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Summary:

There’s been a lot of buzz (some positive and not so positive!) about comments I have made about the current state of the digital music mark…

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There’s been a lot of buzz (some positive and not so positive!) about comments I have made about the current state of the digital music market in the New York Times and at Midem.

The quote which really grabbed the attention was “As Things Stand Now, Digital Music Has Failed“.

The problem with a quote like that of course is that it can mean many things to many people without further context, so here’s the additional context I gave around this in my Midem speech:

Digital music is at an impasse. Digital music has failed to reach its three key objectives:

1 – to offset the impact of declining CD sales,

2 – to generate a format replacement cycle and

3 – to compete effectively with piracy.

With music’s first digital decade behind us, we’re still trying to define a role for mobile, we’re still waiting for a 99 cents downloads market to emerge outside of iTunes, we’re still waiting for 9.99 subscriptions to break out of a niche, we’re still trying to work out how to make the economics of ad supported add up, we’re still waiting for piracy to decline, we’re still watching recorded music revenues decline and we’ve still got CDs as the bedrock of music sales.

The simple fact is that current music products do not meet consumer demand and the divergence between emerging consumer behavior and legitimate music products is widening at an alarming rate.

Current digital music products are essentially transition technologies that were useful for bridging the gap between the analogue and digital worlds, but now it’s time to start the digital journey in earnest. The current portfolio of digital products will not get us there. Consumer behavior, as disruptive as it may be, is rapidly outpacing the evolution of digital music products. This means a complete new wave of music products that embrace access and experience, instead of trying to replicate analogue-era distribution business models in a digital context.

Selling units of ‘stuff’ is not the future. The slow down in digital music growth is rock solid evidence of this fact.

Music products must harness disruption, that isn’t in question. What is, is whether they do so quickly enough to prevent another massive chunk of the marketplace disappearing for good?

 

» Mark Mulligan is an analyst at Forrester Research, where he serves, and contributes to the Forrester blog for Consumer Product Strategy professionals

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This article originally appeared in Music Industry Blog.

  1. I’d like to see a serious analysis of business models where the consumer is allowed to freely trade music and the policing action is removed. The strategy would be to provide services to the consumer so they’d rather use an on-line service than trade music.

    If you knew you could re-download your collection at the push of a button, would you bother trading and archiving it? Nobody explores this direction since the RIAA is obsessed with controlling the user. How much revenue could you get out of licensing Facebook to store collections and allow unrestricted downloads? The time spend on-line organizing these collections is easily monetizable via advertising. Charge $5 to re-download your collection. That opportunity is lost in the current model.

  2. I agree that the industry has totally failed at evolving to the natural behaviors of the digital world. Success for a music economy must be all about access. I believe that the answer is clear and is in front if everyone’s face. One word: Netflix. In the access model piracy actually becomes obsolete. I’ve written an essay about how Netflix could save music: http://www.jasonpaul.net/2011/01/how-netflix-can-save-music/
    Hope to hear thoughts about it @iAmJasonPaul

  3. Somewhere between $1.29 for a download I can keep and $.00125 for a stream I can call-up lies a market-clearing price which remunerates creators appropriately. The hurdle is the perceived chasm between ownership and access, institutional greed, and an outmoded statutory framework. As a lifelong musician and music consumer, I’d like to believe we’re in the midst of a 20-year value migration, not a historic collapse. We can all do our part by supporting emerging pay models, and teaching our children that art is worth paying for.

  4. I know this sounds trite but it would really help if the big music companies did their job as “gatekeepers” and keep the mediocre music away from the masses. What ever happened to quality A&R departments? With the proliferation of cheap music sequencing programs, horrible club DJs and radio that is beyond unbearable, quality control is more important than ever!

  5. I don’t see the decline in this business as a technical challenge, or from piracy, or even formats. It relates more to the decline in artful, or deeply engaging content, and very few promotional media voices to showcase any talent.

    When artists are allowed to illusively ferment into something great after being signed, and are not too accessible, you get die-hard paying fans (customers) seeking out artists (products).

    That’s the formula that creates ROI legends for life. When the industry thinks too quarterly, unfortunately that is what we all get — artists with a quarterly lifespan. Consumers with enough low quality junk, don’t buy more.

  6. Has anyone ever considered the fact that sales are declining because the music, regardless of format, just isn’t that great anymore?

  7. As a musician I can tell you that digital media is looked on as a promotion tool and not as a revenue source. The primary way to make money is to put a butt in venue seat – everything else is gravy. 20th Century records haven’t seemed to figure that out yet.

  8. One simple word: Netflix. The movie industry has realized that they needed to shift the way they produce and distribute movies. They did not try to digitize their analog processes, instead they restructured and adjusted. Netflix is now a “platform” in which multiple devices can access it’s content. So the same should be for music. There are companies like Pandora and Rdio which have built the technology, it’s up to the business side to adjust now. Goodbye A&R, goodbye Radio DJ, hello to the consumer listening to what they want and when they want to on whatever device they choose.

  9. Wow, great comments here. I’m particularly intrigued at Jon Smirl’s scenario. While part of his suggestion amounts to legalizing piracy, charging for services on top of the music itself may be a sustainable path for the industry. My employer, http://www.fargotube.com, sells music and videos (MP3s, MPEGs and streaming) in a social-network setting. Each artist creates his/her/their own channel for distributing content to and interacting with fans. In other words, the service that adds value is contact with the artist. That can’t be pirated.

    On a separate but related topic, distribution outlets themselves have to add some kind of unique value in order to survive. In FargoTube, both the distribution outlet and the artist are adding value, which we believe makes the platform sustainable for both. Other distribution outlets have to add some sort of comparably unique value. ITunes’ unique added value comes from its indexing and its unique interface. Amazon’s is its convenient proximity to its physical CD sales channel and other retailing.

  10. My basic idea is to legalize personal copying, but then create an environment where nobody wants to engage in large scale trading. Repair the destroyed consumer relationship and get us back to a point where trading is limited to making a CD for grandma or a wedding video on YouTube. Sue away at anyone who tries to create a server site targeted at commercially benefiting from trading. Use the courts to get these sites to license the content (make sure there is a way for them to do so). We can do that, but the alternative of cloud services and the licensing model needed to achieve it don’t exist. You can’t kill BT if there is no better alternative to turn to.

    But who will pay for all of this? Where does Google get its billions? Use the thousands of hours people spend tracking and organizing their music as a revenue opportunity. If you don’t like the ads, use a pay service. Let Coke or Pepsi sponsor free months at a pay service, etc… Buy a CD get a free month.. This monetization point is lost when people organize on their local disks. What is the point of hanging around at last.fm when you can’t control what they play in your stream?

    A parallel to Bit Torrent is – you can save this web page and mail it to someone. But that is very inconvenient. It is much easier to send them a link. That link would contain a universal track ID (like a URL). When the receiver clicks on the link it would play from whatever cloud service they are subscribed to. You can then keep that ID, add it to your play lists, whatever. Send whole play lists this way…

    Another key part is getting rid of all of the DRM. Buy a new device, bring it home, and upload your play lists to it. Your cloud service provides the tracks. Wipe the device a few days later and load it with different music. Make it so that any device can be loaded from any cloud provider that you subscribe to. Allow off-line caching (legalize personal copying), it is crazy to stream the same music over and over just to track a millicent royalty.

    Bottom line – to make this work the cloud services have to be better than Bit Torrent. But is that really so hard to do? Do people really want to backup and maintain thousands of tracks on a local hard disk if the collection can be replicated at the touch of a button from a cloud provider?

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