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.

Listen Services Raise Their Game While Access Services Raise More Capital

Regular readers will recall my classification of the digital music market into Access services and Listen services, located at opposite ends of the Complexity Axis. Late last week two of those Listen services upped their respective games, with MusicQubed launching a new service with Vodafone New Zealand and Nokia Mix Radio introducing a host of new features.

Both services are focused squarely on delivering elegantly simple music experiences for as little effort as possible from the listener.  All you can eat Access services have done a great job of engaging the higher end aficionado and will continue to be the most appropriate business model and value proposition for the more engaged, higher spending music fan.  They do little for the lower spending mass market consumer however, which is where Listen services come in.

Interestingly MusicQubed and Nokia’s announcements came in the exact same week that news began to surface of Spotify securing an extra $250 million in finance, taking Spotify’s total investment tally to over half a billion.  In fact Deezer and Spotify alone account for approximately two thirds of all of the investment in digital music services in the last three years, amassing $0.6 billion between them from 2011 to 2013 alone.  Both companies have reported impressive subscriber counts and have made subscriptions work at scale in a way that the stalwart incumbents Rhapsody and Napster never did.  But building the Access business is clearly one that requires a large and steady influx of working capital.  The industry has got to hope that the investment to date helps build the foundations of long term sustainability and not simply supercharge a few services for a quick sale without an eye fixed firmly on the long game.

Concerns aside, it is great to see more investment pouring into the space, even if it is too concentrated at the moment. It is even more encouraging though to see more companies recognising the need to engage the less hip, but much larger installed base of mass market fans who are currently getting left behind by the digital music bandwagon.  It is to be hoped that these are the foundational signs of a more mature digital marketplace that can take the digital transition onto the next stage.

The Complexity Coefficient: ‘Listen Services’ and the Tyranny of Choice

Despite commendable progress the digital music market is still way behind where it should be.  It is an easy mistake to view the global music market through the Anglo-American lens but if you strip out the UK and US from the statistics the result is that three quarters of global ‘rest of world’ music sales are physical.  Thus ten years since the launch of the iTunes Store digital is still only a quarter of non-US and UK revenues.  The role of Apple is, as ever, key: Apple knew how to make an elegantly simple user experience that just worked.  Thus where Apple was strongest (US and UK) digital music sales prospered.  But most consumers do not have Apple devices so the music industry needs more music services to be as elegantly simple as iTunes if it is going to push the needle on that 25%.  The problem is that most of the services on which industry hopes are being pinned are anything but.

Innovating for the Elite?

Streaming subscription services are undoubtedly at the leading edge of music technology sophistication and recent innovations from Spotify in particular are setting the bar high for immersive digital music experiences.  But paradoxically this is part of the problem.  At the end of 2012 subscription and ad supported services accounted for just one fifth of global digital music revenues.  Though that number will grow markedly in 2013 – and already over indexes in the digital sophisticate Nordic and Dutch markets – it will not overtake downloads anytime soon.  There are of course many factors, including the key issue of pricing – 9.99 is not a mass market price point, but there is a more fundamental one: streaming subscription services are just too sophisticated for mainstream users.

The reality is that mainstream music consumers are not heavily engaged with music and like programmed, curated music experiences.  For all the music industry turmoil of the last decade radio listening has remained relatively steady, even growing in many markets, and it also remains the number one music discovery source – still far ahead of YouTube.  Radio’s enduring popularity stems from its simplicity.  A common product strategy error is the assumption that more features = better quality product.  But more often than not, less = more.  The extra discovery features in subscription services are fantastic tools for the niche audience of engaged music aficionados that use these services but they also make them less accessible for mainstream users.  This is what I term the Complexity Coefficient. 

The Complexity Coefficient is a simple way of understanding a complex problem and can be calculated as follows:

Feature Benefits – Feature Sophistication = Complexity Coefficient

In short, the more sophisticated the features of a service, the less the benefits will be felt by the user.  When this is applied to less sophisticated users a multiplier needs to be applied: a heavily featured sophisticated music service will already have barriers to use for an aficionado but will be entirely inaccessible for a mainstream user.  The Complexity Coefficient manifests itself in another way also: the more complex a service, the longer the music journey is.  For music aficionados that can be a good thing, but for radio-centric mainstream users it is a barrier rather than a benefit.

The COmplexity Coeffecient

The Tyranny of Choice

When we apply this thinking to the digital music landscape something really interesting emerges (see graphic).  The on demand subscriptions that monetize access – ‘Access Services’ – sit at the top right, highly sophisticated, but therefore also complex, with the longest music journey.  These services provide access to a vast, vast catalogue of music.  A catalogue that is growing rapidly every single day.  Last week 7Digital’s Ben Drury reported that his company now has 27 million tracks in its catalogue and is growing at a rate of 100,000 a week.

Choice is fantastic but too much begets choice paralysis.  There becomes so much choice that there is effectively no choice at all.  This is the Tyranny of Choice. 27 million tracks is an unwieldy vastness of music that would take 205 years to listen to.  What matters about music catalogue is the music that truly matters not the total size.  Of those 27 million perhaps 3 to 6 million are ‘core’ catalogue.  Of those how many really matter to any given listener? Perhaps 10,000 at the most?  Even that would be 2 months of listening for someone who listens 10 hours a week and doesn’t listen to the same song more than once.

With the growth in catalogue each ‘Access Service’ must get 100,000 tracks worth of being better at its discovery job just to stay as good as it was last week.  And despite the vast progress that is being made, few would argue that there is a long way to go yet before we can come close to arguing that the discovery problem has been fixed.  So the odds are against a worsening status quo not an improving one.

The ‘Listen’ Services

But at the opposite end of the Complexity Coefficient scale a very different picture emerges. Here we have services like Pandora, MusicQubed’s O2 Tracks and Nokia’s Mix Radio delivering highly programmed, lean-back music experiences for the mainstream users, where the music journey is shortest.  Whereas Access services give the user access to all the music in the world, Listen service take the user straight to the music that matters.  One leads the user up the garden path, the other just opens the front door.

But there is an overriding monetization issue at the lower end of the Complexity Coefficient: most of these services predominately generate revenue via advertising.  The majority of Nokia Mix Radio’s and Pandora’s users are on free tiers.  O2 Tracks is the exception, with users paying for all tiers of access (other than a free trial).

In many ways the Access services are taking a TV broadcaster approach to discovery: they are trying to encourage users to discover as much new content as possible, to send the user on a rich journey of serendipitous discovery.  The Listen services however are focused squarely on delivering a smaller selection of music the user is most likely to like, and keeping firmly within those parameters. To an aficionado the Listen service approach may feel restrictive and limited, but to a mainstream music consumer it fits their exact needs.  But what is clear is that music services at the lower end of the Complexity Coefficient scale are going to be crucial for pushing digital music towards the mainstream.  Welcome to the age of the ‘Listen’ service?