Streaming’s First Steps into 2014

2013 was a big year for streaming, with the IFPI reporting total trade revenues of $1.1 billion and a total of 28 million subscribers globally.  2014 will be a crucial year and today Rhapsody revealed its contribution to the growing global picture.

As of April 2014 there are 1.7 million global subscribers to Napster and Rhapsody, up from a little over 1 million in April 2013.  Those numbers were boosted in part by the transition of Sonora customers in Latin America from Rhapsody’s October deal with Telefonica in which the Spanish telco reported would amount to the transition of ‘hundreds of thousands of existing customers’. 

Digital Colonialism

Latin America is undergoing something of a digital gold rush with European and US companies seeking to ‘colonize’ the digital market like modern day conquistadors.  It is a real pity that more is not being done by indigenous services. ‘Digital colonialism’ aside, Rhapsody’s Lat Am focus is part of a wider recognition of the importance of emerging markets to the longer term viability of the digital market.  How these markets adopt digital will play an increasingly influential role in shaping global strategy.  In some markets the download will have a long term transition technology role, acting as the digital stepping stone between the CD and access based models.  In others, there will be a technology leapfrog effect with consumers going straight to access based models, in a similar way that many consumers in emerging markets skipped the PC web entirely and went straight to the mobile web.

Super Cheap Flat Rate Access

What is clear though, is that the available spending power of emerging market consumers is far lower than in US, Europe and especially than in the prosperous Nordics.  So the 9.99 model simply doesn’t apply.  Labels are already heavily discounting wholesale rates for emerging markets but the likelihood is that the majority of customers will be monetized with hard bundles, with the consumer paying nothing.  This is a different model from telco bundles in western markets where telcos invest heavily as strategic marketing efforts (and typically lose money).  Instead, emerging market bundles will be long term offers, a permanent feature of mobile packages.  Telcos pay far less to labels but get much bigger scale.  The risk of heavily devaluing music is moot, as in the territories this model works in, music already has zero value to consumers as a monetary proposition.

Scale Does Not Impact Everyone in the Same Way

Back over in the western world, where the vast majority of streaming revenues currently are  (c. 90% to be precise), some of the initial sheen is beginning to fade.  Beggars Group have long been positive exponents of the streaming model and have rightly earned plaudits for paying artists 50/50 net receipt deals. However last night Beggars’ head of strategy Simon Wheeler intimated that those rates may not be sustainable.  The main reason is that streaming is such a key part of digital revenues now that the 50/50 share damages under-pressure margins.  But it is also because of the operational costs of streaming for a label (vast quantities of data to account – ‘billions of lines of data’, bandwidth costs etc.).  This highlights an issue I have been talking about for a while, namely that the great bright hope of scale (i.e. ‘when we reach scale, streaming will make commercial sense to everyone’) does not apply equally across the digital music value chain.  If you are a big label or publisher with a big catalogue of repertoire you will measure the impact of a million new subscribers in terms of millions of new dollars each month.  Scale benefits you well.  But if you are a single artist with just a few albums you will measure the impact of that same 1 million new subscribers in terms of hundreds of dollars a month.  Beggars Group sits somewhere in the middle of that scale-impact continuum.

The counter balancing of good news story / bad news story is nothing new to streaming, and it will continue to characterize the evolution of the market in 2014.  The shift from distribution models to consumption models is arguably the most dramatic transition the recorded music industry has ever been through, and consequently the change will have seismic repercussions.  Streaming revenue will come of age in 2014, but as it does so expect more speed bumps along the way.

New Report: Building the New Business Case for Bundled Music Services

Today MIDiA Consulting is proud to announce the release of a white paper commissioned by Universal Music entitled “Building the New Business Case for Bundled Music Services”.  The report, written by myself and MIDiA Consulting co-founder Keith Jopling, provides an unprecedented analysis of telco music services, taking a critical look at what has and had not worked to date and a series of models and recommendations for the future.  We interviewed a host of telco music executives to get a deep understanding of what telcos need out of music services to make them a success and combined this insight with data from consumer surveys and music service trials as well as case studies and best practices.  We think it is pretty much the definitive piece of work on the topic (!) and we invite you to download it here: Building the New Business Case for Bundled Music Services – FULL REPORT.  You can also download an executive summary version of the report here: Building the New Business Case for Bundled Music Services – EXECUTIVE SUMMARY.

