The Problem With Audiences (A Letter To Daniel Ek)

Dear Daniel

I enjoy our occasional Twitter exchanges and last night’s about MIDiA Research’s new music forecasts was no exception. For the record, I believe you deserve great credit for engaging as much as you do on Twitter. But as valuable a platform as Twitter is, it is not the best environment for discussing more complex and nuanced issues so I wanted to take this opportunity to build out from our conversation.

Your comments revolved around MIDiA’s estimate of the global ad supported music audience, which you think is lower than it should be at 202 million. I am really pleased you have picked up on this audience number. Part of what we are trying to do at MIDiA is educate the music industry to think less about Average Revenue Per User (ARPU) and more about how many people are actually engaging with digital music services. The audience-first approach has served the TV industry well and there are many lessons the music industry would do well to heed.

When Active Is In Fact Anything But

The accepted standard for measuring audiences of digital B2C companies is to look at regular users, typically considered as ‘at least one activity during the last 30 days’. If you are a marketer looking to understand the reach of different platforms then this is a perfectly adequate measure. It is similarly useful if you are a company trying to communicate value to advertisers or if you are a start up looking to demonstrate success to potential investors.   However it is the motives of the latter two groups that can lead to problems, especially in the ad supported music space.

For example most people take it as read that Pandora’s c.80 million regular users are monthly users. However Pandora’s imaginative definition for active users is: “…distinct registered users that have requested audio from our servers within the trailing 30 days to the end of the final calendar month of the period.” Which means that for quarterly accounting that can refer to up to a 120 day period, or for monthly accounting up to 60 days. Thus a user that plays just 30 seconds of one song in a two months period would be classified as a ‘monthly’ active user. That might serve Pandora’s purposes well but it is far from a useful measure for objective observers and vested interests such as songwriters and publishers. (Spotify of course defines active users using a straightforward 30 days measure). Another problematic trend is music services that classify active users as those that open the app rather than playing a song.

Why ‘Real’ Regular Usage Is So Important For Understanding YouTube

When we were building the MIDiA forecasts we were particularly concerned about YouTube. Music is crucially important to YouTube but it is not a music service. So, not only is a regular YouTube user not necessarily a music user, an occasional-but-monthly YouTube music user is not necessarily a music consumer in the way an occasional-but-monthly Spotify user is. Somebody who downloads Spotify does so because they want to listen to music, end of. Someone who, for example, watches a ‘Gangnam Style’ video that appears in their Facebook timeline is by no means guaranteed to be an engaged music fan. The highly diverse nature of YouTube’s content means that music can be a very small part of the 6 hours average monthly viewing of a YouTube user. Especially when you consider non-music videos from the likes of PewDiePie and SkyDoesMinecraft each average over 20 minutes. In short, the occasional-but-monthly YouTube user is less likely to be an engaged music fan than an occasional-but-monthly Spotify user.

So we decided to define regular users for YouTube as those who watch 20 or more music videos a month, which translates to about 5 a week and less than a fifth of the average YouTube user’s total monthly YouTube time. We did this because we want to provide the music industry with metrics that have actionable value. YouTube’s total music video audience is probably somewhere in the region of half a billion but less than half are regular users. Apple’s iTunes audience is c850 million only but only 200 million or so are music buyers.  Big numbers look great on Powerpoint slides but they don’t help make good business decisions if they are not truly instructive. 

Not All Active Users Are Created Equal

Of course, the ideal starting point for measuring different audiences is to apply a standard definition, but as we have just seen, this is not always best route to take. Particularly if you are trying to demonstrate where the value in digital music lies for each part of the value chain. For example, a regular download buyer, when defined as those who buy at least monthly, spends around $2 a month. As an artist, if one of those tracks was yours you might get $0.15 from that 1 infrequent regular user, while if that song was streamed 20 times by a infrequent regular Spotify user you might get $0.03, and if it was viewed 20 times by what would have to be a frequent regular YouTube user you would probably get around $0.01. An infrequent regular iTunes customer in this scenario is thus 15 times more valuable to an artist than a frequent regular YouTube user.

Scale Matters If You Do Not Have It

All of this might sound a little esoteric but it does matter, especially to artists, songwriters and smaller indie labels. If you are a big label, or indeed a music service, it is the total revenue that matters as you are effectively guaranteed a meaningful share of it. But if you are an artist, songwriter or small indie, your plays will be just a tiny share of the regular audience’s behaviour making it far harder to make meaningful money out of those users than it is from infrequent download buyers. While its great to see Calvin Harris and Avicii each clock up 1 billion Spotify streams, this feels more like a confirmation of my ‘long tail is dead’ theory rather than signs of a ‘high tide rises all boats’. If you are a big artist or label you have scale and you benefit from the scale of even infrequent audiences. For the rest, an infrequent user audience has little import, particularly as those users also skew towards the big hits. 

us audience

Audiences Really Do Matter

Like I said, I am really glad you’re focusing on the size of digital music audiences – I wish more people would take the same interest. Indeed if you look the chart above – which shows the audience of each type of music service mapped against the revenue – you can see that there is currently a huge imbalance between revenue and audience. This is exactly why I want the industry to focus on audience first and revenue second. In fact if we were to take the looser (bigger) measurement of YouTube’s audience it would make my point even more firmly.

