In the last month the din of rumor and the clamor of speculation inspired by Apple’s expected announcement this week has risen in a crescendo that is about to peak. We’re all convinced this Wednesday’s “one other thing” will be some kind of magical tablet device. We all expect it will be a big deal. And in these past weeks we’ve witnessed a parade of writers, analysts, and consumers who have all published their “wish” or even “guess” (or, in some cases, “fantasy”) lists. But we have yet to see what we think really matters: an Apple “should” list that identifies the things Apple should do to ensure that its device is successful.
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).