Innovation Papers #2: When will we learn to enjoy our music again?

When I recently pitched up to a publishing meeting in London – hosted by the MPA - to talk about ‘the future of music formats’, I had made a few notes about what music is and what it means to us. I was looking for those deeper insights if you will – an inspiration.

There was much discussion at the meeting about new models – with analysis and comment nicely covering the spectrum we’ve become familiar with – from ad-funded unlimited models to various cloud subscriptions – and talk of apps being the new album, etc.

As ever with these things my view is to look at it from the consumer’s point of view. In recent work on industry innovation (the previously mentioned Innovation Panel) we established the idea of a ‘digital music journey’ – which each and every digital music fan experiences. The journey begins with Discovery – how you find out about a band. It continues with Access – how you first get to hear the track or album. Further – it becomes about Acquisition needs – how you chose to keep or not to keep, pay or not to pay – etc.

So far, so simple. Then it gets much more interesting though. The next part of the journey is Management – how you manage your digital music library. For most consumers this is now the pressing issue – it’s not easy is it? Is all your music digitised? Where? In what file format and to what level of quality? Do you even know? In recent survey work, the industry is finding library management issues are increasingly important to consumers – including storing, arranging, moving, sharing, finding etc. It’s easy to think this is all solved by ‘the cloud’ – to some extent it is. But music fans still like ownership, still like permanence and still like to buy one at a time rather than subscribe.

The Management segment of the journey is really quite critical to all experienced digital music fans, but for me, the final segment of the journey is the most interesting. Enjoyment.

When I added this to the journey diagrams and graphics – everyone – without exception asked “what do you mean by Enjoyment”. I can quip here – that these days by the time we – the digital music fans – have spent endless hours Googling music, browsing on Last.fm, reading tweets about this or that new artist – snacking on tracks on Spotify and We7 – downloading free music from a million and one sources legal, illegal or ambiguous (there is such a thing – blogs for example) – how much are we really, honestly enjoying listening to our music?

I really mean it. For me this is bound up in the perception of music’s actual monetary value.

Music is in many ways the ideal content for digital – but it has one really big problem. For music to be at its most enjoyable it makes its own journey in each of us – from the new to the familiar. In some ways digital has enabled the journey, but in others it is getting in the way.

By way of example, think about your favourite records – your absolute Desert Island Discs – be they albums or songs. You’ve undoubtedly listened to these records countless times. You may actually have disliked some of them when you first heard them. In my own view, in what’s been a vintage year for music this year – the records I’ve enjoyed the most are the ones I’ve become the most familiar with. That, for me, takes at least three plays. If a record gets beyond three it can become endless from there – hence The National’s ‘High Violet’ has easily become my most played album this year – and my favourite.

I have found that digital discovery can make this process – of growing into a record – quite tricky. I’ll use Spotify to ‘preview’ a record (or I might stream it on a blog or download it from a legal free source, which seem to be abundant now). If I’m in ‘hunting’ mode this is less a preview and more a ‘gutting’ session in the way I often do with business books – just rip into it and hope to get a thin slice insight into whether I will eventually like it. This works, up to a point. But it could well be denying me the surprises, the revelations and the growers. I’ll sometimes choose to buy based on this initial instinct – an investment of sorts. But I find I pass on so much of what I sample.

I originally passed on Animal Collective's 'Merriweather' on this basis until I belatedly bought the album just recently. Really, the previewing of records doesn’t work in favour of any of those records that are in any way challenging or require some effort on the part of me, the listener.

I don’t think I would have gotten into The National's ‘High Violet’ through streaming. So ironically, despite the incredible value streaming represents as a music fan – in Access terms – it may have denied me the Enjoyment of a record I can now hardly put a monetary value on – ‘High Violet’ is virtually priceless to me – it’s the gift that keeps giving.

If this is too abstract a concept, let me put a bit more hard flesh on it. There’s a more direct way to improving the Enjoyment part of the journey for digital music fans and we are only just at the beginning in market development terms. If we put aside payment models and formats and think instead about the various ‘layers’ by which music is delivered to fans – there is obvious room for improvement in each and every layer. If we think about digital music in layers – then I suggest for music those layers are as follows:

Layer 1: The Music

Layer 2: The Data (as in metadata)

Layer 3: The User Interface (the presentation of the music to the user, including the recommendation engine)

Layer 4: The Social Layer (user-to-user)

On each and every layer, there is huge room for improvement in the current ways we get music to fans. Just a few suggestions for example:

Layer 1: More complete libraries, higher quality audio files, more live recordings etc.

Layer 2: Amazing metadata: song composer, the ‘story of the song’, track commentaries & liner notes, more simply: song visual data

Layer 3: Personalised home pages, shareable or switchable ‘music channels’, alternative ways to navigate music menus and libraries

Layer 4: Let’s leave this to Facebook, Twitter et al. But shareable playlists and social programming have plenty of room to develop beyond the current open API frameworks

There are new developments in every layer that are worth watching. In Layer 1 – high-end audio equipment makers like Linn now offer lossless 24-bit, FLAC or WAV downloads. I personally was never too convinced of the argument that song quality no longer matters in the age of MP3 files. I think more & more fans are realising it does matter, especially as we want to shift the music to household devices and in-car, where quality matters more than on headphones.

