Announcing MIDiA’s New Research Practice: Paid Content

We are proud to announce the launch of MIDiA’s latest research practice: Paid Content. We’ve been working on this service for the past 9 months and it is headed up by our Paid Content analyst Zach Fuller.

The Paid Content service is the definitive source of analysis, data and research on the digital content marketplace, the trends that are shaping it, the technologies that are disrupting it and the companies and the consumers that are driving innovation.

It enables clients to get smart fast on the latest new technologies and start ups that are looking to change the marketplace. It shows them best practices in user acquisition, monetization and retention. Clients can benchmark themselves against competitors and against other industries, as well as getting the inside track on where tomorrow’s audiences are heading.

Some of the reports we have already published include:

  • Facebook The Media Company: If It Looks Like A Duck
  • How Consumers Adopt Technology: Why The S-Curve Rules
  • VR Vendor Landscape: Virtual Reality’s Path to Mainstream Entertainment
  • The Death of the Monthly Active User: Redefining User Metrics For The App Era
  • Paid Content Consumer Deep Dive: The Emergence Of A Sophisticated Audience
  • Instagram User Profile: Edging Towards Mainstream
  • SoundCloud User Profile: Male Dominated Music Sophisticates
  • Netflix User Profile: Mass Market Streaming Video Users

The topics we cover in the service include:

  • Full Stack media companies
  • Content strategy for virtual reality
  • Making digital audience measurement work
  • Media Consumption, cannibalization and wallet share
  • Freemium strategy and conversion
  • Blockchain and the payments landscape
  • How consumers adopt technology
  • Emerging market paid content trends and adoption
  • Paid content user profiles by individual app
  • How to utilize messenger app audiences

Who should subscribe?

Streaming media companies, mobile app companies, TV and online video companies, music companies, telcos, consumer electronics companies, investors

If you’d like to learn more about how to get access to Paid Content email us at info@midiaresearch.com

Quick Take: Crowdmix Bites The Dust

6a00d83451b36c69e201bb087c7c61970d-600wiCrowdmix was one of those start ups that promised to change the world. It was going to be a social network focused around music that would transform how people discover music and how audiences and influencers interact. Now it is going into administration. Crowdmix suffered from many things, not least a confused value proposition that no-one outside of Crowdmix seemed to be able to explain properly (so it failed the elevator pitch test). But more importantly Crowdmix failed because it played the venture game too faithfully. In the current venture environment, you need to be a ‘game changer’ to unlock significant scale investment. Which is fine, except that only a tiny handful of companies are ever genuine game changers. So what happens is that too many companies try to live up to inflated promises rather than focusing on building viable products and business models. Every company has to be the ‘Uber or Snapchat of [insert industry]’.

Crowdmix convinced itself it could build an entire new social network around music. It couldn’t because of 3 reasons:

  1. Music is fundamentally not important enough to enough people to build any sort of scale of social network around it
  2. As Google learned the hard way, there is only room for one major scale social network
  3. Social networks are yesterday’s technology. They are how Digital Immigrants and older Millennials interact digitally. Messaging apps have replaced social networks for Gen Z and younger millennials

The average life span of a digital music start up is 5.8 years with an average investment of $79.7 million (though those numbers are skewed up by Spotify’s $1.6bn). Crowdmix made it to 3 years and through $18 million, so below average on both counts. It was a nice enough – if slightly confused – idea that made the simple mistake of believing it could change the world.

Why Spotify’s Acquisition of the Echo Nest is a Test Case for the Age of the API

Spotify’s acquisition of music data and recommendation company the Echo Nest is a clear statement from a pre-IPO Spotify to the market that it takes the challenge of the Tyranny of Choice seriously.  In doing so it has established ideological fault lines between it and rival Beats Music. While Beats has put its faith in human curation Spotify has bet big on algorithms. It’s men against machines.  But the most important implication is neither this nor even the fact that Spotify now powers the discovery tools of many of its competitors, but instead the shockwaves that Spotify could send throughout the entire tech start up ecosystem if its screws up how it deals with the Echo Nest’s API.  This is the first major text case for the Age of the API.

Over the last half decade open APIs have become a central component of the technology space with countless start ups opening up their code and data for other start ups to riff off.  It has been a win-win for start ups on both sides of the equation: the givers more quickly permeate throughout their target marketplaces while the takers get to short cut to functionality that might be otherwise unobtainable.  Consequently we now have countless companies that are built upon a patchwork of interconnected APIs and a richer seam of products and services.

This is the exact strategy the Echo Nest pursued, aggressively pushing their API out into the digital music market place with very liberal usage terms and putting themselves at the heart of the Music Hackday movement.  (Few Hackday entrants worth their salt will be found without the Echo Nets API coursing through their virtual veins.)  Only Soundcloud can lay claim to having been more successful in the music API game.

But now that the Echo Nest is deeply embedded in the digital music marketplace what happens if it turns off or dials back its API? Currently it is making all the right noises, that its API will remain both “free and open”.  But there is a big difference between the aspirations of a newly acquired company and the actual behavior of the buyer 12 months or so down the line.  Indeed, a highly plausible scenario is that Spotify will eventually wind down the Echo Nest as a distinct entity, bringing all of its functionality behind the walls.  After all, if you break down what motivated Spotify’s acquisition, other than the prime motive of sending the right message to the street, the core assets are not the data itself – Spotify has plenty enough of that – but instead the expertise and the technology.  Data is worthless if you cannot interpret it properly.  Why let competitors benefit from that?

So right now the technology sector as a whole should be paying close attention to what Spotify does with the Echo Nest’s API.  If it does indeed eventually turn off the tap then it will rightly make investors and start ups alike question the strategic integrity of building businesses on the foundations of third party APIs.  Spotify needs to get this one right because the implications are far bigger than Spotify’s IPO, or indeed even the broader digital music market.  Instead this is the future of the entire technology start up marketplace.

 

Music Industry Predictions and Aspirations for 2014

2013 was a year of digital music milestones: 15 years since the arrival of Napster, 10 years since the launch of the iTunes Store and 5 years since the birth of Spotify.  Which begs the question, what will we looking back at in 5 years as the success stories of the ‘class of 2013’?   There have been some interesting arrivals with promise, such as WholeWorldBand, Soundwave, O2 Tracks, Bloom.fm, Google Play Music All Access (ahem)…. As is the nature of start ups many of the dozens that started in 2013 simply won’t go the distance.  Indeed many of Spotify’s ‘class of ‘08’ have fallen by the wayside: MXP4, MusiqueMax, Beyond Oblivion, Songbird etc.   If the ‘class of ‘13’ want to emulate collective success then it is the ‘class of ‘07’ they should look at: a bumper crop of success stories that included Songkick, Topspin, Deezer, Songza and Soundcloud (though Spiral Frog and Comes With Music were notable flops).

So what can the ‘class of ‘13’ and the rest of the music industry expect in 2014?  Well here are a few of my predictions and aspirations:

  • Label services will grow and grow (prediction): following the lead of the likes of Cooking Vinyl and Kobalt every label and his dog appears to be getting in on the act.  Which is no bad thing.  The choice used to be binary: DIY or label.  Now labels are borrowing some of the clothes of DIY and in turn transforming the artist relationship from one of employee to client.  Expect many established frontline artists coming to the end of their label deals in 2014 being persuaded to opt for a label services deal with their label rather than jumping ship.
  • Downloads will be flat globally (prediction): the download is still the dominant digital product globally but in the markets where streaming has got a strong foothold it is eating into downloads.  A key reason is that the majority of paid subscribers are also download buyers and their behavior is transitioning.  But in most of the big markets, and in most of the non-Northern European markets, downloads are the mainstay of digital and will grow further in 2014, cancelling out declines in the US and elsewhere.
  • Latin America and Africa will both grow in importance (prediction): these are two regions with hugely diverse national economies but both also contain a number of markets that are ripe for digital lift off, particularly in Latin America.  However the standard solutions for the western markets will only have limited success.  Expect innovative newcomers to do well here.
  • The streaming debate will NOT resolve (prediction): expect strong continued growth in streaming.  Spotify should hit 10 million paying subscribers soon – the free mobile offering may even push it to 100 million users.  Deezer should clock up another milestone soon too.  And Beats Music could get really serious scale if it does indeed bundle with headphone sales.  But the nature of the debate means the bigger streaming gets the more artists will perceive they are being short changed, because individual artists will feel the impact of scale more slowly than the market.  Expect things to really hot up if Spotify goes public, does well and the majors do not distribute meaningful portions of their earnings to artists.
  • Spotify, Deezer and Beats Music have a good year (aspiration): to be clear, this isn’t me breaking with years of tradition and suddenly jettisoning impartiality and objectivity.  Instead the reason for the inclusion is that the future of investment in digital music will be shaped by how well this streaming trio fare.  Between them they accounted for 70% of the music invested in music services between 2011 and 2013.  These big bets may not be leaving a lot of oxygen for other start ups, but if they do not succeed expect digital music service funding to get a whole lot more difficult than it is now.
  • Subscription pricing innovation accelerates (aspiration): regular readers will know that I have long advocated experimentation with pricing so that portable subscriptions can break out of the 9.99 niche.  In addition to more being done with cheaply priced subscriptions we need to see the introduction of Pay As You Go subscription pricing in 2014.  Pre-paid is what the mobile industry needed to kick start mobile subscriptions, now is the time for the music industry to follow suit.
  • More innovation around multimedia music products (aspiration): one of the most exciting things about Beyonce’s album last week was the fact it put video at its heart.  Since I wrote the Music Product Manifesto in 2009 depressingly little has happened with music product strategy.  Of course not every artist can afford to make an album’s worth of flashy videos, but hey, they don’t need to all be flashy.   Here’s hoping that a few more labels follow Sony’s lead and start really pushing the envelope for what music products should look like in the digital era.  Here’s a clue: it is not a static audio file.

P.S. If you’re wondering why I am so harsh on Google Play Music All Access it is because they can and should do so much better.  The market needs innovation from Google, not a ‘me too’ strategy.  Come on Google, up your game in 2014.

Listen Services Raise Their Game While Access Services Raise More Capital

Regular readers will recall my classification of the digital music market into Access services and Listen services, located at opposite ends of the Complexity Axis. Late last week two of those Listen services upped their respective games, with MusicQubed launching a new service with Vodafone New Zealand and Nokia Mix Radio introducing a host of new features.

Both services are focused squarely on delivering elegantly simple music experiences for as little effort as possible from the listener.  All you can eat Access services have done a great job of engaging the higher end aficionado and will continue to be the most appropriate business model and value proposition for the more engaged, higher spending music fan.  They do little for the lower spending mass market consumer however, which is where Listen services come in.

Interestingly MusicQubed and Nokia’s announcements came in the exact same week that news began to surface of Spotify securing an extra $250 million in finance, taking Spotify’s total investment tally to over half a billion.  In fact Deezer and Spotify alone account for approximately two thirds of all of the investment in digital music services in the last three years, amassing $0.6 billion between them from 2011 to 2013 alone.  Both companies have reported impressive subscriber counts and have made subscriptions work at scale in a way that the stalwart incumbents Rhapsody and Napster never did.  But building the Access business is clearly one that requires a large and steady influx of working capital.  The industry has got to hope that the investment to date helps build the foundations of long term sustainability and not simply supercharge a few services for a quick sale without an eye fixed firmly on the long game.

