Why The Next Few Months Of Apple Music Will Throw Up A Few Surprises

Finally Apple is in the streaming game. Other than to say that it looks like Apple has made a big first step towards making streaming ‘ready for primetime’ and to becoming a music platform I’m not going to add to the list of reviews and first impressions, there are plenty of good one’s like Walt Mossberg’s.   Instead I’m going to run through a few of the likely milestones and unintended consequences that we could see over the coming months.

Expect Impressive Numbers Real Soon

As we revealed on our MIDiA Research report on Apple Music back in March 28% of iOS users stated they were likely to pay for the service. Among downloaders the rate is 39% and for existing subscribers that rate rises to 62%. Consumer surveys of course always over-report so we shouldn’t expect those rates of paid adoption but the relative values are interesting nonetheless. Given that 50% of existing subscribers are iOS users the implications are that a big chunk of Spotify et al’s subscribers will at the very least try out Apple’s 3 month trial, which is plenty enough time to get build a comprehensive library of playlists and to get hooked. But there is also going to be a big wave of downloaders that do not currently subscribe that will try it out. Given how the iOS 8.4 update virtually pushes iTunes Music users into starting the trial on updating, expect pretty widespread uptake of the trial.   Apple reached 11 million users for iTunes radio within 5 days of launch, 21 million within 3 months. Apple Music has had a far bigger build up and is much more deeply integrated into iOS so a fairly safe bet is that those numbers will at the very least be matched.

A Mixed Bag Of Royalty Implications

Apple Music will also have a series of aftershocks:

  • Apple royalties will be a mixed bag: As the ever insightful David Touve pointed out with iTunes Radio, Apple has proven adept at striking licensing deals that appear to pay above market rates at a headline level but that in practice can work out lower. A key reason for this is the fact iOS users’ existing music collections are integrated into the service and plays from these will generate much lower per stream rates, more in line with licensed locker services. Add into this the fact that semi-interactive radio and broadcast radio are part of the proposition (both of which also have lower per stream rates than on demand) so the blended per stream rate may disappoint. Expect a stream (pun intended) of irate artist CD Baby statements showing their Apple per stream rates.
  • Download sales will suffer: If a streaming service does its job properly users should have no reason to buy downloads any more. Initially there may be a mini surge, a dead cat bounce as first time streamers discover new music and buy downloads out of habit. If this happens expect Apple to make a song and dance about it. But that will be a temporary phase. iTunes downloads will decline thereafter. Artists may have complained about theoretical lost sales from Spotify, they will be actual lost sales from Apple. What everyone will be hoping for is that enough lower and infrequent spending download customers get transformed into 9.99 a month customers. But that will take more time. So expect three, possibly four key stages to Apple (lower case ‘m’) music revenue: 1 – mini revival; 2 – sharpish decline; 3 – steady recovery; 4 – growth?
  • Spotify per stream rates could go up: If enough existing subscribers take up the Apple Music trial but don’t cancel their subscriptions, the royalty pot for Spotify et al will remain the same but play volumes will decrease. This means that the per stream rates for Spotify and co could actually increase for a while because the revenue will be split across a smaller number of plays. So expect artists to see a very pronounced, albeit temporary, difference between what Spotify pays from (paid) streams versus Apple.

So Apple will be for once upsetting everyone else’s streaming apple cart with its long anticipated entrance but there will be a superficially confusing set of mixed messages and metrics. Which means the time to properly measure Apple Music’s progress will be 6 months or so from now. Until then expect to be simultaneously impressed, concerned and confused.

‘Awakening’ Now Available In Paperback

UnknownRegular readers will know that I recently published the Kindle version of my book “Awakening: The Music Industry In The Digital Age”.  Many of you have already bought it (thank you!) but some of you also wanted to know when the paperback edition was going to be available. Well you need wait no longer, you can buy the paperback version of ‘Awakening’ right now by clicking here.

