‘Awakening’ Now Available In Paperback

UnknownRegular readers will know that I recently published the Kindle version of my book “Awakening: The Music Industry In The Digital Age”.  Many of you have already bought it (thank you!) but some of you also wanted to know when the paperback edition was going to be available. Well you need wait no longer, you can buy the paperback version of ‘Awakening’ right now by clicking here.

If you are interested in the music industry then this is the book for you. Whether you are a label executive, music publisher, artist, songwriter, entrepreneur or simply interested in what you can learn from the music industry’s experience and want to know what the future holds then this is the book for you.

I wrote this book with three key objectives in mind:

1.    To provide the definitive account of the music industry in the digital era, as an antidote the distorted picture that is painted by the biased and often poorly informed extremes that dominate the industry narrative

2.    To help anyone in the music business better understand how the other parts of the industry work, what they think and what their priorities are

3.    To act as a primer for anyone wanting to build career or business in the music industry, so they know exactly what they’re getting in to, how the business works, the relationships, the conflicts and what’s been tried before.  I want to help people not waste energy making the same mistakes others have, and to also benefit from the insight and experiences of the super smart people I interviewed in the book

The book is full of data, analysis and interviews with more 50 interviews with the CEOs, senior decision makers, artists, managers, start up founders and other decision makers that have shaped the music industry over the last 15 years.  It includes chapters on every key part of the industry (labels, artists, songwriters, start ups, tech companies etc.) and is split into three sections:

  1. How We Got Here
  2. The Digital Era
  3. A Vision For The Future

This really is the only book you need to read on the music industry’s digital transition.  But don’t just take my word for it, check out these 5 Star Reviews:

“I really enjoyed this book. It gives a wide view to music industry, consumption tendencies and much other useful information. Is a must for all of the music industry professionals.”

“Great book on today’s digital music business – how we got here, who did what and most crucially why they did it. There’s no shortage of firmly held opinions and theories about the music industry and how it has navigated its digital transformation and Mulligan’s book is an essential analysis of what’s actually been going on. Insightful, non-judgemental and very well researched and informed, if you want to understand today’s digital music business, read this book.”

And if you’re still not convinced, take a read of the sample chapters on Amazon.  ‘Awakening’ is also available on iTunes and Google Play.

I hope you find the book as interesting to read as I did writing it.

Zoe Keating’s Experience Shows Us Why YouTube’ Attitudes To Its Creators Must Change

It is easy to think of the internet as a mature medium, especially for those who were born into the internet era. However we are still at the earliest of stages. We are where radio was in the 1930’s and where TV was in the 1950’s: the first signs of the future markets are in place but the real maturation is yet to come. The greats of those early days, the Marconis and the RCAs, are now long gone but at the time they looked like they would rule forever. A similar long view should be taken to the internet. The dominant powers of the web (YouTube, Google search, Amazon, Facebook) may appear to have unassailable market leads but their time will come. Using more recent history, there was a time when AOL and MySpace looked irreplaceable. So why does all this matter to YouTube? The problem with absolute power is that it corrupts absolutely. YouTube, like those other dominant powers, has fallen victim to hubris. It is behaving like the unregulated de facto monopoly that it is. And in doing so it is taking its creators for granted. Right now that is bad for creators. Soon it may be bad for YouTube too. It Is Time For YouTube To Reassess It s Relationship With Content Creators Online video is truly coming of age. YouTube was one of the ice breakers and remains one the very biggest web destinations but the world is changing. YouTube has changed too of course, migrating skate boarding dogs, through music video to fostering a generation of YouTube stars like PewDiePie, Zoella and Smosh. But just as YouTube had to reinvent itself in the wake of the mid form revolution driven by Hulu et al so the time has come for another reinvention, but this one requires a change in business practices rather than product innovation. Most crucially YouTube needs to reassess its relationships with content creators and owners. When the first YouTube stars started to rise to prominence YouTube was almost positioned as a benefactor, giving the gift of a platform for these people to become stars. But now, a few years on, with millions of subscribers each, these stars are beginning to understand their real potential. In just the same way that a traditional TV star does not feel a debt of gratitude or a commitment to life long servitude to the TV channel that broke him or her, so YouTube stars are now beginning to reassess their options. The online video landscape though is dramatically less competitive than the TV landscape so options are limited. But where there is demand for change and no monopoly of supply of content, change will come. This is the context into which new video service Vessel has launched, offering YouTube stars cold hard cash payments and significantly bigger revenue shares, in return for giving just a few days of exclusivity. Be sure that few days window will change, but for now it is a low risk, high gain option for YouTube stars. Expect plenty more to follow Vessel’s lead. YouTube Is Abusing Its Position Of Absolute Power That should be where the story ends, well starts. But because the dominant internet companies are not subject to the same level of regulation as traditional companies they are able to abuse their power in order to try to maintain their strangle hold. YouTube found itself subject to extensive ire when it tried to foist a hugely restrictive contract on indie labels for its then forthcoming YouTube Music Key service. The indie sector was eventually able, via its licensing arm Merlin, to secure more favourable terms, but the same contract remains on the table for individual creators. Zoe Keating, an artist who sets the gold standard for DIY artists, has been a vocal advocate for YouTube channels as a revenue source. But now YouTube is trying to strong-arm her into signing what looks pretty much like that same original Music Key contract. Their demands include an effective Most Favoured Nation clause whereby anytime she uploads any music to the web she must upload it also to YouTube at exactly the same time. The contract also states a five year period and that failure to sign the contract will result in YouTube blocking both her channel and Keating’s ability (via Content ID) to get revenue from her own music uploaded without permission by others. The implications are:

