Beyoncé And The Growing Importance Of First Week Sales

Beyoncé’s team will be rightly feeling pretty pleased with themselves right now, having created a massive buzz around her eponymously titled fifth studio album by deliberately creating absolutely no buzz whatsoever prior to its release on Friday 13th.  By doing something a little different with digital they have managed to get swathes of media coverage, cutting through in a manner that could only be dreamed of with a traditional music marketing campaign.  Showcasing a big digital gimmick is a reasonably well used trick by established artists wanting to cut through, whether that be Radiohead’s ‘In Rainbows’ pay what you like experiment or Daft Punk’s ‘Random Access Memories’ iTunes exclusive.  There of course many serious permutations of the ‘Beyoncé’ release, both in terms of product strategy (e.g. the integration of video) as well as marketing (turning the traditional album build-up strategy on its head).  But of most significance is what it says about the growing role of first week sales.

beyonce and taylor swift final

Prior to the release of this album Beyoncé’s sales were in sharp decline, from a peak of 4.9 million US sales for ‘Dangerously in Love’ in 2003 to just 1.4 million for ‘4’ in 2011 (see figure).  The total market decline in album sales was clearly a mitigating factor but the rate at which Top 10 US album sales declined over the same period – 50% – was significantly less than the 71% by which her album sales declined.  Beyoncé’s team needed something clever to ensure that the latest album didn’t continue the downward trend.  Doubling down on first week sales was a smart move.  It combined the novelty of the tactic, the creation of a sense of scarcity by being an iTunes exclusive for one week and the ability to mobilize her core fans into buying in a concentrated manner and thus increase the odds of pushing the album to the number one spot on its debut full week.

First week sales have become a crucial marketing tool for big artists, with efforts focused on concentrating sales to build the platform for the rest of the marketing and sales strategies.  First week sales of ‘Beyoncé’ look set to represent 30% of all sales, a considerable rise from the 6% for ‘Dangerously in Love’.  As impressive as ‘Beyoncé’s expected 600,000 first week sales are though, the record for US first week sales was set last year by Taylor Swift’s ‘Red’ with an impressive 1.2 million.  In many respects Taylor Swift’s album sales trajectory is similar to Beyoncé’s even though she is in an earlier stage of her career.  Again the decline in total music sales plays a key role, but over the period Swift managed to ever so slightly buck the trend, declining by 25% instead of 26%. (Though if the high water mark of her second album ‘Fearless’ is used then the decline is 41% compared to a Top 10 rate of 5%.)

What unites Taylor Swift and Beyoncé is the growing importance of first week sales.  Both are suffering declining album sales as a result of broader consumer trends, and both have concentrated ever larger proportions of sales into the first week of release.  Consequently for Beyoncé first week sales volumes have increased by 89% while total sales declined by 71%.  For Swift first week sales have increased by 218% while total sales fell by a quarter.  Other artists have woken up to the importance of the first week sales springboard too, not least Daft Punk who secured first week sales of 339,000 for ‘Random Access Memories’ representing 44% of all US sales to date. By contrast their last album ‘Human After All’ sold just 127,000 in the US.

As music sales continue to dwindle artists’ release teams have to get increasingly creative about how they get the most bang for their marketing buck. Expect the first week sales focus to sharpen even further now for frontline global scale artists.

Another Nail in the CD Coffin: HMV Call in the Administrators

Perhaps the greater surprise is how long UK high street media retailer HMV has been able to hang on rather than the fact HMV today formally announced it was calling in the administrators.  HMV of course has been on borrowed time, with suppliers having come to its aid a year ago, pumping in cash and taking an equity stake in return. HMV’s group revenues have been in decline since 2009 but its music sales have been tumbling since long before that.   And despite belated revenue diversification strategies such as moving into the live sector, taking a smart strategic investment in 7 Digital, and some other recent smart initiatives, HMV has been unable to halt the inevitable.

Of course HMV’s problems are far from unique.  Retailers across the globe have struggled to come to terms with the transition from the distribution era of selling physical units of stuff to the consumption age in which consumers value access to digital experiences.  Even the most innovative retailers have found it difficult: just look at the travails of France’s Virgin Mega, arguably the single most innovative and ambitious of high street retailers couldn’t make it work.  But for every Virgin Mega who tried to seize the digital bull by the horn there are ten Fnac’s (the other leading French media retailer) who did far too little too late. In fact, somewhat depressingly, one could argue that if the end result is the same, why bother expending all that strategic effort trying to change?