If you are interested in the music industry then this is the book for you. Whether you are a label executive, music publisher, artist, songwriter, entrepreneur or simply interested in what you can learn from the music industry’s experience and want to know what the future holds then this is the book for you.

I wrote this book with three key objectives in mind:

1.    To provide the definitive account of the music industry in the digital era, as an antidote the distorted picture that is painted by the biased and often poorly informed extremes that dominate the industry narrative

2.    To help anyone in the music business better understand how the other parts of the industry work, what they think and what their priorities are

3.    To act as a primer for anyone wanting to build career or business in the music industry, so they know exactly what they’re getting in to, how the business works, the relationships, the conflicts and what’s been tried before.  I want to help people not waste energy making the same mistakes others have, and to also benefit from the insight and experiences of the super smart people I interviewed in the book

The book is full of data, analysis and interviews with more 50 interviews with the CEOs, senior decision makers, artists, managers, start up founders and other decision makers that have shaped the music industry over the last 15 years.  It includes chapters on every key part of the industry (labels, artists, songwriters, start ups, tech companies etc.) and is split into three sections:

  1. How We Got Here
  2. The Digital Era
  3. A Vision For The Future

This really is the only book you need to read on the music industry’s digital transition.  But don’t just take my word for it, check out these 5 Star Reviews:

“I really enjoyed this book. It gives a wide view to music industry, consumption tendencies and much other useful information. Is a must for all of the music industry professionals.”

“Great book on today’s digital music business – how we got here, who did what and most crucially why they did it. There’s no shortage of firmly held opinions and theories about the music industry and how it has navigated its digital transformation and Mulligan’s book is an essential analysis of what’s actually been going on. Insightful, non-judgemental and very well researched and informed, if you want to understand today’s digital music business, read this book.”

And if you’re still not convinced, take a read of the sample chapters on Amazon.  ‘Awakening’ is also available on iTunes and Google Play.

I hope you find the book as interesting to read as I did writing it.

Rdio Goes After The Squeezed Middle

Streaming monetization is polarized between premium subscriptions on one end and free streaming on the other. The middle ground that was the scale heartland of the CD and the download is disappearing and taking with it the mainstream consumer.  It is into this environment Rdio just announced a new $3.99 tier.

mind the gap

Mid priced subscription tiers are thin on the ground.  We have a couple in the UK (MTV Trax and O2 Tracks from MusicQubed, Blinkbox Music, now owned by Guevara) and a number of ad free radio offerings from Pandora, Rhapsody and Slacker.  It is a heavily underserved segment as the slide above shows.  The mainstream streaming subscription market is squeezed between premium and nothing.  The average music spend of a consumer is around $3 a month, so $9.99 subscriptions are far out of reach of most consumers.  $3.99 however is far, far closer to a realistic price point for the mass market.

Regular readers will know that I have been a long term advocate of lower priced subscriptions and micro-billing / Pay As You Go pricing models to entice the more mainstream user.  The labels have been super cautious because they are scared of cheaper services cannibalizing the premium tier.  The concern is a valid one but ultimately if a bunch of 9.99 users aren’t getting full value from an unlimited service they are going to bail out eventually anyway.  At least with mid priced subscriptions they have somewhere to land instead of disappearing straight to free streaming.

monetization pyramid

Currently streaming monetization is split between the top and the bottom of the monetization pyramid and this needs to change.  Rdio’s new Select tier gives users ad free radio plus 25 songs of their choice each day. That might not sound like a lot of tracks but for the majority of mass market music listeners that will be more than enough.  In fact in some respects it could almost be too much.  What matters for the mass market listener is less the number of tracks and more how the tracks they like are surfaced to them.  Curation is a much-overused term these days, but expert curation and programming is crucial to engaging the mainstream.  Radio is still so popular because most mainstream consumers are lean back customers that want to be led on a music journey not to have to hack their way through the musical undergrowth themselves.