  • Music must always be available free on YouTube first on the web
  • Artists must take a 5 year bet on streaming, even though there are massive doubts about its sustainability for artists

But it is the Content ID clause that is most nefarious. Content ID is not an added value service YouTube provides to content owners, it is the obligation of a responsible partner designed to help content creators protect their intellectual property. YouTube implemented Content ID in response to rights owners, labels in particular, who were unhappy about their content being uploaded by users without their permission. YouTube’s willingness to use Content ID as a contractual lever betrays a blatant disregard for copyright. Asymmetrical Conflict Zoe Keating is a rare talent and also a rare voice. She is willing to expose her entire digital music commercial life in a way very few artists are willing to. She is standing up to YouTube in a David and Goliath like manner but the deck is stacked against her because YouTube is able to abuse its de facto monopolistic position without any fear of regulatory intervention. If they get their way with independent music creators, expect them to take the exact same approach to other independent video creators in a bid to neuter the threat from disruptive new entrants like Vessel.  Rather than simply try to future proof itself against the emerging competition YouTube should focus on trying to be the best possible place for its creators to be to build prosperous careers. Instead it is trying to lock them in like prison inmates. Ultimately though this sort of action from YouTube reveals strategic hubris, arrogance and complacency. All of which are classic signs of an incumbent company teetering on the brink of disruption. As the Enron experience showed us, no company is too big to fail. And as my former colleague Michael Gartenberg used to say ‘cemeteries are full of irreplaceable people’.

Digital Ascendency: The Future Music Forum Keynote

I recently keynoted the annual Future Music Forum in Barcelona.  These are some highlights of the keynote.  If you would like the full slide deck please email me at mark AT midia research DOT COM.

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Streaming is turning years of music business accepted wisdom on its head but did not arrive unannounced, it is just one chapter in the evolution of digital music. Each of the four phases of digital music have been shaped by technologies that solved problems. Now we are entering the fourth phase, bringing meaning to the 30 million tracks Spotify et al gave us access to. This might look like a simple honing of the model but it is every bit as important as the previous three stages. 30 million tracks is a meaningless quantity of music. It would take three lifetimes to listen to every track once. There is so much choice that there is effectively no choice at all. This is the Tyranny of Choice.

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But the for all the evolution, today’s digital music marketplace is an unbalanced one. We have more than 500 music services across the globe but too many of them are chasing after the same customers with weakly differentiated offerings. This wouldn’t matter so much is if the competition was focused on where the consumer scale is, but this is anything but the case. The majority of paid music services are targeting the engaged, high spending Music Aficionados who represent just 17% of all consumers.

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The consequences of the imbalance in digital music strategy are also easy to see in total revenues. The last decade has been one of persistent decline in recorded music revenue and by 2018 the most likely scenario is one of stabilization rather than growth. This is because of a) the CD and b) the download.

No one has taken the demise of the CD seriously enough. It still accounts for more than half of global revenue and more than three quarters of revenue in two of the world’s biggest music markets. Yet far too many CD buyers are being left to simply stop buying entirely because they see no natural entry point into the digital services market. No one appears to be putting up a serious fight for them. Meanwhile the streaming services that have been chasing those same aficionados that Apple engaged are now busy turning that download spending into streaming spending, which ends up being, at best, revenue transition rather than growth. Consequently CDs and downloads will end up declining at almost the same rate over the next five years.

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Nonetheless the imbalance remains. Part of the reason we got into this state of affairs is the music industry’s obsession with revenue metrics: chart positions, market share and ARPU. Compare and contrast with the TV industry’s focus on audiences. It is time for the music industry to start thinking in audience terms too.

