Digital Licensing Revenue To Change Future Of European Music Industry

Forrester today announced its latest European Digital Music forecasts.  As part of these, and for what I think is an industry first, we’ve forecasted digital licensing revenue, split by social music and subsidized services.

I’ve posted about the report and forecasts over on the Forrester Consumer Product Strategy blog here

The Ever Changing Face of Ovi: Why It Means So Much to Nokia

I spent the first half of this week in Barcelona at Nokia World.  I was fortunate enough to spend  time with many senior Nokia executives in small group sessions with my Forrester colleagues and also one-on-one sessions.  There were a lot of big announcements, not least of which was the superb looking N97.  But I’m going to focus on Nokia’s content and services strategy. If you’re interested in hearing more about Nokia’s other announcements you should read these posts by my colleagues Thomas Husson and Ian Fogg. 


Regular readers will know that I’m not a mobile specialist and indeed until a few years ago I didn’t spend that much time following Nokia.  The reason this changed is explicitly because of Nokia’s major shift in strategic direction, in their bid to become a major content and services player, under the Ovi banner.


I’m encouraged to see that the Ovi concept has undergone significant evolution since its announcement last year.  At the time of announcement Ovi looked in danger of becoming a poor man’s MSN, AOL or Yahoo. The 20th century portal model of being ‘all things to all people’ is losing relevance in today’s social media dominated world.  It made sense when people needed guiding through the Internet and when choice was limited. Now Internet users are savvier and spend time with specialist content destinations and the 21st century portals (TM David Card) such as MySpace and YouTube. 


So it’s good to see that Nokia have shifted emphasis and are focusing on developing strong individual content and services brands such as Nokia Maps and Comes With Music.  These brands need the space to develop their own identity and brand values.  Ultimately Ovi’s character should be shaped as the sum of these parts rather than imposing its identity onto each of them, and this looks like where Nokia is heading.


But there is a fundamental tension in Nokia’s Ovi, and indeed, broader device strategy.  The focus of devices such as the N97 is to make the mobile Internet simply the wider Internet on a mobile phone.  This openness is admirable and the correct move (many mobile operators mistakenly still believe that they can control much of the mobile Internet experience in their semi-walled garden portals).  But at the same time Nokia wants to establish content and services relationships with its customers that put it in direct competition with established Internet brands such as Google, Hotmail and iTunes.  Thus, the more that Nokia pushes towards an open-Internet model, the more it implicitly encourages its customers to translate their PC Internet brand relationships to mobile.  In short, Nokia aids its competition.


This situation is further complicated by the fact that Ovi is perceived by much of the mobile operator marketplace as being a disruptive force.  Nokia’s bid to establish direct-to-consumer relationships is effectively disintermediative (is that even a word?) to operators who are all actively pursuing their own content and services strategies.  However much Nokia likes to consider itself inclusive of operators they’ll need to put more meat into the game for operators if they’re going to get them on board.  And they need them on board, otherwise they’re not only competing against those Internet brands but also against the crucial element of the mobile channel, who’ll inevitably strike partnerships with those same Internet brands.  Nokia needs its allies.


So Nokia certainly has major challenges ahead of it.  But its bold ambitions could yet be met.  Comes With Music should prove to be a tactical Proof of Concept of the broader Ovi strategy.  Nokia were smart enough to understand that they couldn’t challenge Apple by just rolling out a Nokia equivalent of iTunes.  Instead they developed a compelling alternative that offered something very distinct, targeted at very distinct target groups. 


For Ovi to succeed, Nokia will need to replicate the CWM approach in other content areas.  Success, Comes With Innovation.

More thoughts on the ‘Music as Free’ Debate

My original post on ‘Why Music Can’t ‘Just be Free’ has stirred up something of a hornet’s nest of debate and half a dozen blog posts in response.  Reading through those and the comments attached to them a number a number of recurring themes have surfaced which I’ll address here.


