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.

Lady Gaga, O2 Tracks and the Reinvention of the Pre-Release Sale Cycle

Back in the glory days of music sales, long before the web had done away with scarcity, albums and singles could hit the top of the charts on pre-sales alone.  Those days are long gone, but exclusive pre-release listening initiatives are beginning to reinvent the pre-release sale cycle.  There have been a number of diverse efforts of late including Daft Punk’s ‘Random Access Memories’ being streamed exclusively on iTunes a week prior to release and Jay-Z’s Samsung ‘Magna Carta Holy Grail’ hard bundle.   This week sees the arrival of another high profile artist effort: Lady Gaga’s ‘Artpop’ is going to be available one week ahead of release exclusively in the UK on mobile music service O2 Tracks.  Done right, pre-release digital previews could be a crucial shot in the arm for music sales.

The debate around whether streaming cannibalizes downloads is going to run for a few years yet, and we’ll probably only have enough data to draw definitive conclusions when streaming’s ascent and downloading’s descent are irrevocably set.  Until then, the challenge is how best to leverage the capabilities of existing digital platforms to drive sales of both downloads and good old fashioned CDs and LPs.  Previewing on an all your can eat streaming service will always both drive and cannibalize sales, just in the same way that radio has always done so.  But build the preview experience into the structure of a music store and the chances of conversion are much higher.  Daft Punk’s iTunes preview was a run away success because it was in the heart of the globe’s biggest music retailer (though of course the impact of the uber effective marketing campaign cannot be discounted).

Powered by UK music start up MusicQubed, O2 Tracks is far from a download store (it delivers users a small selection of handpicked playlists for £1 a week) but it is nonetheless a proven driver of music sales.  MusicQubed reports that O2 Tracks users frequently click to purchase tracks in the app, with stores such as iTunes providing the fulfillment. Thus O2 Tracks is an opportunity to drive hype (O2 are investing heavily in marketing the preview project) and to drive sales.

Lady Gaga is truly a digital era artist, with music sales that are strong but overshadowed by super high social engagement metrics such as Facebook Likes and YouTube views (see this chart for more). So while Lady Gaga’s management will be most interested in the strong marketing support from O2 and will in part measure success in terms of social footprint, her label Polydor will of course be paying much closer attention to conversions to sales.  O2 Tracks should deliver on both counts.

As more pre-release digital initiatives are run we will get a better sense of what works best, and where.  As that data builds I expect a clear case to emerge of a more structured and consistent approach to pre-release marketing.  A crucial ingredient will be exclusive extra content, not just the album itself (the O2 Tracks ‘Artpop’ preview includes an eight minute interview with Lady Gaga). This is the sort of content that delivers genuine added value to core fans of any given artist and that helps build even more reason for fans to listen to pre-release album previews.  The days of albums regularly topping the charts on pre-sales alone may be a thing of the past, but the pre-release sales cycle is waking up to a whole new lease of life in the digital age.


New Report: Building the New Business Case for Bundled Music Services

Today MIDiA Consulting is proud to announce the release of a white paper commissioned by Universal Music entitled “Building the New Business Case for Bundled Music Services”.  The report, written by myself and MIDiA Consulting co-founder Keith Jopling, provides an unprecedented analysis of telco music services, taking a critical look at what has and had not worked to date and a series of models and recommendations for the future.  We interviewed a host of telco music executives to get a deep understanding of what telcos need out of music services to make them a success and combined this insight with data from consumer surveys and music service trials as well as case studies and best practices.  We think it is pretty much the definitive piece of work on the topic (!) and we invite you to download it here: Building the New Business Case for Bundled Music Services – FULL REPORT.  You can also download an executive summary version of the report here: Building the New Business Case for Bundled Music Services – EXECUTIVE SUMMARY.

Here are some of the key findings of the report.

The consumer shift from downloads to streaming is the most important digital music market trend since the advent of the iTunes Music Store.  Before streaming services telcos struggled to find a way in which they could compete in a market dominated by Apple, restricted to selling DRM locked downloads that of course would not play on Apple devices.  Subscription services changed all of that, with the leading streaming services all pursuing robust telco partnership strategies as well as a number of download subscription services.  There are now nearly 50 telco music service partnerships live in six regions across the globe.  With 40% of streaming consumers now paying to stream, generating $1.2 billion in trade revenue in 2012 the opportunity is clear.

