Taking Digital Music To The Mainstream: The Music Product Features For The Living Room

[Posted by Mark Mulligan]

Follow me on

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tech spending has shifted firmly to the TV while the aging home hi-fi system is either gathering dust or has been replaced by a docking station.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).

 

The time has come for new music products and experiences that cater for the mass market and that - for the non-tech savvy majority - bring the home music experience into the 21^st century.  In our latest report ‘Taking Digital Music To The Mainstream: The Music Product Features For The Living Room’ Forrester puts forward a vision of what we think is needed. 

 

We propose that the new mass market music experience must be explicitly part of a new hardware experience that is contemporary but highly competitively priced.  Our conceptual technology is a hard drive, midi-sized music hi-fi that with a detachable touch screen display / remote control. We argue that the new hardware must:

 

• Deliver a compelling experience even if not connected: it’s just too risky to assume that mainstream consumers will have the inclination or know-how to connect a music product to a home network, even if they have one.
• Include extensive music at point of purchase: this is, we think, the crucial element.  Mainstream consumers don’t have the appetite for another format replacement cycle, so we suggest the device should effectively replace their entire CD collection and add more, all for the cost of the device.  (And yes, we know this is light years away from where current licensing values are). And in case you didn’t notice – we just invented a new music consumption paradigm here, and a new role for retail.
• Provide the tools for baby steps into the digital world: for those consumers that do connect we propose a convenient range of digital discovery and acquisition applications to encourage consumers towards the digital arena.
• Leverage telcos: we want these devices to be affordable, but to really go mass market they probably need subsidizing by a telco e.g. a Sky Songs broadband package would include the device bundled with the router.

 

Of course there are many other ways this challenge can be met, but met it must be. Unless the music industry enters the battle for the living room, it will soon lose it — and with it the mainstream music consumer.

If you are a Forrester client and would like to discuss the report in more detail then please schedule a call with our client inquiry team.

If you are press and would like more information on the report please email Press AT Forrester DOT COM

Why EMI's Launch of Abbey Road Live is a Peek into the Future

[Posted by Mark Mulligan]

Follow me on

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.

 

But why I like this EMI announcement is that it isn’t just about revenue diversification, it’s about recognizing which of its assets consumers still attach core value to an building around that.  For the music industry, live is one are where consumers still clearly attach a massive amount of value: a ticket for a U2 gig for example can work out more than ten times more expensive per minute than buying the entire back catalogue on CD.  

 

So in the context of the Media Meltdown, where online availability of content has washed away true scarcity for good, media companies need to coalesce around where consumers retain value (see chart below).

The reason that these events have value is because they are unique – their value comes from the personal experience in the here and now. The EMI Abbey Road Live venture explicitly builds upon this theme by giving consumers the ability to extend that unique experience into their homes and MP3 players.  

 

Rebuilding the media industries won’t exactly be an easy task, but what is clear is that there are vital assets that can form the basis of new, important revenue streams.  It is not so much a case of media businesses dying as of media companies building new media businesses around their core media assets.

 

This is a topic I’ll be talking about in much more length at Forrester’s forthcoming EMEA Marketing Forum in London.

 

I’ll be presenting on the 17^th November at 2.00pm on the following topic:

The Digital Transition Of Media: How Media Will Never Be The Same Again

I hope too see you there.

What Google Could Bring to Digital Music

[Posted by Mark Mulligan]

Follow me on

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.

 

Whether or not there is any substance in the current rumours, Google could play a major role in online music.  What will be at front of mind for them though will be learning their lessons from YouTube, i.e. not hemorrhaging cash and not getting bogged down in rights holder spats.  If they have the appetite for it Google could bring something new and incremental to the digital music equation.

Spotify: Comes With Music's Latest Threat

[Posted by Mark Mulligan]

Follow me on

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:

 

1. Ownership of the music
2. Amount of music you can play ‘offline’
3. The device / service experience

 

The latter is what will really count.  Ultimately what people want from a mobile music experience is something that works well as an extension of their device (compared to a PC centred experience where demands and expectations are higher).  In effect mobile music services have to work well as a feature of the handset. So Spotify and CWM both need to achieve deep handset and operator integration (e.g. permanent home screen buttons etc.) to make the experience feel like an integral feature of the phone experience. If either achieve that, and create a compelling business case for operators, they’ll stand a good chance of success with multiple partners, by being a feature rather than a service.

Music Subscriptions wherefore art thou?

[Posted by Mark Mulligan]

Follow me on

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!) 

 

TDC Play has enjoyed strong adoption (100 million downloads in 15 months, not bad for a country of just 5 million, and yes, that does translate to 20 tracks for every single Dane).  Crucially though, TDC reports that Play is delivering strong benefits to their core business, which in the end is what the service is all about.

 

But not everyone is having so much success giving music away to consumers (you’d think it would be a straightforward enough task right?).  Reports have  emerged that Nokia has acquired just 100,000 Comes With Music subscribers across 9 international territories, one year after UK launch.  I remain a firm believer in the Comes With Music business model and value proposition (free unlimited music on your phone and PC that you keep for ever, the entire cost hidden in the handset and tariff).  But there is not question that 100,000 subscribers after one year is nowhere near enough return for Nokia. Nokia needs to up its game, (and indeed is doing so) because if they don’t someone else will.

 

Mobile is becoming an increasingly important element of the next gen subscription services. Spotify are using mobility as they key driver for their paid offering and are even playing the subsidized game as well with a partnership with 3 in the UK.

 

There is no lack of service innovation, but there needs to be some consistency in the experimentation. For example, what value does Sky Songs deliver for 7.99 GBP for unlimited streams and some MP3s that Napster doesn’t for 5 GBP? 

 

Continued product innovation will of course be key to feels-like-free subscriptions becoming a success, but unless this is done within a consistent framework, consumers will remain largely disinterested except for the occasional service that gets its positioning right (e.g. TDC).  Whilst that would be good news for a few companies, it could be little short of catastrophic for the music industry.

Sky Songs: First Take

[Posted by Mark Mulligan]

follow me at Mark_Mulligan

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 19^th October with content from all the majors, powered by Omnifone  In 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:

 

• pay £6.49 and download either a £6.49 album or 10 songs, and receive unlimited access to listen to over four million songs online for one month; or
• pay £7.99 and download either a £7.99 album or 15 songs, and receive unlimited access to listen to over four million songs online for one month.

 

I can’t emphasize enough how important the ‘dipping in and out’ should prove for Sky Songs.  UK and other European consumers have proven largely unwilling to pay premium subscriptions services and even in the US no premium music subscription service has broken the 1 million subscribers mark.  Napster’s recent price slashing is indicative of the challenges facing the incumbents.  The bottom line is that most music buyers don’t spend the amount of money that a monthly subscription fee is equivalent to, however good value for money it might be.  The annual cost of Sky Songs would be £79 or £96. By way of comparison per capita annual music spend in the UK is just £2 whilst the average spend per UK music buyer is closer to £6.  And the unlimited streaming part isn’t that much added value anymore: Spotify’s UK success has made free streaming table stakes, not a premium add-on.

 

All of which is why Sky’s decision to allow customers to effectively use the service as a good value a la carte album purchase with free streaming is so smart.  But I hope they’re similarly smart to market it that way as they educate the customer base.  Sky almost single handedly educated the UK market about the concept of TV subscriptions, now they need to do the same for music subscriptions. 

 

Music subscriptions looked like a dead man walking in 2008, but over the last couple of years the space has had new life breathed into it with a series of next generation iterations, including:

• Nokia’s Comes With Music
• Spotify Premium
• Virgin Media’s Unlimited MP3 service
• Datz Music Lounge
• Music Station
• Sky Songs

 

All of these differ markedly from each other, and that is exactly the point.  The days of the 9.99 rental streams as the future of subscriptions are gone.  The mantra of one size does not fit all applies keenly to the music subscription space.

 

This isn’t to say Sky Songs will be an instant run away success – it will probably spend a while fine tuning its proposition and positioning – but once it starts leveraging all of its assets it stand as good a chance as anyone of making the model work.  Perhaps most importantly, it heralds a crucial shift in the role of ISPs from fat pipes for illegal downloading to conduits for premium revenue.  The outflow of industry value down the ISPs pipes might finally be changing course to a partial inflow of value.

 

Forrester has recently published a report on ISP music services.  Clients can read it here.

 

Music Product Manifesto: The Product Features That Will Save Recorded Music

[Posted by Mark Mulligan]

follow me at Mark_Mulligan

Forrester has just published the above title reported, the first in our new ‘Media Product Innovation’ series.  Following on from the strategy laid out in ‘Music Release Windows: The Product Innovation That The Music Business Can’t Do Without’ this report proposes some tactical implementations of that strategy.

 

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:

 

• The right to great consumer experiences first (and business models second).
• The right to unique music experiences.
• The right to share in the creation process.

 

I mentioned earlier that the report has a strong tactical focus, and it does, so strong in fact that we actually scope out our ‘show home’ of the future music product (see below).

As you can see this looks a lot like a mobile application.  This is because we believe that powerful interactivity is going to be key to successful future music product innovation.  To such an extent that the consumer is empowered to make the experience their own and to bring their connected friends into that unique experience.  And yes, a touch screen  netbook would be the perfect form factor for such a product...