So thank you once again Daniel for helping highlight the importance of audiences and hopefully I’ve gone some way to explaining why MIDiA decided to measure YouTube in the way we did. Though I have to say I am intrigued as to why you showed so much interest in the ad supported audience over all others? I do hope this doesn’t hint at a stronger focus on ad supported to come for Spotify. You have done a fantastic job at kick starting the subscription market and I know it is hard work, but if anyone can make premium subscriptions work at scale it is you. Though I totally get that you also need to highlight how much oxygen YouTube is sucking out of the marketplace – something I think you and I are in violent agreement on.

 

Yours,

 

Mark 

What Beats Music Needs to Do to Be a Success

Next week Beats Music will finally launch, after arguably the most hyped music service launch in the history of digital music.  CEO Ian Rogers published a blog post over the weekend that dives into some of the thinking behind the service and some of its functionality.  Early signs are that it is a well designed and programmed service, but that alone will not be enough to make it a success.

Rogers cheekily labelled competitor services as ‘servers’ rather than services and there is no doubt that Beats Music has put addressing the Tyranny of Choice right at the heart of its strategic mission.  Beats Music has invested heavily in a host of cool features and top quality editorial and deserves great credit for doing so, but it still won’t be enough.  Beats Music is another 9.99 subscription service and 9.99 is still not, nor ever will be, a mass market consumer price point….at least not until years of inflation have taken effect. Just 5% of consumers currently pay for subscriptions in the US and the UK and the lion’s share of that is down to Spotify.

It is a massive – i.e. currently impossible – challenge for Beats or any of its soon-to-be competitor AYCE subscription services to get the headline pricing down – that is instead the domain of a new breed of innovative services such as MusicQubed, Bloom.fm and Psonar. But where Beats does have the ability to at least make their offering feel cheaper is with bundling.  On this front a lot has been made of Beats’ partnership with AT&T.  Though it is great to have such a high profile partner pushing subscriptions into the US it feels like a missed opportunity.

AT&T is a Missed Opportunity

Instead of being a long term bundle, the AT&T deal is in fact a promotional partnership, with three months free before reverting to a full priced $15 p/m deal.  As we recommended in our Telco Bundling White Paper last year, the best practice is to transition to a subsidized bundle with the end user paying either nothing or a discounted rate (much preferable to labels).  While a three month free trial is a fantastic way to deliver value and get users hooked, the leap from zero to $15 p/m is just too big.

Granted the deal is an innovative ‘Family Plan’ but I am not convinced consumers will see the value.  Core to the value proposition is being able to access the service across 5 people and 10 devices, which compared to other subscription services is strongly differentiated.  But multi-device value is actually the value of the label licenses not consumer value.  Apple and Samsung customers do not pay a premium for every additional device they want to play music downloads they purchased from the iTunes and Play Stores.  iTunes accounts are already inherently family plans in many households with no price premium.   As I have been saying for years: we are in the per-person age, not the per device age.  Consumers should not pay a premium for multiple device support. Labels need to accept the realities of the modern day multi device consumer and not try to slice the proverbial baloney.

Artists and Songwriters Will Feel the Family Plan Pinch

Also the Family Plan also raises the tricky issue of whether the fact that this would translate into $3 per head per month effectively means three times less rights pay out per track.  Big labels and publishers won’t feel the pinch so much as they’ll still be getting their 10%/20%/30% shares of revenue.  In fact they’ll be 50% better off as it will be a share of $15 not $10.  But artists and songwriters only have small catalogues of music so they’ll feel the impact of track play revenue being a share of $3 not $9.99.  And given that a family is likely to have diverse tastes, especially between parents and kids, artists are unlikely to get plays across all of the family members, where of course a label with a diverse portfolio of artists will.

It’s the Headphones, Stupid

But enough of the hurdles, I did promise with this blog entry’s title a solution. Despite all of the hype I do genuinely believe Beats Music could be a game changer if it is willing to properly leverage all of the assets at its disposal.  Beats has a hugely valuable brand and route to market in its core headphone business.  And although Beats is now facing fierce competition, it remains the stand out youth headphone brand, for now.   As great a partner as AT&T may be, they’ll still most likely only reach the same high value, data plan power user, music aficionado that all the other subscription services have been super serving.  And as such Beats Music will get far less bang for its buck than it should.

Instead Beats Music should focus on hard bundling into Beats headphones with a 3 month free trial followed by a subsidized $5 12 month commitment subscription. It really is that simple. ..well the commercials aren’t but the proposition is.

Among Beats’ headphone customer base are hundreds of thousands of young, brand conscious music consumers that value high quality music experiences and are not yet subscription converts.  If Beats fully embraces its new family member and puts it at the heart of its core product range then Beats Music might just reach a whole swathe of new consumers that the incumbent subscription services have not yet managed to.  If instead it treats Beats Music as an awkward digital appendage then it will wither on the vine.  Here’s hoping Beats opts for the former.

Decoding the Digital Music Consumer: New Report

Today MIDiA Consulting published a report: Decoding the Digital Music Consumer. The report deep dives into the music activity of UK consumers leveraging data from a brand new MIDiA consumer survey.