Music Bundles Across the Globe

However it is clear that many of the hurdles that telcos faced in the last decade continue to pose challenges.  These include music not being a priority for many telcos, internal business casing getting in the way of building compelling services and the wrong success metrics being used.

The new success stories of telco music services are those that make music a strategic priority.  This is not some sop to the record labels, but a reflection of what it takes to make music strategy a success. If a telco just adds music to a long list of Value Added Services (VAS) it will wither on the vine.  But if a telco puts a music service front and centre and positions around it then success is far more likely.  Success stories that have followed this approach include Telia Sonera’s hard bundle with Spotify in Sweden and Cricket Wireless’ Muve Music in the US.

Streaming by the Numbers

The Role of Promotional Offers

For all the obvious synergies of telco music bundles there is a real danger that hard bundles that make music subscriptions free or feel like free to the end user run the risk of devaluing the proposition.  Yet it is also clear that consumers need to be able to ‘suck it and see’ before subscribing so promotional free trials and limited period bundles present a strong balance of value to the consumer, cost effectiveness to the telco and protecting the integral value of music for artists and labels.  The market data for free trial is compelling: half of one month trialists convert to a paid subscription at the end of the promotional offer period.

Customer Satisfaction, the New Music Service Opportunity

An entirely new aspect to music bundling that we dive into in the report is the role of music subscriptions in driving customer satisfaction across a telco’s wider business.  Even the most edgy, cleverly positioned challenger telco is ultimately a provider of important products but not usually a consumer passion point.  Music though has that brand passion secret sauce and partnering with the right music service can enhance the telco’s own brand and customer sentiment.  Smart integration of music into the customer journey and integration with customer satisfaction measurement tools, particularly Net Promoter Score (NPS) can enable telcos to create a customer satisfaction halo effect.  With music converting satisfied music subscription customers into highly vocal net promoters with satisfaction benefits felt across the full range of a telco’s services.

Bundled music services did not get off to the best of starts, but now their time has come, giving telcos the opportunity to assume centre stage in the digital music marketplace.

For more information on the research please feel free to email us at info AT midiaconsulting DOT COM.

About MIDiA Consulting

Midia ConsultingMIDiA Consulting is a boutique, media industry focused consultancy that delivers practical, results-driven outcomes.  MIDiA stands for Media Insights & Decisions in Action. Our mission is to help media and technology companies develop purposeful strategies quickly through market understanding, clarity of vision, and workable innovation.

We help media and technology companies make sense of the changes that digital market forces are bringing about. And we help them make profits from digital content.

Samsung and Meeting The Device Use Orbit Challenge

Two pieces of Samsung related news hit the wires this week:

Samsung might not be one of the big players in digital music but this mixed service portfolio approach indicates a strategic pragmatism that is crucial for anyone trying to compete with Digital Music’s Triple A of Apple, Android and Apple.

But the approach – and 7 Digital’s broader mobile success – is also indicative of an increasingly important strategic imperative for digital music services: namely navigating consumers multiple and interrelated device orbits (see figure).

Ubiquitous connectivity is, to put it mildly, some way off and the stream isn’t going to fully replace the download anytime soon.   And yet, more people are using more devices to listen to music in more places than ever before, and these usage patterns are creating an increasingly complex mesh of usage orbits.  Consumers are becoming more and more adept at developing specific and distinct use cases for their growing number of devices.

Historically, music allowed itself to be pulled across different devices, responding to consumer needs.  This was a perfectly adequate first stage but now music services need to do more than just deliver music to where consumers are.  To prosper in the next stage, music services need to tailor music experiences and value propositions both to specific use cases and be designed for co-existence within multiple, interrelated device orbits.

Coexistence Strategies

Of course some services will hope to simultaneously address every device use orbit (good luck on getting the licenses for that).  But the smart services will design nuanced co-existence strategies that ensure the core use case not only fits alongside a consumer’s wider digital music activity but establishes itself as an indispensible complement to it.  For example getting onto Sonos’ new Play:3 will likely be a more valuable route to the living room than trying to develop integrated hardware from scratch.  Similarly delivering mobile Facebook playlist support and integrating discovery tools like the Hype Machine will prove every bit as important to the consumer experiences as securing the rights to deliver the music itself.

Consumers will continue to have more devices, more content and more music service choices. The challenge that music services and device manufacturers such as Samsung must meet is helping join those digital dots by navigating consumers’ device use orbits.

