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Summary:

Physical media is dead. It is being replaced with “apps” From music playlists to catalogs to retail stores to television — it wouldn’t surprise me if in near future everything is an app. It is a scary future for some, and yet full of opportunities.

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Over the weekend, Hunter Walk (a friend of mine who works for YouTube)  tweeted about brands offering apps built on the Spotify platform. Spotify is likely to introduce these branded apps from the likes of Intel, AT&T, Reebok and McDonalds at an Ad Age event this week.

This tiny tweet is yet another reminder that physical media is dead. It is being replaced with “apps” thanks to  broadband connectivity and anywhere computing that has come to us via smartphones, tablets and other connected devices. From music playlists to catalogs to retail stores to television — it wouldn’t surprise me if everything is an app in short order. And that future is scary and yet full of opportunities.

Hunter’s tweet reminded me of Rock River, a San Francisco-based company that used to make music CD compilations for companies such as Brooks Brothers and Banana Republic. I remember Rock River because my old magazine Business 2.0 wrote about them. They were quite the rage in the early 2000s.

Today, these CDs are not quite as hip. Why? We listen to music via services like Spotify and Rdio and Pandora instead, and we download tracks we love from Apple’s iTunes and Amazon’s store. We watch movies and television shows streamed to us from Netflix (or one of its international variants.) Books are now digital and are growing so fast they are even worthy of a department of justice investigation.

The Container Planet

The unifying fabric behind all these new behaviors is broadband. For the longest time, physical media was the container that moved content. Records became compact discs. Movie film became VHS tapes and then DVD. Books didn’t really change. And neither did newspapers and magazines. They are all mere containers.

It didn’t matter if you read Tom Wolfe in Rolling Stone, Esquire or in form of a book. He created content (art, if you ask me) and the companies packaged and sold it in containers.  They used their distribution networks — trucks, newsstand networks and book stores – to get us to pay for Wolfe’s works.

In the post-broadband world, Internet is the truck, and app stores are the newsstand and book store. Result: the slow and steady decay of physical media as a container for content. Sure, today people still have CD players and DVD players, but tomorrow when all our music will be either downloadable or streamed to us on many devices, who needs those CD players? The shift to digital music will increase with network density — that is the number of connected people and connected devices.

Hey DJ — hit the bass

We can already see it happening. Pandora saw total listener hours for the month of March 2012 hit a cool billion – up from 975 million a month earlier and 88 percent from 567 million listener hours it logged in March 2011. In a report released earlier this year, the chief executive of the International Federation of the Phonographic Industry wrote:

The number of paying subscribers to services such as Spotify and Deezer has leapt in the last twelve months, from an estimated eight to more than 13 million. At the same time, cloud- based services, such as iTunes Match, have become a reality in the marketplace, helping drive the popularity of music downloading. With a healthy 8 per cent increase in our digital revenues in 2011 – the first time the annual growth rate has risen since records began in 2004 – some might feel tempted to say that a troubled era for the music industry is coming to an end.

These growth curves are not just limited to music. Netflix and Hulu, for example, are experiencing nice ramp in their streaming customer base. Netflix is estimated to have snagged over 23 million streaming subscribers by the end of March 2012.

The impact of this shift is going to be immense. Unfortunately, we are still thinking about the world in terms of these “old” containers. Books are being thought of as we have always known them – discrete, unconnected and for solitary learning and/or  enjoyment. Magazines as we see them today were created in an era when society was less networked and less rushed. We need to rethink these containers for a brand new always-on world, and apps are the right metaphor.

It makes perfect sense that a branded music compilation is not going to be a CD and instead an app encompasses a playlist. “What I get most excited about in branded music is the opportunity for brands/influencers/celebs to become curators,” Hunter wrote to me in an email later. Absolutely! Because now we are free from the constraints of physical, static and unconnected media. I know I have spent way too much time on the music and other media, but apps as a container metaphor can be extended to other arenas as well.

Brands as apps

Today, some of my favorite brands such as Montblanc and Cartier offer iPad apps in which they keep me informed of the new products from those companies, sometimes news events and of course they are chock full of colorful graphics and photos. In the past they would have snail-mailed me a catalog every few months, probably at great expense.

With a mobile app, theoretically speaking, I could just get an update, informing me new content is available for me to read, instead of mailing me an analog catalog. Sure their apps are limited and imagined by someone with little understanding of the technical capabilities of the iPad, but what they have is a one-on-one relationship with the brand.

Any smart brand should have capabilities to see how often I lust after a specific model of a watch and then try to convert me into a buyer. By being on my most personal of devices, they already know that sooner or later, whenever I feel flush, I will convert into a buyer. Why bother with an email, when they can send me a notification of an offer or a special discount.