The music industry is in a peculiar spot: digital is where all the momentum is and yet it remains but a small part of the equation. Across the globe digital accounted for just 25% of recorded music revenues outside of the UK and US in 2012 but even in the UK, one of the most digital markets, traditional consumption modes still dominate (see figure one).

survey1

These are some of the key findings from the report:

  • Radio and CD still outshine all digital music activities other than online music video
  • 10 years after the launch of the iTunes Store, music download buyer penetration is just 14%, though album purchasing is now just as widespread as single track buying
  • Music video is the only digital music activity that has gone mainstream so far
  • Streaming adoption is still relatively niche and paid subscriptions stand at just 4% penetration
  • Pricing, commitment issues and trepidation all act as barriers to consumer adoption of subscription services
  • The CD still reigns even for digital consumers, with 55% of digital music buyers and 45% of music subscribers buying CDs at least monthly
  • Non-Network Piracy is replacing P2P as the music sharing choice of Digital Natives, with Digital Immigrants still clinging to P2P
  • A quarter of music subscribers are also pirates
  • There is a music subscriber gender divide: 63% of subscribers are 
male
  • Subscription service churn is going to become a major component of the digital market: 46% of the entire subscriber audience have either churned or plan to churn

survey2

Churn from subscription services will become an increasingly important part of the digital music landscape (see figure two).   Looking at the entire base of consumers that have either previously been subscribers, currently are subscribers or plan to become one, 44% have either already churned or plan to do so. Just 32% are current subscribers that intend to remain so.  This base of churned music subscribers poses a key challenge for the digital marketplace: these consumers have tasted unlimited on-demand music without ads, on their phones, but are now going cold turkey. The question is where they will get their next fix? If it is not from subscribing to another service then the illegal sector beckons. This is the challenge that the music industry must meet over the next couple of years. It must ensure that these consumers either reengage with full fat music services or instead are nudged towards lower price point alternatives.

The report is available free of charge to MIDiA clients and subscribers to Music Industry Blog.  If you are not a subscriber to the blog but would like to subscribe please add your email address to the email subscription field on the right hand side of the blog home page.  If you would like to learn more about how MIDiA can help you with your digital music strategy please email info AT midiaconsulting DOT COM or visit our website here www.midiaconsulting.com  You can also find all previous free reports for download here: http://musicindustryblog.wordpress.com/free-reports/

 

New Report: Building the New Business Case for Bundled Music Services

Today MIDiA Consulting is proud to announce the release of a white paper commissioned by Universal Music entitled “Building the New Business Case for Bundled Music Services”.  The report, written by myself and MIDiA Consulting co-founder Keith Jopling, provides an unprecedented analysis of telco music services, taking a critical look at what has and had not worked to date and a series of models and recommendations for the future.  We interviewed a host of telco music executives to get a deep understanding of what telcos need out of music services to make them a success and combined this insight with data from consumer surveys and music service trials as well as case studies and best practices.  We think it is pretty much the definitive piece of work on the topic (!) and we invite you to download it here: Building the New Business Case for Bundled Music Services – FULL REPORT.  You can also download an executive summary version of the report here: Building the New Business Case for Bundled Music Services – EXECUTIVE SUMMARY.

Here are some of the key findings of the report.

The consumer shift from downloads to streaming is the most important digital music market trend since the advent of the iTunes Music Store.  Before streaming services telcos struggled to find a way in which they could compete in a market dominated by Apple, restricted to selling DRM locked downloads that of course would not play on Apple devices.  Subscription services changed all of that, with the leading streaming services all pursuing robust telco partnership strategies as well as a number of download subscription services.  There are now nearly 50 telco music service partnerships live in six regions across the globe.  With 40% of streaming consumers now paying to stream, generating $1.2 billion in trade revenue in 2012 the opportunity is clear.

Music Bundles Across the Globe

However it is clear that many of the hurdles that telcos faced in the last decade continue to pose challenges.  These include music not being a priority for many telcos, internal business casing getting in the way of building compelling services and the wrong success metrics being used.

The new success stories of telco music services are those that make music a strategic priority.  This is not some sop to the record labels, but a reflection of what it takes to make music strategy a success. If a telco just adds music to a long list of Value Added Services (VAS) it will wither on the vine.  But if a telco puts a music service front and centre and positions around it then success is far more likely.  Success stories that have followed this approach include Telia Sonera’s hard bundle with Spotify in Sweden and Cricket Wireless’ Muve Music in the US.

Streaming by the Numbers

The Role of Promotional Offers

For all the obvious synergies of telco music bundles there is a real danger that hard bundles that make music subscriptions free or feel like free to the end user run the risk of devaluing the proposition.  Yet it is also clear that consumers need to be able to ‘suck it and see’ before subscribing so promotional free trials and limited period bundles present a strong balance of value to the consumer, cost effectiveness to the telco and protecting the integral value of music for artists and labels.  The market data for free trial is compelling: half of one month trialists convert to a paid subscription at the end of the promotional offer period.

Customer Satisfaction, the New Music Service Opportunity

An entirely new aspect to music bundling that we dive into in the report is the role of music subscriptions in driving customer satisfaction across a telco’s wider business.  Even the most edgy, cleverly positioned challenger telco is ultimately a provider of important products but not usually a consumer passion point.  Music though has that brand passion secret sauce and partnering with the right music service can enhance the telco’s own brand and customer sentiment.  Smart integration of music into the customer journey and integration with customer satisfaction measurement tools, particularly Net Promoter Score (NPS) can enable telcos to create a customer satisfaction halo effect.  With music converting satisfied music subscription customers into highly vocal net promoters with satisfaction benefits felt across the full range of a telco’s services.

