Earlier this week I was at 7 Digital’s Annual Media and Partners Meeting. At the start of the year 7 Digital hit their 7 Year mark, which in Internet Years is probably equivalent middle age. 7 Digital now have 3 million registered paying customers (of which 30% are active) but what is most interesting is the impact of mobile downloads on their business. Since launching direct-to-mobile paid downloads the segment has become 7 Digital’s most dynamic growth area: in November 2010 mobile device sales accounted for just 1% of total sales, 1 year on and that share has rocketed to 44%. (Online sales also grew, so this is a case of strong growth in both relative and absolute terms).
Ownership isn’t dead
7 Digital’s CEO Ben Drury used the data shows that ownership isn’t dead. He has a point. In these days of cloud and streaming dominated debates it is easy to be led to believe that ownership is an outdated legacy of the analogue era. Of course in many ways it is, but the unavoidable fact is that we are in a transition phase in which both ownership and access matter and it is a stage which has many years to yet to run.
In simplistic terms there are two key dynamics which determine the pace of the shift from ownership to access:
- Technology-led change
- Generational-led change
Generational-led change
The generational changes are slowest moving, almost glacial in pace. Yet they give the impression of being quicker than they actually are, because such a small subset of the total population is currently active in digital music. These 10-20% of consumers (of which I and probably you are part) are not representative of the total consumer base. But even among us there are discreet groups. I am of the age group that grew up with CDs. I am part of the transition generation that has enthusiastically adopted digital but still understands the value of physical media and ownership. The Digital Natives however (i.e. those consumers who have grown up in the digital age without ever having learned the habit of buying physical media) have entirely different concepts of ownership. These are the true vanguard of the shift towards access based models. But they are young, so time rich as they might be they are also currently cash poor. Thus they are opting for free alternatives, such as YouTube, Pandora, Spotify Free. Only when they start to acquire increased spending power will they start to be the dynamic force in adoption of paid access based services.
Meanwhile, the digital hold outs – i.e. the majority of the total population – are being left behind as the digital music bandwagon rolls on. Out of habit some of them still buy CDs (some of them even buy a lot of CDs) but most are just falling out of the habit of buying music. Their sense of ownership however remains unchanged. In their world view you either buy music and own it, or you listen to it on the radio or TV. Their worldview remains wholly un-muddied by cloud and streaming services.
Technology-led change
If Generational-led Change is the slow moving backdrop to the access / ownership debate, then Technology-led Change is the fast moving current, the rip tide. It is technological change which underpins Spotify’s conversion of 2.5 million paying customers (Napster and Rhapsody both offered portable rentals years earlier, but not cached streams). It is technological change which Pandora has to thank for its 100 million users (adoption only truly lifted off with the launch of the Pandora iPhone App). Better technology and better connectivity are making the constraints of access based services less visible.
Yet almost paradoxically Technology (in both its advances and limitations) is simultaneously building the case of access and extending the life span of ownership (see figure):
- Pay once. Whether subscription fees are hidden or premium, users know that access to content ends when the subscription does. Paying individually for a la carte downloads and CDs might be intrusive and clunky, but the fact remains that consumers know they then have guaranteed lifetime of product ownership. Consumers still ‘get’ ownership and paying (or indeed downloading for free) once and owning for ever is an exceptionally easy concept to communicate. Score: Ownership 1, Access 0
- Play on anything. Subscription services have made great strides in device ubiquity, primarily via smartphone apps, but non-smartphone users are left out in the cold, as are non-paying streaming users. MP3 is the common currency of digital music. MP3 files play on virtually every connected device consumers have. Ownership gives the greatest chance of device ubiquity. Score: Ownership 2, Access 0
- Play anywhere. Consumers can take their MP3 playing devices with them most places and not have to worry about network connectivity. However memory size restraints often mean they can only take a portion of their music with them. Smart use of local device stream caching is freeing subscription services of the chain of the PC but network connectivity remains core to their value proposition and we are far away yet from the ephemeral promise of ubiquitous connectivity. Score: Ownership 3, Access 0
- Play everything. Download stores and CD stores have great catalogue, but access is as metered as it gets. To fill your iPod with paid downloads costs tens of thousands of dollars. To fill it with subscription music costs less than $10 a month. It is in the context of unlimited access to vast catalogues of music that streaming services come alive, leaving ownership casting covetous glances from afar. Score: Ownership 3, Access 1
- Share with everyone. Music has always been an inherently social experience (from the earliest prehistoric musicians playing around the fire through to mix tapes). But in the digital age music is massively social. Or at least it is for streaming services. Sharing owned music means making or lending individual copies. For streaming services, playlists, APIs and Facebook place social connectivity at the core of the streaming experience. Score: Ownership 3, Access 2
So it looks like a narrow victory for ownership, but I’d argue that a tie is a more accurate assessment, because ‘Play everything’ and ‘Share with everyone’ are so important that they carry extra weight. These factors are core to what makes music different in the digital age. They are foundations stones for building new pillars of value around music in the post-physical era.
Ownership and Access will co-exist for years to come
And so we have a situation where the case for Access is building all the time, driven by advances in technology (especially mobile), but those same advances also bring limits which extend the case for Ownership. Mobile is becoming core to the digital music experience, and will only become more so over the coming years. Right now it is simultaneously encouraging people to buy downloads to guarantee portable access to their music as well as allowing subscription users to take their streaming experience with them on the go.
There is no doubt that Access based models are the future of music, but there are many, many years yet in which Ownership based models will continue to play a pivotal role. Ownership and Access better learn to get along together, because they are going to be roommates for a long time yet.
Music Industry Blog 