The mobile industry is in full swing. Its center of gravity is shifting from hardware to software, from voice to data and services, and from traditional telecom stakeholders to new entrants.
Google’s “mobile first” approach and the shadow that Apple cast over the show are forcing mobile operators in particular to redefine their position in the value chain. The traditional focus on infrastructure (LTE..) and this year’s debate on operators’ congested networks need to be put in the context of nontelecom players’ willingness to monetize mobile. Mobile World Congress is a unique opportunity to witness how mobile is reinventing itself and to see how it will become even more disruptive in consumers' daily lives in the future.
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):
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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.
It was a surprising weekend for those of us who had naively imagined that after crossing the River iPad, we might actually get some Elysian rest. But, alas, the fates conspired against us and handed us the curious case of Amazon vs. Macmillan. Or Macmillan vs. Amazon?
For those who actually took the weekend off, let me summarize what happened. John Sargeant, the CEO of Macmillan Books, gave Amazon a wee-bit of an ultimatum: switch from a wholesale sell-through model, where Amazon buys digital books at a fixed wholesale rate and then can choose to sell those books at whatever price it deems appropriate (even at a loss, as it does with $9.99 bestsellers), to an agency model, where Amazon agrees to sell at a price set by the publisher in exchange for a 30% agency fee. Sargeant explained to Amazon that if it did not agree to the switch, Macmillan Books would make its eBooks subject to significant "windowing" wherein new books are held back from the digital store for some period, say six months, while hardback books are sold in stores and possibly, digital copies are sold through the iPad at $14.99.
This is more detail than we usually know about a negotiation like this because of what happened next. Sargeant got off of a plane on Friday only to discover that Amazon had responded by pulling all Macmillan books from the Kindle store as well as from Amazon.com. He then decided to make it clear to the industry (and his authors) that this drastic action was Amazon's fault, in a paid advertisement in a special Sunday edition of Publishers Lunch.
Now that we've all had a few days to ponder Apple's iPad announcement, what are we to make of it? A revolutionary change in the computing industry? More of the same Apple technology, repackaged? A shot in the arm for the publishing industry? A new way for corporations to restrict the free flow of ideas?