But what brought HMV and other retailers to their collective knees was a fatal combination of irresistible momentum and strategic error.  Piracy, tumbling CD sales, and competition from new competitors (supermarkets, online retailing and Apple) all played their part.  But even collectively they need not have added up to an HMV death sentence in 2013.  Don’t get me wrong, I am not arguing that there is a long-term vibrant role for high street music retailing, but there could be at least a few good years left.

Despite Apple having been in the market for a decade, the CD remains the bedrock of music sales, and a very significant share of music buyers still buy music offline.  For HMV, if it survives in some guise, perhaps half of its 230 odd stores will be able to eke out a solid enough business for another couple of years. The problem though is that those stores will be serving the lowest value part of the music buying population.  HMV used to be the destination of the music aficionado now it is the last refuse of the mass market, tech-wary passive music buyer.  These consumers are numerous but incredibly low value: the bottom 60% of UK music buyers account for just 18% of total UK music spending.  But nonetheless it is a customer base there for someone to serve.

Unable to Kick the High Street CD Habit

Of course, HMV should never have let itself get into the position of relying on bottom feeder revenue.  HMV reacted too slowly to the rise of digital, and in doing so was little different from most other music retailers.  HMV did not recognize the seriousness of the threat of Amazon and Apple until it was too late.  The irony of the piece is that there was a growing strategic awareness of the Apple threat but strategic paralysis prevented HMV from doing anything.   While HMV busied itself rolling out ill fated digital stores and services it was unable to play the ace in its pack: deep integration with CD retailing in the high street.  But because HMV’s digital revenues were a miniscule share of the total business, the digital team never won the argument against the main retail business who would have effectively been signing away their core proven revenues to an unproven internal upstart.  HMV was deeply addicted to high street CD revenue and it was simply unable to kick the habit.

The Missed Digital Opportunity

Back in the mid-2000’s this could have helped transition a very meaningful share of still-physical-but-soon-to-be-digital customers to HMV digital rather than to iTunes. Of course HMV would have needed MP3 catalogue at this stage too, but they were strong enough to get this years before it actually happened, if only they’d been willing to expend political capital getting the licenses from the majors.  MP3 mattered but simply wasn’t a big enough deal for HMV in 2005.

The dominant influence of the high street retail business had another unfortunate effect: just when HMV should have been battening down the hatches against Apple, it instead gave Apple a free pass to steal its customers by stocking iPod accessories and iTunes gift cards in its stores. Of course this all made absolute short-term revenue sense, but it was long-term strategic idiocy.

If HMV had acted early enough – i.e. 1999 /2000 – and used its political weight to get the right deals out of the labels and partnered with a good device manufacturer, then we might have been looking at a digital success story now.  Even if HMV had missed that strategic-visionary boat, and had instead fought a proper rear guard action from the mid-2000’s then it would have a meaningful digital business by now.  Instead HMV’s fortunes remain inextricably tied to the slow, painful demise of the CD.

Regrets, it’s had a few and, unfortunately, it did it its way.

If you are a journalist and would like to talk about this story please email me at mulligan_mark AT hotmail DOT COM

Why Tesco Just Bought We7

Today UK headquartered supermarket chain Tesco announced the acquisition of a 91% stake in UK streaming music service We7. It hasn’t been the easiest of journeys for We7, with the plucky English start-up simultaneously fighting off incursions onto its home turf from the Nordics (Spotify) and the French (Deezer). Which is an uncanny rerun of the last English King Harold I’s annus horibilis 1066 when he fought off the Vikings and before finally losing to the France based (though Viking origin) Normans at the Battle of Hastings. But whereas Harold ended up with an arrow in his eye this isn’t the end of the story for We7.

Tesco might at first sight seem something of an unusual bedfellow for We7, but Tesco has very big digital content aspirations. The We7 purchase follows the acquisition of streaming video service BlinkBox and is another building block in Tesco’s bid to build a paid content offering that appeals to its mass market, mainstream customer base. ‘Mass market paid content’ may be an oxymoron right now but if anyone is going to take paid content mainstream it will most likely be a mass market brand. And yet it will be far from plain sailing for Tesco.