In Layer 2, new players like Decibel are working towards the ‘amazing metadata’ goal, where the marrying of content with context will make a notable difference the user experience – in terms of both library management and arrangement and they way we access information as & when we listen.

In Layer 3, we have brilliant new examples of music presentation, like Awedetorium – the iPad app developed by the team at the Sixty One – an indie brand yes – but with universal functionality in presenting quality over quantity, helping us to manage serendipity and avoid the blinding of choice that comes with searching from a menu of 11m+ songs. In music discovery terms, German research project GlobalMusic2One looks fascinating too and I hope it will bear fruit commercially at some point.

In Layer 4 you can bet that the social network geeks are working on the next mind-blowingly compelling way we can connect to music, through each other, using music. I’ll leave that in their capable hands and remain here to be convinced – I’ll use it if it works for me and helps me with Enjoyment more than with discovery or access.

So for me – in thinking about the future possibilities for music services, we need to begin to think beyond ‘models’ and ‘formats’ and get to the real drivers of why people love their music and what they want from it. Thinking in layers aids this process.

Juggernaut will be back for an essential end of 2010 music review and then for anyone travelling to MIDEM in the New Year I’ll see you there – especially anyone attending my Academy sessions on Tuesday 25^th January 2011.

Unpop.com – the music store that’s different

Before I launch into my solution for ‘music that’s different’ it’s worth pausing first to consider something amazing about 2009 (a year of otherwise distinctly gloomy trappings – a real annus horribilis as The Queen might put it) and it’s this:

2009 is the 20th anniversary year for Real World Records and the 20th anniversary year for Warp Records. It is also the 40th anniversary year for (dare I say the word ‘iconic’) jazz label ECM. And it is the 70th anniversary year for legendary folk label Topic. Of course, joining this label anniversary bonanza are Island Records (50), Bella Union (10) and Transgressive (5).

So one way or the other – music that’s different and/or eclectic is thriving. Though who knows what the bottom line looks like in these labels, there’s no denying their individual and collective endurance – as both commercial and cultural entities.

This is some ten years after Napster of course, when the first declarations were being made on the ‘death of the record label’. What a time for Simon Raymonde to launch Bella Union – a label that has since blossomed as a home for indie music with a twist. The label is home once again to my favourite recording artist of the moment – the wonderful Laura Veirs – her new album July Flame will no doubt welcome in 2010 with a refreshing air of optimism and loveliness.

It’s worth paying some dues also, to a bunch of music services – many already mentioned previously on this blog – that are making a concerted effort to serve natural niches in the marketplace, rather than aim to serve the homogenous mass that are ‘music consumers’. These would include Calabash/Mondomix (world), Bleep (dance), Lost Tunes (heritage pop), Society of Sound (lossless downloads) e-music (indie, mostly) and Boomkat (indie) among a few others. I also think it’s interesting that Naxos seems to have quietly cracked the problem of how to make music subscription model work commercially – did anyone notice?

Still, as analysed in the previous post – niche genres that so often appeal to older, wealthier and more committed music buyers – have yet to reach more than the sum of their parts. As the digital market has developed, the global long tail aggregators for niche music have yet to arrive in any way that scales beyond say, those services mentioned above. Meanwhile in the great fire of brick & mortar music retail, the ‘jazz, classical and world’ sections seem to be the first ones to shrink then disappear.

So here’s my suggestion – there for the taking for any major music retail brand currently in existence – or for any brave new music venture willing to use peripheral vision – as opposed to another vain attempt to ‘own the digital music space’ by way of a more radical pricing model.

Let’s call it ‘Unpop.com’ (though you wouldn’t actually call it that of course – that would be commercial suicide). Unpop.com stacks up as follows: for £4.99 per month (an established ‘sweet spot’ subscription price according to the surveys I read) you get access to all the niche music you want to stream + the option to buy high-quality MP3 or CD albums at a decent discount – knock a pound or two off the Amazon retail price, say. You get ‘Unpop’ quarterly – a feature catalogue with high quality editorial about classic recordings and forthcoming releases – this makes you feel special. You get one featured free MP3 download each and every week day – nicely manageable, delivered through your in-box, if you want it. A few pre-programmed or socially programmed radio channels wouldn’t hurt.

Thus the market secures a minimum of £60 per year and probably a good deal more for a-la-carte purchases on top. Offering this sort of value proposition for this market doesn’t hurt mainstream music at all – no cannibalisation. ‘Unpop’ is differentiated from mainstream ‘pop’ stuff, so the overall music market economics are unaffected – ‘Unpop.com’ customers don’t care how much standard music prices are – the mainstream can go on being mainstream.

Meanwhile ‘Unpop’ opens up a whole new world of discovery while obtaining underlying revenue from subscriptions. Now that would be different...