When we do so we see a very different picture. Here we have the US digital music market plotted by revenue and by audience size. Subscriptions pack a big revenue punch but reach only a tiny segment of the market while YouTube has vast reach but delivers remarkably little in terms of direct revenue. Meanwhile downloads, for all their doomed future, are still by far the best combination of scale and revenue.

The issue of free services stealing the oxygen from paid ones is a perennial one and is effectively a digital rerun of the never-to-be-resolved radio driving or reducing music sales debate. But it has far more impact in digital. With services like YouTube and Pandora the discovery journey is indistinguishable from the consumption destination. When they don’t lead to sales can they really be called discovery anymore?

Free is of course the language of the web. The contagion of free is legion. And free is where the audience growth is. This is the circle the music industry must square.

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For 15+ years the music industry has been running to catch up, never quite able to get ahead of the game, an unavoidable feature of the process of digital disruption.   But although the consumer behaviour shift is inevitable the future direction of the music business is not and it will be shaped most by three key factors:

  1. The continued evolution of consumer behaviour
  2. Technology company strategy
  3. Income distribution

Consumer behaviour. The most important consumer behaviour trends are not the steady transition of the Aficionados or even the Forgotten Fans but of the next generation of music consumers, the Digital Natives. Free and mobile are the two defining elements of their music behaviour. Of course younger people always have less disposable income, but there is a very real chance that we are beginning to see demographic trends locking in as cohort trends that will stay with these consumers as they age. For a generation weaned on free, the more free you give them, the more they will crave it. Whatever course is plotted, success will depend upon deeply understanding the needs of Digital Natives and not simply trying to shoe horn them into the products we have now that are built for the older transition generation.

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Technology companies: Apple, Amazon and Google each in their own ways dominate digital music. But most importantly they all want very different things from it. For each of them music is a means to an end. All are willing to some degree to loss lead on music to achieve ulterior business objectives. All of which is great for labels and publishers as they get their royalties, advances and equity stakes. But for the pure play start up it means competing on an uneven footing with giant companies who don’t even need music to generate a revenue return for them.

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Revenue distribution: Artists and songwriters found their voices in recent years. Partly because of the rise in social media but also because so many are now paying much more attention to the business side of their careers. The fact they are watching download dollars being replaced by streaming cents only intensifies matters, as does the fact that the top 1% of creators get a disproportionately large share of revenue. It has always been thus but the signs are that the disparity is becoming even more pronounced in the streaming age, with the effects felt all the more keenly because unless you have vast scale streaming can too easily look like chicken feed to an artist compared to download income.

But artist and songwriter discontent alone is not going to change the world. Their voices are just not powerful enough, nor do most fans care enough. Also labels and publishers remain the most viable route to market for most artists. Matters aren’t helped by the fact that artists who demand an audit of their accounts to work out where their streaming revenue has gone swiftly accept their label’s hefty silence payment and the accompanying NDA. Artist discontent while not decisive in impact is beginning to apply important pressure to the supply end of the music business.

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So those are the three big challenges, now here are three sets of solutions. And I should warn you in advance that I am going to use the P word. Yes, ‘Product’.

I get why product sounds like an ugly word. It’s a term you use for baked beans, for fridges for phones. Not a cultural creation like music right? True enough, when we’re talking about the song itself, or the performance of it, product is irrelevant. But as soon as we’re talking about trying to make money out of it as a CD, download, stream or however, then we’re firmly in the territory of product. It is both naïve and archaic to think otherwise. When artists got megabucks advances and never had to worry about the sustainability of their careers and everything revolved around the simplicity of CD sales you could perhaps be forgiven for turning a blind eye. But now there is no excuse.

So with that little diatribe out of the way, on to the first solution.

Music product: The harsh reality is that music as a product has hardly evolved in the digital realm. A lot has been done around retailer and business model innovation, but the underlying product is the same static audio file that we found in the CD. Meanwhile the devices we are spending every growing shares of our media consumption have high definition touch screens, graphics accelerators, accelerometers…audio hardly scratches the surface of what tablets and smartphones do.

Music is always going to be about the song, but it is also about the artist and their story. That’s what a quarter of consumers think, and 45% of aficionados and a third of digital natives. Video, lyrics, photos, reviews, interviews, acoustic sets, art, these are all ways in which the artist can tell their story and they all need to be part of the product. Most of this stuff is already created by labels, artists and managers but it is labelled marketing. Putting this together into a curated, context aware whole is what will constitute a 21st century music product.