Tesco’s paid content strategy is both aggressive and defensive.

Tesco has been aggressively – and in the main, successfully – pursuing non-grocery revenues for a number of years now. (Though a recent dip in overall revenues has seen a commitment to a renewed focus on core grocery products). Paid content is a product line which would clearly be new revenue opportunity for Tesco and music would be the obvious lowest common denominator hook for pulling consumers into a blended paid content offering. It is a strategy that has worked well for Apple and to some extent Amazon.

The role of Amazon brings us to the defensive play for Tesco. Tesco hasn’t always had the smoothest of relationships with the music industry, particularly the retailing element of it. Like supermarket chains in many other markets Tesco has pursued a strategy of loss leading with a relatively limited selection of front line and classic catalogue CD titles. Its aggressive pricing strategy has helped bring CD prices tumbling down (great for consumers, less good for record label margins) and it has sometimes tried to bend the rules to get stock cheaply (such as sourcing from Eastern Europe). Tesco does all of this because it helps footfall in store and because it helps migrate its customer base up the product ladder from baked beans, to CDs, to computers and so on. All of which is remarkably similar to Amazon’s strategy, the difference being that Amazon use CDs (and books and DVDs) as the entry point on the product ladder. As CD sales decline though the ability to use CDs as a customer acquisition hook diminishes. Amazon knows this all too well, hence its aggressive – but thus far only modestly successful – pursuit of an MP3 store strategy.Now Tesco can see the writing on the wall too.

Selling paid content from the supermarket aisle

The task is more robust for Tesco than it is for Amazon. All of Amazon’s customer relationships are digitized because it is an online retailer. Tesco though, despite being a global leader – at one time the global leader – in online retailing does not have a digital relationship with the majority of its customers transactions. As Amazon will attest, it is already challenging enough trying to persuade customers in an online environment to opt for digital versions of products even when they are positioned alongside physical versions and more cheaply. The task is nigh on impossible in a supermarket aisle. Which is where I think We7 will come in. It is a much more straightforward – though still not easy – task to get customers to visit a free online content destination, such as a streaming music offering, than it is to get them to dive straight into buying digital content.

A smart move for Tesco would be to use We7 to power a free music offering that is available only to holders of its Tesco Clubcard loyalty scheme. This would give customers another reason to opt into the Clubcard scheme if they haven’t yet, and for those that have it would give them reason to start engaging with it online. Once it has customers engaged with free streaming music Tesco then has a much easier task of migrating portions of those consumers to paid digital music, whether downloads or subscription. Tesco has a number of incredibly valuable assets at its disposal to promote usage in both a broad and targeted manner. For example users of the free streaming music offering could be given a free download with every £50 spent at the till. In store integration and promotion would be more challenging but various compelling options exist ranging from voucher cards to digital content bundled with CDs.

In short We7 could and should become the foundation stone of Tesco’s walled-freemium music strategy. Tesco have talked a decent digital music game for years now without notable success. A £10 million investment in We7 could well prove to be a very cheap pass to the big time.

The Long Tail Will East Itself: Covers and Tributes Make Up 90% of Digital Music Service Catalogues

In the early days of digital music, stores and services fell over themselves to boast about their burgeoning catalogue sizes.  Back then, when majors didn’t license widely, it really was something of an achievement to break the 1 million tracks mark, catalogue size was often a good indicator of the comparative breadth of choice among services.  But by the second half of the last decade, most of the majors had most of their catalogue online in most of the stores and services.  Independent labels lagged for a number of reasons but the majority of the independents (by market share) were also on the majority of services by this stage.  And yet since then, the average catalogue size of digital music services has grown from 4.3 million in 2008 to 16.4 million in 2012.  What fuelled this new catalogue arms race? It would be nice to think it was down to labels digitizing vast quantities of back catalogue, or even because of a surge of semi-pro artists.  The answer though, or at least the lion’s share of it, is much less appealing. Digital catalogues are so much bigger now because of filling and fluffing from covers, tributes and karaoke tracks.