Monetizing The Revenue No-Man’s Land

The leap from zero to 9.99 is far too big and Rdio Select is an important step towards monetizing the revenue no-man’s land between free and premium.  Of course zero to anything is still a major hurdle but the success of iTunes (250 million global buyers) shows us once you make the first step small enough, consumers will follow.  The simple fact is that the streaming market will not be sustainable without the mainstream engaged as paying customers on the same sort of scale that was achieved with downloads.  An even simpler fact is that 9.99 will not achieve that end.

The Streaming Maturation Effect

What do Netflix and music subscriptions have in common?  They both experienced slowing growth in 2014 in the US.  Subscriptions are the monetization focal point of streaming but there have long been signs that the market opportunity is far short of the mainstream. Reports suggest that Spotify may (finally) be about to launch video, as a means of differentiating in an increasingly competitive marketplace that is about to get a whole lot more competitive on the 9th of June (i.e. when Apple announces its long mooted arrival into the space).  Spotify needs a differentiation point.  It may be the runaway market leader but it doesn’t have the feature badge of identity that many of its competitors do (e.g. Rdio is the social discovery service. TIDAL is the high def service. Beats is the curation service etc.).  However, even with a feature differentiation point, Spotify and all of its subscription peers face a more substantial challenge than competing with each other: they are collectively in danger of banging their heads on the ceiling of demand for music subscriptions.

Behaviours Will Change, But Slowly

The world is unequivocally moving from ownership to access and streaming will be a central component of this new consumption and distribution paradigm.  9.99 subscriptions however have no such mainstream inevitability.  They are too expensive for most consumers but most crucially they require consumers to pay for music every month when most people instead spend when one of their favourite artists is in cycle with a new album, single or tour.  Over time (a half generation or so) some consumers will have their behaviours modified, but the majority will not.  In some sophisticated markets (such as South Korea, the Nordics and, to some degree, the Netherlands) subscriptions are showing some sign of edging towards a wider audience (though still far short of mainstream).  In most major music markets though, they remain firmly locked in single digital percentage adoption ranges. They are niche services for the high spending aficionados.

maturation effect

But this isn’t solely a music subscription problem.  It is a dynamic of digital subscriptions more broadly.  Take a look at the US. In 2014 net new subscribers (i.e. the amount of subscribers by which the market grew) fell to 1.5 million, down from 2.8 million in 2013 – which translated to a 46% decline in net adds.  And that was in one of the highest profile years yet for subscriptions.  Over the same time period, Netflix’s net new US subscriber growth fell from 6.4 million to 5.7 million, which was a more modest 11% decline in net adds.

This is not to say either business model has run its course – far from it, and of course both sectors still gee in 2014 – but instead that premium subscriptions are not mass market value propositions. And once you have mopped up your early adopters and early followers growth inherently slows.  The music industry may be locked in an identity crisis over how it deals with freemium services, but it needs to have a realistic understanding of just how far subscription services can go without lower price tiers and more ability for users to easily dip in and out and, ideally, pay as they go rather than being tied to monthly commitments.

The incessant success of YouTube and Soundcloud show us that mainstream consumers want on-demand music experiences but the slow down of subscriber growth in the US shows us that the incumbent model only has a certain amount of potential. Sure, Apple will doubtlessly unlock a further tier of early followers to meaningfully grow the market, but it will only be a matter of time before it hits the same speed bumps.

Access based models are the mainstream future, subscriptions can be too, premium subscriptions though are not.

My New Book – Awakening: The Music Industry In the Digital Age

I am very excited to announce the launch of my book ‘Awakening’ which charts the rise of digital music and how it is changing the music industry. ‘Awakening’ is the definitive account of the music industry in the digital era. With exclusive interviews with the people who shaped today’s industry it tells the inside story of how the music business grappled with the emergence of an entirely new digital economy

coverThe music industry is on the brink of an utterly transformative period of change that will result in the creation of an entirely new industry tailor made for the digital era. ‘Awakening’ presents the vision of how and why this change will come, what this future will look like and how the first steps on the journey are already being taken. The book includes interviews with 60 of the music industry’s leading figures, including globally successful artists and more than 20 CEOs (a full list of interviewees can be found at the bottom of the page). Alongside the insight from this unprecedented executive access, ‘Awakening’ uses exclusive consumer data, official market statistics, proprietary models and multiple additional data sources. In doing so it constructs an unparalleled picture of the new global music economy presented across 60 charts and figures.