Concerns aside, it is great to see more investment pouring into the space, even if it is too concentrated at the moment. It is even more encouraging though to see more companies recognising the need to engage the less hip, but much larger installed base of mass market fans who are currently getting left behind by the digital music bandwagon.  It is to be hoped that these are the foundational signs of a more mature digital marketplace that can take the digital transition onto the next stage.

Songkick Detour And The Middle Class Musician

 Songkick today announced the official launch of Detour, which it has been successfully trialing in a small invite-only beta until now.  At risk of over simplifying, the basic concept of Detour is enabling fans to help artists decide where to gig by pledging in advance for concert tickets, much in the same way PledgeMusic works but for live. In the trial 1,000 fans made 10 concerts happen in London (you can read Songkick’s Ian Hogarth’s blog here).

I am a big fan of Songkick and the company is one of a relatively small number of digital music start ups that are genuinely changing some of the fundamentals of the music industry.  With Detour, Songkick is harnessing the power of its highly engaged music fan audience and using it to deliver real value back into the business. 

Obviously it is still early days and Detour is still currently focused on London, but crowd funding of concerts is an area with growing momentum with specialist sites like Gigfunder and Queremos! all growing this emerging marketplace.  Crowd funding concerts is a very natural next step from crowd funding albums and EPs.  For middle ranking artists who aren’t big enough to be on a big label but are bigger than the amateur and semi-pro tiers of artists, tools like Songkick Detour and PledgeMusic are increasingly important.  They empower artists to build sustainable careers, making the most of scarce resources and squeezing out every last drop of their potential.

But perhaps most importantly of all these tools strengthen the bond between fans and artists.  Something that is inherently less easy for a superstar artist to do.  Sure the likes of Lady Gaga do a fantastic job of making their global fan bases feel close, but that proximity can never be as genuine as a band whose just come to London to play a gig off the back of 80 dedicated fans pledging their support and hard earned cash. So the long-term outlook becomes one of increasing divergence between the aristocracy of the superstar artists and the middle class of hard working, hard gigging artists.  Think of it as a democratization of music, with the intimacy of the artist-fan relationship the currency of success and authenticity.

Detour has got a long way to go, but that is only because it has so much potential.  Now the fun really starts.

Announcing the Start Up Showcase Judging Panel

A few months ago I announced the launch of the Music Industry Blog StartUp Showcase, an opportunity to give early stage music start-ups much needed exposure.  We had an excitingly large number of entrants with a refreshing diversity of offerings and business models.  After whittling down the applicants to those who met the entry criteria we have more than 20 start-ups that will each be assessed across eight key areas, namely:

  • Product Idea
  • Business Model
  • Uniqueness
  • Competitive Positioning
  • Market Need
  • Strategic Vision
  • Team
  • Execution

Today I am proud to announce the stellar panel of judges who are already busy judging the start-ups, namely:

  • Martin Goldschmidt, Chairman of the Cooking Vinyl Group.
  • Davin McDermott, Director and Head of Music at RSM Tenon
  • Keith Jopling, Leading Music Industry Consultant

The judges bring a wealth of experience and expertise and you can view their complete bios here, in the StartUp Showcase section of this site.

We will be announcing the winners of the StartUp Showcase later in July.

A Call Out to Early Stage Music Start-Ups

Just a reminder that the deadline for applications for the Music Industry Blog Start Up Showcase is the 31st May.  If you’re an early stage music start-up (of any flavour, shape or kind) then follow this link to information on what you need to do to enter the Showcase competition.

We’ve got a stellar voting panel together which will be announced shortly.  Winners will be announced in late June.

Announcing the Music Industry Blog Start-Up Showcase

Over the last few months I’ve had conversations with a lot of really exciting early-stage music start- ups with a refreshingly diverse array of products and propositions.  Many of them though share the same problem: the challenge of getting from great idea and team to market awareness.  So, as this blog is read widely by investor and music industry decision makers alike I’ve decided to do my little bit by launching the Music Industry Blog Start-Up Showcase.