Covers and Tributes Make Up 90% of Digital Music Service Catalogues

To test the theory I looked at the available tracks on iTunes for 10, randomly selected, top tier artists (see figure).  The startling key takeaway is that on average just 10% of the tracks listed for an artist is actually music by that artist.  And bear in mind that many of those tracks are duplicates.  The average U2 song for example, is listed multiple times ranging from original albums, remastered albums, EPs, greatest hits, compilations etc.

The vast majority of the remainder of tracks listed for an artist is filler drivel, endless cover versions, tribute acts and karaoke tracks.  As Peter Robinson highlighted in 2009, many of these cover versions sound all but identical to the original, while others have full intent on being identikit copies but poor musicianship and production leaves them sounding pitifully poor.  In among there are the occasional example of leftfield creativity, such as ‘Bass Parodies of Coldplay’ by Joe Bob’s Upright Bass Trio.  But artistic expression is hardly being tested with the likes of ‘Yoga to Coldplay’, ‘Led Zepellin Lullabys’ or ‘Dance Tribute to Lady Gaga vs Black Eyed Peas’.

When the Long Tail Goes Untouched

So just how much of the current 16.4 million songs on digital services are ‘the real deal’?  Back in 2008 24/7’s CEO Frank Taubert stated that 66% of his service’s 4.5 million tracks had never even been downloaded once (and remember these are the guys who power the vastly successful TDC Play unlimited free music service). That means that just 1.5 million tracks had been played, which is pretty close to the 1.6 million tracks we get if we apply the 10% rule across the entire 16.4 million catalogue count.

The number is probably bigger than that though.  eMusic responded to Taubert’s 66% claim with their own: that 75% of their 4 million tracks had been downloaded at least once.  But even if we take a straight average of the two (i.e. 44% of catalogue is untouched) we are still short of the complete picture.  Because even those tracks that have been played at least once will include multiple versions of the same song (e.g. album version vs single version).  Nielsen underscored the dynamic in 2009 when they reported that 3.6 million tracks sold less than 100 copies and just 1% of tracks were responsible for 80% of sales.

The Pseudo Long Tail is Killing the Real Long Tail

It is at this stage we start to see the core of the problem.  The short head will always dominate the long tail, but no more so than when the genuine long tail (the experimental artists, the up and coming, the niche genres) gets drowned out by the pseudo long tail of karaoke and 3rd rate covers.

Discovery in the long tail is already a potentially market-crippling problem.  It is time for music services to stand up and be (down) counted.  16.4 million songs means nothing if the vast majority is useless filler.  This is not to say that there isn’t a place for this strata of bottom-feeder music, but that place is not as part of the main results of original artists.  At the very least music services should file those tracks away in their own section.  But even if they can’t bring themselves to do that, they should stop listing these tracks in total catalogue sizes. The 90% filler tracks paint a misleading and confusing picture of digital music availability.  The best solution of all though is for music services to do away with them all together, and if there is really a market need for them, then let some niche player fill that gap instead of blighting real music services.

Is the UK Music Industry Sleepwalking into a CD Crisis?

An upfront note: though this post focuses on the UK market, the principles, as you will see, apply across most music markets.

At first glance the UK recorded music market isn’t in too bad shape: album sales declined by a not too worrying 5.6% in 2011 and digital grew solidly, including 26.6% growth in digital albums*.  And of course there was Adele.  So an end of term report card would probably read something like ‘Could do better but good signs of improvement’.  Unfortunately that is a case of papering over the cracks.  Here’s why:

  • CD sales are falling at an alarming rate: though digital album unit sales grew by 5.6 million, CD album sales fell by 12.3 million.  So the digital growth was less than half of the physical decline in absolute terms.  A worrying ratio at this stage in the development of the digital market (i.e. when it should be maturing, not just getting started).
  • The single continues to drag revenue growth down. Digital singles boomed to 176.6 million, a whopping 56% greater volume than combined physical and digital albums. And yet their value is close to just a fifth of album revenues.   Despite solid digital album growth, unit sales of digital singles increased by about 17 million, three times the units growth rate of digital albums.  And though the spend increment is much greater for albums – and this is of course the lens labels will typically view the trend – the unit growth is the best indication of consumer behaviour.  i.e.  music buyers are still throwing their weight behind digital single purchases at a quicker rate than they are digital albums.
  • The CD buyer is withering on the vine.  Most importantly of all, the CD buyer is becoming an increasingly rare breed.  There are fewer shops on the high street, which is where the majority of CD buyers still buy their albums. HMV – the UK’s leading music retailer by some distance – has been suffering well documented struggles.  It is possible that HMV will disappear from the high street entirely in the next couple of years.  Though this won’t be an extinction event for CD buyers, it will however leave a gaping hole in music revenues (possibly a quarter of all album sales).  The majority of these Digital Refusniks who haven’t seen any reason to start buying CDs online – let alone downloads – are unlikely to suddenly switch even if they have to.  More likely they will just drift out of the market entirely.  These are the passive music fans who only buy the occasional album, don’t have an iPod, don’t want to spend £9.99 a month on music and who listen to a lot of radio.  With so much more choice of high-ish quality music on digital radio and TV these consumers won’t even feel that much of a dent in their music behaviour when they no longer buy CDs.
  • The CD is disappearing from the living roomI’ve been beating this drum for years now but still don’t get the sense the risk is being taking seriously.  Living room tech spend has shifted firmly to the TV and music’s weakening foothold is either a docking station for the digital crowd, a streaming player for the really tech savvy or, in the vast majority of cases, a dusty old midi player which sooner or later is going to find itself in the bin or the garage.  When that happens music will have disappeared out of the living room (and before anyone makes the case for music on the TV, that permanently relegates music not so much to poor relation status, as crazy aunt locked away in the attic.  People buy TVs to watch stuff on them, not to have a blank screen while music plays on the poor quality speakers).

The Bottom Line

The music industry is being entrapped by a demographic pincer movement: on the left the emerging Digital Natives lack a product strategy that meets their needs, on the right the traditional CD buyers lack a format succession cycle.  This is why the industry is becoming obsessed with squeezing as much ‘ARPU’ as it can out of the remaining core of 20 somethings and 30 somethings.  But of course that strategy can only go so far.  I’ve written at length about strategies for the Digital Natives, but the case for the Digital Refusniks is even more pressing, if less glamorous.  The following needs to happen, and quickly:

  • Digitize the relationship.  Before an analogue customer base can be migrated to digital, the relationship with those customers must be digitized.  In fact most HMV music customers have no relationship with HMV at all, or rather it is a series of brief encounters that start and finish with a cash till transaction.  First HMV – and indeed high street music retailers anywhere – need to start finding a way to establish digital relationships with these customers and then use that as the platform for a digital revenue strategy.  As my astute former colleague James McQuivey is fond of pointing out, Netflix built is success on the platform of digitizing its customer relationships. It is time for high street music retail strategy to follow suit.  (And by the way, simply trying to push consumers to the online stores isn’t the answer).
  • A format succession strategy needs putting in place. The Digital Refusniks consumers need their hands holding as they are gently coaxed into the digital realm.   They need convincing that the ephemeral web has tangible benefits comparable to that of the CD. That might mean delivering things like better artwork etc. but to get this right we need to know a lot more about the emotional triggers that CDs press for this consumers.  A proper human needs assessment needs conducting, onto which a human-needs based product strategy can then be mapped.  In all likelihood this will result in a couple of hybrid physical-digital products which will deliver all the benefits of CDs with a steady – but not overwhelming – stream of digital content to allow digital to ‘show some leg’.
  • A new beachhead in the living room.  As I proposed 4 years ago, the music industry (principally the label and retailer elements) need a new living room strategy which should take the form of a new piece of highly affordable Hi-Fi equipment.   While its encouraging to hear that Google looks set to build upon the fine work of Sonos with some streaming music kit, the Digital Refusniks specifically need a hybrid device i.e. one that plays CDs too.  Something that looks contemporary enough to warrant replacing the old midi system and is cheap enough to shift millions of units.  You’ve probably guessed by now that this will need to follow an Amazon Fire approach of loss leading on the hardware to establish the Trojan horse for content sales.  But it is an investment that will pay off.

The Digital Refusniks are a challenging and unfashionable demographic and the counter-case for addressing them is that in 10 years or so they’ll have disappeared from the market anyway.  My conservative estimates put the loss in the region of 15% to 20% less total UK recorded music revenue in 2016.  The industry may well be able survive its revenue forecasts being that much smaller, but a) does it want to? and b) HMV can’t.