Here are some of the key findings of the report.

The consumer shift from downloads to streaming is the most important digital music market trend since the advent of the iTunes Music Store.  Before streaming services telcos struggled to find a way in which they could compete in a market dominated by Apple, restricted to selling DRM locked downloads that of course would not play on Apple devices.  Subscription services changed all of that, with the leading streaming services all pursuing robust telco partnership strategies as well as a number of download subscription services.  There are now nearly 50 telco music service partnerships live in six regions across the globe.  With 40% of streaming consumers now paying to stream, generating $1.2 billion in trade revenue in 2012 the opportunity is clear.

Music Bundles Across the Globe

However it is clear that many of the hurdles that telcos faced in the last decade continue to pose challenges.  These include music not being a priority for many telcos, internal business casing getting in the way of building compelling services and the wrong success metrics being used.

The new success stories of telco music services are those that make music a strategic priority.  This is not some sop to the record labels, but a reflection of what it takes to make music strategy a success. If a telco just adds music to a long list of Value Added Services (VAS) it will wither on the vine.  But if a telco puts a music service front and centre and positions around it then success is far more likely.  Success stories that have followed this approach include Telia Sonera’s hard bundle with Spotify in Sweden and Cricket Wireless’ Muve Music in the US.

Streaming by the Numbers

The Role of Promotional Offers

For all the obvious synergies of telco music bundles there is a real danger that hard bundles that make music subscriptions free or feel like free to the end user run the risk of devaluing the proposition.  Yet it is also clear that consumers need to be able to ‘suck it and see’ before subscribing so promotional free trials and limited period bundles present a strong balance of value to the consumer, cost effectiveness to the telco and protecting the integral value of music for artists and labels.  The market data for free trial is compelling: half of one month trialists convert to a paid subscription at the end of the promotional offer period.

Customer Satisfaction, the New Music Service Opportunity

An entirely new aspect to music bundling that we dive into in the report is the role of music subscriptions in driving customer satisfaction across a telco’s wider business.  Even the most edgy, cleverly positioned challenger telco is ultimately a provider of important products but not usually a consumer passion point.  Music though has that brand passion secret sauce and partnering with the right music service can enhance the telco’s own brand and customer sentiment.  Smart integration of music into the customer journey and integration with customer satisfaction measurement tools, particularly Net Promoter Score (NPS) can enable telcos to create a customer satisfaction halo effect.  With music converting satisfied music subscription customers into highly vocal net promoters with satisfaction benefits felt across the full range of a telco’s services.

Bundled music services did not get off to the best of starts, but now their time has come, giving telcos the opportunity to assume centre stage in the digital music marketplace.

For more information on the research please feel free to email us at info AT midiaconsulting DOT COM.

About MIDiA Consulting

Midia ConsultingMIDiA Consulting is a boutique, media industry focused consultancy that delivers practical, results-driven outcomes.  MIDiA stands for Media Insights & Decisions in Action. Our mission is to help media and technology companies develop purposeful strategies quickly through market understanding, clarity of vision, and workable innovation.

We help media and technology companies make sense of the changes that digital market forces are bringing about. And we help them make profits from digital content.

http://www.midiaconsulting.com

info@midiaconsulting.com

Assessing the Impact of Streaming on Total Music Revenue Growth

[My summer blogging hiatus is herewith over]

The Dutch music industry trade body the NVPI has announced that recorded music revenues were up by 1.9% in the first half of 2013.  This follows first half rises for Norway (17%), Sweden (12%) and Germany (1.5%) which in turns comes on the heels of full year growth in 2012 for markets such as Brazil, Sweden and Norway (all markets with strong subscriptions and ad supported sectors).  This is undoubtedly positive news and indicative of the proverbial corner being turned. However it is still too early to draw definitive conclusions about the impact of streaming on music revenue (and let’s stop calling it ‘sales’, a tag that hardly fits on-demand subscriptions).

Music revenues have been in decline for so long that sooner or later the bottom has to be reached, else the market would diminish into obscurity.  We are now somewhere close to that bottom but we need to be careful not to read too much into 1st half sales. Music revenue is heavily concentrated into the last quarter of the year due to festive period gifting.  But gifting is becoming increasingly eaten away at by digital for many reasons, not least of which is that gifting an iTunes voucher just isn’t the same as actually giving an album.  So if digital is able to sustain growth across growth markets for a second successive year then we can start talking about the sustained revenue growth potential of streaming.