 

I hope I’ve been able to give you enough of a flavour of our vision here.  If you are a Forrester client you can read the entire report here.  If you are press and are interested in writing up a story you can contact our press team at PRESS AT FORRESTER DOT COM.

 

And of course, I’d love to hear your thoughts directly here on this blog.

Apple's App Store vs Apple Music Store: The Race is On

[Posted by Mark Mulligan]

follow me at Mark_Mulligan

Apple today announced that 2 billion Apps have been downloaded from its App store in just over a year.  The App store has taken just 5 quarters to hit the same milestone that the music store took 14 quarters to reach (see chart below).

 

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.

Vodafone 360 is a Major Strategic Play for Handsets & Mobile Internet

By Ian Fogg (bio, recent research or follow me on twitter)

Vodafone has just launched a major new initiative called Vodafone 360 (release, with the new 360.com website to follow). Key points:

• Integration with social networks for an online address book and content sharing.
• Combination mobile handset + 360.com cloud service strategy.
• Single sign-on for customers or non-Vodafone customers. 360.com website available to both.
• Deep handset integration: two new Linux LIMO handsets with "full fat" experience (made by Samsung). Lesser version pre-loaded onto a number of Symbian Series 60 handsets, downloads and other versions available for around 100 handsets.
• Also includes an App store, new mobile web portal, music service, and maps service.

I'm working on a quicktake report. But this is such a major initiative with wide ranging scope, that I'm extremely curious in what others think? Specifically:

• How well positioned are operators to implement a social strategy with such deep handset integration, compared with handset makers, or the Internet social networks themselves?
• Was Nokia's OVI initiative a lightning rod that distracted many from other handset maker initiatives in this space? (Like Motorola's Motoblur, HTC Sense, Google & Android, Microsoft Myphone, or Apple's MobileMe?)
• Is 360 a better umbrella name than "Vodafone Live!" ?
• Thoughts on how well 360 fits with Vodafone's new corporate tag line, "Power to you" ?

Comment below! I'm here and will reply as appropriate.

Can Media Products Ever Actually Deliver What Consumers Want?

[Posted by Mark Mulligan]

follow me at Mark_Mulligan

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. 

This is because media companies can’t rely on the technology companies to do the product innovation for them anymore.

Historically technology companies have driven the format evolution of media consumption e.g. record player, the Compact Cassette, the CD, VHS, the DVD, High Definition TV etc. Typically the media companies had to play a hasty game of catch up as they worked out what business models they could build around them (and they didn’t always do so willingly cf cassettes, VHS) but the outcome was almost always a new premium media product.  Which in turn normally drove unprecedented revenue growth.  Now though, a major change has occurred. 

Now that all content is (or can be) digitized for, and by, consumers the focus of technology companies is on creating devices that enable convenient consumption and management of that digital content.  The subtle but crucial difference is that this technology is no longer dependent on a centrally controlled, formal source of content supplied by the media companies.  A record player and a CD player were both close to useless unless you bought some prerecorded music to play on them. An iPod works just fine as a music player even if you've never spent a penny on music in your life - it's just as great an experience whether you download from UseNet or buy CDs from Amazon.  New technology innovation doesn’t any longer create obvious product opportunities for media companies.

There is a clear need for technology companies and media companies to establish new types of partnerships and deeper working relationships to ensure that they can ultimately better meet their business needs.  Otherwise you end up with half hearted efforts such as the iTunes album.

Yet in the face of rampant free alternatives, how can a media company develop products that deliver enough value at a cheap enough price (perhaps even free to consumer)?  The cold harsh reality is that free illegal alternatives will always beat a legitimate service on price and will probably trump it on content depth also.  There are though other ways media companies can differentiate.  Regular readers will know that we've been developing a framework for digital content product development based on the 4Cs of Digital Content: Content, Convenience, Cost and Community. Media product innovation based around these 4 principles will be the media companies' ticket out of the Media Meltdown

To this end Forrester is kicking off a series of Music Product Innovation reports that will put forward some very specific concepts of what future media products should look like.  The first one will be published soon and is entitled ‘Music Product Manifesto: The Product Features That Will Save Recorded Music From Its Impending Demise’.  (Watch this space for more details).

As we embark on this programme of research we’re engaging with the marketplace and digging deep into our consumer survey data to help us plot out future scenarios.  As part of this process we’d love to hear your thoughts.  So let us know what you think, whether you’re a media company, a technology vendor, a device manufacturer or you’re simply interested in the topic.  Either way we want to hear from you!