Google Hits Play On Subscriptions

As expected Google just announced their music subscription service: Google Play Music All Access.  To cut a not-so-long story even shorter, it’s another $9.99 streaming subscription service.  To be fair it looks like a solid offering with clean, mobile optimized flat design aesthetics and some nice features, including:

• ‘radio without rules’: fully editable auto-programmed radio based on tracks your listening to
• blended algorithmic and curated programming
• 30 days free trial
• seamless integration with the cloud locker service

The locker service integration is a great move and transforms a relatively isolated product concept into a natural extension of the music experience.  Of course locker services are a transition product aimed at helping consumers migrate from the ownership mindset to remote access, so the life cycle of the product is inherently limited.

The ‘uniquely Google’ recommendations and discovery are designed to ‘know exactly what you want’.  The proof of the pudding will be in the eating, but there is a risk of creating an ever shrinking filter bubble where the range of recommendations narrows the more the service learns about you.

A Great v1.0 But….

Make no mistake, it looks like a great version 1.0, streets ahead of where its peers were at 1.0.  But is it enough?  There are many things that Google could have done to stand out, including innovative pricing, Google+ and YouTube integration, a Motorola device bundle etc.  But of course Google never needed to push the envelope on this one.

The streaming market is only just getting going with 20 million global paying subscribers in 2012 paling compared to Apple’s half a billion iTunes accounts.  Streaming and subscription accounted for just 20% of global digital revenues in 2012 and only 8% of US digital revenues.  So Google’s view, correctly, is that this is a market waiting to happen, so focus on refining the model rather than reinventing the wheel.  That’s exactly what Apple did in 2003 when it launched the iTunes Music Store.  The market was pretty crowded with download stores back then, but how many people remember any of them now?

But that’s not to say though that Google is going to do for streaming what Apple did for downloads.  In fact it faces a number of key challenges:

• Don’t pay won’t pay? Google’s consumer base is predominately built around ad-funded free access and associate Google with free. Even though it will not be offering a free tier, Google still face the freemium challenge of convincing swathes of free users that they should pay for something.  By contrast Apple has the largest single addressable audience of paid content consumers in the globe.
• Paid subscriptions don’t drive ad revenue: for all of Google’s desire to diversify its business and revenue streams, advertising pays the bills. Whereas initiatives like Android, Google+ and YouTube all help drive advertising, premium subscriptions do not. And given that premium subscriptions are a low margin business, the profit rate Google earns from subscription services will be less than it gets from ad supported consumers, even if total ARPU is higher.  So there seems little reason for All Access to become a strategic priority for Google.
• $9.99 is not a mass market price point: Google’s biggest asset for the labels is its unrivalled scale and reach, the potential to take digital music to the mainstream. But 9.99 is not a mainstream proposition, it is in fact what the top 10% of music buyers spend in the UK.  Spotify et al have done a great job of engaging the higher spending music aficionados, but there is a finite pool of them, especially in the increasingly crowded US market.  Unless Google plans on stealing everyone else’s subscribers it is going to find mid term growth potential limited (though expect some near term surge from pent-up demand among Google aficionados).
• Balkanized organizational siloes: on paper Google has the most fantastic combination of music service assets (Play, YouTube, Google+, Motorola, Android etc.).  Tie all of those assets together into a 360 degree music service and you have a world beater on your hands.  But Google can’t. It can’t because these business units operate so autonomously and because each one has business conflicts and commercial constraints that prevent them from being fully unified.  For example, ‘doing an Apple’ with Motorola and turning it into a closed Google Play ecosystem would alienate Android partners.  While YouTube’s music licenses are wholly different and distinct from Google Play licenses. 

 What’s In A Name?

Let’s assume that Google has got an ambitious roadmap for All Access that will include innovation on price, product and channel, perhaps even rolling version 2.0 within 6 to 9 months.  Even then, all of the above still apply, and it is the organizational challenge that clips Google’s wings the most.  Even the elongated name hints at the organizational quagmire: Google Play Music All Access. Doesn’t roll off the tongue in the way Spotify, Deezer, Rhapsody or Rdio do does it?  ‘All Access’ is the service, ‘Music’ is the division and ‘Play’ is the strategic overlay and of course ‘Google’ is the company.  Just to get to where it has, All Access has had to coalesce numerous internal Google fiefdoms.