Monkeying Around With Mobile Music (Updated)

Today the triumvirate of Universal Music, UK broadcaster Channel 4 and UK mobile operator Orange announced a Pay As You Go (PAYG) mobile music service called Monkey.  The service is aimed squarely at younger consumers, which matches the demographic of PAYG users and Channel 4’s audience.  The underlying principle of the service is that it has a low barrier to entry: it utilizes the voice network rather than data network and is thus available across all handsets and does not require any application download.  Instead consumers simply dial 247 to listen to playlists streamed at 64 kbps.  Most of the more sophisticated behaviour, such as playlist creation, music discovery etc., is expected to happen online, using a cloud based player, where tracks will be streamed at 128 kbps.  Playlists can also be shared using widgets for major social networks and via text.

So what impact is this offering likely to have?  It’s clearly aimed at enticing young consumers away from file sharing and the positioning point is effectively ‘free music when you top up your phone’.  I think there is a risk of worst of both worlds here.  Firstly, I don’t buy into the argument that streaming reduces file sharing penetration.  It may cause file sharers to download less from P2P networks, but it’s unlikely to entice them away from them as they’ll still want music for their MP3 player, to burn onto CD for their friends etc.  Granted, Monkey steps closer to being a replacement in that it has a portability story (of sorts) and it has a sharing story (of sorts).  But it doesn’t provide true portability (what do you do when you’re underground for example) and it only offers partial catalogue.

The killer point though is that it uses voice minutes and the cost of calls is 20p per minute.  So it will cost about 70p to listen to a single and an entire 10 pound top up will give you about 1 album and no time left for talking.  So consumers are paying the same amount as an iTunes single download (even more for an album) but only getting a low quality analogue audio stream.  (And what happens when somebody wants to call them when they’re listening over the voice line?)

*Orange just called me to clarify their press release.  The press release reads:

  • “Monkey customers can access the service on their phones by dialling [sic] 247.”
  • “Calls cost 20p per minute”

However, following my phone call from Orange it transpires that the per minute pricing applies to voice only and not music calls, even though this isn’t actually explained in the release.

Also another interesting detail emerges: the service is actually a limited mobile music service, not an unlimited mobile music subscription, hence the careful use of the term ‘access to music’ in the release.  Customers are only allowed to listen to 600 minutes of music per month on their phone (again not in the release), which translates into 14 albums.  If you take a 30 pounds top up, that then translates into 2 pounds ten per album listen, so if you listen to an album, say 3 times in a month, that’s 6.30 an album.  Which isn’t far off the cost of a standard album, but of course you don’t get to keep it after you’ve finished listening . The ‘3 listens’ cost drops to 4.20 for a 20 pound top up, 2.10 if you just take a 10 pound top up.  So still far from free, even though they’re being told it’s ‘free’ music,  which in turn reinforces conceptions that music is a free commodity (thus further undermining perceived values of music).

The additional fact that Universal will make some releases available here before anywhere else is a brave move and underlines the major’s persistently adventurous product innovation.  It will certainly be a key asset for demonstrating consumer value, but it will need careful positioning alongside premium products.  How, for example, would a high-end 15 pounds a month subscriber to Virgin’s unlimited MP3 subscription service (also in conjunction with UMG) feel if they realized they were getting new releases after the lower end Monkey customers were?

The other interesting sub text here is the underwhelming success of Comes With Music (Universal and Orange are both key UK partners for Nokia).   Is this picking up where CWM has failed to do so?  As I’ve stated here many times before, I am a firm believer in the CWM model and I believe it is the best tool that the music industry currently has for fighting piracy.  It is a genuinely compelling alternative to file sharing as it has a viable portability and ownership story.  Unfortunately it’s been hindered by channel issues, marketing problems and limited consumer awareness and understanding.

When I asked how Monkey would be positioned alongside CWM, UMG’s Rob Wells said Monkey was aimed more at younger, lower end consumers and Orange’s Pippa Dunn said that Monkey was for PAYG customers whilst CWM was for subscription customers.  Orange’s positioning is clean and elegant, but it’s a shame that CWM is effectively being marginalized as a high-end proposition.  That is not its sweet spot. Indeed the strong CWM association with the 5800 illustrates Nokia’s understanding that CWM is best positioned at younger, lower spending consumers and that it does not stand up as well when held up against higher end digital music offerings.  Also, from a broader music industry perspective CWM needs to be reaching younger consumers.  I hope Monkey doesn’t distract from that.