Bundled music services did not get off to the best of starts, but now their time has come, giving telcos the opportunity to assume centre stage in the digital music marketplace.

For more information on the research please feel free to email us at info AT midiaconsulting DOT COM.

About MIDiA Consulting

Midia ConsultingMIDiA Consulting is a boutique, media industry focused consultancy that delivers practical, results-driven outcomes.  MIDiA stands for Media Insights & Decisions in Action. Our mission is to help media and technology companies develop purposeful strategies quickly through market understanding, clarity of vision, and workable innovation.

We help media and technology companies make sense of the changes that digital market forces are bringing about. And we help them make profits from digital content.

http://www.midiaconsulting.com

info@midiaconsulting.com

It’s Windowing Jim, But Not As We Know It

Back in 2009 I wrote a report for Forrester Research entitled ‘Music Release Windows: The Product Innovation That The Music Industry Can’t Do Without’ (you can read the summary blog post here, and the ‘money’ graphic is here).  In the report I proposed that the music industry should adopt three release windows based around a ‘Preview’ window for premium customers, a ‘Mainstream Pay’ window for CDs and downloads and a ‘Free to Air’ window for ad supported streaming.  With all of the brouhaha surrounding the Atoms for Peace withdrawal from Spotify, release windows, and the role of streaming services more widely, are very much back centre stage.  But whereas I strongly believe in the case for release windows, I believe that, as per my 2009 report, that paid subscriptions should be in the first window, not the last.  It is free-to-consumer, ad supported streaming that needs to be pushed to the back of the queue and it is high time that the windowing and streaming debate in general makes a clear distinction between the two very different propositions.

Subscription Service Hold Outs Actually Hit the Best Fans Hardest

Music fans that pay 9.99 for a Rhapsody, Spotify, Deezer or Rdio subscription are among the globe’s most valuable music consumers.  These music fans need treating as such, almost regardless of the business models that may surround their consumption points of choice.  It is not their fault that the music industry and tech sector contrived to construct business models that have propagated doubt and division among many of the industry’s key stakeholders.   This is not to dismiss the absolutely crucial issues of sustainability and equitability, but instead to raise the issue of who is paying most the price of windowing?  The services or the fans?  There isn’t a clear-cut answer, and the decision dynamics are analogous to those of applying economic sanctions on a nation state.

Delay Releases to Free Platforms, Not Paid Ones

But if we for the moment view the issue through the lens of the music fan, then it becomes abundantly clear that if a high value music fan deserves to be treated like a VIP then something analogous to the opposite is true for those consumers that choose not to pay for music.  This is the case for why the ad supported tiers of music subscription services, along with Pandora, the radio and YouTube should all be put into the last release window.  This is already how the movie industry behaves.  Now clearly this proposal is not without controversy.  The music industry’s entire discovery mechanisms revolve around putting the best content on free-to-air platforms first under the remit of promotion. But this proposal does not have to be the death knell for that approach, as long as the potential of digital platforms are properly harnessed:

  • Think of subscription services as ecosystems not silos: There used to be a physical journey between the radio and the music store.  Now in subscription services discovery and consumption are symbiotically joined. This means that the radio promotion approach can be played out in subscription services and in doing so reach the most valuable customers based on their music preferences. Thus when the radio window hits weeks later it will be targeting a largely distinct group of consumers for whom it will still be the first time they have heard the music.  And for those that are subscribers and radio listeners, the few weeks delay may prod them into reengaging with the album they first heard on their subscription service.
  • Window albums not singles: Singles are invaluable tools for promoting albums and tours.  There is less need to apply windows to singles, or rather to the lead singles from the album.  To protect the value of the premium release window though, it is important that only one single hits the free to air channels before the album hits the first window. Else the impression is given of too much content being too widely available elsewhere.
  • Combat scarcity with new products: Of course the biggest challenge to windowing is the lack of scarcity i.e. what’s the point in turning off the tap if its available elsewhere?  There are two answers to this 1) by ensuring content is available first only on the premium platforms, the availability of content on free platforms is markedly reduced (radio and YouTube account for the VAST MAJORITY of music listening, P2P is in decline) 2) more has to be added to the premium music products to make the windowed content act as a complement to a rich, curated product experience not available elsewhere.  Two examples of how to do this are artist subscriptions and D.I.S.C. products.

Holding Back from Paid Subscription Tiers Can Be a Missed Opportunity

It is still too early in the emergence of widespread streaming adoption to draw definitive conclusions about the impact of windowing but there is a growing body of useful evidence.  Spotify’s Will Page this week released a report that brings some invaluable evidence and analysis (you can read the report here). Although Will is obviously on Spotify’s pay roll and Spotify clearly have an agenda to push, Will is a diligently objective economist with an impressive track record at the UK’s PRS for Music, and his work should not be dismissed on the grounds of assumed bias.  In the report Will pulls data from Spotify for streams, GfK for sales and Musicmetric to compare the performance of albums across all three channels for windowed and non-windowed albums.  The broad conclusions on the sample of albums tracked is that non-windowed albums did not appear to lose sales  but that windowed albums had much higher piracy rates.  Significant caution is required when interpreting this type of analysis, principally because it is impossible to definitively identify causal relationships e.g. the marketing strategy of one artist might tend towards piracy activity than another, as might the geographical location of the artist and the global distribution strategy.  But even with these caveats, the report presents some solid directional data. The market needs much more data like this and I will be adding to the data pool later this summer with a white paper that I’ve been working on for some months now.