Google is Becoming Microsoft

Google is beginning to look for music what Microsoft did 10 years ago.  Up to and beyond the launch of the iTunes Store everyone expected Microsoft to be the dominant player.  It held most of the cards in the deck, including the industry standard media player and DRM system.  Then along came Apple with the aces.  Try as Microsoft might to compete, it simply couldn’t get over itself.  It couldn’t pull together the disparate business units that needed to cooperate and it was scared of harming other revenue streams and relationships. Microsoft feared that if it pushed too hard with its own service it would alienate the business partners that relied on WDRM for their music services.  All this begat strategic paralysis.  Much the same is happening to Google.  Fear of alienating Android partners precludes them from doing-an-Apple with Motorola (which I suggested they should do).  Also, pulling together YouTube, Google+ and Android into the All Access mix appears to be a step too far.

Google is at a similar stage of its corporate evolution as Microsoft was ten years ago.  It is a big company that is still learning how to actually be a big company.  Before Google can fulfill its vast digital music potential it needs to learn how to get the best out of its organizational structure first.

Here’s looking forward to version 2.0.

Making Streaming Work (Fixing Playlists and Churn)

UPDATED 28/3/13 (see sections labelled ‘UPDATED’

During my SXSW panel I presented a slide that showed the distribution of paid, active free, and inactive users of the two big streaming services Spotify and Deezer based upon the latest data for both services.  What the numbers show is that inactive users is a big problem for streaming services, which in actual fact means that churn is a bid problem for streaming services.  (Something I discussed last week).

Paul Resnikoff at Digital Music News and Stuart Dredge at MusicAlly have since written pieces about the data and something of a debate is emerging.  But the important point is not whether Deezer has more inactive users than Spotify, but that streaming services as a whole have a problem with churn.

To illustrate the fact that this is not a Deezer problem I have created a new chart (below) that uses the latest available official numbers for all three types of users from both services.  The most recent total user numbers for Spotify are Facebook app users and are therefore not official stats.  The most recent official Spotify data for all three metrics is from year-end 2011 – when these numbers were filed in a company report – and for Deezer this means early 2013 when the numbers were quoted in the press.

UPDATED: Note that Spotify only ever mentions its total registered user number in company reports while Deezer have quoted theirs more frequently. So the Deezer numbers below are a more accurate representation of the current scenario whereas Spotify’s user base dynamics have changed markedly since end-2011.  (Whether that translates into more or fewer inactive users we’ll have to wait and see.)

Retention is a Freemium Issue not a Spotify or Deezer Issue

What is clear is that both services have essentially the same distribution of users, with the vast majority of both services’ installed bases being inactive users.  If you spread Spotify’s 2011 numbers over the course of the year, from the end of 2010 base numbers, this translates into Spotify acquiring 1.9 million new users every month but only keeping hold of 200,000 of them.

Again, this is not a Spotify problem, it is a fundamental issue with the freemium music model: many more people decide its not for them than continue using the service.  Over time this effect will soften, as people become more familiar with the idea of on-demand streaming.  But it will always be a key part of the mix for both free and paid users.

UPDATED: It is also not even just a music service issue.  As I discussed in a previous blog post about Facebook, social networks like Google+ and Twitter also have a big issue with inactive users, as this chart illustrates. In fact only a quarter of Google+ users are active, as are less than half of Twitter users.  As Daniel Ek correctly identified on Twitter, this is a problem that affects all businesses that have a free tier that requires registration.

Currently Deezer and Spotify are in growth stage and are more focused on acquisition than retention, but sooner or later they’re going to have to recalibrate their metrics if they want to move towards sustainable financial models.  It can be done, as Rhapsody shows us, but it is not an easy task, and it also doesn’t leave a lot of spare cash in the kitty for aggressive growth.

