Release Windows, the Cure for the Access vs Ownership Debate?

Back in early 2009 when I was at Forrester Research I wrote a report proposing that the Music Industry should adopt release windows.  It seemed to many something of an anachronistic concept, written just at the time with the Movie Industry – that bastion of release windows – was deeply engaged in a dialogue about compressing windows.  But now, with the growing debate over whether streaming services are cannibalizing CD and download sales, the idea is beginning to look highly relevant.  Because the simple fact is that a structured release window strategy for the music industry would do away with much of the access versus ownership debate once and for all.

Music products and services need segmenting into distinct windows

The basic structure of my release window argument was that music products and services should be segmented into tiers of priority and then each of those tiers be allocated a release window.  The tiering would work something like this:

  • Window 1, week 1: CDs, downloads and premium subscriptions
  • Window 2, week 3: Radio (excluding web-only radio)
  • Window 3, week 4: Subsidized subscriptions and web radio
  • Window 4, week 5: Ad supported streaming services


All of the new releases would go straight to Window 1 and be available there, and there alone, for a 2 week period, with terrestrial and digital radio coming after that.  This is a contentious point as radio is of course intended to act as a discovery and marketing tool but the time has come for the top tier of the music product pyramid to be held up as exactly that.  After all, why should passive music fans who don’t pay for music get to hear new songs as soon as those who pay 9.99 a month or buy downloads or CDs?  Users of free ad supported streaming services would have to wait a full 4 weeks before they get to hear the latest new music.


The problem with differentiating a free stream from a paid download is that there simply isn’t that much difference.  Release windows however, put clear blue water between the download and the free stream.

Coldplay is already pioneering the window strategy

Coldplay’s decision to keep ‘Mylo Xyloto’ off Spotify until album sales have peaked is effectively artist level windowing in practice.  The alternative strategy of just putting the odd track on there – such as Adele’s ‘Rolling In The Deep – treats streaming as a radio-like promo vehicle but if all artists did that then its promotional value would soon disappear as people would stop using streaming services.  A structured, industry level windowing strategy however would bring consistency and effective results.


Of course the windowing approach isn’t free of problems.  For example pushing radio to the second window will require a new approach to marketing music and a revision of assumptions of sales cycles.  However both of those things are already in effect happening, forced along by the current streaming status-quo, and of course unlicensed free music.  Windowing is an opportunity for record labels to take control of the situation and simultaneously protect music sales and define a long term, complementary role for streaming services.  The alternative is a prolonged and unproductive debate about cannibalization that will cause deep fault lines across the music industry and may ultimately kill off streaming all together.



What Johnny Cash Tells Us About Apple

[Please note that this post first appeared on the Forrester Consumer Product Strategy blog.  Next week so I will be migrating all of my activity there.  I will post new information here for you to amend your feeds and subscriptions on Monday 8th March. Thanks]

Mark Mulligan[Posted by Mark Mulligan]

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Apple just announced the 10 billionth iTunes music download sale.  An impressive statistic for sure but not the
end of the story.

As Apple often does with download milestones, it gave a prize to the 10 billionth download customer and revealed that the song downloaded was “Guess Things Happen That Way” by Johnny Cash, a song which originally dates back to 1958.  Given that Country fans skew older than most music fans (nearly two thirds are over 45) it is interesting to contrast this with the downloader of the billionth Apple App Store App: Connor Mulcahey aged just 13.

Apple’s music and App stores straddle paid content’s demographic fault line. Apps – a fundamentally interactive experience – are tailor made for the digital natives, whereas the static 99 cents music download remains wedded to a bygone era. Of course the kids still like music, but the current digital music product doesn’t compel them to part with their cash in the way an App does.  The simple fact is that Apps have far greater monetary value for youth than music does.

Music product innovation is the music industry’s way into the App Store. The CD generation still values music but they’re becoming the foundation of music sales just when they should be making way for the next generation of music buyers.  Indeed, three quarters of digital music buyers are aged 25 and over.  So whilst it’s good news for Apple that they’ve discovered a way of monetizing youth, it does little to help music sales.  Which is the reason why the music industry needs to commence a period of unprecedented product innovation,

whereby apps become a key channel for music sales. (See here for my take on what 21st century music products should look like).  Of course there are plenty of music apps already out there, but few are doing much to create a new music product paradigm.

iPod sales slow whilst the iPhone and Apps prosper. The final pertinent trend here is the slowing of iPod momentum. The simple fact is
that iPod sales are slowing (see chart below).  Thus much of the iTunes music download growth is coming from increasing the average number of downloads per buyer but that has limits, particularly considering the weaker appeal among youth. Meanwhile iPhone sales are growing at the  expense of iPods and App downloads continue to accelerate with unprecedented pace.