All good stories start in the beginning. ‘Awakening’ deconstructs the failed state experience of the analogue era music industry with the definitive account of the music industry’s transition from booming $28 billion powerhouse to today’s much humbled $15 billion business. Music fans used to be told what to listen to when, where and how. In the new music industry the balance of power lies with the fans with themselves. The old music industry had the record labels at its centre, the new digital era industry will have the consumer at its core. The change will be generation defining and will transform forever what it means to be an artist and a fan. Livelihoods will be destroyed, others created, millionaires made, culture transformed. The change is already underway. ‘Awakening’ looks at each individual component of the music industry today and looks at each one is dealing with change and preparing for the future. From the superstar artist to the small independent label, from the pirate company CEO to the major label CEO, in the book I explore the incredibly varied picture of confusion and innovation, uncertainty and brilliance, fear and confidence. Most of all it is the story of a rebuilding, an Awakening of the new music industry.

The book has three sections:

  • How We Got Here: A detailed history of the years up until the launch of the iTunes Music Store, exploring how Napster changed the music industry forever and how the industry responded, or rather didn’t
  • The Digital Era: This section has 7 chapters, one for each of the key stakeholders (labels, artists, songwriters, pirates etc) and explores what the current market means to each of them
  • A Vision For The Future: A vision for what the next music industry will look like and what needs to happen to enable this to take place

I was extremely fortunate to interview many of the most important figures in the music industry of the last 15 years, including CEOs of major record labels, CEOs of all the major streaming services and platinum selling artists. I’ve managed to get the inside track on exactly what was happening behind the scenes.  I personally learned a huge amount while writing this book and I am confident virtually every reader will do so too.

In short, once you have read this book you will know practically everything that there is to know about the digital music market and where it is heading!

For anyone interested in the music industry and the lessons it provides for all media and technology businesses in the digital era, this is the only book you will ever need.

The book is available now on Amazon and iTunes and Google Play.

Also 10% of net profits will go to the music therapy charity the Nordoff Robins trust.

If you are a journalist and would like a review copy please email me at mark AT midiaresearch DOT COM

