Rdio Goes After The Squeezed Middle

Streaming monetization is polarized between premium subscriptions on one end and free streaming on the other. The middle ground that was the scale heartland of the CD and the download is disappearing and taking with it the mainstream consumer.  It is into this environment Rdio just announced a new $3.99 tier.

mind the gap

Mid priced subscription tiers are thin on the ground.  We have a couple in the UK (MTV Trax and O2 Tracks from MusicQubed, Blinkbox Music, now owned by Guevara) and a number of ad free radio offerings from Pandora, Rhapsody and Slacker.  It is a heavily underserved segment as the slide above shows.  The mainstream streaming subscription market is squeezed between premium and nothing.  The average music spend of a consumer is around $3 a month, so $9.99 subscriptions are far out of reach of most consumers.  $3.99 however is far, far closer to a realistic price point for the mass market.

Regular readers will know that I have been a long term advocate of lower priced subscriptions and micro-billing / Pay As You Go pricing models to entice the more mainstream user.  The labels have been super cautious because they are scared of cheaper services cannibalizing the premium tier.  The concern is a valid one but ultimately if a bunch of 9.99 users aren’t getting full value from an unlimited service they are going to bail out eventually anyway.  At least with mid priced subscriptions they have somewhere to land instead of disappearing straight to free streaming.

monetization pyramid

Currently streaming monetization is split between the top and the bottom of the monetization pyramid and this needs to change.  Rdio’s new Select tier gives users ad free radio plus 25 songs of their choice each day. That might not sound like a lot of tracks but for the majority of mass market music listeners that will be more than enough.  In fact in some respects it could almost be too much.  What matters for the mass market listener is less the number of tracks and more how the tracks they like are surfaced to them.  Curation is a much-overused term these days, but expert curation and programming is crucial to engaging the mainstream.  Radio is still so popular because most mainstream consumers are lean back customers that want to be led on a music journey not to have to hack their way through the musical undergrowth themselves.

Monetizing The Revenue No-Man’s Land

The leap from zero to 9.99 is far too big and Rdio Select is an important step towards monetizing the revenue no-man’s land between free and premium.  Of course zero to anything is still a major hurdle but the success of iTunes (250 million global buyers) shows us once you make the first step small enough, consumers will follow.  The simple fact is that the streaming market will not be sustainable without the mainstream engaged as paying customers on the same sort of scale that was achieved with downloads.  An even simpler fact is that 9.99 will not achieve that end.

Advertisements

MTV Trax And Fixing The Tyranny Of Choice

The subscription pricing debate is gaining momentum with serious dialogue occurring at high levels across the industry. Every consideration though occurs against the backdrop of fear, fear of disrupting the solid start subscriptions have made so far. It is clear that although the 9.99 price point has significant additional market opportunity, that potential has a finite scope. Once the ceiling of adoption has been reached the market will stagnate unless new price points are introduced.

One option for reducing risk is to tailor services at discreet segments that are not prospects for 9.99 services. By building highly distinct, curated services that deliver users curated, lean back experiences rather than bewildering them with the Tyranny of Choice of 30 million tracks. Music Aficionados are the driving force of current digital music, are less than a fifth of all consumers yet are the core target of every 9.99 subscription service.   By contrast Forgotten Fans – super engaged music fans who don’t yet spend much money on music – are hugely underserved. A handful of companies have been trying to unlock this segment, including Blinkbox Music, Mix Radio (formerly Nokia Mix Radio), Bloom.fm (RIP), Psonar (PAYG streams), MusicQubed (O2 Tracks, Vodafone Tracks), Zvook, as well as ‘Pandora One’, ‘Slacker Radio Plus’ and Rhapsody’s ‘unRadio’. Even Spotify is having a go. Now MusicQubed have upped the ante in the pursuit of the Forgotten Fan powering a new MTV music service: MTV Trax.

MTV: Digital Music’s Sleeping Giant

MTV is something of a sleeping giant in the digital music space. It is the sort of brand the marketplace has been waiting for. Spotify has done a fantastic job at creating a brand from scratch but outside of digital music circles it has minimal brand recognition. What MTV brings is immediate brand equity, the sort of instant familiarity that can help pull mainstream consumers into the digital fold.

Up to now, besides a couple of ill fated early efforts (remember MTV Urge anyone?) MTV has never seriously tried to convert its massive brand and reach. MTV has been biding its time. It is a mainstream brand for the masses so it has been waiting for the market to reach sufficient scale and for the right product for it to enter. MTV knows there is little point in trying to push its youthful, mass market audience towards Aficionado services that they are unlikely to be able to afford or have interest in.