Music is a different business – it should do more for music that’s different

A week or so ago, I made five recommendations of music that’s a bit different to my (& maybe your) usual tastes, as part of my strategy to prioritise my music consumption – as set out in this previous post.

Those records were new or recent releases by Portico Quartet, Spiro, Steve Martin, Bill Frisell, The Unthanks and Pink Martini. None of them are ‘popular’ – but each album does fall into a category of sorts – one the many hundreds of music genres or sub-genres. Even Pink Martini – a blend of just about everything except pop, is described on Wikipedia as ‘vintage music’ – a sub genre probably, of ‘easy listening’.

As an industry – if you can really refer to the distribution of commercial music as an industry (a worthy post-grad paper perhaps) – the incredible, bewildering variety of products is what makes the music business totally unique. No other business that I know of puts full-blown produced products out there on the market without any prior knowledge of what will happen next. Sure, if you have a major pop artist with a known commercial track record and the whole dashboard of modern demand metrics, you might be able to put together a half-decent sales forecast – but you’d still be pushing it to be within + or – 100%.

But forget those, if you have any one of the above records – in niche genres – how on earth do you know if you can even hope to break even on releasing the record commercially – i.e. having funded its discovery, production, marketing and distribution? Because the one thing you do know is that you will not have a global hit on your hands.

In this sense, the music business is also unique – in that there are few genuinely ‘independent’ or ‘alternative genre’ records that become global smash hits. The movie business is different – it produces - even if it’s just a couple - of real indie smashes each year, pretty consistently. Be it Blair Witch, The March Of The Penguins, Slumdog, or the very latest example - Paranormal Activity – the small guys can make it really, really big in film.

It happens less so in music – if you look at the top fifty selling albums each year they are dominated by pop records released by majors. Neither small independent’s or niche genre artists get a look in. There are clear reasons based on industry structure. Film has an established independent film network that is supported by major festivals around the world – many of which are celebrated as significant cultural events. It has an ‘art-house’ cinema distribution network too. Film also gets significant government support on the investment side.

The music industry doesn’t have the equivalents. Yes there are numerous small venues that cater to the alternative – but they are not effectively networked and so do not make up more than the sum of their parts. Same for independent labels, really – hence there have been recent initiatives to give the sector a much needed leg-up – such as independent charts. But these often confuse ‘independence’ between source – i.e. label and actual musical style. As for retail, well we can see what’s happened there and it is almost too painful to keep watching.

Music that’s genuinely different, alternative or niche must simply submit to being commercially second-rate. The only global phenomenon of the same nature I can recall is the success of the Buena Vista Social Club Cuban music movement – and that all started with – an independent movie!

I applaud initiatives that try up the ante for the ‘movement’ that is niche music – such as the upcoming January 2010 Reverb festival of concerts at the Roundhouse, which has some support from the Arts Council of England and local Camden Council – though only small commercial sponsors.

However, I’m absolutely convinced this music can scale better than it does, if only it had the right platform. After all, this is the digital age where niche content was in fact supposed to have become the heir to the Blockbuster King, by now according to the uber-thinking-journalists.

Take this simple insight. I have three Pink Martini CDs so I like them – they have grown on me over the years without necessarily becoming an act I would recommend to others regularly. But I know I could name maybe 20-30 other people in my life who would like them as much as me if not more so – but who have never even heard of them. My feeling is that Portico Quartet could achieve the same sort of crossover potential in the UK that Jazz trio E.S.T. achieved in their native Sweden – where they regularly made the mainstream charts.

While I wouldn’t say the same for Spiro or The Unthanks – I’m am pretty convinced that they could probably triple whatever little they do sell - easily – if only they could get some effective, targeted exposure to their receptive audiences, and that could well be the difference between loss & profit.

Steve Martin, well, he doesn’t exactly need to have a hit – and has in fact spent extravagant amounts of his own money on making and touring his ‘The Crow’. But it is such a good record it deserves success in its own right, not just as some kind of vanity project. As for Bill Frisell – at least he is on exactly the right label to connect with his audience – Nonesuch – which specialises in route-to-market for eclectic, different music aimed at the more mature, discerning ear.

And here is the second insight for today. I’m a mature and enthusiastic music fan who has listened to so much stuff that I am receptive – in a state of absolute readiness – to hear more music that’s different. Where do I connect with my fellow audience? I’ve no doubt that audience is large (huge globally); fairly well-off and fairly uninterested in piracy – probably even pro-actively disposed to paying top whack for music - as the rich cultural good that it is. The reason we don’t buy much these days is we are uninspired and ill-informed. No one is putting this music in front of us.

Now I know there is the BBC and in the US, ‘public radio’ – and this is great. Programmes like ‘Late Junction’ are the equivalent of splendid cuisine for the ears – even if you sometimes have to work at it to acquire the taste first. But I don’t really do radio. I want to check this stuff out on demand and then buy it and keep playing it until I love it.

Also, I know these artists could get greater exposure in a number of ways – like what if Portico could get a support slot for Radiohead, or if Spiro got a great synch opportunity? That could break ground, but only as a one-off, transient thing – it might serve those artists well if they are lucky – but it’s not reaching that huge global audience of un-served, unlucky listeners.