People interviewed for this book

Adam Kidron             Founder and CEO, Beyond Oblivion
Alexander Ljung         Founder and CEO, Soundcloud
Alexander Ross        Partner, Wiggin
Alison Wenham        CEO, AIM
Axel Dauchez           CEO, Deezer
Barney Wragg          SVP Universal Music eLabs / Global Head of Digital, EMI
Ben Drury                 Founder and CEO, 7 Digital
Benji Rogers             Founder and CEO, PledgeMusic
Brian Message          Manager, Radiohead, Nick Cave / Chairman MMF
Cary Sherman          CEO, RIAA
Chris Gorman           Founder and CEO, MusicQubed
Cliff Fluet                   Partner, Lewis Silkin / Director 11
Daniel Ek                   Founder and CEO, Spotify
David Boyle              SVP Insight, EMI
David Byrne              Solo artist / Talking Heads
David Isrealite           CEO, MPAA
David Lowery           Camper van Beethoven / The Trichordist
Edgar Berger            President & CEO International, Sony Music Entertainment
Elio Leoni Sceti         CEO, EMI
Erik Nielsen               Manager, Marillion
Geoff Taylor              CEO, BPI
Gregor Pryor             Partner, Reed Smith
Helienne Lindvall       Award winning songwriter
Ian Hogarth                Founder and CEO, Songkick
Ian Rogers                 CEO, Beats Music / CEO TopSpin
Jack Horner               Founder Frukt
Jay Samit                   SVP, EMI / EVP & GM, Sony Corp America
Jeremy Silver            VP New Media EMI / Chairman musicmetric
Jim Griffin                   CTO Geffen Records / CEO, Cherry Lane Digital
Jon Irwin                    President, Rhapsody
Jonathan Grant          Above and Beyond / Founder, Anjunabeats Records
Justin Morey              Senior Lecturer Music Production, Leeds Beckett University
Keith Harris                Manager, Stevie Wonder / GM, Motown
Keith Thomas            Grammy Award Winning Producer and Songwriter
Ken Park                    Chief Content Officer, Spotify
Larry Miller                 COO, a2b Music / President Reciprocal
Liz Schimel                VP Music, Nokia
Lohan Presencer       CEO of Ministry of Sound Group
Mark Kelly                 Marillion / CEO, FAC
Mark Knight               Founder and Chief Architect, Omnifone
Martin Goldschmidt   Founder and MD, Cooking Vinyl
Martin Mills                Founder and Chairman, Beggars Group
Michael Robertson   Founder and CEO, MP3.com
Nenad Marovac        Partner, DN Capital
Oleg Fomenko          CEO, Bloom.fm
Paul Hitchman          Founder and Director Playlouder/ MD Kobalt
Paul Vidich                EVP, WMG / Director, Reverbnation
Peter Jenner             Manager Pink Floyd, Billy Bragg / MD Sincere
Peter Sunde              Founder, The Pirate Bay
Phil Sant                    Founder and Chief Engineer, Omnifone
Ralph Simon             EVP Capitol & Blue Note / Founder Yourmobile
Robert Ashcroft        SVP Network Services Europe / CEO PRS for Music
Roger Faxon             CEO, EMI
Scott Cohen              Founder, The Orchard
Simon Wheeler         Director of Strategy, Beggars Group
Sumit Bothra             Manager, The Boxer Rebellion, PJ Harvey
Tim Westergren        Founder and Chief Strategy Officer, Pandora
Tom Frederikse        Partner, Clintons
Tony Wadsworth      Chairman & CEO, EMI Music UK & Ireland/Chairman BPI
Wayne Rosso           President, Grokster
Will Page                  Chief Economist, Spotify

Note: positions either refer to current position held by interviewee or key position held during the narrative of this book.

Example pages

screenshot2

screenshot1

How Rhapsody Became A Top Tier Player Again

Rhapsody today announced reaching 2.5 million total subscribers across their unlimited and UnRadio offerings. While not in the same scale as Spotify’s 15 million, it nonetheless places Rhapsody as the fourth largest subscriber base globally and approximately 10% of the global total.

Rhapsody spent most of the second part of the 2000’s treading water, never really able to break out of a solid niche of between 750,000 and 880,000 subscribers. Rhapsody was doing its best to run a sustainable business but because it wasn’t blowing vast amounts of cash on customer acquisition (either via marketing or having a free tier) it was seeing most of its new user growth cancelled out by churn. But even with this measured approach such is the nature of digital music margins that it still lost money, lots of it.

Enter investment firm Columbus Nova who acquired an undisclosed stake in Rhapsody in September 2013. A reorg and a repositioning process followed paving the way for strong subscriber growth. Rhapsody had 1.5 million subscribers one year ago. If it continues to grow at its present rate it should hit 3 million by July this year. And if it sustains that growth into the start of 2016 it could find itself the second biggest subscription service globally. Current number two Deezer appears to be slowing so 2nd place could be a realistic target for next year. Quite a turn around for a service that looked like it was falling by the wayside 5 years ago.

Rhapsody created the streaming subscription marketplace. I remember back in the early and mid 2000’s when I was a Jupiter analyst, forever trumpeting the subscription model. In fact, along with my fellow Jupiter music analysts David Card and Aram Sinnreich, we took a lot of flak for our forecasts that predicted subscriptions would be the future of digital music. Granted we made our bet the best part of a decade before the market transpired but Rhapsody was there in market doing pretty much what subscription services are doing today. It deserves credit for having created a market and now once again for a newly found relevancy in the contemporary marketplace.