Apple remains the behemoth of digital music sales, but unless the music industry learns how to make products that Connor Mulcahey will buy, they will find the Apple bandwagon starts to leave them behind.

*Note: though Johnny Cash was the subject of a contemporary biopic (‘Walk the Line’) but ‘Guess Things Happen…’ was not featured in the film nor the soundtrack.

Apple figs

Music Subscriptions: Dead or Alive?

[Please note that this post first appeared on the Forrester Consumer Product Strategy blog.  Over the coming month or so I will be migrating all of my activity there.  I will soon be posting new information here for you to amend your feeds and subscriptions. Thanks]
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Real Networks yesterday announced that they intend to spin-off music subscription service Rhapsody as a stand alone business. Rhapsody has long been held up as the best of breed music service, but in the age of Spotify and Comes With Music it and other premium rentals have increasingly struggled to maintain relevancy.  Spotify and Comes With Music each may have

fundamental business issues and are very different offerings, but they both provideunlimited music free at point of consumption.  Once you have that proposition in the marketplace selling 9.99 rented streams looses its shine, however good the discovery and usability may be.

This time two years ago Rhapsody, Napster and Yahoo had about 1.8 million paying subscribers between them.  Since then Yahoo got out of the game (passing its subs onto Rhapsody), Napster got sold and the total count is now around 1.3 million. So just as the music industry is meant to be booming online, its premium tier sheds over a quarter of its value across its heavyweight proponents.

The simple fact is that charging 9.99 or more a month for music that often only sits on your PC is not a mass market value proposition.  It’s great for aficionados but mass market consumers aren’t used to buying music that way.

So is this the end for subscriptions?  No, not at all, in fact they’re doing better than ever, it’s just the old guard that is struggling to keep pace.  A new generation of subscription services are being built that place portability at their core and that often hide some or all of the end-cost to consumers.

Let’s take a quick look at the numbers, here are total paid subscribers by territory (all numbers are approximate):

  • Europe: 1.25 million (key players: Spotify,Vodafone, Napster)
  • US: 2 million (key players: Rhapsody, Napster)
  • ROW: 5 million (key players: Melon)

That gives a global total of about 8.25 million, which is promising though still short of where they need to be.  If subscription services are to help digital music break free of the iPod orbit and go mass market then two things need to happen:

  • Premium subscriptions need to be unlimited MP3
  • Mass market subscriptions need to have channel partners such as telcos and device companies hide some or all of the cost to consumers i.e. subsidized subscriptions (For the record I think the ‘cost to consumer’ price point for unlimited music should be 3 euros/dollars/pounds  a month.)

The first generation of music subscriptions may have been niche also rans, but the next wave – given the right business models – could be much more important.

Putting the Crowd in the Cloud

[Please note that this post first appeared on the Forrester Consumer Product Strategy blog.  Over the coming month or so I will be migrating all of my activity there.  I will soon be posting new information here for you to amend your feeds and subscriptions. Thanks]

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I have a favour to ask of you: I have the germ of an idea which I am developing for a forthcoming report and I want try it on you.  So please let me know your thoughts.

Apart from the persistent pressure of free, two of the recurring trends that look set to shape the future of digital music are:

  1. The Cloud
  2. Social

First a few thoughts on the cloud….

The cloud is of course is already with us, but largely as a collection of disparate connected music experiences (e.g. Pandora, Spotify, Comes With Music) rather than as something more all-encompassing.  I’m skeptical of the truly ubiquitous experience happening anytime soon.  Indeed, the practical limitations on ubiquitous connectivity mean that connectivity will in fact fall short of ubiquity for some time (more on that from my colleague Ian Fogg later this year).  But it is clear that over the next few years more of the dots will be joined.  And sometimes the dots will be joined by innovative workarounds, such as Spotify’s ‘offline’ streaming solution.

