What is interesting in the current scramble for the killer online music business model is that there is an implicit assumption that the only place people would want to go from the CD is online or mobile.The iPod heralded a new paradigm in music consumption, but it has done little to counter the impact of the CD's terminal decline and may even have helped accelerate it.
As things currently stand, the mass market music consumer isn’t being catered to with any form of new product and the fight for these consumers’ living room is being lost.It wasn't too long ago that the home hi-fi system was the flagship piece of living-room technology but over the past decade, living-room tech spending has shifted firmly to the TV while the aging home hi-fi system is either gathering dust or has been replaced by a docking station. (The latter of which is an awkward attempt to make a personal device a household device, and besides, the majority of households don’t even have one).
EMI have announced the launch of Abbey Road Live, a service that records high quality audio and video footage of live concerts and produces take away CDs, DVDs and USB sticks for concert goers.Though this may not be as big a headline grabbing story as MSN Music’s attempt to take on Spotify, it is illustrative of an arguably much more important trend.
Forrester clients and other regular readers of this blog will know that we’ve spent much of this year developing our big idea about Media Meltdown and the associated series of research documents.(For those not up to speed see this blog post and this report and this report.)The overly boiled down summary is that traditional media companies are having to reinvent themselves as consumers’ willingness to pay for content nosedives.Hence 360 deals etc.
There are numerous reports that Google is about to launch a music service. Whether the rumours have foundation or not I think it is worth reflecting on what role Google could play in digital music and their various assets. Here are some initial thoughts:
Google is already a major player in the online music space via YouTube (in Europe, the home of Spotify, more people watch music video online than listen to streaming music)
Google shouldn’t (and probably won’t) try to be an ‘iTunes killer’. The bottom line is that the iTunes / iPod / iPhone ecosystem is successful within that niche, but it is just that, a niche. The 99 cents download model isn’t a mass market proposition
Google has its Android asset to leverage, potentially ensuring it is a truly cross platform music play
Google is in a unique position to target music demand at the earliest possible stage i.e. when consumers start searching for music
The last point is where I think Google’s core value proposition for the music industry comes in. Apple can do little about iPod owners downloading from BitTorrent (and our survey data shows they are very likely to do so). But Google on the other hand can.Just imagine if when a consumer searches for a song, alongside all of those Torrent results is a heavily integrated Google music offering.
As I referenced at the end of my previous post, Spotify – the European streaming music service – has struck a deal with UK mobile operator 3, bundling the cost of their premium subscription into the phone tariff.I’ve done a few press calls on the story today and the recurring question has been “where does this leave Nokia’s Comes With Music”.
Although the business model and value proposition are very different in many respects (thus suggesting risk of direct competition is low), there are also many similarities. Both offer unlimited music free to the end consumer, and now both are mobile. The distinctions between streaming and downloading is becoming increasingly irrelevant to end users (though rights bodies will continue to obsess about the distinction). The differences the consumer feels are of course what matters.Given that CWM and Spotify have comparable catalogue, the key differences between fully subsidized mobile offerings will be:
With paid music downloads falling far short of offsetting the impact of declining CD sales, next generation subscription services need to succeed if recorded music sales are ever going to come out of their nose dive.There is certainly lots of supply side activity, with services launched or announced in the last year from, Nokia, Spotify, TDC, Sky, Virgin Media to name but a few. And the incumbents have been busy reworking their offerings (cf Napster’s new 50%-price-cut-with-MP3s play).
Music subscription services have a lot of history but not a huge amount of success, so what gives the current new crop any chance of survival, let alone success?The key will be hiding some or more of the cost to the consumer and adding real value.The bottom line is that many consumers are simply unwilling to pay for music and even fewer are interested in paying a monthly fee for it.So success lies in making the services free or ‘feel like free’ to the end user, subsidizing the costs through savings to, or increased revenue from other core products.TDC, the Danish telco, has pioneered this approach with its free-to-consumer service that is available only to its customers.(A cynic might argue that Spotify is doing the same, subsidizing its free offering with VC funding!)
Finally we get to see some fruits of the labour of the protracted negotiations between the UK music industry and the ISPs.Sky’s long mooted service - Sky Songs - will go live on the 19th October with content from all the majors, powered by OmnifoneIn doing so Sky brings three major assets to the table:
a scale of marketing clout and expertise that other music subscription services could only dream of
proven and deep understanding of packaging and marketing entertainment products
a large installed base of premium customers to target
At launch the service is to be marketed to all UK broadband customers rather than explicitly to Sky customers. This gives a wide addressable market, but it does mean that two other key assets are currently untapped:
bundling this offer with Sky TV packages
integration with Sky’s hardware
Sky does though, leave these as distinct possibilities on the road map, which is very wise as they could prove to be the secret sauce that could make Sky Songs a success.
Sky also do one other very smart thing that will stand them in good stead: they enable customers to ‘dip in an out’ rather than locking them in to a year’s commitment.This is added to competitive pricing:
As we’re now 100 years on from the first commercial album release with recorded music sales plummeting, the time has come for a radical overhaul of the recorded music product range. We believe that future music products will need to adopt a platform-agnostic world view that encompasses powerful and social interactivity to empower consumers to create their own unique experiences.
It is time to build music products around consumer needs, not business needs
That might sound like a truism, but so much of current digital music innovation falls short of this crucially important value.This is why Forrester proposes a Music Product Manifesto of six basic consumer music rights that digital products should embrace.These are spelt out in detail in the report, but include principles such as:
Granted we’re not comparing like for like here. Many (most?) of those App downloads will be free, and the iTunes platform is mature now, whilst it was nascent during the emergence of the music store.Indeed, the App Store’s success is built upon the prior success of the music store.
But even with those caveats aside, it is worth considering that whilst all iPods and iPhones support music store downloads, only 24 percent of all devices sold support Apps (i.e. the iPhone and the Touch). Put a different way, to date the total number of iTunes tracks per sold supported device is just over 39, whereas the total number of iTunes Apps per sold supported device is 40.
So in just over a year the App store has reached the same maturity of adoption among its addressable device audience as the music store took 6 years to reach.
This doesn’t mean that music downloads are dead: at 8.5 billion downloads to date Apple music store is more than 4 times as successful as the App store in absolute terms. But in the context of potential, momentum and addressable audience adoption, the App Store is setting the pace.
The question may sound excessively controversial, but perhaps less so when worded in another way:
Where should the product development balance be struck between consumer wants and business imperatives?
All consumer products should meet the needs of the target consumers right?Well yes and no.Of course if you fail to meet consumer needs a product will fail.But at the same time not every consumer demand can be met, certainly not at a price that those same consumers would be willing to pay.For consumer product managers at consumer electronic companies these will be highly familiar concerns.But now media companies are finding themselves thrust into a product manager’s crash course.
Throughout the peak years traditional media companies didn’t have to worry too much about product innovation.They focused on their core competencies of developing great content, and then marketing and programming it.In the age of the Media Meltdown though those assets alone just aren’t enough.The fundamentals of many media products need wholesale review (see my previous post for some specific analysis from the music perspective.)But most media companies will find themselves needing to take a much more proactive role in this process.
Apple is all of course all about selling devices.But part of that strategy is building compelling user experiences that establish and reinforce the value of usage scenarios of their portfolio of devices.This is the context into which to consider approving the Spotify app, enabling posting of iTunes song information into Facebook and Nano captured video into YoutTube.From that perspective Apple is playing a smart game that builds the social context of their devices as explicit extensions of the value proposition of the iPod an iPhone ranges.