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Fans: Artists and fans are closer than ever but this journey is only getting going and artists need to get smarter about how to monetize their fan bases. Artists need to find their popcorn. What do I mean by this? Well when the cinema industry started out it was a loss making business. To try to fix this cinemas started by experimenting with the product, putting on double bills but that wasn’t enough. Then came innovation in the format by adding sound. Then the experience itself by co-opting the new technology of air conditioning from the meat packing industry. Still no profit. Finally cinemas found the solution: popcorn. With a 97% operating margin, popcorn along with soda and sweets quickly became how cinemas become profitable entities. Artists need to find their popcorn. To find out what other value they can deliver their fans to subsidize releasing music. It’s what newspapers are doing with wine clubs and travel clubs, and in some instances even with Spotify bundles!

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Labels: Finally we have agencies or what you might call labels, but I’m going to call them agencies, because that is what they need to become. The label model is already going under dramatic transformation with the advent of label services companies like Kobalt and Essential and of fan funding platforms like Pledge and Kick Starter. All of these are parts of the story of the 21st century label, where the relationship between label and artist is progressively transformed from contracted employee to that of an agency-client model.   Labels that follow this model will be the success stories. And these labels will also have to stop thinking within the old world constraints of what constitutes the work of a label versus a publisher versus a creative agency versus a dev company. In the multimedia digital era a 21st century labels needs to do all of this and be able to work in partnership with the creator to exploit all those rights by having them together under one roof.

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And finally, the grand unifying concept to pull all this together: experience. Experience is the product. The internet did away with content scarcity. Now the challenge that must be met is to create scarce, sought after experiences that give people reasons to spend money on the artists and music they love.

Why Digital Music Services Always Steal Each Other’s Customers

The next five years will be one of the music industry’s most dramatic periods of change. The last ten years might have been disruptive but the change that is coming will be even more transformative. By 2019 70% of all digital revenue globally will be from on-demand services, representing 40% of total music revenues. It will be a shift from the old world and the ‘old new world’ to a brave new one. The CD and the download will decline at almost the same rates: physical revenue will be 43% smaller while downloads will be 40% smaller. In some ways the CD has less to worry about than the download. The CD has the protection of a vast installed base of players across the globe and growing niches such as deluxe box sets. The download though depends massively upon Apple’s devices, and the tide over at Cupertino is turning.

One of the concerns of the shift to streaming has been revenue cannibalization. It is no new phenomenon. The paid digital music market has still not truly broken out to the mainstream. While the likes of YouTube and Pandora clearly have mass market reach, music download stores and subscription services do not. Each at their respective times have appealed to the same higher spending and tech savvy end of the music buyer spectrum.

customer transition

In the 1990’s and early 2000’s Amazon’s online CD store was the home of the globe’s most tech savvy music aficionados. Then Apple came along and poached its iTunes customers directly from Amazon because those same CD buyers were also buying iPods. Then Spotify came along and started poaching Apple’s most valuable customers via Apple’s App Store – the chink in the armour of Apple’s otherwise closed ecosystem.

Now Apple and Amazon are both setting out on their own cloud strategy journeys and each will be hoping to win back a chunk of their lost customers. Apple’s recent elevation of Beats Music to one of the family of ‘Apps Made By Apple’ gives the first hint of what the company can do to ‘encourage’ its users away from other streaming services.

The next three years or so will be a fiercely contested battle for the hearts and minds of the digital music aficionado that will illustrate the strengths and weaknesses of the technology ecosystems of Apple, Amazon and Google. Yet while they all fight to win or win back customers, the attention once again remains firmly on the top end of the market. For as long as music services focus their efforts on the most valuable music customers, the mainstream will continue to be catered by low ARPU ad supported services. And for as long as that happens the evolution of digital music will continue to be one of the latest generation of services stealing the customers of the last.

Media, Technology and The Innovator Hegemony

We are at critical juncture in the evolution of digital content. Digital consumption of content, spurred by accelerating adoption of smartphones and tablets, is crashing towards the mainstream, while traditional revenues and business models continue to buckle under the strain. Legal and business disputes between Amazon and book publishers, and Google and independent record labels are small but crucial parts of this process. This period of disruptive flux is giving way to a new era of content distribution in which a few large technology companies are assuming the role of distributor, retailer, channel and playback device as one single package. The emerging new world order is defined by concentration of power, reduction of competition and the subservience of traditional media companies. The 2000’s witnessed the ascendancy of digital innovators, now we are arriving at a new chapter: the Innovator Hegemony, the era of the all powerful, unregulated technology superpower.