And a few thoughts on social…

Readers of my Music Product Manifesto will know that I’m a stronger believer in the near term potential of social in music experiences than I am of the cloud.  In order to effectively compete against free music products need to create new, unique music experiences and social interactivity is a key means of achieving this.  If you put a $0.99 iTunes download against a $0.50 Amazon download against a BitTorrent $0.00 download the BitTorrent download will always win.  Future music products need to do more. Formally layering social functionality into the experience is key here, both to add a connected element but also for discovery.  With so much noise online, trusted taste makers (or ‘curators’ as Nettwerk Music’s Tony McBride calls them) are key.  And who do we trust most for recommendations?  People we know and connect with.

My thesis is that these two dynamics not only don’t have to be, dare I say it, disconnected, but that they should be inextricably linked. Their paths should be moulded together.

The likes of Last.FM (Audio Scrobbler) and Apple (Genius) have started to demonstrated the power of ‘Crowd Sourcing’ in the music discovery journey.  Spotify and YouTube and many others are showing the way for cloud based music experiences.

The time has come to be the crowd in the cloud.

Crowd in the Cloud

Social tools and media are of course already inherently connected and inherently cloud based, whether it be Facebook, Twitter or MySpace.  When woven into the fabric of a digital music offering they bring that experience to life.  In a connected music experience that exists across multiple devices and multiple platforms, social connectivity is more important than ever. Social connectivity turns a bored 10 minutes waiting for a train into a connected a fun engaged interaction with a friend, sharing playlists on MySpace. It transforms looking for something new to listen to on your iPhone into a social discovery journey.

This idea’s still taking shape, so I’d love to hear your thoughts.  I’ll post further on the concept as it evolves.

Five Music Predictions for 2010 (and Five Reasons Why 2009 was a Flop)

[Please note that this post first appeared on the Forrester Consumer Product Strategy blog.  Over the coming month or so I will be migrating all of my activity there.  I will soon be posting new information here for you to amend your feeds and subscriptions. Thanks]

Lots happened in 2009 but it wasn’t a vintage year for digital music (in fact it was the year it well and truly lost the digital buzz to eReaders). All in all I’d give 2009 a 6 out of 10, with the launch of Spotify accounting for at least couple of those points and the following as the 5 key disappointments:

  1. Comes With Music under-whelmed (as did Play Now plus)
  2. ISP services didn’t get off the ground (including unlimited MP3’s nearly but not quite moment)
  3. Apple’s new killer music format was….oh iTunes albums
  4. imeem gave a master class in how not to make money out of social music
  5. The big boys (MySpace, Apple) snapped up the innovative competition (Lala, iLike, imeem)

So will be 2010 be any different?  Though I don’t think it will be the year digital music will really come of age (that’s at least a couple more years away) I do expect it on balance to be a stronger one than its predecessor.  Leaving aside the few specific developments I’m not able to talk about here are a few of my predictions:

  1. Apple launches a major refresh to the music experience.  (I’ll caveat this first prediction with the disclaimer that Apple make a habit of proving wrong those of us foolish enough to try to second guess them.)  With that said, there are many things Apple could do with music in 2010.  Whatever they do, they have to do something significant if they are to stay on top of their game. They’ve spent much of 2009 collecting user data via the Genius app and they’ve acquired some top notch streaming and programming expertise via the Lala acquisition. And of course they’re busy developing with content partners for the forthcoming touch screen note book.  Here’s hoping that this will all add up to something like an integrated on-device, connected, interactive and immersive music experience where the cost is bundled into the price of the device (perhaps with the touch screen note book as the flagship device for the offering).  Apple wouldn’t be in the game of hiding the cost of music to the consumer (a la Comes With Music) but they may use content subscription bundling as a way to maintain premium price points and differentiation for their devices.
  2. MySpace deepens its focus on music. Though MySpace will spend most of 2010 simply ingesting iLike and imeem, the acquisitions form part of a longer term strategy to breathe much needed new life into MySpace’s music role.  The new management talent is tasked with pulling MySpace from the brink of becoming a garbled also ran and dragging it by the collar into the 2nd decade of the century.  Though they’re unlikely to admit it, the mainstream social networking race against Facebook is as good as over. By contrast they remain the #1 destination for artist communities online, yet without a major reinvention they’ll start to feel the competitive pressure bite there also.
  3. Spotify scales back its US launch. Spotify appears to be paying the price for the major labels having second thoughts about ad supported on-demand content.  Those pesky US licenses have been proving tough to tie down and I’d expect to see Spotify’s US launch to be more strongly focused on the premium tier than it is in Europe.  If so, it could actually prove to be something of a blessing for the Swedish upstart, allowing it to consolidate the monetization of its core user base rather than building a US ad business from scratch whilst millions of free US subscribers add cost to the bottom line. Whatever the case, Spotify’s European revenue fundamentals should improve in Europe in 2010.
  4. ISP music services don’t pack a killer punch. I’m a firm believer that ISPs will become established as a core element of the digital music value chain and the best way of fighting piracy head on.  In 2010 we’ll see more services launched both in the US and in Europe, especially the UK.  But I don’t see anything yet to suggest they’ll be adequately provisioned to flourish. It’ll take another year or two of revenue pain decline for the labels to adjust their license requirements sufficiently. What do I think will work?  5 pounds / euros / dollars a month for household access to near unlimited (i.e. fair use) MP3.
  5. Semipro sites and services prosper. I’m not sure I’d go as far as to say 2010 will be their year, but it will certainly see continued growth for the likes of SellaBand, MyMajorCompany and Tune Core. These sites that create a route to audiences for artists either not good enough or not yet good enough for record deals, play to the strength of the Internet as a social channel for artists and fans. Which of course is all the more reason for MySpace to be watching its back.