Any established subscription business – such as a cable or satellite TV provider – will tell you that managing churn is the overriding strategic objective.  Any subscription service – especially a nice-to-have like music – is going to be vulnerable to churn.  But this does not mean that the music subscription business is fundamentally flawed, rather that the industry needs to start thinking in terms of a much more fluid movement of users than was ever the case for downloads.  In the download model Apple locked in its customers with devices.  Streaming services have no such asset – at least not yet.

Playlists Belong to Users not Services

With time, clear blue water will emerge between the value proposition of streaming services, and this should be considered not just as a loyalty driver, but also as reason for people to swap and change subscription services just as people swap and change cars.  And for that to happen streaming services need to stop thinking about users’ playlists and libraries as the property of the streaming service to be used as velvet handcuffs and instead as the transferable property of the user, and by extension, the communal property of the marketplace.

Locking music consumers into devices sort of made sense for companies like Apple that were largely using music to sell hardware.  But for companies like Deezer and Spotify that are just in the business of selling music – or at least access to it  – there is no such justification.  The subscription market is only just getting going and there is far too much green-field opportunity for services to get bogged down in internecine conflict.  As MusicAlly’s Dredge correctly identifies, opening up Playlists could prove to be crucial to the long term validity of streaming and subscriptions (and Tomahawk is a great first step). But to really work, streaming services need to stop thinking about Playlists as their property and instead as the property of their users.  That’s when services like Tomahawk could come into their own and it is when mainstream music fans will view streaming services with less scepticism.   In the words of ShareMyPlaylists: Long Live The Playlist!

SXSW Presentation

Yesterday I spoke at EMI’s Consumer Insight panel at SXSW.  It was an engaging debate with lots of great questions from the audience. You can read a write up here: http://www.billboard.com/biz/articles/news/1552283/consumer-data-shows-old-ways-still-most-profitable-sxsw-panel-says

Mulligan SXSW Presentation 14 3 13

The Decline and Fall of the Top 10

The impact of technology on the music business is well understood, but it is also having a dramatic impact on the music buying population, which in turn is changing the face of mainstream music.  Digital music has so far been a journey for the more engaged, technology savvy music fan.  Some of these have discovered free music, others a la carte, others streaming.  All of these behaviours have eaten away at sales of the music industry’s core product: the album.   Yet the CD album remains the music industry’s number 1 global music product and in key markets like Japan and Germany it accounts for approximately three quarters of sales. The problem of course is that CD buyers are steadily falling out of the market (10.5 million people have stopped buying music entirely in the UK and US since 2008).  Though re-releases and discounted catalogue sales have helped bump up volumes in some markets, the net result is that new release album sales are dwindling.  Even more interestingly though, the abandonment of the album by engaged music fans is changing the face of the top 10 (see figure).

Looking at how the US top 10 albums chart has evolved since 2000 reveals a few key trends:

• Sales have tumbled sharply: the top 10 albums accounted for 56.4 million unit sales in 2000, by 2012 this had dropped by 38.7 million to 17.7 million (a 69% drop). 
• Some genres have fared better than others: the average number of sales per top 10 album for Rock, Pop, and Urban all fell by 75% between 2000 and 2012.  Country only fell by 66% and Adult by just 30%.  Adult, with artists like Michael Bublé, Adele, Susan Boyle and Josh Groban represent the new ‘safe’ market for album sales. These artists appeal to older music buyers who still predominately buy CDs and often rely upon mainstream outlets like Walmart. 
• Genres have fluctuated: although Pop is more pervasive than ever and now represents 41% of top 10 album sales, the sales for today’s Pop artists pale in comparison with those of the 2000 peak.  One Direction’s 1.6 million and 1.3 million sales and Justin Bieber 1.3 million in 2012 compare miserably with ‘N Sync’s 9.9 million, Britney Spears’ 7.9 million and the Backstreet Boys’ 4.3 million in 2000.   Urban has also steadily declined over the period, from a high of 50% of top 10 sales in 2005 to zero in 2012, while Country has steadily grown its share from zero in 2000 and 2001 to 19% in 2012. Rock, following a few strong years from 2006 to 2008 has been relegated to a niche of no more than 8% every year since, disappearing entirely in 2010.