Free Is Now the Business Model of Choice

We are mid way through the shift from the distribution era of selling units of stuff, be they newspapers, CDs, packaged games, books or DVDs, to the consumption era where consumers increasingly value access over ownership. This shift manifest itself as a meltdown of the traditional media industries and associated retailing channels. Out of the ruins of these crumbling nation states Amazon, Apple and Google have started to construct sprawling digital content empires. Until relatively recently it looked like Apple was the only company that had learned how to make digital content works as a business, albeit as a loss leading one. But during the last year the market has inevitably buckled under the pressure of Amazon’s willingness to give away access to content as bait for free shipping and Google’s endless appetite for giving content away for consumer data.

Amazon and Google realized they were never going to win if they played the game by the Apple’s rules, which had been transplanted from the analogue age, namely charging for ownership of content. Instead they have opted for the digital zeitgeist: free, or at least feels like free. It is beginning to look like iTunes was a historical anomaly, an isolated outpost for distribution era practices in the digital realm. What Amazon and Google have done is pick up the baton Napster dropped in the early 2000’s and they have run with it.

The Innovator Hegemony

There is little reason media companies would want to cede so much power and pay the inexorable price of devaluing digital content to the price point of zero. They do so because they allowed their partners to get too powerful. This is the Innovator Hegemony. Apple, Google and Amazon all used content as a stepping stone towards achieving global scale, scale that once gained they used to swap the balance of power. Labels, publishers, authors and artists suddenly found themselves beholden to companies they had helped succeed and that success now used against them.

When Competition Legislation Protects Monopolistic Behaviour

But there is an issue of even greater significance at play: the inability of market regulation to appropriately counter the increasingly monopolistic behaviours of the big technology companies’ content moves. Anti-trust and competition legislation neuters media companies but leaves technology companies to operate with near impunity. Dating back to the analogue era when media companies were all powerful, anti-trust legislation was designed to prevent media companies colluding and entering into monopolistic behaviour. But now that technology companies own the platform control points that media companies depend upon in the digital realm, anti-trust and competition legislation has the unintended consequence of consolidating the power of the technology monopolies by stymying media companies.

The three big technology companies have a greater concentration of influence and market share in digital content than any single media company did in the analogue era. Amazon, Apple and Google have become a single, effective monopoly in each of their respective marketplaces. Thus anti-trust legislation currently has the unintended consequence of reinforcing market concentration.

Matters are not helped by the fact that media companies have become something of a busted flush at the legislative level, having over reached with copyright and anti-piracy lobbying efforts. The dramatic collapse of SOPA and the failure of Hadopi illustrate how media companies have lost legislators’ hearts and minds. After years of media industry ascendency the lobbying balance has swung towards the technology companies who are winning over key influencers such as the European Commissioner Neelie Kroes.

Platforms As Integrated Monopolies

Right now Amazon and Google are testing the boundaries, seeing what they can get away with before they are reined in. Amazon is unashamedly abusing its platform to hurt sales of book publishers such as Hachette and Bonnier, while Google is equally brazenly threatening to turn off monetization of music videos of labels that will not sign its overweening YouTube contract.  Interestingly both Amazon and Google appear to be testing just how forceful they can be with the independent ends of the media business spectrum.  These actions show us how vertically integrated platforms have a tendency to become internal de facto monopolies with effectively limitless internal power. Power that corrupts, and that ultimately turns the ideologies of these once idealistic disruptive start ups into police states where dissension is no more tolerated than it is in North Korea.

It is time for media companies and policy makers to decide whether they are brave enough to stand up to the Innovator Hegemony. Every content company still has the nuclear option of pulling content from the services but few will ever dare to do so – the German YouTube stand off a rare exception. And therein lies the problem, media companies already feel they cannot exist without the big technology partners and the tech companies know it. Without appropriate macro checks and balances the outcome will always be the timeless, asymmetrical roles of bully and bullied.

Did Anyone Else Notice Amazon Just Launched A Hard Bundled Music Phone?

Amazon’s long anticipated Fire smartphone was launched to much fanfare last night and includes a host of features designed to make it stand out from the pack.  But one detail that seems to have slipped beneath the radar is that, for now at least, it includes a year long access to Amazon Prime, which following last week’s music announcement, includes free access to an ad-free on demand streaming music service.

What this means is that Amazon have launched a smartphone that gives you a year’s worth of unlimited free music.  Six years ago when Nokia tried to do the same with Comes With Music the concept was ground breaking and looked set to change the future of digital music.  But Nokia’s flawed implementation of the proposition scared most of the marketplace away from the device bundle model.  Beyond Oblivion nearly made it work before folding, and its subsequent offspring Boinc and Yonder are each still trying to prove the model.  Rok Mobile are another new entrant.

I still maintain that the device bundle is the best way Apple can extract full value from its recently acquired Beats Music asset but for now all eyes will be on Amazon to see if the model is finally ready for prime time (pun sort of intended) now that it has been sneaked in through the back door.