To conclude, 2010 will be another year in which digital music continues to find its feet, but significant progress will be made.

So just what does Apple want with Lala? (some questions and answers)

[Please note that this post first appeared on the Forrester Consumer Product Strategy blog.  Over the coming month or so I will be migrating all of my activity there.  I will soon be posting new information here for you to amend your feeds and subscriptions. Thanks]

Apple has confirmed the acquisition of streaming music provider Lala.  The move is significant (even though Apple appear to be trying to suggest otherwise) because it is one more piece in the gradually emerging puzzle that is Apple’s future music strategy, which for a few years now has remained relatively static.

Why is Apple’s music strategy in need of revision?

If the iTunes Music Store had evolved half as much as the iPod had over the last few years we’d have a cutting edge music service. Instead we have one that remains market-leading in terms of basic functionality (i.e. store to device synching) but behind the curve in terms of experience, discovery and community. Whilst the web threw up the likes of imeem, Spotify, Last.FM, MOG etc. the iTunes Music Store stuck to selling 99 cents downloads.  Don’t get me wrong the iTunes store is a crucially important platform that accounts for the majority of the current paid download market, but it isn’t yet equipped to drive the digital music market to the next stage.  In its current guise it is essentially a transition technology: with one foot in the distribution paradigm of selling units of stuff, and one in the consumption era of on-demand access.  It has done a great job of helping consumers take baby steps into the digital age, but has pretty much reached the limits of its potential as a music service. (You’ll note my continued and fully intentional implied distinction between the music store and the App Store – more on that in a moment).

So why buy Lala?

Well it gives Apple a short cut into the social and streaming music arenas.  This is where the momentum of digital music has shifted and where Apple needs to be if it is going to remain relevant in the digital music landscape, even if revenue hasn’t yet shifted there.

But why would a high margin focused company pursue a potentially loss leading marketplace?

I said at the start that Apple hasn’t innovated hard with the iTunes music proposition in the way that it has with the iPod.  It hasn’t done so because it hasn’t had the competitive pressure.  It still doesn’t have that pressure from music stores, but the rise of social music is where the music consumption story is going.  And that matters a lot to Apple.  From the ‘Rip Mix Burn’ campaign through to the launch of the iTunes Music Store in April 2003, Apple’s music strategy has been all about making the music experience on its devices as good as possible.

The launch of Genius was the first step towards Apple opening a new chapter in music.  The Lala acquisition is another step.  Apple now has a rich set of assets it can put together to create a new, cutting edge music experience.  It has the rich usage data Genius is providing, the streaming capabilities of Lala and the every growing portfolio of music Apps and associated usage data.  The App store provides an important music asset which Apple would be wise to more formally integrate into its music offering.

Where is Apple heading with all of these assets?