Postscript: Intrigued I decided to look up one of my old Jupiter music forecasts to see how wrong I was and I had a nice surprise. In the 2007 Jupiter European Music Model I had European subscription revenue at €484.2 million by 2012. The actual number was €420.2 million. That sound you can hear is me patting myself on the back.

What $500 Million And Jay-Z Say About the State Of Streaming In 2015

2014 was a big year for streaming, 2015 will be bigger. Apple entering the fray is the catalyst. Apple enters a market when it is ready for primetime. Apple lets the pioneers establish the market, prove the model and create consumer mindshare before it comes in and most often assumes a leadership role. Apple is certainly leaving it later than normal with subscriptions but it is still the same classic follower model, and the marketplace knows it. Hence Jay-Z’s reported €50 million interest in Norwegian streaming service WiMP and Spotify’s reported pursuit of a further $500 million. The first move is ‘let’s get in a market Apple is about to make huge’ and the second is an Apple war chest

Spotify’s 2014 growth was little short of spectacular, especially its December surge. But it is still not enough to IPO on. Not because 15 million subscribers in itself is not a huge achievement – it is – but because the market place is holding its breath, waiting to see what Apple does. Apple remains the world’s largest digital music company and is on the verge of becoming the world’s leading shipper of smartphones. But most crucially Apple has the iTunes ecosystem and a deep, deep understanding of the world’s most valuable content consumers. If anyone can take subscriptions to the mainstream Apple can. And in the process it will likely take back a chunk of the iTunes Music buyers that Spotify ‘stole’. Which is not to say that Spotify will not be able to continue to grow, but instead that rapid growth will be harder when Apple is snapping at its heels.

Pricing will be key, as will the role of free. If Apple succeeds in bringing the standard price point down to 7.99 (and perhaps a subsidised price point of 4.99) then a whole new swathe of users will be brought into the marketplace. Still not the mainstream, but certainly getting towards the higher end of the mainstream that Netflix competes in. And certainly a bigger marketplace than the current one. If Spotify finds its free tier heavily capped then it will lose much of its customer acquisition strength, which may force it to spend more heavily on traditional acquisition tactics like app marketing and TV ad spots.

In this expanded marketplace a $500 million war chest would give Spotify the ability expand into new territories, double down on churn management and market in core markets. The intent will most likely be to weather the Apple storm and to be in solid enough shape the other end to IPO. As we have seen in the smartphone and tablet business, Apple can be leader but still leave plenty enough space for a vibrant and competitive marketplace. That is the scenario Spotify, Deezer, Rdio, Rhapsody and Jay-Z’s new plaything-to-be WiMP will be hoping for.

What Spotify’s December Growth Tells Us About Pricing

Spotify just announced the addition of 2.5 million paying since mid November to reach 15 million total subscribers. This is unprecedented growth not just for Spotify but for the subscription market as a whole. It also comes at a time when Spotify needs the best possible numbers to keep labels on board during its crucial renegotiations. But what is most interesting is what the growth tells us about pricing.

spotify 15 million

Long term readers will know that I firmly believe there is a watertight case for reducing the price of subscriptions. Only about 10% of music buyers spend $10 or more a month on music (across all recorded music formats) and most of those have already been converted to subscriptions. While there is absolutely a case that some consumers can be ‘educated’ to spend more on music, in just the same way cell phones educated them to spend more on telephony, many simply will not because there are such compelling free alternatives.