YouTube, Record Labels And The Retailer Hegemony

YouTube (i.e. Google) has put itself in the midst of a music industry conflict that may yet turn into a much needed process of soul searching for the labels as they weigh up whether YouTube’s contribution to their business is net positive or net negative.  The controversy surrounds the imminent-ish launch of YouTube’s premium subscription service and the refusal of some independent labels to sign the terms Google is offering them.  Whereas normally this would just result in a service launching without a full complement of catalogue, in this instance YouTube is also the world’s second largest discovery platform after radio.  YouTube execs have been quoted as stating that labels that do not sign their terms will have their videos blocked or removed.  Exactly from where (i.e. the main YouTube service, or the premium offering) remains a matter of conjecture with both sides of the debate more than happy to allow the ambiguity cloud the debate.    But the fundamental issue is clear either way: YouTube has become phenomenally powerful but delivers comparatively little back in terms of direct revenue and is now happy to flex its muscle to find out who is really boss.

The Retailer Hegemony 

Google’s stance here fits into a broader phase in the evolution of digital content, with the big tech companies (Amazon, Apple, Google) testing how far they can push their content partners in order to consolidate and augment their already robust positions.  It fits into the same trend as Amazon making life difficult for book publishers Hachette and movie studio Warner Bros.  The big tech companies are becoming the three key powerhouses of digital content and each is fighting to own the customer.  Media companies are becoming collateral damage as the new generation of retailer behemoths carve out new territory

The record labels, indies included, have to take much of the blame here.  They let YouTube get too big, and on its terms.  The big labels had been determined not to let anyone ‘do an MTV again’ and yet they let YouTube do exactly the same thing, getting rich and powerful off the back of their promotional videos.  But this time YouTube’s resultant power is far more pervasive.

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Stealing The Oxygen From The Streaming Market

Labels are beholden to YouTube as a promotional channel.  They have turned a blind eye to whether its ‘unique’ licensing status might be stealing the oxygen out of the streaming market for all those services which have to pay far more for their licenses.  The underlying question the labels must ask themselves is whether YouTube’s inarguably valuable promotional value outweighs the value it simultaneously extracts from music sales revenue.  Indeed 25% of consumers state that they have no need to pay for a music subscription service because they get all the music they need for free from YouTube (see figure).  This rises to 33% among 18 to 24 year olds and to 34% among all Brazilians.

Reversing Into Subscriptions Is No Easy Task

Of course the aspiration here is that YouTube is finally going to start driving premium spending, but reversing into a subscription business from being a free only service is far from straightforward.  It is far easier to make things cheaper than it is to raise prices, let alone start charging for something that was previously free.  Add to the mix that free music is not exactly a scarce commodity and you see just how challenging YouTube will find entering this market.  Indeed, just 7% of consumers are interested in paying a monthly fee to access YouTube music videos with extras and without ads.  The rate falls to just 2% in the UK.

The counter argument is that only a miniscule share of YouTube’s one billion regular users are needed to have a huge impact.  But if the price the music industry pays to get there is to kill off the competition then it will have helped create an entity with such pervasive reach that it will truly be beholden unto it.  If the music industry has hopes of retaining some semblance of power in this relationship, it must act now.

 

 

Why Amazon’s Streaming Music Service Is A Bigger Deal Than You Might Think

Amazon today entered the streaming music foray with the launch of its own bundled music service. Amazon Prime subscribers get free access to on demand streaming from a catalogue of 1 million tracks, the majority of which are older catalogue titles rather than frontline hits. Amazon’s move has received considerably less interest and hype than Apple’s acquisition of Beats but is in many respects every bit as important.

The future of digital content is going to be defined by the content and device strategies of three companies: Apple, Amazon and Google.  Each has a very different approach resulting in an equally diverse set of products and audiences (see figure).  Amazon and Apple have mirror opposite content strategies: Apple loss leads on content to sell devices whereas Amazon loss leads on devices to sell content.  (Google loss leads on both because its end goal is your data).  All three have a strong focus on music but all three understand clearly that the future of digital content lies in having multiple genre stores that traverse music, games, apps, video, books etc.  All three also recognize the importance of hardware for delivering the crucial context for the content experience.  Similarly, all three have a Content Connector strategy aimed at opening up the mass-market digital content opportunity in the home via the TV.

content strategies

Amazon’s inclusion of music streaming in its Prime offering speaks volumes about the perceived importance of music as a product to the retailer.  Music used to be the crucial first rung on the ladder for Amazon customers.  Buyers would start off with a low consideration purchase item like a CD or DVD and the next thing they knew they were buying microwaves and computers.  Music is still plays an important role in Amazon’s customer life cycle, but it is no longer a product needs paying for with a separate payment.  Music has become the ‘feels like free’ soundtrack to a video subscription with the added benefit of free shipping for online shopping.  Out of those three core value pillars of Amazon Prime, music streaming is probably the smaller. Music has become the National Geographic channel in the cable subscription: a nice part of the overall proposition but not something that carries inherent monetary value on its own.