And finally here’s the irony. In the UK we are about to get bombarded with new music services (again) – each one upping the ante on the ‘business model’ – more & more music for less & less cash. But the music is always the same stuff. The front-line recommendations are the big artists about to assault the radio networks, the TV and press. Spotify this week has the exclusive with Robbie Williams (do they really need each other?). Sky Songs has launched – in a promotion with The Sun newspaper. It’s like daytime radio all over again - the same music to the broadest audience possible.

Even out of those six million songs in the impressively large catalogues, there’s nothing for we-who-want-different, since we don’t know what we’re looking for, or if we do and hit search, it will not be there more than half the time.

Why don’t we do something different for those people who want something different? I’m on the case...the next post will show us the way...

Digital State of the Nation # 2: partnerships - when will it all go right?

[As promised, the second part of my assessment of the current digital space. This is a slightly longer version of what became an opinion piece in Music Week a couple of weeks ago. In the two weeks since, it’s been interesting to see the PRS change its license rates for streaming music and the commentary about Warner and other majors bleeding the horse for some ad-funded streaming services including iMeem. It was also interesting to read Hilary Rosen’s retrospective in Billboard - http://bit.ly/WTZoE Clearly things continue to move at a dazzling pace in the digital music business even if we’re no closer to figuring out which models will last it out. This piece is a call for a more strategic perspective on licensing and partnership, until we do].

Following recent developments in the relationships between music producers and their evolving digital partners, a fairly messy picture of the digital music landscape emerges. On the one hand, we have had the recent failures of new music start-ups including Muxtape, Mixwit and FabChannel – all of which have pointed the finger firmly at the record labels’ (and music publishers) collective lack of a flexible licensing policy. Seeqpod seems to be rapidly going the same way.

Perhaps most significantly given the overall direction of the business (towards music streaming) are recent grumblings by digital juggernauts like YouTube, iMeem, iLike and Last.fm that licensing costs are, erm, making life difficult. On the other hand, we have the buzz of Spotify and the tenacity of iTunes, continuing to make the best of its market leader position and loyal audience, if lately pushing it a little with price changes.

Such is the uncertainty of the digital music business however, that no one can say, hand-on-heart, which services will still be around in say, five years time. Spotify could be the new improved Last.fm with all the same commercial problems in the end. As for iTunes, it could either go the way of the streaming models or simply tough it out as the last man standing in downloads.

In each & every case the central issue is the same – that of the commercial value of music. In recent weeks I have had discussions with a number of young digital businesses all with a stake in music. Not one of them holds a belief anything other than music (at least, digital music) will be free within five years. I’m not going to argue with that notion here, as much as I’d like to - there isn’t enough room to do so.

My point here is to argue that the digital music business – suppliers and partners – have a choice in whether digital music is to be free in five years or not. Music doesn’t have to be free if the business cannot find a way to deliver it for free. I don’t care what Mike Masnick or Chris Andersen or whoever super-geek thinks about it. Are the movie or games businesses considering a free model? I don’t think they are. The music industry might not look too smart in five years if music’s free but digital films & games are commanding good prices.

It seems clear to my mind that an unambiguous licensing policy might help to start with. I don’t mean stubborn, or prohibitively expensive, just clear. For an innovative new music model that is non-threatening (one that for example passes my test of ‘natural friction’- not DRM or price friction, but repertoire based when set by users themselves – such as playlists, which don’t replace albums even when shared), licensing should be nice and flexible. It should represent good value, thereby incentivising innovation.

I hope the recent deals between ProjectPlaylist and at least two of the major labels fall under that category. Music providers can even support such services in other ways, through direct investment or content development, such as exclusives. It would mean label digital departments doing much more than deal-making and accepting cheques. It would mean Content Services and Account Management teams really working to support & sustain service partners in innovative ways. And both parties need to share and use collective consumer data better to iterate service development in line with users needs.

For a major ground-shifting service that potentially speeds up cannibalisation, licensing is much trickier and therefore by necessity of managing risk, more expensive. This challenges the service provider to find a workable model at the point of usage. If that model doesn’t exist or cannot be created, it can’t afford the license. Buying up content in advance distorts this picture longer term, adding to ambiguity in defining what is successful and leading to more market uncertainty.

If a clearer, more strategic licensing means a potentially smaller short-term digital business I think that is a fair trade-off for one of potential longer-term value. I don’t know if this is what the UK Government was driving at with its recent recommendation for a Licensing Agency – maybe it was, maybe it wasn’t quite sure itself. Maybe we'll see later this month when the full Digital Britain Report comes out.

It doesn’t take a government initiative, but it does mean music providers need some more collective clarity. With a clearer set of criteria for digital licensing, the music industry can meanwhile develop its other products and revenues more confidently, including improvements in physical product, merchandise et al.

Quick & dirty digital state of the nation #1: Music’s future face-off - Streaming vs. Transactions

By almost popular request, this is number one of two brief posts forming a digital state-of-the-nation, so we can move on to see what could happen next and more importantly, in a post or two’s time, look at who actually decides what can happen next.

