Simplicity has been central to Spotify’s success to date. In fact the Spotify experience was so simple it looked positively archaic compared to more feature-rich and socially-rich services such as Last.FM and imeem. But that simplicity was Apple-like in its elegance and a key reason it has proven so popular. The barriers to entry were lowered so that it had mass-market appeal rather than being condemned to ending up as another niche hide-out for the tech savvy music aficionados.
Spotify was always going to flick the switch on a greater level of sophistication, but only when it needed to. Doing so now is a very cleverly timed move. Today’s announcement both raises the stakes for new entrants such as mFlow and beats Apple to the music cloud. To understand why, we need to take a quick look at what strategy the new functionality implies. The two most important groups of functionality are social and cloud.
Spotify becomes a social experience. Spotify has always had a keen sense of how to coexist in the broader ecosystem rather than try to do everything itself (cf integrating audio scrobbling). It has now taken that a step further with Facebook integration and relatively sophisticated sharing and interaction. Doing it in the context of Facebook simplifies the education process for users.
Downloads aren’t replacing the CD. Digital sales in 2009 boomed - growing by 48% - offsetting the impact of CD sales decline for the first time … just … (online digital revenue growth was 53m GBP compared to a CD decline of 48m GBP). But this isn’t a simple downloads versus CDs picture. In these days of plummeting CD sales, recorded music numbers encompass a pretty diverse portfolio of products and revenue streams, including DVDs, mobile, ad-supported streaming, etc.
The digital model is far from fixed yet. The download market will not save the music industry. It will be one small part of a multifaceted product portfolio. 48% digital growth may sound good but it is important to keep a sense of scale: download revenues are just 21% of CD sales and mobile revenues actually *declined by 14%*. The CD remains the bedrock of sales not because it is a robust product but because the competition is so weak.
Regular readers will be familiar with the mantra that I and my colleagues repeat: we are leaving the distribution era of the 20th century where music revenues were based upon selling units and entering the consumption paradigm, where monetizing consumption will be key to future success.
I recently came across a case study that illustrates well just how far along we are in the transition from a consumer perspective, if not yet from a business model viewpoint.
Armin van Buuren is a leading dance music DJ and producer, but unless you are Dutch, or a dance music aficionado it is unlikely you’ll be too familiar with him. Hailing from the Netherlands van Buuren has been producing music and DJing since the mid-nineties. Throughout the noughties he went from strength to strength, in no small part due to a very savvy use of digital technology including a weekly radio show (A State of Trance) that is syndicated across multiple analog and digital stations and platforms and reaches a weekly global audience of 40 million.
This context is important because van Buuren understands the importance of building an engaged digital audience. Which brings us onto the case study: his track ‘In and Out of Love’ featuring vocalist Sharon den Adel. The official video currently has 50.5 million views on YouTube. There are an addition 3.3 million unofficial video views of the track, of which 0.5 million are remixes and live versions. So that's a net total of just under 54 million views.
Consider those numbers for a moment. The biggest ever selling global single was Elton John’s Candle in the Wind in 1997 with 37 million copies. The biggest that the noughties had to offer was Leona Lewis’ ‘Bleeding Love’ with 12 million. Even Lady Gaga only made 11 million with 'Poker Face'. Getting to number in the UK charts can be done with less than 25,000 if you catch the charts on a bad week (Orson did it with just 17,694 in 2003 with ‘No Tomorrow’).
These include a suggestion that ISPs should consider using: “consumer tools for managing copyright infringement from the home (based on tools used to protect consumers from viruses and malware).”
The RIAA, MPAA, BPI, IFPI, NVPA - and all other acronyms of recording industry bodies that are lobbying governments – are right to focus on bringing their respective local legislative and judicial frameworks up to date. However it is crucial that a balance is struck The emphasis should be on establishing this bedrock upon which new service and product innovation can flourish, rather than simply trying to stem the digital tide King Canute-like.