The harsh reality is that this is probably a sound strategy for engaging the mainstream consumer with music streaming (the extensive selection of curated playlists on top of a modest 1 million track catalogue hints at the mass market positioning).  But whether this is the best strategy for the mainstream is another thing entirely.  Labels fear that free services like Spotify free and Pandora threaten to erode consumers’ perceptions of music as a paid for commodity.  But at least in those environments they are actively adopting a music service in its own right. With Amazon Prime there is a real risk that music is being relegated to the role of muzak in the elevator.

Content Connectors: How the Coming Digital Content Revolution Will Change Everything

In my previous blog post I explained that 2014 was going to be the year of taking digital content into the home.  That affordable devices such as Google Chromecast, Apple Kindle Fire TV, Apple TV and Roku are set to drive a digital content revolution by connecting digital content with the familiar context it needs for the mass market.  These Content Connectors will transform consumers’ relationship with digital content but they will also turn the existing digital content marketplace on its head:

  • Breaking down the home entertainment silos: our digital content experiences have evolved entirely isolated from our other media experiences.  We multitask because one device is connected and one is not.  Our homes have become a collection of content experience silos.  Content Connectors break down those walls, brining our digital content experiences onto that most un-connected of devices, the TV.
  • On-boarding late adopters: In most developed markets, most consumers are digitally engaged, using Facebook, YouTube, email, tablets etc. on a daily basis. These are digitally savvy later adopters, where their behavior lags is in paying for content.  Sure, some will never pay, but others simply haven’t yet been given a solution that makes sense to them.  Content Connectors can change that by giving digital content experiences familiar context in the home.
  • Smart boxes will leave smart TV’s still born: TV manufacturers are still figuring out how to deal with the hangover of having accelerated the TV set replacement cycle too aggressively with HD.  Too many homes have perfectly good HD ready flat screen sets that they won’t need to replace anytime soon.  So manufacturers are desperately pushing 3D and Smart TVs as a reason to replace.  The problem, for TV makers not consumers, is that Content Connectors turn ‘dumb’ TVs into Smart TVs for a fraction of the cost. A TV isn’t a computing device but plug a Content Connector into it and it becomes one.
  • Breaking down media industry walls: Hardware used to create great big walls between different content genres. TVs were for broadcast video, DVDs for recorded video, CDs for audio, games consoles for games.  Multifunction devices such as smartphones and tablets started to erode those barriers by being content genre agnostic.  Apple’s iTunes Music Store became the generic ‘iTunes Store’ and now Content Connectors want to take this paradigm shift even further by freeing the biggest screen in the home form the constraints of broadcast video.
  • Leaving stand-alone stores and services stranded: The disruptive threat of the TV’s liberation is immense.  Broadcasters instantly lose their monopolistic hold on the TV and find themselves in the middle of a disruptive threat pincer movement: first non-traditional broadcasters like Netflix and YouTube can get themselves right into the traditional TV heartland; secondly non-video content suddenly finds a home on the TV, whether that be music, photos or games.  No matter, all of it competes for TV viewing time.  And no coincidence that Amazon’s Kindle Fire TV is equipped with a game controller.  What’s more, if you only offer video – which of course applies to most TV broadcasters – you look decidedly limited in the Content Connector era of multi-genre content offerings.
  • Using the TV to get consumers over the ‘ownership hump’: While industry leaders obsess over how to make subscription business models work, most mainstream consumers have not even started thinking about moving from the ownership paradigm to a consumption one.  That shift will need a generation to truly play out but Content Connectors will give the process an initial adrenaline shot.  How?  By putting digital content onto the device that consumers already associate with ephemerality.  The TV is not an ownership device nor has it ever been one.  At most it is a device on which temporary copies are viewed before being deleted.  But the majority of the time it is purely access based content consumption.  So getting mainstream consumers used to accessing but not owning digital content via the TV is the perfect environment for making an entirely alien concept feel strangely familiar.
  • Another changing of the guard: The reversing into the CE market by internet, software and PC companies was the biggest disruption the CE sector ever endured.  The likes of Sony and Yamaha used to compete in an almost chivalric manner, agreeing on standards and then competing on implementation.  Google, Apple and Amazon pursue no such niceties and compete with incompatible platforms and technology, and in doing so are wining the CE war.  The Content Connector revolution is helping the same thing happen to content distribution.  A new generation of content providers are emerging that collectively have their eyes set on world domination.