Please do comment here and elsewhere.  Where the debate happens doesn’t really matter but the debate is valuable, because even if people don’t change their opinions, they at least get exposed to the detail of the thinking on both sides of the debate.


Many argue that copyright shouldn’t exist.  I believe it should.  Does it need revising for the 21st century?  Absolutely.  Movements like the Creative Commons serve a vital role in moving the debate forward.  But us, as consumers do not have the right to chose whether a rights owner has the right to enforce copyright.  When an artist signs a contract they tell the label to collect money for the fruits of their creative labour.  So the people who have the right to chose whether copyright can be enforced are the artists, labels, publishers and collection societies.  That doesn’t mean we, as consumers, can’t complain, vote with our feet and try to get those parties to change their stance.  But it’s their right to chose not ours.  It’s no more our right to chose than somebody finding a wallet on the street deciding it is now theirs.  Sure you can probably get away with doing so, but it’s not your moral right.  (And before you ask, no I do not believe copyright infringement is theft, even legally speaking it’s not.)


There isn’t a black and white distinction between free and paid.  Hopefully my last three Music Mistakes, Myths and Misconceptions posts help clarify this point.  The argument that ‘music is already free therefore it is free’ ipso facto, misses this point.  It has also been used as the basis for the case that music should be free and that artists will make their money elsewhere.  Thus, goes the argument, record labels and, to some degree publishers, are wastage and excess that should and will disappear.  The problem with this is that somebody needs to play that function and currently record labels and publishers do it best.  Are labels perfect?   Of course not.  Should many of them be massively overhauled?  Yes.  But most artists need support if they are too fulfill their potential and thrive. 


And most artists do want to get signed to record labels, however successful their social strategies might be.  And this isn’t just my opinion, I recently surveyed hundreds of unsigned artists and asked them about their aspirations.  The vast majority wanted to get a record deal.  The vast majority wanted to make money out of selling their music.  So whilst many have argued that artists just want to be musicians and not make money, this simply isn’t the case.  Don’t get me wrong, I’m not arguing that musicians’ are some money grabbing bunch, simply that they’d like to be able to get paid for doing what they love and ideally be able too give up their day jobs.  Not get a yacht or private jet, just be able to make a decent living.


People have cited Radiohead as an example of an artist that went free.  They didn’t.  No one could download the album for free – you had to pay a minimum ‘administration’ fee.  And then Radiohead used the success of the initiative to secure a lucrative distribution deal with XL Recordings for that outdated concept, the CD.  Radiohead made more money out of In Rainbows than many other of their albums.  They played the system to get better contract terms and to drum up interest.


And finally, some music history for you


Many people have referred to how musician’s thrived in the days before copyright.  I’m sorry but this simply isn’t the case.  In the middle ages musicians could largely be grouped into three groups


  1. Troubadors: the elite of musicians, but also the elite of society, typically nobility and royalty (including Richard Lionheart of England).  They didn’t make or even ask for money, it was an elitist past time
  2. Minstrels: artisans who traveled around, depending on the patronage of the wealthy and aristocracy, such as Eleanor Aquitaine.  A small number become fixtures at a court, most were forced to travel around most of their lives in search of the next fee
  3. Jongleurs: these were the majority of musicians.  Typically itinerant, and paid infrequently and poorly.  A poor existence that was only marginally more lucrative than being a field tilling serf


After the middle ages royal and noble courts developed the practice of supporting retained musicians who would be commissioned to create compositions.  These musicians were vulnerable to the whims of their paymasters and many musicians considered great now, struggled financially in their life times.  Mozart died in poverty, buried in quicklime in a paupers’ grave. 

Musicians like most artists in history before effective monetization of copyright struggled for money.  Some would argue that this is the price artists should pay, it’s part of paying the creative dues.  I don’t. 