I occasionally write about music on this blog, not just the business of music. If I were to write about music that interests you, what are you most likely to do? a) park it for later/never b) stream some of the songs I mention on Spotify c) buy the music from a digital music store. File-sharing isn’t an option I’ll include for now but obviously if you really wanted to, you could. If I really wanted to know the answer I could add a voting widget on the blog, but the question is actually kind of rhetorical.

But it is no less critical for that. With Spotify probably coming in somewhere close to 1.5 million unique users by now, ad-funded streaming seems to have momentum, so you might answer b) stream it. On the other hand, if you have been persuaded by any of the arguments & threads on this blog at all, you might well opt for c) buy it. I’ve posted several times on the limitations of streaming for music discovery and enjoyment, but also many times on the lack of inspiration to buy digital. But both are accepted options on the future of recorded music’s rather limited, menu. The technology evangelists will insist that transactions aren’t even on the menu at all – and they are quite wrong about that.

State of the Nation for Digital Music: Streaming vs. Transactions

First, streaming music. Consumers love streaming when it’s free. The first generation of subscription-based streaming services (led by Rhapsody) found a limited niche. Even the free ad-funded options later released by Rhapsody & Napster couldn’t take them into the mainstream. The second generation ad-funded streaming services really worked. Last.fm gained traction as a music social network & recommendation service then introduced full-track streaming. iMeem followed. Then Spotify took off and flew in the UK and Europe.

So far so good, except for the weaknesses in music streaming we are learning more about as things unfold: the business model. It’s tough, tough, tough. These services pay the labels advances and the publishers per stream, and now operate in a recession where ad-funding isn’t flowing into digital platforms like it did last year. This has had a lot of coverage in the past few weeks but was first exposed by on Michael Robertson’s blog over a year ago.

Consumers won’t pay in numbers for streaming or recommendation. They will tolerate some advertising if the trade-off seems reasonable. They have yet to really work out how streaming music for free impacts on their overall, long-term music consumption, but the chances are they will use streaming services to listen to a greater variety of music and take the risk out of music purchases. Since this means more time listening than shopping, that will inevitably mean less music purchases.

Now, since I posted last time on this subject of streaming outweighing transactions, Spotify has done an affiliate deal with & Digital whereby all the tracks on Spotify are one or maybe two clicks away from being purchased. Good stuff. So is the problem solved? Not really. Streaming on Spotify is quite passive, quite lean back. It is unlikely users will stream on Spotify to screen music prior to any kind of purchase and then go ahead with gusto to 7 digital to buy. It’s unlikely that stream-like-buy will establish itself as a major pattern of consumer behaviour. The instant buy button for music was always overrated.

Now to transactions. Why do we buy a piece of music? We’ve been conditioned to and that trend is ingrained and is still strong – if you are over 30 at least. For under 30s not so strong perhaps, but still very much present. But plenty of under 30s music fans prefer CD to digital, which seems weird but is logical. We’ll buy digital because it’s quicker than physical, usually – slightly more convenient and slightly cheaper. Now DRM is gone it’s less risky & confusing.

We mostly buy digital to add to a device, hence iTunes has the market sewn up, occupying 80% of a large niche. As opposed to streaming, all second generation market entrants have struggled like hell. Smaller brands have made no headway into iTunes market share and Amazon & Play have done okay with aggressive pricing but not shifted the needle for the market, really.

Interestingly, none of these digital stores have introduced the ability for customers to stream the songs in full before they buy. Unlike the streamers introducing click-to-buys, these established retailers know the game too well to expect full sampling to shift their sales up. It’s likely to go the other way, they know that.

On the other hand the innovation in the transaction market has been poor compared with streaming. iTunes isn’t sexy anymore it’s a 7-11. DRM got stripped, so what. Genius is okay but not game changing. Differential pricing isn’t the same as dynamic pricing and it looks like it will leverage some standard prices up as well as down. Amazon has gone aggressive with pricing, not impressing anyone, much.

But there have been, and still are, some interesting takes on selling music. Amie Street’s dynamic pricing model. E-music’s hybrid, great value music club-type subscription for indie content. Some higher-quality & lossless song-file services etc. – all niche. We’ve had music market-places such as Burnlounge and now we have the Peoplesmusicstore (I like this, more about it in a later post).

Finally, as I wrote a few posts ago, some services are, at last, focusing around particular audiences and repertoire rather than getting hung-up on payment models - Lost Tunes for example.

That’s the digital market covered (minus file-sharing and a few mobile services, granted) – in total worth roughly $3billion, under one fifth of music and not making up for lost CD sales. Growth is slowing down already at around 25% in 2008. In short we’re in a bit of a spot. But it is early days let’s use this brief history to see what might happen next.

Digital Music: What happens next?