Windowing Doesn’t Solve the Streaming Debate, But It’s Not Meant Too

Windowing does not address most of the broader issues that currently surround streaming.  It can however be an important part of the equation if, and only if, it is done on the basis of distinguishing between free-to-air streaming and paid streaming.  Though not quite as distinct as an iTunes download is from a Torrent download, the parallel is nonetheless provides useful context.  This is not to discredit the huge value of radio, YouTube and Vevo in driving music discovery, nor the equally strong value of freemium service free tiers in acquiring customers.  This is not a proposal to remove content from free-to-air channels, but instead one to simply not put everything there straight away. As the music discovery journey and consumption destination become ever more entwined, it is time to think long and hard about just how much leg needs to be shown to make a fan fall in love with an artist’s music.

Making an Impact: Assessing Streaming’s Role in the Digital Music Market

The streaming audio market is beginning to take the perturbingly familiar shape of the download market, with one big player stealing all of the momentum and scale.  And the debate about what streaming brings to the broader digital music market continues to divide the industry across ever deepening fault lines.

But leaving aside for a moment the much visited discussions about artist payments and financial viability of the freemium model, what impact is streaming having on the overall digital market?  To help answer that question I’ve compiled IFPI reported data for multiple international territories, including total market size and growth, digital market size and growth, physical share, download share and streaming share and mapped the relationships between them (see figure).

The results show that the streaming impact picture is a complex one with many permutations.  There isn’t a definitive trend that affects all markets in a consistent manner, however a few interesting trends do emerge:

  • Streaming tends to get a foothold quicker in territories where the physical market is already in marked decline.  Once it gets established the physical market decline accelerates.  It is not possible yet to definitively conclude whether this is cause or effect.
  • Strong streaming markets tend to experience significantly stronger digital growth rates than strong download markets.
  • Strong physical markets are more likely to have downloads dominate their digital markets.
  • Strong download markets tend to be more static.
  • Unsurprisingly the Nordic markets (Spotify’s back yard) are the strongest streaming markets, France remains a mainly download digital market despite Deezer’s efforts, as does the UK.

So the impact of streaming is a nuanced story.  Over two years streaming certainly seems to have brought dynamic digital growth rates to a number of markets, and has accompanied, or driven, an accelerated CD decline.

The fact that downloads are stronger in CD markets is testament to the similarity of these ownership based models.  But perhaps the strong similarity is one of the reasons that downloads aren’t growing the digital market as strongly as streaming is in other markets? Of course downloading has already had years to get established and so there is an argument that it has already contributed its dynamic growth phase to digital.  This is probably true, but it shouldn’t be that way.  With the exception of the US, no major music market has yet passed the 50% digital mark, and across all markets, the majority of music buyers still buy CDs.  Which means that digital is still a long way from being in a position in which it could plausibly be called ‘mature’.

So digital growth does need to be happening at the rates we see in strong streaming markets, and not in strong download markets.  And if streaming is the only tool with which those rates can be achieved then the questions around commercial sustainability (for the services and across the entire music industry value chain) become all the more pressing.

The YouTube Dilemma

Back in January 2011 in my Midem address I posited that YouTube was digital music’s  Killer App with about 25% monthly user penetration across all European adults in 2010, up a few percent from 2009.  I also explained that penetration for the under 25s was about double that.  The most important point though wasn’t the scale of adoption, but adoption relative to other digital music activities: the next most popular digital music activity was P-to-P (with about half the adoption rate of YouTube) and paid downloads were fourth with a paltry 11%.  The key takeaway was that YouTube is succeeding with digital music adoption where other services were not, that YouTube had got something right from a user experience perspective that others hadn’t, and that the industry should do a better job of understanding YouTube’s popularity.

19 months on and the latest Nielsen stats reveal it is still the same story.  In some quarters it’s being viewed as a dramatic sea change in the balance of digital power. It isn’t of course, instead it is the successful consolidation of a market leading position by YouTube.   Some of this has happened organically but much is down to sheer hard work by YouTube.

Plan V

Since my 2011 Midem speech, YouTube have upped their game strategically, adding functionality and investing heavily in content channels.  They’ve done so largely because of the V word…Vevo.  Vevo may have its challenges but strategically it was a master stroke by Universal Music: start pull the best music video out of YouTube, put it into an interface that is so deeply integrated into YouTube that it just feels like another YouTube channel to users, and all the while have YouTube deliver the audience. Unsurprisingly YouTube got nervous, particularly when Vevo started ruminating on taking the service out of YouTube entirely and into Facebook.

YouTube is No MySpace

Music matters massively to YouTube: they kick started the online video revolution with short-form video clips, but the momentum firmly shifted to mid-form video providers like Hulu and iPlayer.  If you scraped music video away YouTube was left with skateboarding dogs and ‘Charlie Bit My Finger’.  Hence YouTube’s investment in features like playlist functionality and $200 million in original content channels.  Back when MySpace was beginning to lose ground to Facebook I suggested that MySpace should stop pretending it was a social network anymore and start focusing instead on being a platform for bands and their fans.  They didn’t and they ended up losing out on both counts.  YouTube, to their credit, have recognized what their strengths are and are playing to them.