Apple of course often outsmarts those who try to second guess it, so rather than make a bold prediction that could be held up as a hostage to fortune, here’s a very brief synopsis of one direction in which Apple *could* head:

Imagine unlimited streaming music seamlessly integrated into a rich discovery based environment in which the user has access to Apps, videos and downloads (probably with some allowance for number of downloads allowed per month) all bundled into the cost of the connected device (note that I’m not limiting this to iPods).   There are of course many directions in which Apple could head, but this is the one I like best, not least because it’s essentially the vision I laid out for the music industry in my Music Product Manifesto

Whatever Apple does decide to do will all be about creating a differentiated music device experience. The music industry will be hoping that this next chapter in the Apple music story has more in common with the iTunes store chapter than it does the ‘Rip Mix Burn’ chapter.

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MySpace Music UK: First Take

[Please note that this post first appeared on the Forrester Consumer Product Strategy blog.  Over the coming month or so I will be migrating all of my activity there.  I will soon be posting new information here for you to amend your feeds and subscriptions. Thanks]

MySpace today launched its UK music offering, over a year after its US launch.  However tempting it is to position this as a Spotify challenger (and the BBC and many others do) it simply isn’t.  It isn’t, both out of intent (more on that later) and also out of poor execution (more on that later too).

Music matters to MySpace more than ever before. Why?  Because it is has lost the race with Facebook for social networking supremacy, in fact Facebook is about to lap MySpace.  But MySpace remains undisputed leader as the global social music destination (a position consolidated by the recent acquisitions of iLike and imeem).  If you are a band, you’ll have an artist page because that’s where the online music audience coalesces for engaging with bands. Sure there are better, more innovative alternatives, but MySpace has the momentum and the scale.  And if you’re an artist looking to reach audiences that is exactly what you want.  Bebo and Facebook have both tried to challenge MySpace’s position here but have not had meaningful success (a recent report indicated that 77% of Facebook fan pages have less than 1,000 fans).

So whilst the mainstream social networking momentum may be shifting elsewhere, MySpace remains at the heart of the social music experience.  In many ways MySpace is in a similar position too YouTube, which is getting left behind in the online video revolution as the momentum moves beyond skateboarding dogs to full length shows on the likes of Hulu and iPlayer.  But it remains the number one destination for music video.  So MySpace and YouTube both find themselves repositioning around music, perhaps more out of necessity than out of choice.

All of this leads to why MySpace Music is not a Spotify challenger:

  • Strategically: MySpace is building its music experience firmly around social and community.  It knows that is its differentiation point and the essence of the artist-fan relationship which MySpace delivers.  So the music experience is wedded to that. Spotify is a straightforward music experience.  No community (at least within the application itself) and no artist-fan dialogue. So the music content is deeply integrated into the social experience (hence the focus on playlists for example).
  • Execution: But it is also not a direct challenger to Spotify because it isn’t executed well.  That deep integration brings great challenges also.  If you are looking for a Spotify-like experience on MySpace, you won’t find it.  But the odds are you won’t easily find the music you want either.  For example, MySpace poster girl Lily Allen is one of the featured artists on the home page (despite her just announced career break), but finding her music isn’t easy.  As you can see from the screenshot at the bottom of this post, you have to go all the way to the bottom of the page to find a genuine song.  And the top result, which is out of shot here, is for the ‘This is not the real Lily Allen’ profile page.  Those results below are all songs by unknown and small time artists.  Yes that is part of the essence of MySpace’s music community, but they shouldn’t be pushing the genuine Lilly Alen track to the bottom.  Also note all those ads by competitor music services!

All that said, MySpace Music is an important part of the digital music landscape and I expect to see much more fromo them over the coming 12 months as the leverage the iLike and imeem assets to the full.  But they also need to innovate hard.  There is a huge amount of activity in this space and MySpace can’t simply wait for each of the competitors to fail and then buy them up on the cheap.  The fact MySpace music is a Joint Venture sets them in good stead, with reportedly significantly below market-rate license fees (as this artist’s account also seems to suggest).  But MySpace doesn’t have a JV by accident, its financial security makes MySpace an important partner for the music industry. It can plan ahead with MySpace in a way that you cannot with an unproven start up, however well funded it may be right now. Here’s hoping MySpace use that power to the full and don’t rest on their laurels.