Over the next month I will be taking submissions for inclusion from *music* start-ups.  I’m specifically interested in early stage music start-ups, so if you are pre-funding, seed and / or chasing Series A then you could be just the sort of company to be featured in the showcase.  (There might be the occasional case for a later stage company to be included but there will have to be a very strong case).

The most important criteria of all though, is that your business is interesting, exciting and is doing something different.  That doesn’t mean you have to be a unique service or business model (though that would be great).  It does however mean that you must at least have a unique approach, a novel twist.

If you are interested in taking part then please answer the questions below and send them to me directly at musicindustryblog AT gmail DOT COM

Closing date for entries is 31st May.  I will only be selecting the best of the entries for inclusion so I can’t guarantee your inclusion.  I will also be strict in applying impartiality, so that means even if I’m working with your start-up in an advisory capacity it doesn’t mean that you will necessarily be included, (sorry!).  For sake of full disclosure I will state clearly if I am advising for, or have been so at any stage, any of the start-ups selected for inclusion.

If you have any questions, queries or concerns please feel free to send me an email or reach out to me on Twitter @mulligan_mark

Music Start-Up Criteria

If you would like your start-up included in the showcase please answer and submit the following.

What capacity are you representing the company in?

The express elevator pitch (what you do in *one* sentence)

What problem are you solving / why does the music industry need you?

What is your business model?

What is unique about what you are doing?

Who do you see as your main competitors and why can you do things better than them?

Why do consumers and / or businesses need your service(s)?

Where do you want to be in 2 years’ time?

What investment stage are you at (boot strapping, seed, series A) and who are your investors?

250 words on your company (include things like management team, value proposition, go-to-market strategy, clients/partners, etc.)

Company URL(s)

Music Start-Up Strategy 2.0

The music industry needs innovation more than most industries and yet the last two years has seen a slowdown in the number of new licensed music services coming to market and greater consolidation around the Triple A of Apple, Android and Amazon.  In this brave new world music start-ups need an entirely new modus operandi.

There are many reasons for the slowdown in new licensed music services, but a key one is the establishment of the license-advance business model in which record labels issue licenses only upon payment of sizeable, non-repayable advances in anticipation of forecasted income.  Depending on the scale of the risk to the labels presented by the licensed service these payments can range from relatively modest to downright gargantuan (Beyond Oblivion went to the wall owing $100m to Sony and Warner Music even though not a single consumer ever saw the service).  With so few services managing to make a dent on Apple’s market share investors have grown wary of investing in music start-ups that require licenses, some have effectively stopped investing in them all together.  The labels’ focus on partners with scale (and effectively using advances as means of sorting the financially robust wheat from the chaff) may deliver near-term security for the labels but it increases their long term risk by slowing music service innovation.  Hungry young start-ups are often more likely to create transformational innovation than heavily resourced R&D divisions of billion dollar companies.  Thinking ‘out of the box’ is always a lot easier when you’re not actually in the box in the first place.

Music Start-Up Strategy 2.0 Requires A New Set of Relationships

The status quo is a lose-lose for all parties, each of whom find themselves stuck in a Catch 22: labels need new services but also the safety net of advances, services need licenses but can’t pay for the advances and investors want to invest in music services but won’t do so when advances are required.  It is time to change the model, for this cycle of insufficient innovation and market contraction to be broken.