Why YouTube is Still Music’s Killer Digital App

YouTube is still digital music’s killer app because:

  • It’s free. Of course so are Spotify and Pandora et al but YouTube is free and fully on-demand everywhere.  If you want Spotify on your iPhone you have to pay £/$/€9.99 to do so, but you can listen to unlimited on demand YouTube music for free on the iPhone, it’s even integrated into iOS (for now at least).  In fact nearly two thirds of iPhone users use the iOS YouTube app.
  • It has all the catalogue in the world, and more. Because of the way YouTube entered music content licensing through the back door in the days before its acquisition by Google by selling stakes to the major labels, YouTube has ended up with effectively being given clearance for much much more content than every other licensed music service.  Granted YouTube have since implemented a largely effective takedown process, but the fact that YouTube’s catalogue is music uploaded by users means it doesn’t have the same restrictions other services do, such as territory restrictions, music not yet being officially available digitally etc.  If there’s a piece of music in the world then the odds are it is on YouTube.  Which cannot yet be said of other music services.
  • It just works.  YouTube is available wherever you are in the world (in the main), on whatever device you own, and you don’t have to register or sign up.  It also has effective discovery tools such as user votes, comments and collaborative filtering, and features like playlists.
  • You can download to keep too.  Streaming ripping might not be part of the official YouTube featureset, and recent action has been taken to block one such service, but there are dozens of stream ripping apps out there and they are actively used by a meaningful share of regular YouTube users.
  • It’s an audio visual experience. And of course, YouTube is so much more than music.  It’s an interactive, social, audio visual experience designed for the digital age.  Whilst most other licensed music services have little or no video.

It would be pretty hard to compete against that combination of features if it had a 9.99 price tag on it, let alone when all of that is available for free, to all consumers in virtually every territory in the globe. Which brings us to the YouTube dilemma.

The YouTube Dilemma

YouTube is simultaneously the most important licensed digital music service on the planet and one of the biggest challenges to all the other licensed music services.  It used to be that YouTube was clearly a discovery mechanism, and indeed it still is, but it is now also firmly a consumption vehicle.  YouTube has become both the journey and the destination rolled into one.

Of course there are plenty of music fans who use YouTube as a complement to buying music or subscribing and as a means of finding and sampling new artists. But plenty more use it instead of those other options, particularly those young Digital Natives who value free, convenience and ubiquity over audio quality.

So the music industry has a difficult balance to maintain, between ensuring the most valuable digital discovery asset it has its disposal remains vibrant, but at the same time ensuring it doesn’t hinder the opportunity for services which generate much higher revenue per user.

YouTube and parent Google can do a lot to help.  They can accelerate their focus on making YouTube’s content unique with further investment in live concerts, exclusive sessions etc.  More importantly they can more deeply integrate with paid music services.  (And if integrating deeply with Apple and Spotify might be a step too far then this should be the development path for Google’s music strategy.)

Meanwhile the music industry can help redress the balance too.  YouTube has defined what the mass market digital consumer expects a music service to look and feel like: namely it needs to have video, work seamlessly on all devices (not just 1 extra device at a time), and have social features.  YouTube has set the blueprint for the next generation music product, the industry now needs to pick up the baton and transform that prototype into a high quality, premium product.

Streaming Goes Global: Analysing Global Streaming Music With EMI Insight Data

This July EMI’s Insight division launched an unprecedented initiative to share data from their 850,000 interview Global Consumer Insight data.  This dataset covers 25 countries and over 7,400 artists, with twelve people being interviewed at any given moment, 24 hours a day, 7 days a week.

The data is being shared with the data science community in a range of initiatives including  forthcoming Music Data Science Hackcamps.
As hard data continues to be something of a scarce commodity for the streaming music debate I decided to mine EMI’s dataset to create a snapshot of global streaming music adoption, and its influence on the broader music market. I have written up a report which you can download for free here.  Additionally EMI have given me permission to post the data here so that you can play around the data yourselves.  In fact I invite you to go and play around with the data and see if you can find any trends that I missed in my analysis.

Here are some of the key findings from the report (which of course, along with all of the opinions and interpretations are my own and are not, necessarily, EMI’s)

  • Streaming has a firm foothold. 32% of consumers across the globe are now using streaming services (see figure 1).  However, adoption is far from uniform.
  • Nordics lead the way. Norway and Sweden (the home of Spotify) are respectively the 1st and 3rd most active streaming markets globally.  Key to this trend is the relative sophistication of Internet users in these markets.  48% of Norwegians are now streaming music users, as are 43% of Swedes.
  • Streaming is a good fit for piracy riddled Spain.  Spain is the 2nd most active market with 44% streaming penetration.  But whereas consumer sophistication was key to Nordic adoption, in Spain piracy and the legacy of free were the most important drivers.
  • Free is a good fit for France too. The role of piracy and free have also been important in France.  French authorities have pushed through the controversial Hadopi legislation but the carrot of Spotify and local streaming success Deezer has delivered immediate results.  Translating streaming usage into purchases though is less successful: just 13%.
  • Purchase conversion rates are higher in lower penetration markets. The US, Canada, UK, Germany and Denmark have lower streaming penetration but these markets have much higher streaming-to-paid downloads conversion rates, averaging 23% of streaming users.
  • Streaming Drives Music Discovery and Consumption. Although it is still too early to draw definitive conclusions about exactly how much streaming impacts piracy and sales, the case for driving discovery and consumption is much clearer.  55% of global streaming music users state that they now discover new artists and new music as a result of streaming.
  • Usage is steady among existing users. Usage among existing streaming users is broadly steady with 19% using streaming more than 12 months previously and 20% more.