What we have to realise is that the consumer adoption curve is law. The mass market simply does not go for things that aren’t convenient, simple and good value compared with the alternative. We have no right to believe that digital will grow significantly unless we see greater innovation and value arrive on the supply side. There might not be one big breakthrough to rival iTunes initial impact, but some clear ways to go as follows, with my view on the medium-term (say five year) potential:

Ad-funded-streaming
The outlook isn’t too rosy. Is it really much more than personalised radio? With its simple functionality there isn’t room on the market for more than 2-3 key players and they’re already here, which becomes very challenging for new entrants like Myspace Music. Ad-funding on its own won’t sustain Spotify, but people love it, so a good chunk of users might be happy to pay around £2 per month to not have to live without it. Spotify might be able to earn £50m or so from direct subscriptions in addition to its ad-revenues. Medium-term potential: low

Music stores
Despite the dominance of iTunes there is still some ground to be made through targeting services better to audiences (particularly new digital adopters in the more mature demographic segments). See previous posts around product development in this area. Through more compelling services and some innovation around targeting the market for transactions could easily double, though in the longer term it depends how much music is commoditised in other ways. Potential: medium

Hybrid models
E-music was always a good idea, an innovative model. But it’s pricing is still way too aggressive for music producers and it is yet to convince the market that the ARPU model is an effective replacement for transactions. So it stays niche. But ISP’s (or even Spotify of Myspace) could offer a simple hybrid whereby 30 tracks per month are keep-able within a streaming subscription, maybe with some sharing capabilities. The pricing equation isn’t easy, but with a good value package and great presentation across multiple platforms this could shift the needle and could reach a hitherto indifferent digital consumer. Potential: high

Cloud-based models
These are still some way off. The cloud with everything available and consumers paying for access isn’t quite as inevitable as people think – it’s back to business models that actually work. Play Anywhere is an interesting B2B offer that bridges what we have now with some kind of future cloud-based mother jukebox but it’s too complex to be mass market. Potential: low

Recommendation
New technologies arrive weekly, but don’t seem to really get that much better. They come and go, with nothing making a mark more than Pandora or Last.fm has already. Even if someone perfected music recommendation it’s not something that consumers will pay for in itself and will not drive transactions for the same reason Spotify will struggle to – music purchases don’t work that way. Potential: low

Playlisting applications
On the brink for over a decade digitally, playlists have been a key music currency for as long as tapes existed. As with all things music though, what made mix tapes great – the time, thought and love it took to create them – has been commoditised by digital, with playlist services swamped with literally millions of crap compilations. Still, some services like Muxtape and Mixwit were built on traditional mix taping values and looked promising until licensing issues killed them off early. But now the labels are licensing project playlist, so the sector might yet deliver. Key to its potential are two factors: built-in natural friction on music use (keeping the industry comfortable and consumers tolerant) and the ability to offer great value since sales can be seen as incremental to all of the current product offers on the market, even commercial compilations. Potential: medium

Making it happen. Who decides?

I’m sure I’ve missed a few key developments above, but I hope to have demonstrated that there are plenty of elements that can still bring value to digital music and help the market grow significantly. However, most critical of all is how the various market players interact to bring these elements to consumers in coherent, sustainable ways. It’s the subject of the next post or one after so please keep a look out for it.

Spotify, 1000 songs & another paradigm shift for music? Probably not

All last week I was buying the Guardian and setting aside its (excellent) set of seven supplements of ‘1000 Songs Everyone Must Hear’. I’ve browsed through each of the seven categories: love, heartbreak, people & places, sex, protest & politics, life and death and party songs. These were really well put together and I found myself casually marking with a pencil the songs I wanted to hear – for the first time or again – in the old fashioned way (I haven’t done that since circling essential Christmas films in the Radio Times, centuries ago).

Being deliberately ruthless, I got to a tally of 49 songs that I became immediately interested in listening to. I virtually ignored the protest & politics section so it could’ve been higher. And like I said I was ruthless. My most popular category was heartbreak with 13 songs. That is irrelevant to but I thought I would share it with you anyway.

Now what’s missing from this story so far? Exactly right. Any intention on my behalf to buy the tracks.

Out of the 49 songs that caught my eye I already owned a copy of just over half of them, mostly strewn across my CD collection which spreads throughout lounge shelving (prime spot, my classics & recent bests), office shelving (current playlist, new releases, freebies) and boxed up in the shed (abandoned, just not forever). I had a handful of the 49 in my iTunes library, but since most were songs I hadn’t heard for ages - or at all - I’m unlikely to have them to hand.
With the sheer inconvenience associated with actually seeking out the 49 songs, the whole exercise was looking like a source of frustration - yet another small music project to put on hold.

But guess what? The people at the Guardian have, this time, been smart enough to link the series with a digital song platform, in this case Spotify. The Guardian’s (again, excellent) music blog has a simple hyperlink to Spotify under each song’s editorial. You can even copy & paste the HTML for a blog widget (I’ve installed one there on the right – my 13 irrelevant Heartbreak songs for you to check out).

Now, while this is fantastic and has indeed taken the inconvenience out of my little project perfectly, it also got me thinking about how the industry is making leaps & bounds forward so fast, that we might be missing a trick or two on route. Curiously, there is very little mention of the link anywhere on Spotify. Nor does The Guardian make it at all obvious in the published supplements. This seems to be either an unofficial arrangement, or a joint promotion done on the quiet (which kind of defeats the purpose doesn’t it?).