Music Mistakes, Myths and Misconceptions. Part 3: Subsidized

One again, continuing my bid to provide more fuel for the ‘music should be free’ fire this is the third in my short series of ‘Music Myths, Misconceptions and Mistakes’ posts, tackling one big ‘free’ issue at a time.  Today’s topic is Subsidized* (the previous two posts can be found here: Part 1: File Sharing  Part 2: Ad Supported). 


*i.e. a service where all or most of the cost to the consumer is paid for by the content provider e.g. Nokia’s Comes With Music (CWM),  Sony Ericsson’s Play Now plus (PNp) and TDC’s Play


Subsidized: 10 Mistakes, Myths and Misconceptions


1.      Misconception: subsidized offerings will not further erode consumer perceptions of music as a paid commodity. Whatever the restrictions on marketing (see #2) consumers are smart enough to perceive CWM as being free music: they pay nothing for the music and the device costs the same as without the music.

2.      Mistake: not calling CWM ‘Free’ or ‘Unlimited’.  ASA concerns for the latter, and label imperatives for the former, mean that CWM cannot be marketed to its strengths.  The effect described in #1 will happen regardless of whether the messaging is overt.  Weakening the message will only weaken consumer adoption.

3.      Myth: Subsidized offerings are a necessary but ultimately short-term tool for driving digital music adoption . A whole digital generation has grown up with no concept of paying for music online.  Those habits are engrained.  Free, subsidized services, and ad supported, will become permanent features of the digital music landscape.

4.      Mistake: Managing consumer life cycles. Make no mistake, lots of mistakes will be made (!) as the industry learns how to manage these services.  One of the biggest challenges is correctly segmenting users into those who will never pay, and those who can be migrated up the food chain.

5.      Mistake: Positioning. Services like CWM and PNp can’t be allowed to be too successful – they need to be focused on core target consumers (e.g. young file sharers) and not be widely adopted by strong music buyers, else their spend will be cannibalized.

6.      Myth:  CWM and PNp will revolutionize the digital music market in the next 5 years. These services are vastly important (arguably the biggest thing to happen to the music industry in years) but their core impact will be longer term.  Near term growth will be slowed by geographic roll-out, consumer awareness / education, handset replacement cycles, value-chain tensions.

7.      Misconception: Subsidized offerings will not cannibalize premium digital spending.  As long as targeting is kept tight, negative impact on spending on operator OTA services and online stores should be minimal, but it will decrease a little, though overall revenues will increase due to licensing income. 

8.      Misconception: Consumers will not ‘max-out’ these services. TDC’s Play service has had phenomenally high usage rates (see my post here for details).  When people get unlimited access to free music, they use it!

9.      Mistake: Not having licensed to fully subsidized offerings sooner.  CWM etc. are the best tools the music industry has to fight file sharing with.  They should have licensed to them sooner.

10.  Mistake: If licensing terms don’t enable Nokia make money.  If fully subsidized service business models are not financially viable (which doesn’t necessarily mean profitable BTW) their current proponents will eventually move onto something else, leaving what will be a gaping hole in digital music provision, which will quickly be filled by illegal free alternatives again.

Music Doing Well or the Rest Doing Poorly? recently picked up Jupiter’s European Activity and Paid Content Forecasts report and I’ve had a lot of feedback since.  Most of the comment has been based on the perception that Jupiter was very bullish in its assessment of the online music market.  

It’s understandable why this perception has arisen as one of the key findings of the report is that music is, and will continue to be, the largest single paid content sector and the driving force of the broader European paid content market.  But the fact is Jupiter’s premium online music forecasts are actually pretty cautious.  The dominance of music revenues speaks as much to the relative weakness of other paid content sectors as it does to any strength of premium digital music.


The key headline is that paid content has failed to evolve into a viable mass market proposition for most content sectors.  Free is what dominates and that’s why Jupiter built activity forecasts rather than just paid revenue forecasts, so that clients can identify the real scale opportunity.


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