*All sales numbers are BPI trade values.  You can see the complete BPI release here: 

Why Digital’s Next Steps Can’t Be Baby Steps

What follows are highlights from my speech at the Westminster Forum on the UK Music Industry 2011 and Beyond

I want to spend the next few minutes building the case that digital music is in a period of transition, a stage that presents us with a unique and ever narrowing window of opportunity to drive truly transformational change within the music industry.  The fact that this panel focuses on both retailing and licensing is emblematic of the convergence, nay collision, of product models and business models.  Collisions that help explain the current turmoil the music industry faces and in which the foundations for future growth lie.

So what exactly has gone wrong?

Firstly, digital retailing is looking increasingly unfit for purpose. It has failed in its key objectives, included in which is a failure to generate a format succession cycle.  With the cases of the cassette and the CD, these formats were firmly in the ascendency by the time their predecessors were in terminal decline, and they then went on to drive periods of unprecedented prosperity.   The same though patently does not apply to the paid download.  However if you swapped out paid downloads for MP3s then the line would be off the chart.  Consumer demand is not the problem.  Current digital retailing formats failing to meet consumer demand is.  And of course Apple’s closed iTunes ecosystem plays a massive role here too.

And if you look at the licensing side of the equation we have problems there too.  Rights owners and artists both feel they don’t get enough from Freemium cloud services, and yet the services themselves feel that they pay too much to those very same parties to be financially sustainable.  With cracks appearing right across the value chain it is looking increasingly like there are too few levers left to pull to fix the model.

Now as concerning as all this may be it doesn’t mean the end of the music industry, nothing like that in fact.  Instead it is simply the end of the beginning: the end of the first chapter in the digital music business.

What we have now are transition products that did a great job of starting us on the path out of the analogue era but their usefulness is drawing to a close.  The paid download is a sustaining innovation.  For those of you not familiar with Clayton Christensen’s ‘Innovator’s Dilemma’ this refers to the principle that companies essentially have two ways to innovate their products.  The first is that they can play the safe game where they tweak features and pricing to defend market share and revenue growth.  These are sustaining innovations.  Or they can take a gamble with disruptive innovations that have huge potential but also massive risk and can even shatter their existing business models.

Unsurprisingly most incumbent companies opt for the safe bet.  But the safe bet is often anything but safe, as it leaves an innovation vacuum which is swiftly filled by the competition, or in the case of music, by the illegal sector.  File sharing was the disruptive and transformational innovation of digital music, not the paid download. Added to this, innovation has been too heavily focused on business models and not enough on user experience. Now the music industry needs to create its own transformational innovation, putting user experience to the fore, before the informal sector does so….again.

So how do we get out of this situation?

Here’s my uber edited solution: two segments and three monetization models.  Forget for a moment the complex multi variant segmentation schemes you’ve painstakingly constructed. Think instead of consumers as those who will pay and those who won’t.  On the free side we have those consumers who are falling out of the habit of buying CDs and either haven’t discovered digital alternatives yet, or if they have they are perfectly happy with free services such as Pandora, Spotify, We7 and of course their killer app: YouTube.  Here also are all those pesky freeloading pirates – they’re not lost customers, but they’re probably not about to start paying 9.99 a month for Spotify Premium either.  And on the other side we have the highly engaged music aficionados.  This used to just be the ‘50 quid bloke‘ but sites like Pledge Music are creating a new generation of younger music fans who will pay good money for recorded music when they establish a direct relationship with artists.

The way to monetize these three groups is threefold: at the bottom of the hierarchy are ad supported free services for the passive majority and the freeloaders, where the contagion of free is legion; at the top there are premium services for the much smaller numbers of engaged aficionados (but they need an entire new generation of music products that are interactive, social and connected, a true successor to the CD – if all they have to chose from is 9.99 a month streaming rentals then this segment will dwindle to the few percentage points of consumers who actually pay those services); and in the middle we have the best balance of scale and ARPU, with subsidized services where third parties such as telcos and car manufacturers pick up some or all of the wholesale cost to make music feel-like-free or close-to-free for end users.  This is the monetization model which will pull in many of those who won’t pay and also those who are in danger of falling out of the habit of paying.

So there you have it: 2 segments + 3 monetization models = the foundation for a prosperous music industry in 2012 and beyond.

