Posted by Mark Mulligan on November 10, 2010
It’s becoming clear the music industry’s product strategy needs an overhaul. CD sales are continuing to tank, download sales are slowing, and subscriptions remain stuck in a niche. The problem is worsened by the fact that the investor and start-up communities are wising up to the fact it is increasingly just not worth the effort to launch a store or service that requires costly – often crippling – rights licenses.
Perhaps the greatest fault with the music industry’s product strategy was its failure to harness the disruption of free quickly enough. By the time it did begin to, far too many customers had already been lost. Regular readers will know that I firmly believe the record labels’ best hope is a radical and ambitious strategy of transformational product innovation which embraces the disruption. That disruption takes three key forms: free, social and interactivity.
Against this backdrop, I was intrigued to see two developments which come at the problem from different directions.
Firstly there is UK free music start-up We7. Long stuck in the shadow of Spotify, We7 have quietly plugged away in true understated British fashion at building a profitable free music business. Those costly licenses are making it just as difficult for them as Spotify to make the economics of legal free music pay. But today they announced the launch of a new product tier ‘Radio Plus’. Essentially a UK equivalent to Pandora with additional (and to be fair, differentiated) features, it is We7’s attempt to edge more of its customers into a product tier which will reduce its operating costs whilst meeting the long-term proven demand for programmed content. Personalized interactive ‘radio’ is an important part of the broader music product mix. We7’s ‘Radio Plus’ launch will also give the labels a chance to see how well a Pandora-like service can fare alongside on-demand free music services, thus allowing them to better judge how hard Spotify may hit Pandora if launched in the US. (Pandora’s Tim Westergren is reported as saying ‘not a lot’. I think ‘quite a bit’ but not ‘all’.)
Secondly comes TDC’s Play service reaching the 250 million downloads mark since launch in April 2008. That translates as 45 songs for every single Dane! You didn’t read wrong. The usage is astounding and shows what can happen when you make music feel free by subsidizing the costs. Perhaps equally astounding is that TDC is continuing to make the service available free of charge to its customers. It does so because it has reduced churn rates by 50%.
With download sales slowing on one hand and the economics of free not adding up on the other, the third way of subsidized music services that make music feel free has got to be the mass-market solution to music product revenue. I just can’t quite believe more of this hasn’t yet been done yet. TDC’s metrics make a pretty compelling business case.
Neither We7 nor TDC are the entire answer, but that of course isn’t the point. The future of music products will be defined by one size not fitting all. It will be a sophisticated mesh of these types of innovative products which will segment around diverse consumer groups.
Music products are dead; long live music products.