Even if that growth is sustained though, another speed bump is on its way: the post-CD revenue collapse.  The CD is still by far the world’s biggest music revenue source. If you strip out the US and UK, digital accounted for just one qyarter of global music sales in 2012.  Viewing the music world through the Anglo-American lens can give a distorted view of things.  In Japan, the world’s second biggest music market, physical accounts for 80% of revenue, in Germany, the fourth largest, it is 75%.  Currently the trend in most markets is that many CD buyers are simply falling out of the habit of buying music rather than going digital.  If that trend continues for a sizeable chunk of the music buyers that currently account for three quarters of non-US and UK music spend, then a big dip in revenues should be anticipated.

Streaming's Impact on Music Revenue

The fate of the CD is of course largely out of the hands of streaming services, but is nonetheless highly correlated. Streaming has taken root most quickly in the markets where the CD has already hit rock bottom.  There are clear-cut cases of streaming helping tip these markets into growth but there are also plenty of markets with strong streaming where total market growth has not yet arrived (see figure).  In some instances the scale of the decline of the CD market is just too big for digital to do anything about.

What is clear from this sample of markets though is that there is a large concentration of low streaming / low growth markets and very few low streaming / high growth markets.  Where streaming has a low market share, revenue growth is usually negative.  This does not necessarily indicate cause and effect but the correlation is nonetheless fairly compelling.

So some preliminary conclusions that emerge are:

 

  • In markets where CD growth is slowing (often because the majority of the initial contraction period is over) streaming can tip markets into growth
  • In markets with comparatively strong CD sales and / or download sales, total revenue is less likely to grow
  • As we near the end of this first main phase of CD revenue decline, streaming’s contribution to digital will increasingly be enough to tilt markets back into modest growth

So while it is too early to say that streaming is saving music revenues, we are seeing the first signs that in markets with the right conditions, it can be enough to tip the balance.

 

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.

Why Rhapsody Needs More Than Just Napster To Flourish

Rhapsody yesterday announced the acquisition of long term rival Napster from US retailer Best Buy.  Rhapsody will retire the Napster brand and migrate the customer base over to its own service, with Best Buy gaining a minority stake in Rhapsody. It is a somewhat poignant end to one of digital music’s old guard, going out with a whimper rather than a bang.

The acquisition will give Rhapsody an important boost in scale at a pivotal time, namely as Spotify aggressively grows its US subscription business and simultaneously disrupts the entire market with its introduction of free on-demand music to the US market (a ship which of course MOG and Rdio are also busy jumping on).

When 2+2=2.5

In the near-term the Napster acquisition will put more clear water between Rhapsody’s subscriber count and Spotify’s.  It should also grant Rhapsody membership of the the ‘1 Million Club’, with its 800,000 subscribers swelled by a few hundred thousand from Napster.  The last time Napster reported their numbers in December 2008 they had 700,000 subscribers.   After three years in the Best Buy wilderness and shifts towards bundled download products I estimate there to be no more than 400,000 fully fledged subscribers left, probably more like 300,000.

But Rhapsody will be keenly aware that even keeping hold of just 300,000 subscribers will be no mean feat. They will remember keenly the 2008 acquisition of Yahoo! Music’s 400,000 subscribers and their rapid disappearance into the ether.  Napster will also recall the similar magical disappearing trick of the 350,000 AOL Music Now subscribers they acquired in December 2007 for $43 per subscriber.  In the business of acquiring music subscribers 2+2 too often = 2.5.

Rhapsody’s President Jon Irwin said of the acquisition that “scale is extremely important in this business.”  He is of course entirely correct.  Rights fees leave little in the way of margins.  For sake of full disclosure I’ve been a very long term fan of Rhapsody, right since their earliest days. It was partly our experiences of Rhapsody that led myself and my former colleague David Card to be so bullish about music subscriptions when we were helping build the Jupiter Research digital music forecasts.  But the time has come for Rhapsody not just to change but to drive change.

The digital music market is a different world from that Rhapsody was built for.  Unless Rhapsody wants to be limited to spending the next year or two simply trying to stay one subscriber ahead of Spotify it needs to overhaul its product roadmap.