Why Spotify Needs an iPhone App to Get to Market

Spotify’s much anticipated iPhone app has been submitted to Apple for approval and certainly looks the part…in fact it almost looks too much the part.  This level of integration into the iPhone music playback experience may well be deemed by Apple to be too competitive to the core iPhone functionality. There is precedent, the Podcaster app was rejected, reportedly because it was too similar to iTunes functionality (it since developed a scaled back RSS Reader iPhone app).  The Spotify app certainly seems to mimic core iPhone music playback functionality (e.g. utilizing standard iPhone / iPod Touch playback controls) and would therefore be likely to compete with iPhone iTunes music playback.

A cynic might argue that Spotify are already concerned that Apple won’t approve and are doing their best to raise the profile to build consumer demand by posting the preview video on YouTube and putting it in the hands of key tech journalists.  Will it work?  Not necessarily.  Spotify is currently little more than a minor irritation to Apple, most pertinently because it’s not in Apple’s core market (the US) but also because it’s largely been a complement to iTunes.  This app could make it a competitor, but only if Apple will let it.  Apple’s App Store is an unregulated monopoly.  It’s easy to forget that, but as developers become more adventurous more and more apps will fall at the approval hurdle (as Nine Inch Nails recently discovered).

But leaving the approval conjecture aside, the Spotify iPhone app is potentially a really important development.  It provides on demand streaming music on the go, but crucially with off-line playlists, which means that you can listen to ‘streaming’ music without being connected.  This really blurs the lines between what is a download and what is a stream.  This doesn’t mean the distinctions will become irrelevant, but they’ll certainly become less key as these sorts of consumer experiences proliferate, which I posit is an inevitability, regardless of whether Spotify’s iPhone app passes muster.

Spotify really need to make their premium business to work. They’ve got a clearly market leading consumer value proposition, but they have yet to develop a vibrant business model.  Advertising revenue is important, but alone simply isn’t going to cut it.  Not seeing ads is clearly not reason enough alone to convince sizeable enough chunks of Spotify’s millions of users to pay 9.99 a month.  Equally Spotify know full well that they can’t ‘slice and dice’ their way to premium subscriptions: if they take away from their free offering they’ll soon lose lots of users, and therefore weaken their ability to generate ad revenue.  Mobile is the most logical way to drive near to mid term premium revenue.  So even if this iteration doesn’t make it, Spotify will make sure that one does.  They quite simply can’t afford not to.

Just How Big A Deal Will Comes With Music Be?

In anticipation of the launches of Nokias Comes With Music and Sony Ericssons Play Now plus services, Jupiter has just published a report that assesses the likely impact that such Subsidized Mobile Music Services will have on the broader digital music market.

To assess the impact Jupiter fielded a consumer survey, but more importantly built a sophisticated adoption scenario forecastin fact it is probably too sophisticated for its own good.

Some of the key findings of the report are:

Subsidized services have strong potential but consumer appetite for paying anything at all is limited: just 5 percent of Europeans said they would pay more for a mobile phone or contract to get unlimited music downloads for one year. Thus 100% subsidizes are the best route to mass market adoption
Mid term growth will be tempered by handset replacement cycles and consumer understanding of the value proposition
The good news for record labels is that over half of interested consumers are file sharers
Subsidized services will likely only grow European digital music revenues by 15 percent by year five, with licensing accounting for the lions share

If you are a Jupiter client you can read the report here, you can also schedule an inquiry call with your client services manager should you wish to discuss it further.

If you are press and would like more information you can email PRESSEUROPE AT JUPITERRESEARCH DOT COM

If you are neither a client nor press but would like more information on the report then please email Kevin Savage: KSAVAGE AT JUPITERRESEARCH DOT COM

MusicStation Max: First Take

Tonight Omnifone announced that they have partnered with handset manufacturer LG to create MusicStation Max (MSM), a pre-licensed, free, unlimited mobile music download offering. LG will fully subsidize the cost to consumers and operators will run the service.

MSM is an ambitious response to Nokias Comes With Music (CWM), but it is a significantly smaller player. Considered together these two subsidized subscription offerings represent an important shift in strategy in the digital music market and have strong long-term potential. To date mobile music has had modest success, often offering an inferior experience to PC-based services. Indeed their relative failure can be traced to their status often as mobile imitations of iTunes Music Store.