Michael Jackson Death Drives Digital Album Buying

What does it take to get people to buy digital albums?  A pop icon dying apparently.  Following the death of Michael Jackson the UK iTunes top ten albums is dominated by Jackson, with the entire top ten albums accounted for except for the #3 and #10 spots.  That’s an 80% hit rate.  By contrast, though Jackson claims the #1 single it is the only entry in the top 10.  (Though to be fair he does get a total of 40 out of the entire top 100.)

So what does this tell us?  At risk of over simplifying,  I’d argue that there are two key trends behind these sales:

  • Older Jackson fans inspired to reacquaint themselves with his music, buying albums
  • Curious new fans wanting to know what all the fuss is about, buying single tracks

The last time Jackson had a UK #1 album was 2001, and that was his first since 1995 (which outsold his 2001 ‘Invincible’ by nearly 1 million).  So there aren’t that many new fans of his new music.  Most of his core fan base was established in the 80’s and 90’s and are thus in their late twenties and upwards, and grew up buying CDs.  So they’re the ones that still revert to the album format when given the chance, and they’ve come out in numbers.  Variable pricing certainly helped (e.g. ‘Bad’ is 4.99) but the the premium priced ‘King of Pop’ (12.99) is at #2.

The younger fans though, who are more used to buying singles, are doing exactly that.  And with the ‘momentum effect’ of hits, this activity coalesced around ‘the Man in the Mirror’, driving it to #1.

So it’s no coincidence then that the top 10 albums chart is dominated more heavily than the top 10 singles.  The  album remains the preferred domain of the CD generation and the single tracks remains the preferred option of the digital generation.

iTunes Pass: First Take

So Apple finally gets into the music subscription business….well sort of. Today Apple announced the first of its iTunes Pass offerings, in partnership with EMI and 80’s electronic music pioneers Depeche Mode. In return for $18.99 a month buyers get


“…new and exclusive singles, remixes, video and other content from their favorite artists over a set period of time, delivered to their libraries as soon as they’re available. [They] will also receive the new album on its street date plus great music and video exclusives before and after the album’s release over the next fifteen weeks.”


Make no mistake, this is a big deal, but there are also holes in it.


The big deal part first:

  • Apple has held off getting into the subscription business for years, with Steve Jobs casting disparaging ‘music rentals’ jibes at Napster et al every time they raised their head above the parapet. Apple were never going to get into the temporary download business, but there was no ideological or business reason why ultimately they wouldn’t get into the subscriptions business, as long as it was on their terms and didn’t detract from the core value proposition of iTunes.
  • The ‘rental’ subscription business isn’t exactly in vibrant form. Rhapsody posted solid enough growth but that is against a back drop of persistent declines at Napster and Yahoo jumping out of the game. And even Rhapsody has failed to push music subscriptions out of a niche of tech savvy music aficionados. The iTunes Pass has mainstream appeal because a) it is targeted at specific fan groups b) it is cheaper c) it delivers permanent content
  • Q4 was another record sales quarter, but replacement sales were a big chunk. The growth in new iPod customers is slowing so Apple needs to look at ways of leveraging more ARPU out of its existing customers.
  • But the most significant part of all this is not what it means to Apple, but what it means to the music industry. This is a glimpse into the future. As we shift from the distribution paradigm to the consumption era the straight jacket of the album format and release schedule can be cast aside. We’d been saying for years at Jupiter (and now Forrester) that the record labels should start delivering a constant stream of content to fans, not just waiting for landmark release dates. In short, build an engaged, ongoing relationship with fans based on content not just artist pages on MySpace etc. This is a brave first step in that direction. Yes there have been similar efforts direct to fans via artist sites etc. but that misses the mass market opportunity and misses the point: this is the future of music retailing, not just some fan boy offer. Great work to EMI for driving this forward. Mark my words, much more will follow.


And now the gaps:


  • Subscribers get exclusive content but no exclusivity on the album. Even if the main release date was delayed by a week or two this would have given much more value to this offer. I can understand the reasoning, principally attempting to mitigate against lots of copies leaking onto file sharing networks ahead of release. But this logic is flawed as a) it only takes one copy to get up there and the recent U2 experience shows that there are always leaks, however tightly you police across the value chain b) most of those who would download from P2P networks are lost customers anyway. Those customers who pay nearly $20 in advance for content they’ve not even heard yet are the ones you should be worrying about. Everything should be focused around making them feel special, not some Quixote-esque tilting at Bittorrent.
  • My other minor quibble, no disrespect to Depeche Mode, but wasn’t there some bigger, more current act this could have been launched with?


