Thursday, 24 September 2009

Do all music ventures have to be digital now?

Almost there in a week of asking some searching questions, the next question might have to follow next week, as I want to comment on The Beatles but have yet to work my way (joyously) through the remasters. I need the weekend for that! This post is a little bit long (I know my posts are not too short). But it's still ten minutes with a nice strong coffee - take your time...

The web is wonderful. It has done the most remarkable things for music. I haven’t read one of his novels, but I couldn’t say it better than Nick Hornby when it comes to what the web has done for music and for music fans.

But, as Hornby alludes to in his piece, has the web been good for the music business? In the wild west of web commerce look at how many music related ventures have come and gone, with barely a trace left to even learn valuable lessons from. At the start of this year, MusicAlly listed no less than 200 music start-ups from 2008 (not an exhaustive list) and I can’t bring myself to skim that list now to see which of those are still in the game.

But why is the universal assumption now that all new ventures involving recorded music have to be digital? I know it’s a dumb question. But then it’s not that dumb. Any investor or entrepreneur will know that a contrary strategy is always worth a look.

Prevailing market trends point to online, mobile and gaming platforms for sure – particularly with apps invigorating the mobile sector – a true breakthrough there. However, the assumption that music – or any content for that matter – will migrate from physical to digital in a steady linear fashion (at whatever speed), could well be wrong.

It’s something all content industries are assuming to a greater or lesser extent. There will always be newspapers, magazines and books, but music and film is a bit more difficult to imagine in a physical form in the longer term.

But the longer term could be quite a while. At this stage, the majority of music consumers will not let the CD go, especially but not exclusively, the older demographic. From recent UK research by Speakerbox - 85% of music buyers buy CD, with BPI data confirming that just 10% of buyers now buy digital. Recent work I have been involved with confirms something I first measured at IFPI and long suspected before that – many music buyers try digital (primarily through iTunes) and don’t actually like it, much. So they go back to CD, even if reluctantly.

When music (and other content – for example news) is consumed online, the experience changes. Online ‘dwell times’ are often measured in just minutes per month, whereas actual music listening is in hours per day. The digital experience of consumption switches to a more fleeting, contextual experience (strange then when so many services strive or claim to be ‘immersive’) – very different from playing back an album.

With mobile, the impact of apps may now drive more consumption this way – a constant pecking away at a smattering of content, rather than a settled, focused listen on something you carefully chose to invest in first. On the other hand – breakthroughs in metadata based apps like Cocktail & CMS may yet make digital more genuinely engaging – maybe.

What’s remarkable is that there have been so few successful ventures in music that – rather than get in painfully ahead of their time and then painfully run out of operating cash – have transformed consumer benefits on the basis of consumer habits now. The alternative in movies is LoveFilm, a phenomenally successful young business that obliterated the inconveniences of movie rental, but was smart enough to do so leveraging the standard format of now – the physical DVD. LoveFilm can get to digital movies later, there’s no point running if your punters are still walking.

However, when you do look, the recent track record of consumer-facing non-digital music ventures is awful. The lack of no new physical format successor, the demise of music retailing thanks to online competition and the general erosion in the value of music and low motivation to pay, just seem to kill any good idea in its tracks. Let’s briefly look at some, first, format based innovations:
  • Slot Music. Sandisk’s commendable but ultimately surely doomed, effort, to somehow embrace digital but still keep the inanimate object element intact. You can see what they were thinking: free DRM, nicely restrict the content to bite size chunks, keep the album intact, provide consumers with a little extra utility – some good features. But it’s not clear who it’s for.
  • Similar, USB albums. Launched by Labels with Universal giving it a fair go, USB’s certainly have novelty value. It’s a standard format for PCs, so no issues there. But it just about stops there.
  • Warner’s various attempts at new CD formats didn’t work either – too niche and marginal of benefit. With lack of industry-wide support the development has gone a bit quiet.

