Over the last two years the digital music stores-and-services-marketplace has consolidated and – with a few notable exceptions – stagnated. And as the likes of Comes With Music, Spiral Frog and imeem added to the ever growing list of failed but innovative start-ups, the queue of new entrants grew ever smaller. Successive failures – due in no small part to hefty advances and license fees paid to rights holders – have made investors increasingly sceptical of injecting cash into digital music services that require record label licenses. On the flip side rights owners have seen more and more services failing to deliver on their promises and thus started – major labels in particular – to demand greater financial guarantees to reduce their exposure to risk.
Meet Digital Music’s Triple A
The net result is a dramatic slowdown in the number of new stores and services coming to market, the direct consequence of which is an ever larger reliance on the Digital Music’s Triple A, namely:
The problem though, is that just as this consolidation is kicking in, so is a slowdown in digital growth, and long before it should be happening. Digital Music’s Plan A isn’t working. Apple’s shift of attention from music downloads to Apps, Video and Books is a key contributing factor, but the lack of wider marketplace innovation is equally influential. But it is the Triple A to whom the music industry is increasingly looking to fix the problem.
SPACE (The Five Letters That Buy You A Chair At Digital Music’s Main Table)
The Triple A’s ‘last men standing’ credentials shouldn’t be under estimated – although they’re not the only big consumer brands left in town (as Spotify and Beyond Oblivion among others will attest). Yet they are the music industry’s three big safe bets because each of them have the same crucial combination of assets. They all have SPACE. That is:
- Scale: rights owners can’t afford Plan B to be a failure. That’s why they need big players with big audiences, big reach and big everything else. The logic goes; the bigger the player, the greater chance of success and the greater chance of pulling in previously elusive mass market audiences.
- Product: each of Digital Music’s Triple A are in the digital music game with ulterior motives. Apple want to sell devices. Android is all about the operating system and what it can deliver to Google. Even Amazon’s motive for being a major player is an ulterior one. They need to remain a major player in music retailing to protect the low-price customer entry point on the purchase consideration ladder. i.e. you start off buying music and end up on PCs and fridges. Not being a major player in digital music retail would risk a major long term dent on high ticket item sales.
- Ambition: all three have big ambitions in digital music and appropriate commitments to funding that ambition. Not all of them (that’s you Android and Amazon) might yet be putting that budget in the places the labels would like them to, but the strategic ambition and commitment is there nonetheless. These guys are all playing a big, long game.
- Cash: Even if Android and Amazon may have temporarily baulked at paying licenses for locker services, rights owners know they have big budgets to invest in licenses for other accompanying services – hence no law suits (yet) over the licence-free locker services. The revenue and balances of The Triple A provide the financial security the labels in particular are so keenly seeking.
- Ecosystem: An ecosystem is arguably the single most important ingredient of a successful digital music service (ask the c.300 European services which don’t have an Ecosystem play and are left fighting over the 30% of market share Apple leaves them to squabble over). Apple’s device / service ecosystem is best of breed. Android’s, though based on a different ideology of (semi) openness, is an eager challenger. Amazon’s is a work in progress; the locker service, music buying customer base and collaborative filtering are all ingredients for Amazon, and the forthcoming tablet may prove to be the secret sauce that completes the recipe.
So if you are not one of the Triple A, what can you do to compete, to get your seat at the main table? For a start you are going to need at least four of their key attributes, namely Scale (or a clearly demonstrable way of achieving it), Ambition, Cash and Ecosystem (even if this is achieved with 3rd party channel partners). All of which of course skews the market towards heavily funded major players. Assuming you can deliver on these attributes, you are still going to need to have the extra ‘X factor’ which will give you the differentiation necessary to steal a march on the three incumbents.
And here’s where there is a big chink of light in the darkness. If you are a pure play music service, not constrained by the needs of your core non-music product(s) then you can throw all of your energies into innovating your core music product experience in a way the Triple A have patently failed to do so yet. How is it possible that all that Amazon – the longest tenure major player in online music – has so far only launched an MP3 store and a locker service? Similarly, how is it possible that Android haven’t yet launched the world’s most technologically innovative music service? And how can Apple still not have moved out of their a la carte store beachhead? (Their locker player is not exactly a bold thrust into new territory, however well executed).
Music fans need a new generation of innovative, ground breaking digital music experiences. The Triple A’s inherent bias of their core non-music products looks set to continue to hinder their ability to deliver. Here’s hoping that this set of circumstances creates a window of opportunity for (well-funded) disruptive innovations rather than a blueprint for continued stagnation.