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).
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.
In a couple of days’ time the doors will close on a decadum horribilis for the music industry. Although recorded music revenues actually grew in 2001, the seeds of the forthcoming whirlwind were already well and truly sown. In fact one single event can be identified as the trigger: the launch of Napster in 1999.Of course other seeds had also taken root in the late nineties, including the launches of MP3.com, the PMP300 and the MPMan.But according so much importance to Napster is more than a useful construct for the historical narrative: Napster was more than just a metaphor for the transition from the distribution era to the consumption paradigm, it was the crucible of the music industry’s 20th century meltdown.
2009 saw some solid progress made in various digital content marketplaces but it is too early to start talking about the green shoots of media recovery.The Media Meltdown (the process by which media industries are disrupted and reshaped by digitization of content) will continue to claim scalps throughout 2010 as digital content revenues do little to offset the impact of plummeting physical media sales and as analogue dollars crumble into digital cents.But consumers are not falling out of love with media, rather they are growing tired of paying for its 20th-century product iterations (and those 21st century products that try to reinvent the old products in a digital context).A new framework for media product innovation is now required to align media industry content assets with 21st-century consumer behavior and demand.Forrester proposes what form this should take in a new report ‘Media Product Innovation: Building Products That Thrive In The Media Meltdown’.
The core asset that media companies own is of course the content itself, but Content is no longer king. Or, at least, its throne is no longer undisputed. Instead, content is busy fighting off the republican advances of the channel. ISPs and mobile operators use content to fill their pipes, technology companies to fill their devices, and brands to help sell their products and to meet their branding objectives. The hierarchy is clear.
Lots happened in 2009 but it wasn’t a vintage year for digital music (in fact it was the year it well and truly lost the digital buzz to eReaders). All in all I’d give 2009 a 6 out of 10, with the launch of Spotify accounting for at least couple of those points and the following as the 5 key disappointments:
Comes With Music under-whelmed (as did Play Now plus)
ISP services didn’t get off the ground (including unlimited MP3’s nearly but not quite moment)
Apple’s new killer music format was….oh iTunes albums
imeem gave a master class in how not to make money out of social music
The big boys (MySpace, Apple) snapped up the innovative competition (Lala, iLike, imeem)
So will be 2010 be any different?Though I don’t think it will be the year digital music will really come of age (that’s at least a couple more years away) I do expect it on balance to be a stronger one than its predecessor.Leaving aside the few specific developments I’m not able to talk about here are a few of my predictions:
As the dust settles on Apple’s acquisition of Lalaand MySpace’s acquisition of imeem and iLike it is clear that 2009 is shaping up as the year that the social music marketplace consolidated.The trend was started back in 2007 when CBS snapped up Last.FM for $280 million (though you could make an argument that News Corp inadvertently kicked things off with its $580 million purchase of MySpace in 2005).
So the fact that there is a lot of money pouring into social music shows us this is a prosperous segment right? Wrong.Last.FM’s purchase price contrasts sharply with the reported $1 million that MySpace paid for imeem. imeem was no small fry (it has approximately 30 million users in the US). Instead imeem found itself straddled with the burden of insurmountable debts and a fundamental inability to make its business model work. And therein lies the rub: social music may have audience momentum but the business model is currently broken.
All of which might make it appear strange that Apple and MySpace would want to invest in this space. They are doing so because of two key reasons:
Apple has confirmed the acquisition of streaming music provider Lala.The move is significant (even though Apple appear to be trying to suggest otherwise) because it is one more piece in the gradually emerging puzzle that is Apple’s future music strategy, which for a few years now has remained relatively static.
Why is Apple’s music strategy in need of revision?
If the iTunes Music Store had evolved half as much as the iPod had over the last few years we’d have a cutting edge music service. Instead we have one that remains market-leading in terms of basic functionality (i.e. store to device synching) but behind the curve in terms of experience, discovery and community. Whilst the web threw up the likes of imeem, Spotify, Last.FM, MOG etc. the iTunes Music Store stuck to selling 99 cents downloads.Don’t get me wrong the iTunes store is a crucially important platform that accounts for the majority of the current paid download market, but it isn’t yet equipped to drive the digital music market to the next stage.In its current guise it is essentially a transition technology: with one foot in the distribution paradigm of selling units of stuff, and one in the consumption era of on-demand access.It has done a great job of helping consumers take baby steps into the digital age, but has pretty much reached the limits of its potential as a music service. (You’ll note my continued and fully intentional implied distinction between the music store and the App Store – more on that in a moment).
MySpace today launched its UK music offering, over a year after its US launch.However tempting it is to position this as a Spotify challenger (and the BBC and many others do) it simply isn’t. It isn’t, both out of intent (more on that later) and also out of poor execution (more on that later too).
Music matters to MySpace more than ever before. Why?Because it is has lost the race with Facebook for social networking supremacy, in fact Facebook is about to lap MySpace.But MySpace remains undisputed leader as the global social music destination (a position consolidated by the recent acquisitions of iLike and imeem).If you are a band, you’ll have an artist page because that’s where the online music audience coalesces for engaging with bands. Sure there are better, more innovative alternatives, but MySpace has the momentum and the scale.And if you’re an artist looking to reach audiences that is exactly what you want.Bebo and Facebook have both tried to challenge MySpace’s position here but have not had meaningful success (a recent report indicated that 77% of Facebook fan pages have less than 1,000 fans).
Forrester is currently running an executive survey assessing the ‘state of the nation’ of digital music. We are surveying right across the value chain, from labels, through artists to digital services and companies such as telcos and brands that are working with music. We’re looking at what’s working and what’s not, competing against free and changing business models. If you are involved in some part of the digital music value chain then we’d love to hear your opinions.
All results will treated as strictly confidential and results will only ever be presented a aggregate level.
Forrester’s Marketing Forum EMEA is fast approaching — November 17-18, 2009, in London. I'll be presenting at this event on the topic of 'How Media Will Never be the Same Again'. The presentation will kick of the Consumer Product Strategy afternoon session focused on series of research we're building that deals with the interplay of media, technology and brands. We call it the Media Meltdown. My colleagues Nick Thomas will also be presenting on how the Media Meltdown makes media companies of us all and finally another colleague Ian Fogg will be presenting on how technology companies both shaped and are react to the Media Meltdown. Before Nick and Ian I'm thrilled to announce that Nokia's Tim Grinsditch will be giving an industry key note to the session which will focus on Nokia's music strategy. It is a great agenda and I look forward to seeing some of you there
Elsewhere in the event, other leading Forrester analysts will present on leapfrogging competitors out of the recession, enriching online engagement with customers, and which product and service innovations to be ready for. This event provides a platform where marketing and Customer Experience professionals can share innovative best practices, network with peers, benefit from keynotes and track sessions, and pose direct questions to top Forrester analysts during One-On-One Meetings.