The coming shift in the digital content markets could occur at breakneck pace.  Within five years Hulu and Netflix could easily have a 100 million paying subscribers and YouTube’s ad revenue could easily be near $8 billion.  If the transition process goes the whole distance traditional content walls could disappear entirely.  Google Play could move from selling video, apps or music to simply asking consumers: “How would you like to enjoy this content? Watch? Listen? Or Play?”  Traditional broadcasters and media retailers should be scared, very scared.

Why 2014 Will Be the Year of Taking Digital Content into the Home

2014 is shaping up to be the year that the chasm that separates consumers digital content experiences and their home entertainment is bridged.  Amazon, Apple and Google have all embarked on a quest for the lower end of the market with Amazon Fire TV, Apple TV and Chromecast respectively.  Meanwhile a host of interesting new specialized music entrants are making waves, including Pure’s Jongo and forthcoming devices such as Fon’s Gramafon and Voxtok.  And then of course there’s the granddaddy of them all Sonos, that continues to go from strength to strength with an ever more diverse product range and list of integrated music services.

Regular readers will know that I have long held that the living room (along with the car) is one of the two final frontiers for digital music.  The great irony of digital music’s brief history to date is that it has transformed music from a highly social one-to-many experience across speakers into a highly insular and personal one delivered through ear buds on phones, MP3 players, tablets and PCs.  It is no coincidence that streaming music services desperately attempt to artificially recreate the missing social element with the blunt tool of pushing play data into people’s social streams.  To be clear this is not to take away from the personal consumption renaissance, but instead to illustrate that music is disappearing out of the living room and other home listening environments.  When the CD player disappears out of the home – and it is doing so at an accelerating rate – for many households music amplified music playback disappears too.  This is why digital music needs bringing into the living room, the den, the kitchen, right across the home.  It is a concept I first introduced in 2009 at Forrester, and revisited for Billboard early last year and again here later in 2013.

We Are Entering the Fourth Stage of Digital Content

Getting digital content into and throughout the home is the next stage of the evolution of web-based content.  The first stage was getting it there (Napster), the second was getting it onto consumers’ portable devices (iTunes), the third was providing frictionless access (YouTube, Spotify, Netflix) and now the fourth is getting it into the home.  This fourth stage is in many ways the most challenging.  All of the technology that underpinned the first three stages was computing related technology (PCs, MP3 players, smartphones, tablets).  All of those device types are a) highly personal and b) have evolved as computing enclaves within our homes.  Besides the niche of households that have smart TVs or web connected radios, the majority of the devices that the majority of households spend the majority of their prime media consumption time with (i.e. radios and TVs) remain separate and disconnected from the computing centric devices.  The fact that the computing devices are heralding a new paradigm of consumer behavior – media multitasking – only highlights the separation of the two device sets.  Indeed the vast majority of multitasking time is asynchronous (e.g. checking Facebook or email while watching TV) rather than being an extension of the primary media consumption behavior.

Efforts are Focused on the TV

Chromecast et al are all designed to bridge that divide, to turn our key non-computing home device – the TV – into a quasi computing device, so that we can bring our digital content experiences into the home entertainment fold.  This, as Amazon, Apple and Google all know, is where the battle for the digital entertainment wallet will be waged.  The downside for the music industry is that the TV device focus will naturally skew the dialogue to video content, which is why Sonos and the growing body of specialized music home devices are so important.  If the industry relies too heavily upon TV centric devices to lead the home charge, it will be left fighting for scraps rather than being centre stage.

Context is Everything

However labels, music services and hardware companies (including Amazon, Apple and Google) already need to start thinking beyond just getting digital music into the home.  They need to think about what extra relevance and context home music experiences should deliver.  The likelihood is that the rich UIs of PC, tablet and smartphone apps will have to recede, in the near term at least, to allow simple, elegant device experiences.  In effect they will need to almost get out of the way of the consumer and the music.  In some respects this echoes the ‘zero UI’ approach of app-of-the-moment Secret.  Which in turn means that curation and programming will become the key differentiation points.  Not in the sense of ‘here are three artists we think you’ll like based on your prior listening’ but real programming of the type that has helped radio remain the single most widespread music consumption platform throughout the digital onslaught.

2014 will be the year that the divide between the computing devices and the traditional entertainment devices in the home will start to be bridged.  But that is simply the enabler not the end game.  It is once the divide has been bridged that the real fun begins.