Download the complete report here.

Spotify Artist Apps and the Road to Relevance

Spotify yesterday announced the launch of Artist apps for four artists, namely Quincy Jones, Tiësto, Rancid and Disturbed.  This is another important step in Spotify’s music strategy, and one that is more important than may first appear.

Spotify’s App and API strategy (of which I have gone on record as being something of a fan of) may not have had anywhere near as much momentum as hoped, but it is making solid progress and the artist apps will give it a much needed boost.  The artist apps though are part of a bigger bid for relevance and mass market appeal.

When there is So Much Choice that there is No Choice At All

One major problem with streaming music services lies in the fact they provide unlimited access to all the music in the world: there is so much choice that there is no choice at all.  Though Spotify has started work on improving its discovery story – much of it through 3rd party apps – discovery remains problematic.  Another problem in streaming services the artist’s brand is inherently subjugated to the service’s brand: consumers pay for access to all the music, not for an artist or two.  In the analogue era the artist brand dominated with singles and artist albums.  In the age of the playlist, a la carte cherry picking and unlimited on-demand access, the artist brand often struggles for voice in a sea of discovery noise and clutter. Artist apps though kill the two proverbial birds with the same stone: simultaneously enhancing the artist brand and music discovery.

The Need for the Tangible

A key dynamic of the ownership-to-access transition has been the difficulty of communicating a sense of permanence and tangibility in music service experiences. Playlists may be one of the early defining characteristics of the consumption-era and may deliver great user benefits, but the very fact that they are so easy to create and to delete contributes both to a sense of transience and of having little monetary value.  Thus playlists do not effectively communicate enough tangible value over the CD, which is an illustration of why the majority of digital consumers still buy CDs.  For streaming services – and indeed digital as a whole – to come of age and to appeal to the mass market, they need to develop features that go beyond the excel spreadsheet-music-service approach.  This doesn’t mean a need to deliver ownership but instead to meet some of the fundamental consumer needs and tangibility that physical music experiences deliver.

Spotify Artist Apps Are A Great First Step On a

Artist Apps are a Solid First Step

Spotify artist apps are a step in this direction, delivering an audio visual and curated artist experience.  It is fair to say that the current iteration of artist apps are far from the finished article, the first step on the journey, but at least that journey has been started.  The digital music marketplace more broadly needs to rise to the challenge of ensuring that artist specific experiences like these become a standard feature of digital music experiences.  Spotify artist apps , when set alongside the theoretical music product prototype I sketched out in my ‘Music Format Bill of Rights’ report (see figure) and viewed in the context of the longer term music product and format evolution, are a glimpse into the future.  Spotify needs to kick on from here with full integration of multimedia assets such as video and games, and of course it needs many many more artists, long before which it will also need to have hit upon an elegant means of filing and navigating the apps.  But for now, Spotify artist apps are welcome early step on the road to mass market relevance and digital music product tangibility.

We Need To Talk About Streaming (again)

Last night I participated in a Music Tank seminar on streaming music.  It was a vibrant and valuable debate with a healthy diversity of opinion.  Below are brief highlights of my opening keynote, including some exclusive data from record labels and from Spotify.

Streaming isn’t the paradigm shift, increased convenience of music access is

Streaming is no new thing.  Napster, Rhapsody, YouTube have been with us for many years.  What changed is that Spotify made it work with elegant simplicity, wrapped up in a consumer-friendly value proposition.  Of course Spotify had timing on its side too, coming to market once most of us already had broadband and at a time when a rapidly growing share of us were getting smartphones with data plans.  And of course timing is everything in business.

Timing aside though, we should be careful not to get hung up on the idea of streaming as an alternative format to the download.  It is not.  It is simply a different delivery mechanism for digital music, and when you factor in cached streams the distinction blurs further.  Streaming versus downloading is tech speak.  All music fans are interested in is being able to listen to the music they want, when they want, where they want.

Rebooting the conversation

Streaming music, and Spotify in particular, has been cause of much controversy and debate of late.  I’ll come on to some of the causes later but it is first worth taking stock of what we actually do and don’t know about streaming.

  • What we know. Streaming is proving popular with consumers at a time when download growth is slowing. But many artists are not fully comfortable with the model and feel that they don’t get a fair enough deal.  A dynamic which is complicated by the fact there are many different types of artist deals.  Scale is key to streaming being successful (you don’t make money off dozens or hundreds of streams).
  • What we don’t know.  We don’t know yet whether streaming cannibalizes sales.  Whatever data you see on either side of the argument we are simply too early in the evolution of streaming to draw conclusions.  There simply isn’t enough empirical data.  We need a few more years yet and even then separating cause from effect is challenging at best.
  • What we suspect.  It is looking like streaming does help reduce the amount people use file sharing.  Again, the evidence isn’t definitive and there certainly isn’t sufficient evidence to suggest that the number of people using P2P etc is declining due to streaming, but intensity of usage perhaps.  Smaller artists don’t seem to do that well out of streaming.