Rhapsody needs unlimited MP3, now!

I’ve long advocated that if the record labels really want to ensure the extant premium subscription services don’t become extinct that they must empower them with dramatically more powerful licenses: namely unlimited MP3.  Of course it will be a good year or two more of global music revenue decline before the labels hurt enough to really countenance unlimited MP3, but Rhapsody needs it now.

So what can Rhapsody do in the meantime?  Well they’ve already got great discovery and editorial etc. so it is not really the experience they need to fix, rather the entire value proposition.  They need to ask themselves ‘what do we want to mean to consumers in the Spotify age?  What can makes us dramatically and unmistakeably different?’  Unless they can really address this fundamental question Rhapsody will face the very real prospect ending up looking like Spotify’s stuffy old uncle, which would be a criminal insult for the Grand Old Lady of digital music.

Making Freemium Pay: An Artist’s Perspective

With the much anticipated US launch of Spotify and the successful IPO of Pandora there’s a very palpable sense of momentum in streaming music.  And that’s great news, the future of music revenues will depend upon a successful transition from distribution based models (downloads, CDs etc) to consumption-era models (on-demand streaming etc.).  Yet, there’s a growing sense that the current Freemium business model just isn’t fit for purpose.

I’ve written before about the challenges of squaring the consumption circle (see my post here for more).  There is a direct tension arising from record labels feeling they don’t get enough from ad-supported music, and from the services themselves feeling that they actually pay too.  To complicate matters even further, it is becoming increasingly apparent that artists aren’t getting enough out of ad-supported music either.

Slicing the Digital Income Pie

Singer / songwriter Benji Rogers of Marwood (and who also happens to be the founder of the great direct-to-fan funding music site Pledge Music) generously offered to share his digital revenue data to illustrate how his income spreads between different music services.

Looking at Benji’s digital music revenue for March and April (see figure 1) the glaring disparity between download stores and streaming services is immediately apparent.  In terms of units of activity (i.e. a stream or a paid download) streaming services are way out in front, with 92% of total units for the period, yet in revenue terms the relationship is reversed, with them accounting for just 3% of total income.  (You can read more about Benji’s digital music income here).

Now of course streaming based services are always going to generate a significantly lower unit of income than a download, but the inverse income-to-unit relationship here is misaligned to the extreme.

What Happens If / When Downloads Go Away?

The other side of this equation is the vastly important role that downloads play in artists’ recorded music income. The download revenue is effectively bringing the income dynamics of the old CD model into the digital equation.

But there is also massive risk with the download dependency.  Download sales growth is slowing and there is little evidence that the 99 cents download model translates well outside of the iTunes ecosystem.  Worse still, the current momentum in digital music business models and behaviour is in streaming not downloads.  Take a look around: Amazon, Google and of course Apple have all jumped on the locker bandwagon.  And as Benji’s data illustrates painfully well, streaming is where consumers are going too.  While downloads may not disappear entirely, their role is set to lessen markedly in the midterm future and most of the alternatives in play from the big three players generate much lower income for artists.

Premium, Ad Supported, Freemium…Streaming Just Isn’t Adding Up for Artists

And to be clear, this isn’t just a problem with Freemium.  Streaming services as a whole just aren’t delivering enough income for artists.  Spotify is much maligned for the raw deal it is perceived to give artists, yet when you look at the average-pay-per stream Spotify actually pays out more than that darling of premium services Rhapsody (see figure 2) despite the majority of Spotify’s streams being ad supported rather than premium (something feels broken there).

The simple fact is that the disparity between paid downloads and streaming is unsustainable.   It just isn’t tenable that 3 paid downloads from Amazon can still deliver 50% more revenue than all the streaming services combined over the same period and yet have less than 1% the activity level of those services.

Is Freemium No Longer Fit for Purpose?

No one in the Freemium value chain thinks that they’re getting enough income: not labels, not publishers, not artists, not the services themselves. It looks increasingly like the Freemium model itself is fundamentally flawed, that any fix will do little more than paper over the cracks.  And the new wave of locker services are only marginally better.  They share the same fundamental revenue share dynamics when compared to download income (for all parties).

