It’s Windowing Jim, But Not As We Know It

Back in 2009 I wrote a report for Forrester Research entitled ‘Music Release Windows: The Product Innovation That The Music Industry Can’t Do Without’ (you can read the summary blog post here, and the ‘money’ graphic is here).  In the report I proposed that the music industry should adopt three release windows based around a ‘Preview’ window for premium customers, a ‘Mainstream Pay’ window for CDs and downloads and a ‘Free to Air’ window for ad supported streaming.  With all of the brouhaha surrounding the Atoms for Peace withdrawal from Spotify, release windows, and the role of streaming services more widely, are very much back centre stage.  But whereas I strongly believe in the case for release windows, I believe that, as per my 2009 report, that paid subscriptions should be in the first window, not the last.  It is free-to-consumer, ad supported streaming that needs to be pushed to the back of the queue and it is high time that the windowing and streaming debate in general makes a clear distinction between the two very different propositions.

Subscription Service Hold Outs Actually Hit the Best Fans Hardest

Music fans that pay 9.99 for a Rhapsody, Spotify, Deezer or Rdio subscription are among the globe’s most valuable music consumers.  These music fans need treating as such, almost regardless of the business models that may surround their consumption points of choice.  It is not their fault that the music industry and tech sector contrived to construct business models that have propagated doubt and division among many of the industry’s key stakeholders.   This is not to dismiss the absolutely crucial issues of sustainability and equitability, but instead to raise the issue of who is paying most the price of windowing?  The services or the fans?  There isn’t a clear-cut answer, and the decision dynamics are analogous to those of applying economic sanctions on a nation state.

Delay Releases to Free Platforms, Not Paid Ones

But if we for the moment view the issue through the lens of the music fan, then it becomes abundantly clear that if a high value music fan deserves to be treated like a VIP then something analogous to the opposite is true for those consumers that choose not to pay for music.  This is the case for why the ad supported tiers of music subscription services, along with Pandora, the radio and YouTube should all be put into the last release window.  This is already how the movie industry behaves.  Now clearly this proposal is not without controversy.  The music industry’s entire discovery mechanisms revolve around putting the best content on free-to-air platforms first under the remit of promotion. But this proposal does not have to be the death knell for that approach, as long as the potential of digital platforms are properly harnessed:

• Think of subscription services as ecosystems not silos: There used to be a physical journey between the radio and the music store.  Now in subscription services discovery and consumption are symbiotically joined. This means that the radio promotion approach can be played out in subscription services and in doing so reach the most valuable customers based on their music preferences. Thus when the radio window hits weeks later it will be targeting a largely distinct group of consumers for whom it will still be the first time they have heard the music.  And for those that are subscribers and radio listeners, the few weeks delay may prod them into reengaging with the album they first heard on their subscription service.
• Window albums not singles: Singles are invaluable tools for promoting albums and tours.  There is less need to apply windows to singles, or rather to the lead singles from the album.  To protect the value of the premium release window though, it is important that only one single hits the free to air channels before the album hits the first window. Else the impression is given of too much content being too widely available elsewhere.
• Combat scarcity with new products: Of course the biggest challenge to windowing is the lack of scarcity i.e. what’s the point in turning off the tap if its available elsewhere?  There are two answers to this 1) by ensuring content is available first only on the premium platforms, the availability of content on free platforms is markedly reduced (radio and YouTube account for the VAST MAJORITY of music listening, P2P is in decline) 2) more has to be added to the premium music products to make the windowed content act as a complement to a rich, curated product experience not available elsewhere.  Two examples of how to do this are artist subscriptions and D.I.S.C. products.

Holding Back from Paid Subscription Tiers Can Be a Missed Opportunity

It is still too early in the emergence of widespread streaming adoption to draw definitive conclusions about the impact of windowing but there is a growing body of useful evidence.  Spotify’s Will Page this week released a report that brings some invaluable evidence and analysis (you can read the report here). Although Will is obviously on Spotify’s pay roll and Spotify clearly have an agenda to push, Will is a diligently objective economist with an impressive track record at the UK’s PRS for Music, and his work should not be dismissed on the grounds of assumed bias.  In the report Will pulls data from Spotify for streams, GfK for sales and Musicmetric to compare the performance of albums across all three channels for windowed and non-windowed albums.  The broad conclusions on the sample of albums tracked is that non-windowed albums did not appear to lose sales  but that windowed albums had much higher piracy rates.  Significant caution is required when interpreting this type of analysis, principally because it is impossible to definitively identify causal relationships e.g. the marketing strategy of one artist might tend towards piracy activity than another, as might the geographical location of the artist and the global distribution strategy.  But even with these caveats, the report presents some solid directional data. The market needs much more data like this and I will be adding to the data pool later this summer with a white paper that I’ve been working on for some months now.