Spotify Made 9.99 Feel Close To Free 

There are two short term and two long term drivers of Spotify’s December growth:

  • Long Term 1: Student plans – effective discount: 50%
  • Long Term 2: Family plans- effective discount: 50%
  • Short Term 3: Holiday gifting – effective discount: 100%
  • Short Term 4: Holiday 0.99 promotion – effective discount: 90%

Of all of those the 0.99 for 3 months holiday promotion had the biggest impact. There is an argument that customers acquired this way are effectively monetized trialists and it is highly likely a large share, perhaps even the majority, will not continue to pay after the promotion is ended. But that almost misses the point. What the surge in adoption at lower price points shows us is a purer measure of the demand curve for on demand subscriptions, without the distortion of the 9.99 price point. Of course 0.99 is not a feasible long term price point but 4.99 is, or perhaps more realistically for now, 7.99 is.

Some of those trialists will unsubscribe after 3 months, some will forget to unsubscribe and some will decide that 9.99 is actually pretty good value. The net effect for Spotify will be more subscribers than it would have had without the campaign.

Taylor Swift, Labels and Investors

The stellar growth is also intended to catch the eyes of various other vested interests. For investors ahead of a potential IPO these numbers help show that Spotify may have its best days ahead of it. For labels this, ‘conveniently’, creates the best possible numbers for them to consider during contract negotiations. And for Taylor Swift it shows that for all her windowing antics Spotify grew faster than ever. In fact, the wall-to-wall media coverage of the ‘Swiftify’ debacle actually boosted Spotify’s profile and may even have modestly helped the numbers.

2015 will be a huge year for Spotify with the super heavyweights Apple and Google both playing their subscription hands and with growing label concerns about the freemium model. It would be naïve to suggest Spotify will not feel the pressure of those factors alongside the continued growth of competitors such as Rhpasody, Rdio and Deezer. But starting the year with 2.5 million new holiday season subscribers is about as good a start as Spotify could possibly have hoped for.

Spotify, Apple, YouTube And The Streaming Pincer Movement

The Financial Times yesterday reported that Apple is planning on integrating Beats Music into an iOS update as early as the first quarter of 2015. Which means the entire base of Apple’s 500 odd million iOS devices suddenly become Apple’s acquisition funnel. As I wrote back in May, this was always the strategy Apple was most likely to pursue. Of course being available to 500 iTunes customers is not anything like converting them all. Just ask U2. But it does give Beats Music – if Apple keep the name – a reach like no other subscriptions service on the planet. Especially if Apple is willing to roll out free trials to them all.   Currently just 8% of consumers in the US and UK have experienced a subscription trial, which translates into approximately 30 million people. Even if Apple does not quickly succeed in taking subscriptions to the mainstream it is about to take subscription trials to the mainstream, which is the crucial first step.

streaming pincer

Add this to YouTube’s recently announced Music Key subscription service, which should be aspiring to get 5 million or so subscribers in its first year to be considered a success, and a picture emerges of Spotify squeezed in the middle of a streaming pincer movement (see figure). In the near term Apple will be hoping to win back a lot of its lost high spending iTunes customers from Spotify. Longer term it will be looking to grow the market.

None of this means anything like the end for Spotify. Instead it will force Spotify to up its already high quality game. Competitive markets thrive far more than ones in which one or two key players dominate. It could mean that Spotify’s potential flotation or sale value is tempered for a while, which could push out Spotify’s exit timelines until it has proven its worth in a more competitive marketplace. But Spotify has the distinct advantage of being a) the incumbent and b) a pure play. Spotify, Deezer and Rhapsody are all in this game simply for music. That means each and every one of them has a laser focus on making the best possible music service proposition they can. The same is quite simply not the case for either Apple or YouTube. They will need to leverage that asset in their conversations with rights holders to ensure they are given more flexibility in terms to drive true marketplace innovation and experimentation.

subs numbers 11 14

But Spotify et al would be foolish to underestimate the scale of the challenge they will face. Apple has the largest installed base of digital music buyers on the planet (see figure). As creditable as Spotify’s 12.5 million paying subscribers is, it pales compared to Apple’s 200 million iTunes music buyers. Also Apple has many additional assets at its disposal. Integrating into iOS is just one tactic it can employ. Spotify et al depend on Apple’s platform for much of their survival. But there is no reason Apple has to play truly fair. Amazon set a platform precedent with its treatment of Hachette that Apple will have been watching closely. Don’t expect anything too obvious, but little tricks like tilting app store optimizing in favour of Beats over Spotify can go a long way.