MTV Needs To Put Mobile At The Heart Of Its Channel Strategy

There is an additional reason the time is now right for MTV, whether they realise it or not: their business model is stuck firmly in the confines of old, traditional media i.e. Pay TV. Though Pay TV is hardly in crisis, yet, the first cracks are beginning to appear with disruptive Over The Top (OTT) services like Netflix and Amazon Prime and cord cutting.  Of most concern for MTV is the new generation of ‘cord never’ consumers that may never take a Pay TV subscription, instead relying solely on the likes of Netlix, Hulu and iPlayer for their video needs. MTV is a youth brand yet ironically its current business model is rooted in an older world – the average age of a network TV viewer is 59. MTV needs a new channel for engaging with the next generation of audiences, and that channel is mobile. MTV Trax looks like it may be the first plank of that strategy.

mtv trax

MTV Trax itself is a visually rich mobile only app that delivers 8 curated playlists, branded around genres, charts and MTV shows. An Aficionado would probably find the selection too narrow and mainstream, but that’s entirely point, this isn’t built for them, it’s built for the mainstream. The app is being launched with MTV’s European Music Awards. Now it’s time to sit back and wait to see whether MTV’s brand can unlock the Forgotten Fan and take digital music to the mainstream.

Spotify And (Fixing) The Tyranny Of Choice

Tyranny of choice

Regular readers will be familiar with my concept of the ‘Tyranny of Choice’ namely that there is so much music choice now as to be counter productive. 30 million tracks (and counting) 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.

A host of music discovery services and apps tried to fix the problem a few years ago but most of them failed and went out of business. A new generation of music services such as Songza, Beats Music, MusicQubed and blinkbox Music are now all trying again with heavily curated approaches, delivering music fans the tracks that matter.

It looks like the Tyranny of Choice isn’t just an issue for the mainstream fan. Look at this quote from the Spotify Insights blog that discusses the rise of Mr Probz in the US:

“What’s clear is that the ‘lean back’ mechanism of curated playlists (as opposed to the ‘lean forward’ method of search which drove European streams) led to the early success of Mr Probz in the US”

Even in Spotify, the global home of the engaged music aficionado, curated lean-back experiences are coming to the fore. The access services are stealing some of the clothes of listen services. This is no bad thing but it does highlight the importance of this 4th phase of the digital music market, the ‘Curation Era’. Spotify gave consumers access to all the music in the world, now it – and others – is trying to help make sense of it all.

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.

fmf1

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.

fmf2

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.

fmf3

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.

fmf4

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.

fmf5

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.

fmf6

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.

fmf7 

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.

fmf8

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.

fmf9

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!

fmf11

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.

fmf12

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.

MusicQubed Puts the Rise of Listen Services Into Numbers

Back in October I wrote about the emergence of a new wave of music services: ‘Listen Services’. Namely music services that sit at the opposite end of the sophistication spectrum to ‘Access Services’ like Spotify and Deezer.  While the on-demand Access Services are focused on immersive discovery experiences for the engaged music aficionado, Listen Services are aimed at the mainstream music fan that does not have the time nor appetite for searching out what to play from a catalogue of 30 million tracks.  Listen Services, and their addressable audience, are a key priority for the music industry as it is becoming increasingly clear that Access Services, while fantastic at monetizing the top tier of fans, are not the right fit for the mainstream. To date the main focus for this segment has been ad supported personalized radio from the likes of Pandora and Slacker.  New entrants have started trying to drive digital spending from these consumers with cheap subscriptions, players like MusicQubed, Bloom.fm, Blinkbox Music and Nokia Mix Radio (interestingly there is a distinctly European company bias in this sector). MusicQubed has released some figures to illustrate how this emerging segment is developing.

To celebrate the first anniversary of its launch into market, MusicQubed last week released a combination of performance metrics for its services and some related statistics:

  • 85% of UK radio play comes from the top 120 tracks
  • The Forgotten Fan (above average listening but below average spend) accounts for 30% of consumers
  • Daily listening time of MusicQubed users = 30 minutes
  • 30% of all active users are subscribers
  • 1.5 million consumers have used MusicQubed services to date
  • O2 Tracks (O2’s UK music service powered by MusicQubed) has 60% female users and an average lifetime value of £33, while 20% buy at least one download a month after having discovered it in the service

While MusicQubed is a long way yet from challenging Spotify in terms of total users and paying subscribers, the numbers do hint at a validation of this too easily neglected consumer segment. Of course everything starts small and it is worth remembering that a year after launch (i.e. by end August 2009) Spotify only had in the region of 100,000 paying subscribers.

Will Listen Services Define the Next Phase of Digital Music?

The history of digital music has evolved in roughly 5 year chapters, each defined by a key service and the problem it solved:

  • Phase 1: Napster gave consumers frictionless access to all the music in the world
  • Phase 2: iTunes made the paid download make sense
  • Phase 3: Spotify fixed buffering and gave frictionless (legal) access to all the music in the world (well most of it anyway)
  • Phase 4: Beats, Blinkbox, Bloom.FM, MusicQubed are all candidates for defining the next phase. Spotify gave access to 25 million songs and now these services are each doing at least one of a) trying to make sense of that 25 million via curation and b) making music subscriptions affordable for the mainstream

4th phase

Once we have another 12 months or so of market activity we should be in a position to make a more definitive conclusion on which service, or services, will emerge as the defining reference point for the next era of digital music.

Listen Services, affordable subscriptions and curation-centred services are only just getting going, but they will be key to long term sustainability.  As subscriptions eat into the spending of the most valuable download buyers, it is clear that a ‘digital plan B’ is required.  This new generation of services are part of that plan.