 

Access based services are the first post-transition technology products

Any new technology looks more like what came before than what will come next.  After all we only have the past and present as our reference points. Thus when a new set of technologies emerge they begin with transition technologies.  The first car was a steam powered horse-less carriage (see figure 2).  It was a transition to the first internal combustion engine vehicle and it wasn’t until the 1950’s that we really started to see automobile form factors that had fully thrown off the horse drawn carriage heritage.  Digital music is no different.  The download was the steam powered horse-less carriage, a really useful transition tool to help us bridge the gap between analogue and digital, but just that.  Access based services are the first steps towards the internal combustion engine, services that leverage some of the unique capabilities digital presents, rather than just using the web as a delivery mechanism.  But it is still very early days, we are not even at the Model-T yet.

Putting streaming income into context

A number of record labels provided Music Tank with data illustrating the level of income across various platforms which can see here at aggregate level (see figure 3). This chart uses the income from a download as a base of 1 and then income from other sources as a multiple thereof, shown for labels and for artists.  Note that the artist data is 3rd party licensing income only and does not reflect songwriter income etc.   The data suggests that an artist requires 80 streams to match the income from one download.  However data from artists suggests it is more than 200 streams.  And this rate varies massively depending on the nature of the deal an artist has struck with their label (e.g. whether they are paid on a share of net income basis or on points) and what share intermediaries such as distributors take.  It is also impacted by what deal the label has struck with a service.   One smaller label claims, somewhat dubiously, that the rate for them is closer to 2,000 times.  Whatever the exact rate (and there isn’t just one) you have to  stream a lot of music to get the same income as a download, but much, much less than a web radio stream or radio listens.  It take more than 5,500 national BBC radio listeners to generate the same income as one download in the UK

The labels’ take on streaming

Some record labels also provided Music Tank with some of their views on streaming and how they see it in the bigger revenue picture. Quickly summarized these are:

  • Markets with a strong streaming sector also often have stronger overall digital growth
  • Streaming is now growing more quickly than downloads
  • Streaming can be 50% of an artist’s digital revenue in some markets
  • Streaming consumers and download buyers do not strongly overlap
  • Streaming subscriber ARPU is often higher than download buyer ARPU


Spotify’s take on streaming

Spotify also put some data on the table (see figure 4) showing how a major global artist’s catalogue fared following the release of their album the same day to stores as to streaming.  Obviously this data is positioned in the context of the cannibalization and ‘windowing’ debates (which I’ve contributed to here). The data doesn’t prove anything either way in terms of cannibalization (i.e. it could be interpreted as streaming activity does well when an album does well or it could also be viewed as lost buyer activity).  However it does make a compelling case for the degree to which an artist’s back catalogue can be significantly boosted on streaming following an album release. There are some well voiced concerns that streaming favours big name artists, the head rather than the long tail, but if it does then it appears to do a good job of mining the long tail of the head!

The potential of Spotify’s Developer API strategy: an API for Music?

In the last 6 months digital music has two developments of potentially seismic proportions that through their subtle brilliance many haven’t yet appreciated their actual importance.  One was Facebook’s content dashboard strategy.  The other was Spotify’s Developer API.  Of course APIs are no new thing, but if Spotify can reach a hundred million plus total users then its API has the potential of becoming a de facto API for music.   Allowing developers to skip seeking licenses from rights owners and using Spotify’s instead.  It is a crucially well timed move, coming just as investors are turning away from investing in services that require licenses (you may have noticed by now that impecable timing is one of Spotify’s strengths).  Investors have tired of funding license advances for services that often, as in the case of Beyond Oblivion, don’t even make it to market.  The labels still get their digital income but investors are left with a debt write off.  Index’s highly influential Saul Klein went as far as stating that he won’t even invest in  start-ups that require rights owner licenses.

Making the right comparisons

Crucial to the streaming debate is making the right comparisons.

  • Streaming does not = a download
  • Streaming does not = radio
  • But Streaming does = (download + radio) ÷ ??

The exact balance is in flux but the conversation must recognize that a direct comparison with either is off the mark.  What we don’t yet know, and won’t for a couple of years, is whether streaming is pulling its users from green field and thus growing the market in a truly additive manner, or whether it is instead catalysing the organic digital transition, converting those consumers who would have gone digital anyway.  If it is the latter then questions about the income from streaming users compared to other digital customers becomes a more pressing one.  If it is the former then it frees us up to look at the scale picture with fewer reservations.  If these customers simply weren’t ever going to adopt a different digital service then we can start to discuss how low we can bring pricing to drive even great numbers.  The elephant in the room is that £/$10 is just too much for mainstream consumers.  It needs to be close to £/$5 to really break into the mainstream.  And you can only make that business case with genuine scale.

Conclusions

  • It is too early to make conclusive judgements about streaming affecting sales or piracy in the near-to-mid term
  • Long-term, music consumption will shift from ownership to access
  • The streaming debate is clouded by conflicting artist statistics and concerns
  • More artists need to be better sold the story by labels and by the services themselves, and some deals may even need revisiting.  Greater transparency is key and record labels have a big role to play here – there’s only so much services can do themselves
  • Streaming is neither a radio replacement or a download replacement, it has some of the best of both

As for the legacy of streaming?  Streaming will help make Facebook the most important player in the digital music market by 2013.