Two things occurred to me about this:

1. Here was an excellent chance to promote both The Guardian and Spotify (and for labels, the songs!), but even more critically, encourage consumer interaction between old & new media platforms (among a key high-value, mature consumer demographic to boot).
2. The link to Spotify made sense, but hang on a minute – Spotify is free – were there e-commerce, transactional opportunities missed here?

Both the above struck me as lost opportunities, with the latter a real issue in demonstrating how the digital music industry is currently positioned.

I’m still curious as to why it’s not made easier, in this digital day & age, for consumers to simply click-to-buy an album for which they have just read a glowing review. Last year I received some excellent music book gifts – Robert Dimmery’s ‘1001 Albums You Must Hear Before You Die’ and Garry Mulholland’s ‘This Is Uncool: The 500 Greatest Singles Since Punk and Disco’. On reading both I became eager to check out a shed-load of music. But again, with no linked incentive to buy digitally anywhere connected to the publications, I ended up making a less than pertinent mental note and buying one or two CDs on Amazon.

Of my 49 songs, let’s say I would buy 20 (I would!). Why didn’t the Guardian link up with iTunes or Amazon, or 7 Digital, to offer a simple menu of purchase options: 20 songs for £9.99 say? Or how about the whole 1,000 songs categorised by the seven sections for £99? Higher quality song files with a glossy collector’s booklet? Make that £149. Whatever, you get the idea. We are talking nicely incremental sales here, so incentivised pricing would work extremely well for both consumers and suppliers.

I know about the technical issues – metadata, bandwidth, dynamic pricing – all surmountable. Publishing is an issue of course – again surmountable. The logistical issues are well worth sorting out for a better digital future anyhow.

So why don’t we see more of this? More fundamentally, why does the industry now seem to be steamrolling forward inexorably toward ad-funded streaming models before we have explored more innovative transactional models?

It’s a key question. Rather than debate about whether all-you-can-eat streaming cannibalises existing sales, what about the opportunity cost of transactional opportunities not yet explored?
I have read in recent weeks at least a dozen articles about how Spotify’s momentum and the growth of ad-funded streaming services is tipping consumer behaviour into a new paradigm of access, not ownership. Tosh! Kind of – of course there is some truth in it, but the real picture of changing music consumption habits is far more varied.

Streaming music services represent snacking on music, the equivalent of browsing in one of those super-fancy-stationary stores where everything looks enticing and is mostly very affordable. But since you don’t need any of it, you pick up & flip a few things around in your hands and then walk away, empty handed. Or maybe you remember you actually did go into the store because you needed a new notebook.

Spotify is a form of music discovery and consumption, not a panacea. It is fun, convenient and superbly ripe for the kind of editorial tie-ins like the one with ‘1000 Songs’. It’s even better for background streaming while working on the laptop. But I for one am not ready to walk away from music ownership because of it.

I want to commit to certain records knowing that the pay-off comes from repeated listening in a range of environments, situations and emotional states. Streaming services are a way of filtering through the tide of new music and a way of snacking on new stuff, but that’s not how you discover what your primary collection of music for life sounds like. It’s unlikely I would have discovered Wilco or Sparklehorse or Merz on a streaming player. I certainly would not have warmed to the new Starsailor or Adela Diane records through that medium.

As that consumer who wants the deeper connection with music – who seeks out the next life-affirming records that can make the difference, I’m still here waiting for a reason to have a digital music collection, and for reasons & incentives to buy more music digitally. Until then, it’ll be Spotify, CDs and live shows. Not a paradigm shift for me.

Targeted digital music services have begun to arrive, but can they thrive?

With digital channels opening up a long tail of music content (or so the theory goes), I have been expecting niche – no niche is the wrong word, let’s call them targeted - digital music services, to arrive for roughly the past eight years.

I’m intensely curious as to why this hasn’t really happened. It’s been happening in the magazine sector, where digital has been a major driver for niche (let’s call them specialist) b2b and d2c titles since the turn of the century. Not all have survived, but the specialist magazine sector has been transformed.

I’ve always thought that a great digital music service would be a bit like the equivalent of a magazine, but with all of the interactive elements that magazines lack. Even the advertising could be appealing, since it is targeted to the user. I can easily find myself distracted browsing the ads in The Word or Uncut.

It’s what physical magazines do very well – target audience segments of like-minded consumers. In doing so, each and every magazine effectively creates its own sub-culture. Magazine editors understand this acutely and as a result, often know their readership intimately. And not a single cold call of market research is needed, it’s all just interpreted.

Why hasn’t this kind of market activity been mirrored in the digital music space? And, why haven’t established music editorial brands such as Mojo, Q or Kerrang! made brand-extension plays into the digital music space, in the same way they did in commercial radio, for example?