Windowing Doesn’t Solve the Streaming Debate, But It’s Not Meant Too

Windowing does not address most of the broader issues that currently surround streaming.  It can however be an important part of the equation if, and only if, it is done on the basis of distinguishing between free-to-air streaming and paid streaming.  Though not quite as distinct as an iTunes download is from a Torrent download, the parallel is nonetheless provides useful context.  This is not to discredit the huge value of radio, YouTube and Vevo in driving music discovery, nor the equally strong value of freemium service free tiers in acquiring customers.  This is not a proposal to remove content from free-to-air channels, but instead one to simply not put everything there straight away. As the music discovery journey and consumption destination become ever more entwined, it is time to think long and hard about just how much leg needs to be shown to make a fan fall in love with an artist’s music.

The Innovation Files. Part 1: Rates Of Innovation

[This is the first in a series of posts addressing innovation within the music industry.]

Innovation is a much overused and often misused term, yet when considered in its truest sense it is arguably the single most important issue that the music industry must address if it is ever going to rediscover long term, sustainable revenue growth.

Of course the modern day music industry is a complex and diverse collection of entities with equally disparate innovation trends, not however starting from a base of zero, despite what some may think.

Indeed, we all do innovation.  Even the least innovative of companies do some form of innovation, at some level, at some pace.

The three metrics which determine whether a company is in balance innovative or not are:

1. Degree of innovation pursued
2. Culture of innovation supported
3. Rate of innovation achieved

Performing strongly on all three of these Innovation Performance Indicators (IPI) IPIs will not guarantee a company success (external factors such as consumer demand, marketing, finance will all help determine that).  But excelling at all three IPI’s will ensure that a company has the frameworks for creating product strategies that have the agility and adaptability necessary for success.

The major record labels have been much maligned for not having performed strongly enough across all three IPIs but in recent years they have upped their respective games markedly.  However innovation comes less naturally to some companies than others.  Record labels are like most media businesses in that they have traditionally relied upon channel partners to drive transformational innovation.  The compact cassette, the DVD, BluRay, HDTV, PVRs, Ring Tones, Games Consoles etc. all transformed media business models for ever, but they were shaped by technology companies not media companies.

Apple’s sub-par rate of music service innovation

And this is where the elephant in the room raises its hand.er…trunk: Apple’s sub-par rate of music service innovation is probably the single most important reason why digital music growth has slowed in the last couple of years.   Before you begin thinking I’m losing my mind, let’s be clear, I am not questioning Apple’s innovation credentials, indeed they are the marketplace exemplar, instead, and specifically, their music service innovation performance.  In fact it is exactly the exceptionally high bar set by Apple’s rate of device innovation which throws their rate of music service innovation into stark contrast (see figure).

In this chart each product innovation (or set of product innovations) has been given a score using the scale described in the key.  What is abundantly clear is that Apple’s rate of device innovation has consistently far outpaced its rate of music service innovation, which in turn has also significantly lagged the total market rate of music service innovation.  Apple’s overall rate of innovation has accelerated in recent years driven by the launch of the iPhone and iPad, but interestingly, also by a upturn in music service innovation with new products such as Genius and Ping.

Because Apple is the majority of the online digital music market, the impacts of its rate of music service innovation are felt market, and indeed industry, wide.  When Apple shifted its attentions from music to video and apps – which better demonstrate the capabilities of their devices than audio files – digital music growth began its now established slowdown.  Apple didn’t fall into this position accidentally, it was a series of orchestrated strategic decisions.

Dominant as it may be, market share is not the measure of success for Apple’s music innovation 

As I explained in a previous post, Apple is in the business of selling hardware, not music.   The ROI of music service innovation for Apple is not measured in digital music ARPU, but instead in sales of i-devices.  Dominant market share is a nice-to-have symptom of success, not the measure of it.  So Apple innovates music experiences only as much as it needs to, namely as much as is required to help sell its core innovations.  Apple’s recent mini-flurry of music service innovation happened only because its music innovation rate had fallen so far below the market average that the Apple i-device music experience was beginning to look sub-par.  i.e. there was a risk that i-device sales might suffer without music service innovation.

The music industry needs Apple to start taking music service innovation seriously again because Apple has as its customers the majority of the digital music market’s most valuable customers.  The music industry needs iCloud to be one of a series of near-term music service innovations that are transformational in collective impact, rather than it being a solitary sustaining-innovation that does just enough to keep the i-device music experience sufficiently strong to continue to help drive sales.  And the rest of the market also needs Apple to start playing a more active role because Apple’s innovations drive entire markets, dragging the competition along by the scruff of the neck.  As they say, a high tide rises all boats.

Innovation must engage the untapped market not just re-engage the aficionados

And speaking of competition, the music industry also needs the other two members of Digital Music’s Triple A – i.e. Amazon and Android (Apple makes the third) – to up the innovation ante and play their role – as part of the uber-financed-trinity  – to start pulling new customers into the digital market rather than competing for the same early adopter aficionados.

The rate of consumer device innovation is outpacing that of music services, and that will always be the case but that gap needs narrowing, fast.  That quickness depends upon Apple narrowing the gap between its respective rates of innovation, and the record labels are going to need to give Apple incentive to do so.  They have not always been the most accommodating of innovation partners for Apple (remember when they licensed MP3 downloads to anyone who wasn’t called Apple?) but unless that approach changes they cannot expect Apple’s rate of music service innovation to change either.