The 1990s were the recorded music industry’s high-water mark, with the CD at its height as a product. The CD now finds itself in terminal decline and with no heir apparent. Instead music fans have fallen out of love with the CD and struck up a whirlwind romance with free music. This is an affair that has changed forever how people perceive music as a product.
The contagion of free music infects everything. (But file sharing is just the symptom, not the cause.)We are in the midst of a painful period of transition from the distribution paradigm of selling units of music to the consumption era where music fans expect music to be on tap, unlimited and whenever and wherever they want it. It’s hard too fight free when it is riding on the wave of inevitable change. Instead it must be beaten at its own game: a big fat carrot needs to accompany the stick.
We have just published our annual music forecast for 2009-2014 for the US market. Recorded music revenues for the year 2009 are expected to close at $6.3 billion (not including ring tones and ring backs). That's down 13 percent from the year before. The outlook for the near future is not too bright either. Recorded music revenues will continue to decline before settling at around $5.5 billion in 2012.
Some other highlights of the forecast are -
We are still bullish on subscriptions and think that the category will grow both in terms of number of subscribers and revenue in 2010 and beyond.
2010 will be also be a better year than 2009 for the digital download market but its growth rate will be on a downward trajectory thereafter.
It is no secret that the industry has stepped up its efforts to diversify its revenue streams in the last few years. Licensing to digital music services (MySpace, Youtube) and performance royalties from Internet radio are thus becoming an important source of revenue for the industry. We have therefore included revenues from digital music licensing in this year’s forecast report.
Bottom line for digital music licensing is this – revenue from digital music licensing will be a decent amount but it will be nowhere near filling the hole in the revenue from recorded music created between now and 2014.
The fundamentals of media business are toppling as their 20th century foundations crumble. Consumers are falling out of love with paying for media and striking up illicit affairs with free content, not just because it is free, but also because it is on their terms. YouTube, BitTorrent and Spotify don’t dictate when audiences watch and listen, they let them take control. This is great news for consumers but terrible news for media businesses that have spent years building revenues upon near-monopolistic control of supply of content. This is the Media Meltdown.
Why all this matters to brands is because the tectonic shifts in media value chains are creating exciting new opportunities for non-media companies to become media companies themselves. Just as Apple transformed from hardware company to media services company with the launch of the iTunes Store, so too are brands such as Procter and Gamble with BeingGirl.com, Tommy Hilfiger with Tommy TV and Audi with its UK TV channel.
Why are brands such as these choosing to become media companies? Because communicating with audiences can be so much more valuable a relationship than a cold, hard sell to potential customers. Engaging young girl readers on BeingGirl.com with articles about what it means to be a young girl on the verge of womanhood means so much more to that audience than an old fashioned TV ad by P&G’s Tampax (one of the brands behind the site).
The iPhone has proven to be the 'Ironclad' of mobile phones. Everything that went before was obsolete overnight, both smartphones and dumb phones included. No prior phone could compete with the experience and the abilities of the iPhone. Sure, some phones were superior in very specific regards -- especially on cost and call quality -- just as very early Ironclad warships were not always the most sea worthy vessels. But overall, nothing existing could go toe-to-toe with the iPhone.
Other manufacturers saw this fast and reacted. Just like with the warships of the latter part of the 19th century the pace of innovation since, both from other manufacturers and from across the whole mobile ecosystem, has been ferocious. This week at CES we've seen numerous competing high end mobile phone launches that demonstrate that the pace of innovation in mobile is accelerating, rather than slowing.
Consumers use this new breed of high end phones in completely different ways to older 'smartphones' or dumb phones (we have consumer data on this, clients please ask!). This is especially true in Europe where consumer ownership of Nokia's Symbian Series 60 handsets is so great.
Parochialism aside, there is a major flaw in the logic here: if these large companies are deemed responsible in part for illegal content consumption, then so are the ISPs (arguably more so). And indeed the French Hadopi (Three Strikes) bill which this study is intended to complement, expressly apportions responsibility to the ISPs, making them partners in anti-piracy enforcement. So if they are deemed responsible under French law, shouldn’t they also be subject to a levy, if one is implemented?
The so called ‘Google Tax’ proposals also suggest that the tax should be paid regardless of whether the publishers have offices in France, based instead on whether French consumers view the ads. So this would mean, for example, that Google would have to make payment to support the French media industries if a French consumer clicked on a sponsored link, say, for washing machines in Seattle.
Much that's been leaked about the Google announcement later today is familiar and evolutionary. What will matter most is how Google communicates the news and how it's received. This will set the tone for the Android smartphone operating system for 2010 and influence how other firms involved in Android -- Motorola, LG, SonyEricsson as well as the operators -- react and adjust their strategy.