Of course the top 10 album sales are not the whole music market, but that is sort of the point: the top 10 is becoming ever less of a measure of broader music buyer tastes and even further from the tastes of more engaged music fans.  Streaming and a la carte are empowering the music aficionados to deep dive, if not into the long tail, then certainly into the full torso of music, bypassing the short head of the top 10.  Leaving the top 10 as the pulse of the dwindling mainstream.

How Much Streaming is Really Worth to Artists: a Consumption Analysis

The streaming debate has been a watershed moment in artist empowerment, a discussion which has allowed them discover that they can have a meaningful voice in the digital debate.  Crucially it has also been a democratization of the artist voice.  In the days of Napster it was only the superstar artist who got airtime to argue for (Chuck D) or against (Lars Ulrich) file sharing.  Now in the days of social media the playing field has been levelled.  The streaming debate has also been a coming of age for artists as business people, coming to terms with the wealth of analytics and sales data they now have at their fingertips.

Messy Data

All of this has been good and positive, and it is an evolution that I look forward to seeing continue.  However there has been an unfortunate by-product of the process.  With an artist posting their latest streaming versus download income data practically every week the focus has been on quantity of data not quality and, most importantly, data has often been misinterpreted and stripped of crucial context.  The situation is compounded by the murkiness created by the mass of moving parts that determine how much an artist gets paid. These include: what sort of deal the artist is on, whether they are recouped, whether the artist is just a performer and/ or a songwriter, whether the label is redistributing all of its advance payments from the streaming services with artists, whether the artist is paying additional fees to distributors / aggregators and how good a deal those organizations have struck with streaming services.

The transition from the distribution era of selling units of stuff – whether that be downloads or CDs – to the on-demand consumption era is without doubt a highly disruptive process.  As the overused cliché of corporate managers goes ‘change is difficult’, and the future can look even more daunting when the new world is viewed through the same eyes we understand the old one.  So as much as the ‘how many track streams an artist needs to equal one download’ comparison is understandable, it is not the most useful analysis.  It measures consumption models by distribution model metrics, which is as useful as comparing the speed of a car to a plane.

Setting the Right Benchmark for Assessing Streaming

This week economics academic David Touve compared downloads to radio instead – something which I did back in February.  It is a useful exercise in that it places streaming in a range, somewhere between downloads and streams but it is still only part of the story. After all, radio is meant to be the discovery journey, not the consumption destination.  Artists cannot afford to live off radio alone (especially not in the US).

At the other end of the scale the 1 stream = 150 to 200 downloads comparison is fraught with problems.  Indeed, if you multiply the streaming average of $0.005 by 150 you get a value of $0.75 which is virtually the entire retail price of a download. Clearly this cannot be right.  The retailer needs to take their cut from a download sales, then the label, then the publisher, then collection agencies, distributors, aggregators etc etc.  Only a very small share of artists will ever get near that sort of rate: DIY singer songwriters. And it is no coincidence that they are the ones who have been most active in ingesting data into the streaming debate.  A standard label artist can expect closer to $0.09 from a download (as publicised by Chuck D a year ago) which is only 18 times the streaming pay out rate. Though of course some artists (who are also songwriters and are on 50/50 net receipt deals, that are fully recouped) could hope to earn nearer $0.40 per download.

What is clear is that the ‘moving parts’ of individual artists’ commercial terms are so variable and so complex that they prevent meaningful comparisons between streaming and downloads.

The Consumption Analysis

So to create a more useful set of metrics to work with I have created a comparative methodology called the Consumption Analysis.  This  creates a like-for-like comparison between the value of a stream and a download to artists and strips out entirely the artist’s commercial terms ‘moving parts’.

This is the basis of the approach:

a)      First, downloads are paid for once but played many times, so a price per listen is needed.  This is determined by establishing the lifetime value of a purchased track and dividing the sale price by the total number of plays it will receive after purchase. (I have set this at a modest 12 plays per track over 3 years)

b)      Next the multiple moving parts that confuse the streaming debate need stripping away to enable like-for-like comparison.  Streaming and download services both pay approximately 70% of income to rights owners.  We then work out how much money per stream is paid out to rights owners ($0.0112) and what the average $0.005 artist pay out is as a share of that (45%).

c)       The resulting net-neutral artist-to-rights owners ratio can then be applied to downloads, and then averaged out by the total number of plays a track receives in its life time (i.e. 12 plays in 3 years)

(For sake of complete transparency you can download the entire Excel document here - please go ahead, play around with some of the key levers and feel free to post your own findings.)

Downloads and Streams are Much Closer Than The Current Debate Suggests

The net result is, working on a pure like-for-like basis, the per-play value of a download to an artist is $0.033 compared to $0.005 for streaming.  Downloads are thus 5 ½ times more valuable to artists than streams.  Of course this is still a disparity but it is much, much less than the 150 to 200 times value that has become common currency.

It is also worth noting that the artist streaming pay out rate ($0.005) is actually 45% of the rights owner pay out rate ($0.0112).  So artists are earning nearly the same out of streaming as the labels and publishers.

None of this is meant to belittle what is a massively important issue for artists, rather it is intended to help them understand where a path to solution might lie and to have a more balanced understanding of the value of streaming. Clearly there are many complex issues that need to be addressed between artists and the numerous parties they have commercial deals with and who therefore take a cut of their digital income. There appears to be more ‘noise’ in the revenue transition from music service to artist for streaming than for downloads.  It is likely that much of this is related to the fact that the streaming model is still finding its feet and that levels will balance out over time.   But there is certainly a case for artists taking charge of their own destinies and getting to the bottom of their individual situations.  That does not just mean with the record labels either, it means each and every platform, agency, rights body and rights holder they have commercial agreements with.

What the Consumption Analysis reveals is that on a like-for-like basis, streaming services are clearly much closer to download services than the current debate suggests. The 150 to 200 range is neither useful nor accurate.  All of this should hopefully help build some more confidence in a future in which streaming plays a key role.  This is even before considering the oft touted scale argument that underpins the case for streaming.  Factor that in and we start getting towards a picture of an industry that could genuinely grow after years of decline, if streaming does indeed go mainstream.

I am not suggesting that streaming is the answer to all of the music industry’s ails but it can certainly bring a lot more right across the value chain than the current streaming debate suggests.

Why the Music Industry Needs Another iPod Moment

The importance of Apple to the digital music market cannot be overstated.  Without Apple the digital market would be vastly smaller than it is now.  With all of the talk of streaming services and the shift to the consumption era it is easy to think of Apple’s iTunes Store as yesterday’s game.  Such an assumption is as dangerous as looking upon the CD as an irrelevance in the present era.  The CD and iTunes combined account for approximately 78% of total recorded music revenue in the world’s 10 largest music markets.   And yet neither look like they are going to provide the momentum the music industry needs over the next few years.  Despite its vast importance to music revenue today, the CD is obviously on a fixed downward path.  And the download is not so dramatically different in profile in that it is the dominate revenue source yet is not delivering the dynamic growth the digital market needs.  Key to this is of course the role of Apple.

Apple CEO Tim Cook told us at the launch of the iPhone 5 that ‘Apple still loves music’ and so it does.  But music is inherently less central to Apple’s content and device strategy than it was 5 years ago.  When the iPod launched it had a monochrome screen and did little else than play audio.  Music was the killer app with which to market iPods.  Now games, apps, video and books show off the capabilities of colour touch screen iPads and iPhones much better than a static audio file (even if music remains one of the key activities on both those devices).    In the early days of the iPod Apple needed the record labels more than they did Apple.  Indeed, to begin with the iPod was far from a runaway success.  By the end of 2002, one year after launch, the iPod had only sold 625,000 units.  The iTunes Music Store changed the story, delivering not only unprecedented digital music milestones, but also record iPod sales. After the first full year of the iTunes Music Store, sales of the iPod had quintupled from 2 million to 10 million, and one year later they surpassed 40 million. The iPod and the iTunes Music Store had a clear symbiotic relationship.  Now though, Apple’s devices benefit from a much broader array of content and services from the iTunes Store, which pointedly is no longer called the iTunes MUSIC Store.