Those caveats aside, this is a really exciting initiative. Welcome to the future of music retailing.

Where Now for Music Retailing?

UK media retailer has just announced that it will buy 14 retail stores from its struggling competitor Zaavi, which is currently in administration, following the collapse of media distributor EUK, which went into administration following the collapse of its parent company Woolworths which was also a key music retailer. Domino effect anyone? OK, things might not be as bad in many markets as they are in the UK, but a) the UK isn’t the worst hit b) other markets should look to the UK for what may be coming.

The overriding problem of course is that not enough people are buying music anymore and of those that are, many of them are shifting lots of their spending away from the high street retailers to online CD stores and to digital download stores. The harsh fact is that no high street music retailer has become a leading digital download store. Some have done better than others, but measure against the success of Apple’s iTunes Music Store, all have failed. They’re not helped by the fact that most digital download stores are an artifact of iPod sales. So selling in MP3 will help them (i.e. being able to sell to iPod owners), but they’ll still be hindered by their biggest problem: integration. No high street retailer has bitten the bullet and fully integrated their digital offerings with in store retail. The level of integration required should be so complete that it seriously threatens near term in store retail sales. Which is of course why it hasn’t happened yet. But if they don’t pursue such strategies soon, they’ll lose that revenue to other outlets rather than to their digital divisions. Meanwhile Amazon is setting the standard for integration. They could still go further, and they should, but they’re much further along this road than most of their bricks and mortar peers.

CD sales are in terminal decline. It’ll be a long prolonged death, so there’s still plenty of business in it, but succession and transition strategies need to be built around that basic tenet. The fact that music retailers are now media retailers (i.e. they sell DVDs, games, electronics etc) is indicative of the realization of where the future is. But aggressive digital strategies are key to retailers can slowing the music revenue share decline and turn it into channel shift rather than revenue loss.

Even though HMV’s revamped digital strategy isn’t as bold as it should be (yet anyway) another announcement shows their ambition: they’ve launched a joint venture that gives them a portfolio of live music venues. This is HMV trying to safeguard their future in the post-CD music business. Such a move isn’t available nor appropriate for all media retailers, but the basic assumption of ‘diversify or die’ is.

HMV Interim Results and What they Mean for Music Sales

Interim results are out for HMV, always a good litmus test for the state of music and media sales.  I’m not a financial analyst so I’m not going to discuss the financial fundamentals, rather what this means for the music industry.


HMV stores sales (i.e. excluding Waterstones) are actually up over period.  But technology and gaming, rather than music, have been key to this growth, increasing their combined share from 18 percent to 23 percent.  HMV knows where its future lies.  HMV is plotting a course that brings it closer to European peers such as Saturn in Germany and Fnac in France and Åhléns in Sweden: it is not just becoming much more than music, it is planning for a future when music will no longer be a core product.  As you can from the chart below, music’s share of total sales is declining sharply and is strongly outweighed by DVD, which itself is now losing share to games and electronics.


So where does that leave music sales if Europe’s key high street music retailers are rapidly developing in other directions?  It would be nice to say that this is part of a process towards strong online sales.  But none of Europe’s major high street retailers have managed to steal any serious market share from Apple’s iTunes Music Store.   They should have been able to, as they have the decades of music retailing and programming expertise that Apple is just learning.  Selling in MP3 format is a crucial asset (which HMV now have) but they need to price as aggressively as Amazon is now in the UK and, most importantly, integrate heavily in store. This means that when you’re browsing the shelves in HMV you see most CD titles have offers for download discounts and bundles e.g. buy this album and get the other as a download for half price.


This might seem like a no-brainer, but it hasn’t happened because those responsible for in store CD sales are scared of accelerating cannibalization of their dwindling sales by driving people online.  It’s too late for those kinds of concerns.  The shift is already happening.  All that’s left now is an opportunity for HMV to help drive the process rather than continue to be dragged along, losing customers and market share all along the way