We know some answers of course. Market entry in digital isn’t easy. It’s a different business with different rules to the physical space. Until recently it was probably expensive to set up (before b-to-b platforms like 7 Digital became established). And most significantly, we had DRM – if anything could put off a potential market entrant it’s that dreaded acronym. And of course some big music names in the physical space did enter digital – and bungled it badly.

While editorial music brands have stayed clear of creating digital stores, few equivalent new niche services emerged in the space. Some have. Beatport (dance) and Bleep (indie) are good examples. There are a few classical music services. But that’s less than a handful out of hundreds of digital music service launches. The irony is that many of those launches converged around the same concepts: the widest music libraries possible; the latest big releases etc.

Most tellingly, so many digital music services have been busily targeting the under 28 demographic. In my eight years working the space I think I’ve come across less than half a dozen digital services squarely aimed at music fans over 30 (the ones with the money who buy music and are, increasingly, going digital). This reminded me of the basic mistake of commercial radio channels – all converging on the same mass audience with indistinctive offers.

I’m glad to observe that this finally looks like it is changing, with some new, targeted audience brands emerging in 2008. Whether they will thrive longer-term is all in the execution, but I think they have some major plus factors going for them:

1. Ubiquity: with digital making everything available, the trusted filters and catalogue curators are more needed now than ever.
   
2. Total music: as distinct from music ubiquity, if music through your ISP or phone handset does catch on, then expect these platforms (the good ones) to host targeted content brands within them to help the broad base of users with music discovery.


3. Revenue: targeting to audiences means you can expect a higher proportion of engagement, but even more critically, transactions.


4. The recession: as an advertiser or funder, show me an audience that’s relevant and connects passionately and deeply with the service – quality not quantity.

A couple of examples I like that want to mention in brief and another one I’m disappointed with

Lost Tunes [here]

Launched in 2008 by Universal, Lost Tunes is self-titled “the very first UK digital store specialising in rare and exclusive material”. The sentiment there is scarcity – something technologists might argue is impossible with the web. Customers of Lost Tunes beg to differ.

Out of a mere 1059 titles available (as at now, but what does the volume matter?), Lost Tunes has no less than 453 exclusives. It has also created some high profile products which it has kept as exclusives, most notably Paul Weller’s BBC Sessions.

Lost Tunes teaches some interesting lessons for digital music. For starters, it was one of the first DRM-free, 320k MP3 stores – uncomplicated and compatible. The service concept is to “replicate the experience of being in a trusted record store” – nicely swimming against the tide of making everything available. Lost Tunes is editorially led – “a breathing music magazine” according to the team that created it. For this market, that’s a concept that will never be replaced by a recommendation engine. But Lost Tunes does rely on search. Indeed, its ‘smart search’ works really well – mainly because the associated metadata for the titles in the Lost Tunes catalogue has been entered by hand. It’s a clear signal that to deepen music discovery, mainstream digital services will need to work much harder on improving metadata.

Though the total user base is small, it’s the level of engagement that really impresses, with 37% of customers repeat buyers. Developed on a ‘very modest’ budget but with enough success to wash its face commercially, the good news is that Universal is backing Lost Tunes to the next level of development. Its big challenges will be to attract catalogue from outside the Universal chambers and to take the store outside the UK, preferably with global rights clearances for the catalogue.

Calabash / Mondomix –[site here]

Calabash music first launched (in the UK and USA) early in 2006 and benefitted early on from some fairly vocal support from Elvis Costello, who declared the store his favourite digital music destination in an interview with the LA Times. The service’s strap-line was “easy access to hard-to-find-music” and although very clearly targeted to fans of ‘world music’, of course the service never associated itself with that much maligned genre, but declared its repertoire mix as “artists that move us”. Indeed, its catalogue is much wider with each of its main 12 genres (Afro to Sountracks), further split into sub-genres, giving over 100 categories.

In January this year the service was merged with French ‘world music’ free listings magazine Mondomix, with the new store subsequently launched globally in beta. It has a catalogue of 150,000 tracks, which might not sound like a lot. But again, that’s not the point. Services like Calabash/Mondomix are about connecting a select catalogue of music with a select audience – quality rather than quantity. The user base is currently small, although Mondomix did tell me that it has a very high conversion rate of turning site visitors into buyers.

Finally, there is an interesting take on social networking in which users can create not a personal (and self-centred) profile, but ‘projects’ – user generated channels which feature music from the service but enable the creator to wax lyrical about issues much wider than music.

How not to do it: ShockHound

Mmm. I did have great hopes for ShockHound at first. Launched in the USA by Hot Topic, the hugely successful merchandise brand targeted at Emo Kids, I would have thought they’d be onto something by launching a digital platform aimed at those very same Emo Kids. A high-value music consumer segment if ever there was one, a digital channel for the shoe-gazers of the modern age might have been a marketing masterstroke. But ShockHound has aimed way too wide. With Nickelback, Snow Patrol, Van Halen and Avril Levigne awkwardly juxtaposed in the ‘Top Artists’ tab (and Eminem, Beyonce & Lady GaGa among the Top Tracks). If the service doesn’t re-align its goals more closely with its core audience, the initiative is bound to fall over.