The Three Things Spotify Needs to Do

Spotify is certainly the darling of the moment.  In the close to a decade that I’ve been covering the digital music space for Jupiter, and now Forrester, I have seen oh so many services come and go.  I’ve seen far fewer grab the limelight and hold it in the way Spotify is currently doing so.  In fact the only other digital music service that has ever sustained the same pulling power as Spotify is Apple’s iTunes.  And of course there is a lot of talk about whether Spotify is an ‘iTunes Killer’.  (For the record I don’t think the comparison is a valid one, rather that Spotify is a complementary addition to an increasingly complex digital music marketplace.  But I’ll park that discussion for another day.)

The Financial Times today ran a story about Spotify being close to securing substantial extra funding, and I for one hope they secure it: the music industry needs Spotify to get a decent shot at being a success.  It’s no secret that ad-supported music services have numerous challenges, not least a softening ad market.  It’s equally no secret that Spotify needs to make its premium business a success.  But building the ad business and the premium revenues will both take time.  Until those are fixed every new user for Spotify is cost to the bottom line.  So it would be a real shame for Spotify to have to put the brakes on its audience acquisition given that they have that most sought after of dynamics: momentum.

At the same time however, I think it is important to put Spotify’s nascent European adventure into perspective.  Spotify itself is not about to become ‘the future of the music industry’ but it does stand a decent chance of being one of the first truly mass market online services.

As you can see from the chart below, Spotify’s user base growth is impressive.  (It is important to clarify that the current European user number is the 4 million as shown in the chart, not the 6 million reported elsewhere.  Spotify clarified to me that those 6 million numbers are not correct and are ‘unsubstantiated’).

spotify users

But just what does 4 million really represent?  Well across the 6 European markets Spotify is available in (Sweden, Norway, Finland, the UK, France and Spain) it represents 3 percent of all Internet Users and in the UK it represents 5 percent.  Those may not sound particularly high but are impressive given that the service only launched 9 months ago and only formally came out of invite stage this year.  By way of comparison it took Pandora a year to reach 1.7 million users, representing 1 percent of US Internet users.

So it is clear that Spotify has momentum.  But it is too early to say that it is a success.  Pandora now has 30 million users and its iPhone app users alone out number total Spotify users by more than a million.  Also, there are plenty of streaming music services with many more users, such as imeem (25 million in March),  Last.FM (20 million in March) and iLike (30 million in March).  Spotify has some distance to go before it reaches the levels of those services, none of which are being talked about as the future of the music industry…at least not anymore.

And there lies the rub.  Each of those services had their time in the spotlight.  For a while each was seen as the shape of the future.  They still have plenty to offer, but the attention has shifted elsewhere, due in no small part to the fact that their user growth reached a plateau in the 15-20 million range.

To build upon its great start and be a long-term success Spotify needs to do three things:

  1. Break through the 15-20 million user bar like Pandora did
  2. Convert roughly 5 percent of its user base to premium offerings
  3. Build a sustainable ad business that helps shoulder the cost of its free users

Launching in the US and having its iPhone app approved by Apple would both be great ways of moving towards achieving those three aims.

Spotify has made a great start but it hasn’t even finished the first lap yet.  Here’s hoping that they’ll have made more substantial progress before the backlash begins.  Because one thing my years of market watching have taught me is that the higher a service is built up, the farther it has to fall when it is pushed off the top by many of the very same people that put them there.

Spotify and Spiral Frog: Spot(ify) the Difference

Spotify reached another milestone at the weekend, clocking up a million users in the UK. As I’ve mentioned in previous posts Spotify’s success lies in doing what it does simply and well, not by doing anything particularly revolutionary (advanced caching technology arguably aside). But it is imperative that Spotify doesn’t go the way of Spiral Frog. Remember Spiral Frog built up a million strong user base also. Granted, Spotify’s consumer proposition is superior, but whilst both user experiences are products of their respective times, their business models are less distinct. In short they both depend upon advertising income to be larger than license fee and technology costs. As Spiral Frog proved, having a million users is no guarantee of achieving that equation.

Spotify is probably in a much stronger position now than Spiral Frog ever was, but to paraphrase the Conservative leader David Cameron’s comment to then Prime Minister Tony Blair “it was the future once too”. Spiral Frog may look like a fundamentally flawed business model now, but the bottom line is that if it had struck a better cost to revenue ratio it would have fared much better. With a more vibrant balance sheet it’s reasonable to assume that the DRM-download model would have ultimately been shunned for streaming as user bandwidth augmented. When it comes down to brass tacks, Spiral Frog and Spotify aren’t as different as you might think.