So just how can this circle be squared? The starting point is accepting the position of each of the three constituencies and then building from there:

  • Labels want market innovation but with their market contracting they need to mitigate risk
  • Services want to innovate but can’t afford to have advances as their core early stage expense
  • Investors want to invest in music innovation but want to put as much as possible of that investment in technology and people

Music start-up strategy 2.0 requires each party to think and behave differently, to accept the fundamentals of the new digital music economy.  And this requires a willingness to both embrace some new ideas and to help forge a few others:

Record labels – become investment partners: Record labels – majors and independents alike – deserve great credit for transforming their business in the last few years, but they cannot change the market alone.  Labels need to harness open innovation, leveraging the developer ecosystem.  OpenEMI is an early model of best practice but to fulfil its massive potential the approach needs underpinning with a more equitable alignment of label-developer relationships.  Start-ups are going to help solve record labels’ problem and labels need to not just tap that expertise but accelerate it.  To do that record labels need to apply A&R rules to technology start-ups. On the artist front labels already behave like Venture Capital firms, now they need to translate this appetite for risk to their commercial strategy.  To take the same sort of risks on start-ups as they do on artists. This of course means that labels will routinely require equity stakes – and sizeable ones, but instead of just being a licensing requirement, these will be in return for a new relationship in which labels establish nurturing partnerships with young start-ups, just like those they have with artists.

When a start-up is at pre-launch stage it is probably going to be more appropriate to take a good chunk of equity for licenses than it is an advance that the start-up can ill afford.  Of course it will still be appropriate for advances to be part of the mix in some circumstances – sometimes even the majority of the mix – but the balance of the relationship should be investing to become a business partner.  This means becoming active stakeholders, sitting on boards, working with the entrepreneurs to help make them successes.  In short, the relationship should change from licensee-licensor to investment partners with shared vision and motives for success.

Start-ups – understand what labels need: Though record labels are becoming increasingly confident of their own innovation capabilities, no media company is an innovation agency while technology start-ups have innovation imperatives at their core.  Unfortunately they often get the conversations with labels wrong.  Instead of going to labels with the “we’re going to save your industry” pitch, start-ups should better understand what label priorities are and then propose working with them to help them achieve those objectives, as partners. (This is something that Spotify did incredibly well right from the start).  Just as it is best practice to engage with an investor long before they actually need money, start-ups should apply the same approach to record labels.

However this change of relationship is probably going to take some time to realize, so in the more immediate term start-ups should look at ways to deliver their experiences without licenses.  No I’m not advocating the Groove Shark approach, but instead leveraging the content licenses of digital music services that are pursuing ambitious API strategies.  Music start-ups should think hard about whether they really need to own music licenses themselves to deliver a great user experience, or at least whether they need to right away.  Building, for example, a product within the Spotify ecosystem is a great way to deliver a real-world proof-of-concept, test consumer receptivity and have immediate access to millions of potential customers.  License conversations are a lot easier with proven consumer demand on the table.  (Though start-ups need to be careful with music API strategy, indeed they should treat music service APIs like mobile OS.  Don’t put all of your eggs in one API basket.)

Investors – work with labels as partners and embrace the API economy. Investors might have some reservations about working with record labels at start-up board level but they shouldn’t fear losing influence.  The odds are investors will still make the same scale of Seed and Series A investments, it is just that their money will be working smarter, helping build great technology and hiring better people at those crucial early stages of a company’s life.  Investors and labels often find themselves on opposite sides of the argument.  There is no inherent reason the relationship should be adversarial.

Investors should also think about how well their investment strategy harnesses the capabilities of the API Economy. Of course it is always preferable to invest in a business that owns all of the fuel that powers its engine.  But in the era of integrated music API’s it is no longer crucial for a music service to have its own licenses.  An investor wouldn’t expect a mobile app developer to own Android, iOS or Windows Mobile so they need not expect a music service to own music licenses.

Laying the Groundwork for Transformational Innovation

Some of these changes are already beginning to happen, others are a long way off from being realized.  But this change is needed to enable to next wave of transformational innovation that the music industry so desperately needs.  Freeing up precious and scarce early stage resources leaves start-ups able to focus on developing great, innovative technology.  Which in turn will mean better products, better user experiences and more revenue for everyone.

I first discussed some of the themes covered in this blog post in the Giga Om Pro report ‘Monetizing Music in the Post-Scarcity Age’ which can be found here