Amazon today entered the streaming music foray with the launch of its own bundled music service. Amazon Prime subscribers get free access to on demand streaming from a catalogue of 1 million tracks, the majority of which are older catalogue titles rather than frontline hits. Amazon’s move has received considerably less interest and hype than Apple’s acquisition of Beats but is in many respects every bit as important.
The future of digital content is going to be defined by the content and device strategies of three companies: Apple, Amazon and Google. Each has a very different approach resulting in an equally diverse set of products and audiences (see figure). Amazon and Apple have mirror opposite content strategies: Apple loss leads on content to sell devices whereas Amazon loss leads on devices to sell content. (Google loss leads on both because its end goal is your data). All three have a strong focus on music but all three understand clearly that the future of digital content lies in having multiple genre stores that traverse music, games, apps, video, books etc. All three also recognize the importance of hardware for delivering the crucial context for the content experience. Similarly, all three have a Content Connector strategy aimed at opening up the mass-market digital content opportunity in the home via the TV.
Amazon’s inclusion of music streaming in its Prime offering speaks volumes about the perceived importance of music as a product to the retailer. Music used to be the crucial first rung on the ladder for Amazon customers. Buyers would start off with a low consideration purchase item like a CD or DVD and the next thing they knew they were buying microwaves and computers. Music is still plays an important role in Amazon’s customer life cycle, but it is no longer a product needs paying for with a separate payment. Music has become the ‘feels like free’ soundtrack to a video subscription with the added benefit of free shipping for online shopping. Out of those three core value pillars of Amazon Prime, music streaming is probably the smaller. Music has become the National Geographic channel in the cable subscription: a nice part of the overall proposition but not something that carries inherent monetary value on its own.
The harsh reality is that this is probably a sound strategy for engaging the mainstream consumer with music streaming (the extensive selection of curated playlists on top of a modest 1 million track catalogue hints at the mass market positioning). But whether this is the best strategy for the mainstream is another thing entirely. Labels fear that free services like Spotify free and Pandora threaten to erode consumers’ perceptions of music as a paid for commodity. But at least in those environments they are actively adopting a music service in its own right. With Amazon Prime there is a real risk that music is being relegated to the role of muzak in the elevator.
In my previous blog post I explained that 2014 was going to be the year of taking digital content into the home. That affordable devices such as Google Chromecast, Apple Kindle Fire TV, Apple TV and Roku are set to drive a digital content revolution by connecting digital content with the familiar context it needs for the mass market. These Content Connectors will transform consumers’ relationship with digital content but they will also turn the existing digital content marketplace on its head:
Breaking down the home entertainment silos: our digital content experiences have evolved entirely isolated from our other media experiences. We multitask because one device is connected and one is not. Our homes have become a collection of content experience silos. Content Connectors break down those walls, brining our digital content experiences onto that most un-connected of devices, the TV.
On-boarding late adopters: In most developed markets, most consumers are digitally engaged, using Facebook, YouTube, email, tablets etc. on a daily basis. These are digitally savvy later adopters, where their behavior lags is in paying for content. Sure, some will never pay, but others simply haven’t yet been given a solution that makes sense to them. Content Connectors can change that by giving digital content experiences familiar context in the home.
Smart boxes will leave smart TV’s still born: TV manufacturers are still figuring out how to deal with the hangover of having accelerated the TV set replacement cycle too aggressively with HD. Too many homes have perfectly good HD ready flat screen sets that they won’t need to replace anytime soon. So manufacturers are desperately pushing 3D and Smart TVs as a reason to replace. The problem, for TV makers not consumers, is that Content Connectors turn ‘dumb’ TVs into Smart TVs for a fraction of the cost. A TV isn’t a computing device but plug a Content Connector into it and it becomes one.
Breaking down media industry walls: Hardware used to create great big walls between different content genres. TVs were for broadcast video, DVDs for recorded video, CDs for audio, games consoles for games. Multifunction devices such as smartphones and tablets started to erode those barriers by being content genre agnostic. Apple’s iTunes Music Store became the generic ‘iTunes Store’ and now Content Connectors want to take this paradigm shift even further by freeing the biggest screen in the home form the constraints of broadcast video.
Leaving stand-alone stores and services stranded: The disruptive threat of the TV’s liberation is immense. Broadcasters instantly lose their monopolistic hold on the TV and find themselves in the middle of a disruptive threat pincer movement: first non-traditional broadcasters like Netflix and YouTube can get themselves right into the traditional TV heartland; secondly non-video content suddenly finds a home on the TV, whether that be music, photos or games. No matter, all of it competes for TV viewing time. And no coincidence that Amazon’s Kindle Fire TV is equipped with a game controller. What’s more, if you only offer video – which of course applies to most TV broadcasters – you look decidedly limited in the Content Connector era of multi-genre content offerings.
Using the TV to get consumers over the ‘ownership hump’: While industry leaders obsess over how to make subscription business models work, most mainstream consumers have not even started thinking about moving from the ownership paradigm to a consumption one. That shift will need a generation to truly play out but Content Connectors will give the process an initial adrenaline shot. How? By putting digital content onto the device that consumers already associate with ephemerality. The TV is not an ownership device nor has it ever been one. At most it is a device on which temporary copies are viewed before being deleted. But the majority of the time it is purely access based content consumption. So getting mainstream consumers used to accessing but not owning digital content via the TV is the perfect environment for making an entirely alien concept feel strangely familiar.
Another changing of the guard: The reversing into the CE market by internet, software and PC companies was the biggest disruption the CE sector ever endured. The likes of Sony and Yamaha used to compete in an almost chivalric manner, agreeing on standards and then competing on implementation. Google, Apple and Amazon pursue no such niceties and compete with incompatible platforms and technology, and in doing so are wining the CE war. The Content Connector revolution is helping the same thing happen to content distribution. A new generation of content providers are emerging that collectively have their eyes set on world domination.
The coming shift in the digital content markets could occur at breakneck pace. Within five years Hulu and Netflix could easily have a 100 million paying subscribers and YouTube’s ad revenue could easily be near $8 billion. If the transition process goes the whole distance traditional content walls could disappear entirely. Google Play could move from selling video, apps or music to simply asking consumers: “How would you like to enjoy this content? Watch? Listen? Or Play?” Traditional broadcasters and media retailers should be scared, very scared.