Apple’s diversification of device and content strategy heralded a brave new chapter in Apple’s history but it has also left the digital music market without the fiercely energized catalyst that kicked it into motion.  By the time Apple launched the iPhone in 2007, the installed base of iPods was already slowing.  Though sales were still increasing, the majority of those were either replacement or additional purchases.  So although iPod sales were booming still, the number of new iTunes Music Store customers was not.  Throughout 2008 I presented the data to a number of senior record label executives at the time and I argued that they needed to start planning for a post-iPod slow down.  Some of them didn’t take me too seriously, and who could blame them, after all iPod sales were growing strongly and iTunes downloads were growing at a stellar rate. But now, with a few years of market data behind us, the true scale of the post-iPod slowdown is clear (see figure).  As soon as iPod sales slowed, so did the digital music market.  Prior to 2008 the digital music market had grown by an average annual rate of 85.2%, after 2008 that rate dropped to 7.5%.  In many markets the 2009 slowdown was of falling-off-a-cliff proportions: in the US digital growth slipped from 30% in 2008 to a near flat-lining 1% in 2009.

Streaming services have started to bring some welcome momentum to digital music.  But much more is needed from them if growth is to be reinvigorated.  That growth may also be helped by new music formats like the forthcoming Lady Gaga album app.  Whatever the source of it, it is clear that the music needs another iPod momentum to kick the digital market back into life.

Deezer, Spotify and the Streaming Gold Rush

The music streaming world is one full of contrasts and inconsistencies.  At one end We7 and MOG sell for peanuts;  in the middle Rhapsody, Sony, Rdio, Wimp, Rara and others continue to steadily build a market; and at the other end Deezer and Spotify are sucking in investment with the force of a black hole. Spotify’s investment is well documented, but this week Deezer confirmed their seat on the fast train with a $100m investment from Access Industries, which also just happen to own Warner Music.

Leaving aside for a moment the intriguing fact that the two streaming global super powers are European, Deezer has managed to slip beneath the radar of the often US-skewed digital music world view by pointedly deciding to ignore the US market (for now).  Like a canny general who decides to march around a heavily fortified stronghold and thus effectively leave it stranded behind enemy lines, so Deezer expects the streaming war to waged on different shores.  They are both right and wrong.

The US is Saturated and Yet Potential Remains Untapped

There is no doubt that the US paid streaming market is overly catered for at present, and that Deezer would struggle to get any foothold.  Also there is clearly a much bigger scale opportunity in the remainder of the globe.  However, and somewhat paradoxically, the US market should also have much much more space, plenty enough for Deezer, Spotify and the rest to flourish in.  The problem is that the $9.99 streaming monthly subscription is not a mass market value proposition and it is not about to suddenly become one. We have had the product in market for over a decade, if it was going to hit hockey stick growth we’d have seen it by now.

To be clear, this is not to say streaming music is not a mainstream proposition, but that the $9.99 streaming subscription is not.  And that is a problem, because it is clear that for the economics of streaming to add up (for artists, services and labels alike) scale is key.  Pandora’s Tim Westergren has made the case for lower statutory streaming rates to drive scale, it is probably time to start a parallel dialogue for on-demand streaming.

But lower wholesale rates alone won’t fix the problem.  The market still desperately needs more mobile carriers, ISPs and device companies to start hiding in their core products some or all of the cost of subscriptions to consumers.  Cricket Wireless, Telia Sonera, France Telecom and of course TDC have all made solid starts but more, much more, is needed.

Price Is the Biggest Barrier to Streaming Going Mainstream

If streaming is to go mainstream the price point (for streaming with full mobile device support) has got to get towards $5, through a combination of bundling and rate discounting. Until then Spotify’s and Deezer’s gold rush millions will achieve little more than saturate the high end aficionados that the $9.99 price point appeals to.  Currently both companies look remarkably similar in terms of user metrics (see figure) but while they pursue somewhat distinct geographic priorities they will continue to find those few per cent of aficionados in each market.  Things will get really interesting when they reach $9.99’s adoption glass ceiling.