MSM and CWM break the mould in that they play to mobiles strength and seek to carve out new, unique territory for the mobile platform. But for them to succeed, a host of issues need addressing, including consumer friendly implementation of the requisite DRM, incorporating consumers existing music collections, getting operator partners on board and (of course) getting all of the majors on board. Currently Universal is the only partner signed up to both offerings. But that will change. This is of course The Year of Free in which record labels are pursuing increasingly adventurous digital music strategies in a bid to re-energize the flagging sector.

MSM is a very welcome and valuable addition to the digital music landscape and represents the kind of innovation the digital music space needs now. If it and CWM can get operators and remaining labels on board they have the potential to be critical additions to the digital music mix.

If you are a Jupiter client and want to read more on Jupiters take on the announcement click here to read this report.

If you are from the press and would like to talk to an analyst please email PRESS AT JUPITERRESEARCH DOT COM

Apple and the Labels Sketch Out the Roadmap for Digital Music 3.0*

With speculation regarding the negotiations between Apple and the labels consuming quantities of newsprint its worth taking a quick look at some of the key issues.

Dropping DRM
The most newsworthy aspect is whether Steve Jobs et al will convince the other majors to follow EMIs lead and drop copy protection on their catalogue. Its unlikely that theyll get UMG, WMG and Sony BMG to echo EMIs move, but Apple must be hopeful of gaining at least some concessions from one or more of them across at least some portion of their catalogue. (See our recent report on the EMI / Apple initiative for more detailed discussion of the longer term implications and prospects). Jobs suggested at the EMI launch that he expected approximately half of catalogue to be available DRM free by year end. Thats a conservative estimate that essentially covers EMI and the indies. Jobs is hoping that hes under-promising with a view to over-delivering. A tactic at which he is adept.

Variable PricingThe one price fits all strategy proved an astute move for driving adoption of iTMS, by simplifying the consumer proposition. However it has now served its purpose and both Apple and the labels would benefit from a more flexible approach to pricing. Bringing a consumer electronics pricing mentality to selling music only works so far. Not all music is worth the same. Just as Apple wouldnt want to be forced to sell a generation one iPod for the same price as a video iPod, the music industry doesnt want to sell 70s album tracks for the same price as a top 20 single. (Well ok, theyd love to do just that, but theyre realistic.)

The new tier of DRM-free high quality music tracks on iTMS has essentially opened the doors to variable pricing. But with yet another nuanced masterstroke by Jobs, it has been done at Apples initiative. So once again Apple assumes the negotiating high ground as the discussions broaden to encompass differentiated pricing across all catalogue.

However if variable pricing is implemented, Apple is going to have a challenging task on their hand to make the same variations apply to DRM and DRM free catalogue without appearing to have more numbers than a phone book.

DRM Interoperability
This issue would of course become largely (but not entirely) obsolete if the majors all decided to drop it from their catalogue. Of course they wont and even if they did there would still be the standard priced DRM-ed content. Apples position is clear: they will not open up Fairplay. Is that negotiable? Perhaps, but only for something really good, like entire catalogue of remaining majors being made free of DRM.

Digital BundlesThe labels would love to see greater variation in product formats e.g. bundles of videos and tracks. This of course makes great sense and is something we at Jupiter have been advising for some time now. Theres no reason Apple wouldnt consider such options, indeed theyve already started their own experimentation. In short, the digital down model doesnt need to limit itself to trying to replicate the CD in digital form. Just as the 99 cents uniform price point has served its purpose well, so has the digital track. Now the market is more than ready to accommodate product and format experimentation. Which will prove a vital tool for driving increased overall spend, rather than just physical substitution and cannibalization.


*Youre probably wondering why Digital Music 3.0? Heres why:
1.0 the first services that tried to build a legitimate alternative to P2P e.g. Vitaminic, Legitimate market still on warm up lap.
1.5 the first generation of major label backed services e.g. OD2 but label licenses overly restrictive. Legitimate market not so much as still stuck on the starting blocks as having one foot nailed to it.
2.0 iTMS changes the game, redefining the entire digital music landscape with similar liberal usage rights following for other services. Legitimate market disappearing off round the bend.
3.0 as the end of the lap nears, the question is which battons will be passed on: DRM free? Variable pricing? Interoperability? etc etc