So what is the answer?   As I said in my June Midem post (click here to read more), first and foremost business models and products must be innovated.  There simply aren’t enough levers left to pull in the ad supported streaming business models to fix the problem.  That doesn’t mean that services such as Spotify, Pandora and We7 don’t have a future, they absolutely do, but their future lies in successfully bringing in business partners to subsidize  premium tiers of their businesses to make music feel-like-free or close-to-free for  mainstream customers (see my previous post on Digital Music’s Third Way for more on this).  Spotify’s US launch will bring a great new music experience to US music fans, but Spotify will need partnerships like it has struck with Virgin Media, 3 and Telia Sonera in Europe if it is going to be sustainable.

But most importantly we need a new generation of music products that leverage social, user participation, access models, multimedia and device connectivity to the full.

Ad supported streaming can evolve, it doesn’t need to be the Neanderthal of digital music’s evolutionary chain, but unless evolution happens quickly there is a very real risk that many artists will start seeing their recorded music careers face extinction. 

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]
Mark Mulligan[Posted by Mark Mulligan]

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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.

Why Napster’s New Pricing Strategy is More than Just Price Cuts

Napster has overhauled its pricing strategy in the US, selling pre-stored value cards in retail stores. It’s being widely reported as ‘Napster slashing prices’ but it’s more than just that.  The key things of note here are:

  • It shifts the consumer focus onto downloads: each card has a pre-stored value for MP3 downloads as the headline.  Unlimited streaming is the sub head.
  • It targets iPod owners: MP3 downloads and easy synching make iPod owners a core target
  • It lowers barrier to entry to subscriptions: by using a Pay As You Go solution Napster makes subscriptions more attainable to more consumers, even if they are sneaking them in through the back door
  • It tacitly acknowledges the dire state of premium subscriptions: the focus on MP3s moves the focus away from the subscription business, but the latter is still Napster’s core business.  To really thrive in the imeem and Spotify age they need to be unlimited MP3

This is an innovative move by Napster, and should widen their market appeal, but I can’t help but feel that it is almost embarrassed of its core value proposition (on demand streaming).  Positioning the streaming component as a freebie with MP3 tracks will weaken perceived value.  They’ll need to be careful with their positioning, or risk further weakening their ability to sell their core product, unless of course they can fire the silver bullet of unlimited MP3s.

100% MP3, 100% Late (though hopefully not too late)

Oh the sweet irony – back in the days of the original Napster the major record labels refused to countenance that MP3 was the new format of choice for the digital generation and refused to license content for distribution via MP3.  Now ten years on we have the”MP3 100% Compatible” logo / campaign from seven of the UK’s digital music stores, with full support of the music industry.

 

Don’t get me wrong, I think it’s a solid enough idea (even though it will mean little without Apple on board) but it’s tragically ironic that it’s taken the music industry so long to come around to this way of thinking.

Datz Music Lounge: What it Means for Apple

Datz Music Lounge hit the newswires today.  There’s plenty of skepticism about it but I’d advise not to get too hung up on the caveats (i.e. that it only has a couple of the majors, won’t include many new releases and requires a 100 quid up front payment).  This is as big a deal as Nokia’s Comes With Music and MySpace Music.  Why?  Because it changes the rules of engagement for digital music subscriptions.  This is the first unlimited DRM-free music subscription service.  Sure, it requires a hefty up front fee but they need to protect against misuse.  Also, more new release catalogue will get on there over time.  The major labels are, understandably, approaching this with some caution and are trying to do their best to minimize cannibalization of CD sales and Napster and Rhapsody.  

 

There’s a decent argument that both those battles are lost.  OK, CDs will be with us for a while yet, but Napster and Rhapsody simply don’t have a future in their current guises alongside CWM and Datz.  They need to change their game plans, and quick.

 

And, of course, the rumour mill has it that Apple are edging towards a launching a subscription service of some kind.  What does this mean for them? Given their current relationships with the record labels it’s pretty safe to assume that they didn’t have any inside information from the labels on the Datz licensing terms or business model.  So they may well find themselves in the far form ideal position of being in advanced stages of developing a service which will not stand up against Datz on paper.  But don’t get too worried for Apple, their far superior marketing skills (and budgets), coupled with their market leading product development and the ace of hardware integration will see them good.  

All in all, though, Datz just turned the page on the next chapter of music subscriptions.  A chapter that could be so significant as to make the market up to this stage look like little more than a preface.