Which all underscores how crucial it is that Spotify both successfully develops a premium (probably mobile) business and builds its ad business in a softening online ad market. Both are easier said than done. Consumers have proven for years that they’re just not willing to pay for content in meaningful numbers. Also the likes of imeem, Last.FM and Pandora have all set the standard for mobile streaming music apps to be free, not paid. With the softening ad market Spotify will not only need to think carefully about how aggressively it grows its user base but may also need to reassess some of its business relationships. Many content providers are finding themselves unable to afford their audiences growing because ad revenue is not growing as quickly as the increased license fee costs are every time their audiences listen to more music or watch more video. Which basically means many online content providers are finding themselves in the paradoxical situation of not being able to afford to have their audiences to grow. (I just wrote a report on this topic which Forrester clients can find here).

All this said, Spotify are in a better position than many to be able to navigate these troubled waters than many. They’re the right service in the right place at the right time. They’re a high profile success story that the labels will not want to fail. But it’s equally important that the rest of the market succeeds also. Just in the same way it’s as equally important that imeem’s streaming business model is as sustainable as MySpace Music’s. An uneven playing field will simply tilt the balance in favour of the bigger players. The one-size-fits-all shiny disc days are gone. The future should be all about choice, but that may yet require a little ‘behind the scenes give and take’.

iTunes Pass: First Take

So Apple finally gets into the music subscription business….well sort of. Today Apple announced the first of its iTunes Pass offerings, in partnership with EMI and 80’s electronic music pioneers Depeche Mode. In return for $18.99 a month buyers get


“…new and exclusive singles, remixes, video and other content from their favorite artists over a set period of time, delivered to their libraries as soon as they’re available. [They] will also receive the new album on its street date plus great music and video exclusives before and after the album’s release over the next fifteen weeks.”


Make no mistake, this is a big deal, but there are also holes in it.


The big deal part first:

  • Apple has held off getting into the subscription business for years, with Steve Jobs casting disparaging ‘music rentals’ jibes at Napster et al every time they raised their head above the parapet. Apple were never going to get into the temporary download business, but there was no ideological or business reason why ultimately they wouldn’t get into the subscriptions business, as long as it was on their terms and didn’t detract from the core value proposition of iTunes.
  • The ‘rental’ subscription business isn’t exactly in vibrant form. Rhapsody posted solid enough growth but that is against a back drop of persistent declines at Napster and Yahoo jumping out of the game. And even Rhapsody has failed to push music subscriptions out of a niche of tech savvy music aficionados. The iTunes Pass has mainstream appeal because a) it is targeted at specific fan groups b) it is cheaper c) it delivers permanent content
  • Q4 was another record sales quarter, but replacement sales were a big chunk. The growth in new iPod customers is slowing so Apple needs to look at ways of leveraging more ARPU out of its existing customers.
  • But the most significant part of all this is not what it means to Apple, but what it means to the music industry. This is a glimpse into the future. As we shift from the distribution paradigm to the consumption era the straight jacket of the album format and release schedule can be cast aside. We’d been saying for years at Jupiter (and now Forrester) that the record labels should start delivering a constant stream of content to fans, not just waiting for landmark release dates. In short, build an engaged, ongoing relationship with fans based on content not just artist pages on MySpace etc. This is a brave first step in that direction. Yes there have been similar efforts direct to fans via artist sites etc. but that misses the mass market opportunity and misses the point: this is the future of music retailing, not just some fan boy offer. Great work to EMI for driving this forward. Mark my words, much more will follow.


And now the gaps:


  • Subscribers get exclusive content but no exclusivity on the album. Even if the main release date was delayed by a week or two this would have given much more value to this offer. I can understand the reasoning, principally attempting to mitigate against lots of copies leaking onto file sharing networks ahead of release. But this logic is flawed as a) it only takes one copy to get up there and the recent U2 experience shows that there are always leaks, however tightly you police across the value chain b) most of those who would download from P2P networks are lost customers anyway. Those customers who pay nearly $20 in advance for content they’ve not even heard yet are the ones you should be worrying about. Everything should be focused around making them feel special, not some Quixote-esque tilting at Bittorrent.
  • My other minor quibble, no disrespect to Depeche Mode, but wasn’t there some bigger, more current act this could have been launched with?


Those caveats aside, this is a really exciting initiative. Welcome to the future of music retailing.