As I posted earlier in the month, the music subscriptions space is going through an important period of transition. It took much of the last decade to realize that the 9.99 premium rentals model was only ever going to appeal to a niche of music aficionados, and though global premium music subscribers total 8.25 million, we’re still no closer to mass market appeal for premium subscriptions. And yet we have a host of new entrants including, MOG, Spotify Premium, We7 Premium, Sky Songs, Virgin Media etc etc.
So what’s changed? Well, both a little and a lot.
The niche audience is getting bigger. Firstly, the appeal for premium subscriptions is still a niche addressable audience of tech savvy music aficionados, but that audience is growing. It’s still far from mass market (and never will be) but it’s a more attractively scaled base now. A few million per major music market perhaps. For a company like MOG that’s plenty enough addressable market. Also improvements in consumer technology and connectivity make it easier to deliver a high quality on-the-go cloud based experience, a crucial asset.
Yesterday fan funded band site Sellaband was declared bankrupt by a Dutch court. This may be ‘just another digital music start up that burnt through its investment money with no proven business model’ but its demise is disappointing.
Semi-pro sites and services are a crucial part of the digital music ecosystem and despite this setback they will grow in importance. Services like Sellaband, MyMajorCompany, TuneCore, Sound Cloud and MySpace, each in their own way, lower the barriers in the artist-fan relationship. They enable artists to reach out directly to their audiences and develop engaged relationships that make the fans feel a part of things. The shift from photocopied fanclub newsletters mailed in the post, to active online fan communities is little short of a quantum leap. The advent of social music tools are the music business equivalent of the transition from the stone age to the bronze age.
Of course if you follow my analogy on, there’s still a lot of distance to go before we reach the iron age and beyond. SellaBand wasn’t the first high profile victim (anyone remember Snocap?) and it won’t be the last.
Back in December I predicted strong progress for semi-pro sites and services. And though I qualified my prediction with stating 2010 wouldn’t “be their year” I didn’t expect SellaBand’s demise either. I remain convinced of the potential of these sorts of services and it is crucial for artists and the music industry more broadly that these social music tools prosper. If they don’t then so much of the Internet’s potential remains untapped.
My latest report - Music Strategy For Brands: When Brands And Bands Collide - has just been published. This report is a bit of a departure, looking very specifically at the burgeoning trend of non-music companies using music to help sell their core products and services. Of course Apple set the trend with the iTunes music store, but nowadays we’re seeing many non-tech brands picking up the baton.
The report contains exclusive executive survey data that shows how brands and consumer product companies are working with music now, and how what they plan to do in 2010.
As the effects of the music industry meltdown bite, record labels and artists alike are turning to brands and product companies for new revenue opportunities. 2009 saw music tapped more heavily than ever before as a tool for differentiating products and brands and this trend will accelerate in 2010: 65% of brands and product companies interviewed by Forrester stated that they will spend more on their digital music strategies in 2010 than they did in 2009.
The overriding thesis of the report is that marketing professionals must subjugate their job titles in favour of their role as media product professionals when working on music strategy. If they don’t, the resulting poor execution will damage the brand as much as the band, which is exactly what happened with the Vasserettes:
The addition of Internet radio feature (Pandora/Slacker/Last.fm) to Internet connected televisions and set-top boxes (Blu-ray players, Tivo, Roku, Xbox etc) raise this existential question - do we need a stand-alone device for audio in the home?
I know what you’re thinking. Adding a radio channel to a primarily video device does not mean the end of the audio only product category. But it could very well be the beginning of the decline. And here are some of the reasons why.
This is a bold play that places MeeGo into a competitive position with Android, iPhone OS, Google's Chrome and even desktop software like Ubuntu (as well as the mushrooming mobile-centric smartphone software like Palm's WebOS, Samsung bada and Windows Phone).
Intel's support will raise the ability of the new platform to attract device makers as well as the app developers that every smartphone and smart mobile platform desperately needs to be competitive.
They have lots in common: Both are Linux-based; both predominantly target mobile devices; both aim to deliver outstanding rich consumer Internet experiences; and both have been more talk than action to date. Nokia needs to shift step quickly from talking to walking and even better running or the high end market in Europe will be dominated by the same players as in North America and Nokia will have to pursue a winback strategy. It's taken Nokia nearly five years since the first Maemo device shipped to launch the first phone, the N900, and that is not the complete product -- as Nokia concede -- impressive although it nevertheless is (read my first take on the N900 in this Forrester report).
In my previous post I explained how free music services such as Spotify were making premium rental services such as Rhapsody and Napster increasingly irrelevant. Why pay 9.99 for unlimited on demand streaming music when you can get it for free? It seems that Warner Music’s chief executive Edgar Bronfman Jr has had enough, stating that "Free streaming services are clearly not net positive for the industry” and adding that WMG will no longer license to such services.
Such a stance is both understandable and shortsighted.
Services like Spotify and YouTube are crucial tools in helping the music industry transition from the 20th century distribution business of selling units, to the 21st century paradigm of monetizing consumption. On-demand, access based services will be the foundation stone of the 21st century music business. Added to that, the majority of consumers simply have no appetite for paying for digital music, certainly not on a subscription basis. Free and subsidized services are quite simply part of the future.
But, and it’s a big ‘but’, these services and their associated business models still pose many as yet unanswered questions.
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 provide unlimited 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):
I have a favour to ask of you: I have the germ of an idea which I am developing for a forthcoming report and I want try it on you. So please let me know your thoughts.
Apart from the persistent pressure of free, two of the recurring trends that look set to shape the future of digital music are:
First a few thoughts on the cloud….
The cloud is of course is already with us, but largely as a collection of disparate connected music experiences (e.g. Pandora, Spotify, Comes With Music) rather than as something more all-encompassing. I’m skeptical of the truly ubiquitous experience happening anytime soon. Indeed, the practical limitations on ubiquitous connectivity mean that connectivity will in fact fall short of ubiquity for some time (more on that from my colleague Ian Fogg later this year). But it is clear that over the next few years more of the dots will be joined. And sometimes the dots will be joined by innovative workarounds, such as Spotify’s ‘offline’ streaming solution.