We7 And TDC: Two More Steps On The Path To Transformational Innovation

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.


We7 radio is just last.fm radio

There's nothing new about We7's radio, despite puffery to the opposite effect. We7 takes its radio recommendations from last.fm, to the point that if you compare both radios' output for the same artist the playlist that is returned is highly similar (try it with 'The B-52s'). Last.fm's radio has a few more features, such as multi-artist select, so given the lower subscription cost for that service We7 surely can't expect to attract many new subscriptions this way. As for Pandora, it remains a better option for music discovery. How its 'Musical Genome' project is implemented is unknown to me but its features are more sophisticated and its finds less obvious and more wide ranging. We7/last.fm aren't close so far as radio is concerned.

Will the next 'big' announcement we see from We7 be the end of on demand streaming, which is apparently about three times more expensive to license than radio? That has to be a good bet and another good bet in those circumstances would be a large drop in its subscriber numbers.

Innovation doesn't need to be invention

We7's new offering isn't something entirely new, and indeed I stated that it is essentially a European take on Pandora. But innovation doesn't have to be invention. In fact it is usually the evolution of an existing technology, applying new practices and use cases. Which is what We7 is doing here.

Last.FM and Pandora have a lot of similarities, even if they come at the problem form entirely different directions: Last.FM use Scrobbling to use meta data to create music discovery whilst Pandora use a team of students to manually collate music attributes. Both are valid approaches, though one obviously scales more easily than the other.

Music discovery remains a barely tapped seam of opportunity. And before you tell me there are many many solutions out there, they collectively still hardly scratch the service. Added to that they remain predominately the domain of music aficionados. The music market needs a mass market discovery solution that delivers.