This is one more chapter in the Last.FM / CBS integration story. Last.FM was an early mover in the streaming music and had tens of millions of users when Spotify was just a twinkle inn Daniel Ek’s eye. Many – myself included – were surprised by the $280 million that CBS paid just under three years ago to acquire Last.FM. Since then Last.FM’s fortunes have been a mixed bag. Though user numbers are at an all time high, Last.FM has struggled to find its new identity within CBS and its paymasters recently took the decision to turn off free-streaming in outside of the major territories due to the inability to generate sufficient advertising revenue.
CBS are doing what you would expect a major media organization to do with an expensive start-up acquisition: they are trying to make it contribute to the bottom line. These objectives often do not align closely with the innovative vision that drive start-ups to scale and market profile, though usually not to profitability.
Spain’s piracy problem appears to be testing content owner’s patience. Sony Pictures’ chairman Michael Lynton was reported yesterday as saying "People are downloading movies in such large quantities that Spain is on the brink of no longer being a viable home entertainment market for us."
Spain has long been the content piracy hub of Europe, both online and offline. Online music file sharing stands at over 30%, that’s more than double the European average. Movie and TV file sharing in Spain are both more than three times the European average. It is no coincidence that during the Spanish recorded music industry lost half its value last decade.
But that doesn’t justify Mr Lynton’s position. Like it loathe it (and if you’re a content owner it’s probably the latter) Spain is the shape of things to come. By that I don’t mean everyone is going to become a BitTorrent user, but consumers’ relationships with content is changing irrevocably. They increasingly just expect content to be there, and – also in growing numbers – don’t expect to pay a per unit fee for it. This is the Media Meltdown.
Instead of creating some sort of creative trade blockade around Spain – which of course will just force more Spaniards on to P2P networks to find Sony content – Sony and other content partners should invest their time and efforts instead on making Spain a test bed for content monetization models in the digital age.
The simple fact is that CDs are perceived to be too expensive for many consumers. CD price changes will bring some much needed momentum back to CD sales but – and it’s a crucial ‘but’ – it won’t halt the decline. Instead it will slow the prolonged demise. The CD is a dying music product format, but it has some life left in it because downloads haven’t generated the format replacement they were expected to. With all previous music formats the successor format was firmly in the ascendancy by the time its predecessor was in terminal decline (see chart below). So until the online marketplace gets its act together there’s a stay of execution for the CD. And the labels need this breathing space, because the core impact of online’s under performance is that the CD paradoxically remains the bedrock of revenue.
There’s still more distance to go with CD pricing though. The next crucial step is tiered products with a basic product at c $5, the standard at $10 and the deluxe at $15. We’re some way off that becoming reality, but it will - and must - happen some time in the next few years if maximum extended life is to be squeezed out of the shiny little disc.
Pink Floyd yesterday won a court battle with EMI over the label’s ability to sell individual songs from the band’s albums in digital format. There’s a fair amount of debate about what sort of precedent this may set and its implications for the broader digital music market. In my view though the ruling is an unfortunate and retrograde step that reinforces many of the 20th century shackles that continue to prevent the 21st century music business from truly breaking free of its analogue past.
As I proposed in my Music Product Manifesto, the future of a successful music business - if there is to be such a thing - depends squarely upon radical product innovation that follows consumer demand rather than try to dictate it. The world has changed markedly since the days when the needle was cutting grooves into the master lacquer of ‘The Dark Side of the Moon’. In those days the record labels had a near-absolute monopoly of control of distribution. If you wanted to have a copy of ‘The Dark Side of the Moon’ you had to buy a copy in your local high street music store. But in the digital age the audience has complete control. If a modern day fan only wants to download ‘Money’ they have the freedom to skip the other 9 tracks on the album. And it doesn’t matter if Pink Floyd have succeeded in stopping EMI from selling it that way, because if iTunes doesn’t let you download ‘Money’ on its own then BitTorrent certainly will.