Things are hotting up, no doubt. But Apple’s arrival in the subscription market will take the sector to a whole new level, and a high tide should rise all boats.

MTV Trax And Fixing The Tyranny Of Choice

The subscription pricing debate is gaining momentum with serious dialogue occurring at high levels across the industry. Every consideration though occurs against the backdrop of fear, fear of disrupting the solid start subscriptions have made so far. It is clear that although the 9.99 price point has significant additional market opportunity, that potential has a finite scope. Once the ceiling of adoption has been reached the market will stagnate unless new price points are introduced.

One option for reducing risk is to tailor services at discreet segments that are not prospects for 9.99 services. By building highly distinct, curated services that deliver users curated, lean back experiences rather than bewildering them with the Tyranny of Choice of 30 million tracks. Music Aficionados are the driving force of current digital music, are less than a fifth of all consumers yet are the core target of every 9.99 subscription service.   By contrast Forgotten Fans – super engaged music fans who don’t yet spend much money on music – are hugely underserved. A handful of companies have been trying to unlock this segment, including Blinkbox Music, Mix Radio (formerly Nokia Mix Radio), Bloom.fm (RIP), Psonar (PAYG streams), MusicQubed (O2 Tracks, Vodafone Tracks), Zvook, as well as ‘Pandora One’, ‘Slacker Radio Plus’ and Rhapsody’s ‘unRadio’. Even Spotify is having a go. Now MusicQubed have upped the ante in the pursuit of the Forgotten Fan powering a new MTV music service: MTV Trax.

MTV: Digital Music’s Sleeping Giant

MTV is something of a sleeping giant in the digital music space. It is the sort of brand the marketplace has been waiting for. Spotify has done a fantastic job at creating a brand from scratch but outside of digital music circles it has minimal brand recognition. What MTV brings is immediate brand equity, the sort of instant familiarity that can help pull mainstream consumers into the digital fold.

Up to now, besides a couple of ill fated early efforts (remember MTV Urge anyone?) MTV has never seriously tried to convert its massive brand and reach. MTV has been biding its time. It is a mainstream brand for the masses so it has been waiting for the market to reach sufficient scale and for the right product for it to enter. MTV knows there is little point in trying to push its youthful, mass market audience towards Aficionado services that they are unlikely to be able to afford or have interest in.

MTV Needs To Put Mobile At The Heart Of Its Channel Strategy

There is an additional reason the time is now right for MTV, whether they realise it or not: their business model is stuck firmly in the confines of old, traditional media i.e. Pay TV. Though Pay TV is hardly in crisis, yet, the first cracks are beginning to appear with disruptive Over The Top (OTT) services like Netflix and Amazon Prime and cord cutting.  Of most concern for MTV is the new generation of ‘cord never’ consumers that may never take a Pay TV subscription, instead relying solely on the likes of Netlix, Hulu and iPlayer for their video needs. MTV is a youth brand yet ironically its current business model is rooted in an older world – the average age of a network TV viewer is 59. MTV needs a new channel for engaging with the next generation of audiences, and that channel is mobile. MTV Trax looks like it may be the first plank of that strategy.

mtv trax

MTV Trax itself is a visually rich mobile only app that delivers 8 curated playlists, branded around genres, charts and MTV shows. An Aficionado would probably find the selection too narrow and mainstream, but that’s entirely point, this isn’t built for them, it’s built for the mainstream. The app is being launched with MTV’s European Music Awards. Now it’s time to sit back and wait to see whether MTV’s brand can unlock the Forgotten Fan and take digital music to the mainstream.