Apple: the Elephant in the Room

And of course there is an elephant in the room: Apple.  Apple have played their hand cautiously to date, conscious of their hugely influential role in the digital market and indeed in the music industry more broadly.  If they get their streaming play wrong (and there will be an Apple streaming play eventually) the results could be catastrophic for the music industry.  Apple’s 400 million credit card linked iTunes accounts dwarves Spotify and Deezer so it is understandable that the they each want to make hay while they can.  But the streaming pricing problem still needs fixing, and soon.

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.

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 1^st and 3^rd 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 2^nd 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.

Rara and the Bid for the Mass Market

Today Omnifone made the move from B2B2C music service provider to consumer facing brand with the launch of their streaming music service Rara, which is being operated as an entirely separate company utilising Omnifone’s technology infrastructure.  The knee jerk reaction would be that this is bandwagon jumping in an increasingly cluttered streaming market, joining the likes of Spotify, Deezer, We7 and Juke.  But the folks at Omnifone have been in this business long enough to not simply pursue a me-too strategy.  Indeed differentiation is at the heart of the Rara strategy.

Targeting the mass market

Regular readers of this blog will know I have long argued that the paid digital music market is stagnating because it hasn’t got the tools to reach beyond the tech savvy music aficionado base it has addressed so far (mainly through iTunes).  Spotify’s recent US-and-Facebook -spurred growth has been encouraging but we are still talking about single millions of premium subscribers globally, most of whom are the same aficionado segment all other services have been chasing for the last 10+ years.  If digital music is ever going to break out of the confines of the few per cent of consumers per market that will pay for those services a new go-to-market strategy is required, as is a new series of music products.

This is where Rara come in.  They’re not bringing the new product (it will be years before anyone gets the licenses for the required next generation products from the record labels) but they are bringing a new approach to customer acquisition and a new approach to user experience.

Two key differences in approach

Rara’s target is unashamedly the mass market, the consumers the digital music bandwagon is increasingly leaving behind.  Rara uses two key tactics to reach these customers:

• Changing the funnel.  Spotify (with whom most people will rightly or wrongly benchmark Rara) use their free ad supported tier as their customer acquisition funnel.  The losses associated with supporting free Spotify users is their customer acquisition cost.   Rara’s funnel though is a combination of traditional marketing tactics (which will be backed by substantial marketing spend) and an innovative pricing strategy.  Taking a leaf out of some magazine subscription models, Rara gives consumers an introductory 3 month price of 99p / 99c which automatically switches to the full rate at the end of the period.  If this approach works, it will enable Rara to separate the wheat from the chaff, with prospective valuable customers self-selecting by submitting their payment details to get access to the heavily discounted rate.  The conversion rate for these consumers should be much higher than for ad supported free users (many of whom sign up simply to get free music).
• Changing the experience.  Digital music services and players are notorious for looking more like accountancy software than they do music software.  The ‘music collection as excel spreadsheet’ is a paradigm we have all grown used to.  But there in lies the rub.  Most of you reading this will be savvy users who have grown to tolerate a series of  inherently poor user experiences.  For the digital hold outs this just serves as another reason not to go digital.  Rara takes a different approach, giving users a highly visual experience, with colourful graphics and mood-based playlists at the core of the service.  Of course you can still dive into the excel spreadsheets but you can quite easily never need to.

Rara’s approach is not a radical departure, rather a series of welcome innovations on the current model.  Critics will argue that it is ‘just another streaming service’.  But streaming is the delivery vehicle for the experience rather than the product itself.  Think of streaming like cable TV infrastructure, and services like Rara, Spotify and Deezer as the cable companies that package channels over them.

Rara isn’t *the* answer to the music industry’s woes.  No single service is.  But with a fair wind, it could well become an important part of the answer.  The music industry desperately needs the mass market brought into the digital fold.  It needs more fresh thinking like Rara’s to help achieve that.