Now some non-digital music ventures:

  • Starbucks Hear Music. This looked clever to me at the time. Why not leverage 14000+ prime retail spaces and a high-value, high-footfall user base to sell them music – something that also fits perfectly within the ambience of the coffee house concept as well. But then it got a few things wrong. Why the CD burning booths? Why make a move into A&R when it’s such a tricky area? Then the recession came and that was that. It’s a shame – I still think coffee & music works – that’s what this blog is kind of inspired by after all!
  • Music Zone ‘Bugs’. Music Zone (a fleetingly successful UK ‘discount’ music retailer, a bit like Fopp – and with similar subsequent operating difficulties) wanted to introduce ‘pod-like’ CD booths in busy travel hubs. But MZ didn’t even get the concept off the ground before its main business went bust.
  • In the US, both Nordstrum and Downtown Locker Room began retailing a selective set of CD titles, sometimes exclusively and with special packaging. It made a rumble then petered out.
  • Finally, for a while, the industry pondered Kiosks. To my mind, CD-burning or iPod filling Kiosk’s where a hopeless folly. The last thing a consumer needs when filtering their music, is time pressure and the last thing a retailer needs is a consumer taking all the time in the world to spend $10.

These are just some of the failures and you can see their problem was being limited largely by format, combined with a good dose of strategic and operational errors. There successes:

  • Hot Topic. This was (I hope still is) a phenomenally successful US-based merchandise chain based around ‘emo’ & ‘goth’ – two pretty evergreen, high value genres (shock market insight – young consumers will spend money on, and around, music!). Its secret was targeting that cultural group, with a neatly executed concept. And of course, though music centered, Hot Topic sells mainly merchandise. The company’s attempts to expand into the digital music space have looked less impressive however.
  • Rough Trade. A flagship record store in a thriving area of East End London, plus a moderately successful, against-the-grain mail-order CD club (The Album Club). It’s a heritage brand that for the time being prevails and appeals to a good segment of ‘real’ music fans.
  • Amoeba Music still goes strong as it mops up the detritus of what’s left of US CD retailing, though you have to wonder how long it can maintain its vibrancy.

Meanwhile in the UK, the last man standing HMV Records seems to be getting the smarts - albeit by diversifying from physical recorded music - investing in a network of live venues and most recently acquiring solid digital music business 7 Digital. But mainly, HMV has done okay by selling more & more stuff that isn’t CDs.

I think physical music could still do well where it can be aimed at pockets of high-value culture – like Hot Topic and Rough Trade. Combining a physical indie music store with graphic novels perhaps? Banning jewel boxes outright, definately. Or maybe someone else can have a go at Music & Coffee, but execute the concept better than Starbucks did. Could Kerrang! Do a similar thing to Hot Topic aimed at the hard rock sector – another high value segment there for the taking in the UK?

The marketing criteria would seem to be a product range relating to but not exclusively, recorded music, a clear cultural segment to aim at, and good branding & execution. Not an easy formula.


Jon Smirl said...

If we make the assumption that the RIAA will license music on terms that don't result in 198 out of 200 startups failing, what will the music landscape look like ten years from now?

Will the CD will be dead and physical goods (like box sets) and live performance be doing well? How will Joe Public be listening to music?

Penny Distribution said...

I think there's a link to why Amoeba and RT continue to be successful, and why Starbucks failed - authority.

Starbucks baristas can barely make a latte, rather than advise whether Joni Mitchell's remasters would be better than Evan Dandos acoustic CD. Yes, you have MASSIVE foot-traffic and a limited amount of selection, increasing the liklihood of a someone picking up a CD on a whim - but you don't TRUST Starbucks to not sell you an album full of filler.

RT & Amoeba are trusted, so when they say "Amoeba Recommends" you can at least know that someone on the *carefully selected* staff has at least listened to the record, rather than some chump back at HQ.

Also had to give a big shout out to Atlanta's EXCELLENT Criminal Records, who've taken the RT & Amoeba route and have created a kick-ass record store.