In a couple of days’ time the doors will close on a decadum horribilis for the music industry. Although recorded music revenues actually grew in 2001, the seeds of the forthcoming whirlwind were already well and truly sown. In fact one single event can be identified as the trigger: the launch of Napster in 1999.Of course other seeds had also taken root in the late nineties, including the launches of MP3.com, the PMP300 and the MPMan.But according so much importance to Napster is more than a useful construct for the historical narrative: Napster was more than just a metaphor for the transition from the distribution era to the consumption paradigm, it was the crucible of the music industry’s 20th century meltdown.
2009 saw some solid progress made in various digital content marketplaces but it is too early to start talking about the green shoots of media recovery.The Media Meltdown (the process by which media industries are disrupted and reshaped by digitization of content) will continue to claim scalps throughout 2010 as digital content revenues do little to offset the impact of plummeting physical media sales and as analogue dollars crumble into digital cents.But consumers are not falling out of love with media, rather they are growing tired of paying for its 20th-century product iterations (and those 21st century products that try to reinvent the old products in a digital context).A new framework for media product innovation is now required to align media industry content assets with 21st-century consumer behavior and demand.Forrester proposes what form this should take in a new report ‘Media Product Innovation: Building Products That Thrive In The Media Meltdown’.
The core asset that media companies own is of course the content itself, but Content is no longer king. Or, at least, its throne is no longer undisputed. Instead, content is busy fighting off the republican advances of the channel. ISPs and mobile operators use content to fill their pipes, technology companies to fill their devices, and brands to help sell their products and to meet their branding objectives. The hierarchy is clear.
Lots happened in 2009 but it wasn’t a vintage year for digital music (in fact it was the year it well and truly lost the digital buzz to eReaders). All in all I’d give 2009 a 6 out of 10, with the launch of Spotify accounting for at least couple of those points and the following as the 5 key disappointments:
Comes With Music under-whelmed (as did Play Now plus)
ISP services didn’t get off the ground (including unlimited MP3’s nearly but not quite moment)
Apple’s new killer music format was….oh iTunes albums
imeem gave a master class in how not to make money out of social music
The big boys (MySpace, Apple) snapped up the innovative competition (Lala, iLike, imeem)
So will be 2010 be any different?Though I don’t think it will be the year digital music will really come of age (that’s at least a couple more years away) I do expect it on balance to be a stronger one than its predecessor.Leaving aside the few specific developments I’m not able to talk about here are a few of my predictions:
As the dust settles on Apple’s acquisition of Lalaand MySpace’s acquisition of imeem and iLike it is clear that 2009 is shaping up as the year that the social music marketplace consolidated.The trend was started back in 2007 when CBS snapped up Last.FM for $280 million (though you could make an argument that News Corp inadvertently kicked things off with its $580 million purchase of MySpace in 2005).
So the fact that there is a lot of money pouring into social music shows us this is a prosperous segment right? Wrong.Last.FM’s purchase price contrasts sharply with the reported $1 million that MySpace paid for imeem. imeem was no small fry (it has approximately 30 million users in the US). Instead imeem found itself straddled with the burden of insurmountable debts and a fundamental inability to make its business model work. And therein lies the rub: social music may have audience momentum but the business model is currently broken.
All of which might make it appear strange that Apple and MySpace would want to invest in this space. They are doing so because of two key reasons:
Another interesting announcement was made this morning at the LeWeb conference in Paris, where Orange officially announced the launch of its Application Shop (available in beta in the UK and France for several months). This shop will first be available to 1 million customers in these two countries before being roll-out to millions more customers throughout 2010. For now it gives acess to 5,000 applications.
Replicating Apple's success will not be an easy task and operators should not follow this route. They should on the contrary leverage their key assets to offer:
Apple has confirmed the acquisition of streaming music provider Lala.The move is significant (even though Apple appear to be trying to suggest otherwise) because it is one more piece in the gradually emerging puzzle that is Apple’s future music strategy, which for a few years now has remained relatively static.
Why is Apple’s music strategy in need of revision?
If the iTunes Music Store had evolved half as much as the iPod had over the last few years we’d have a cutting edge music service. Instead we have one that remains market-leading in terms of basic functionality (i.e. store to device synching) but behind the curve in terms of experience, discovery and community. Whilst the web threw up the likes of imeem, Spotify, Last.FM, MOG etc. the iTunes Music Store stuck to selling 99 cents downloads.Don’t get me wrong the iTunes store is a crucially important platform that accounts for the majority of the current paid download market, but it isn’t yet equipped to drive the digital music market to the next stage.In its current guise it is essentially a transition technology: with one foot in the distribution paradigm of selling units of stuff, and one in the consumption era of on-demand access.It has done a great job of helping consumers take baby steps into the digital age, but has pretty much reached the limits of its potential as a music service. (You’ll note my continued and fully intentional implied distinction between the music store and the App Store – more on that in a moment).
We've been writing a lot about eReader devices, but let's focus on the content for a moment. Why? Because selling a lifetime of eBook content to consumers is the end game of many companies in this space, especially Amazon and Barnes & Noble. They sky's the limit here. Consumers don't own digital libraries of books, as they did with music: When mp3 players came out, most consumers owned CDs that could be easily burned to a computer and downloaded to a device. Not so with books.
And the market for digital books, while catalyzed by the existence of dedicated eReader devices, will extend across multiple devices including desktops, laptops, mobile phones, netbooks, tablets, MIDs, portable gaming devices, and devices that haven't been invented yet. As we discuss in a new Forrester report, Forrester's data (based on a mail survey of 4,711 US consumers conducted in Q3 2009) shows that 3% of US consumers read eBooks on their desktop computers today; 2% read on laptops; and fewer than 1% read on dedicated eReaders, mobile phones, or netbooks, respectively. When it comes to future demand, 19% of US consumers say they're interested in reading eBooks on their desktop PCs, 14% say they're interested in reading on eReaders, 11% voice interest in reading on netbooks, and 5% say they're interested in reading on their mobile phones. What this means: Consumers are reading books digitally on multiple devices, and they will continue to do so.
2009 has been a breakout year for eReaders and eBooks--device sales will have more than tripled by the end of this year, and content sales are up 176% for the year--but 2010 will be anything but boring. Here are Forrester's predictions for what will happen in the next year: