you take a 30 pounds top up, that then translates into 2 pounds ten per album listen, so if you listen to an album, say 3 times in a month, that’s 6.30 an album. Which isn’t far off the cost of a standard album, but of course you don’t get to keep it after you’ve finished listening . The ’3 listens’ cost drops to 4.20 for a 20 pound top up, 2.10 if you just take a 10 pound top up. So still far from free, even though they’re being told it’s ‘free’ music, which in turn reinforces conceptions that music is a free commodity (thus further undermining perceived values of music).
The additional fact that Universal will make some releases available here before anywhere else is a brave move and underlines the major’s persistently adventurous product innovation. It will certainly be a key asset for demonstrating consumer value, but it will need careful positioning alongside premium products. How, for example, would a high-end 15 pounds a month subscriber to Virgin’s unlimited MP3 subscription service (also in conjunction with UMG) feel if they realized they were getting new releases after the lower end Monkey customers were?
The other interesting sub text here is the underwhelming success of Comes With Music (Universal and Orange are both key UK partners for Nokia). Is this picking up where CWM has failed to do so? As I’ve stated here many times before, I am a firm believer in the CWM model and I believe it is the best tool that the music industry currently has for fighting piracy. It is a genuinely compelling alternative to file sharing as it has a viable portability and ownership story. Unfortunately it’s been hindered by channel issues, marketing problems and limited consumer awareness and understanding.
When I asked how Monkey would be positioned alongside CWM, UMG’s Rob Wells said Monkey was aimed more at younger, lower end consumers and Orange’s Pippa Dunn said that Monkey was for PAYG customers whilst CWM was for subscription customers. Orange’s positioning is clean and elegant, but it’s a shame that CWM is effectively being marginalized as a high-end proposition. That is not its sweet spot. Indeed the strong CWM association with the 5800 illustrates Nokia’s understanding that CWM is best positioned at younger, lower spending consumers and that it does not stand up as well when held up against higher end digital music offerings. Also, from a broader music industry perspective CWM needs to be reaching younger consumers. I hope Monkey doesn’t distract from that.