Result – they don’t need to advertise as much in some magazine, or in the newspaper. As I said, the worst is yet to come! Extend apps to catalogs – a company like J-Crew could simply skip the whole idea of mailing a catalog and instead start sending me updates and offers-as-notifications.

What dogs couldn’t do, the Internet has…

The fact is that this digitization of everything is going to cause an upheaval in all sorts of industries. We are already seeing the US Postal Service starting to lose a ton of money. USPS lost $5.1 billion in 2011. A report from the GAO said that USPS has way too much infrastructure for a world which is seeing the mail volumes drop. “By fiscal year 2020, USPS expects to lose over 60 percent of the First-Class Mail volume that it had in fiscal year 2006,” the report notes. USPS has had a total loss of $25.3 billion since 2006, the last year it was in the black. Ouch!

Just like the mailman, the commercial printers are facing rough times as well. A report in PIWorld points out that after a lukewarm year, the commercial printers could expect 2012 to have similar mediocre performance, despite being an election year, when the demand for printed materials is typically high, thanks to free spending candidates.

“The most notable is investment in tablets as a printing replacement by government agencies, schools at all grade levels and certain consumer sectors,” the printing industry’s trade publication writes. From the article:

The National Association for Printing Leadership (NAPL) chief economist Andrew Paparozzi, expects “industry sales to be essentially flat this year, somewhere between up 0.5 percent and down 0.5 percent” though it is pretty good compared to “sales down 1.7 percent in 2010, -15 percent in 2009 and -5.3 percent in 2008.”

Admittedly it will be some time before tablets and mobile devices become ubiquitous, but there is no doubt about its inevitability. The ad-agencies themselves might find themselves being disrupted — for the very idea of brand advertising will change. It means opportunities for new kind of digital creative shops that go beyond mere advertising and instead build result-oriented strategies that use math, data and human emotion.

We’ll be talking with leaders in tech, media and investing about how to make the most of today’s opportunities, blurred lines and all, at paidContent 2012: At The Crossroads, May 23, at The TimesCenter in New York. Join us.

  1. “Apps” are still somewhat static containers with well-defined boundaries. “Streams” maybe the primary way we get content in the future, a constantly changing amalgam of all types of media tailored to our constantly shifting preferences and in many cases curated by us, not by “publishers.” For example, a Netflix “movie” will have many different versions, with different combinations of media from different sources, including giving users the tools to assemble their own preferred version. The more these “streams” will be curated by the users, the less chances for traditional advertising to survive.

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    1. Christopher Buchanan Tuesday, April 17, 2012

      Spot on, period.

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    2. Not completely sure about that… it’s worth bearing in mind that many new media sites/streams are going very old-school towards sponsored advertisers and more product placement.

      Hulu was headed that way until the studios got even more involved. Stopped using Hulu when they started showing more than 3-4 ads for an episode. People don’t like advertising, so having something that brings you in (sponsorship or product placement) is a better path in the near future. Since Hulu/Netflix are looking forward towards original content, I think things will flow more that way… which is how early TV worked.

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    3. Hmm…

      I think some level of stability is beneficial not only for distribution but for consumption. I’m not sure how happy people would be if all of their content was delivered through a set of “constantly changing amalgams”. We should not have to think about getting content, but we should also not have to think about the content we may not be getting because of a non-transparent decision by some algorithm based on some preference-indicating action.

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    4. Gp

      That might be true but you also have to understand that the metaphor is something most people actually understand and can relate to. In the future streams might work, but for now the biggest stream of them all is failing as — Facebook.

      Thanks for an awesome comment by the way

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      1. Thanks. Indeed, people will continue to respond to what they are comfortable with which is packaged and neatly-served content/information. But the increased content fragmentation in the last decade and the rise of easy-to-use content development and delivery tools for the masses (such as the platform on which we conduct this conversation) may indicate a more user-driven, “stream-like” future (Facebook notwithstanding).

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  2. One thing I’ve learned about the advancement of technology: it doesn’t matter whether you think it’s a good thing or a bad thing…it absolutely *will happen*.

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    1. Amen to that.

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  3. chickenlittle Tuesday, April 17, 2012

    Your title should read “Physical media is dead — so are your fair use rights.” The thing that every commentator on this subject fails to see is that as the public clamors for streamed content, their rights to use it as they see fit — even in the privacy of their own homes — is now subject to a license that typically goes well beyond the bounds of copyright law. Look at the Kindle terms of use. It basically says that if I physically lend my Kindle to someone and they read a book on it that I “purchased” for myself through Amazon.com, then I am violating the terms of use. The only legal way for me to lend “purchased” books is through their app’s functionality, which would then require my friend to also be hooked up to Amazon, etc, etc. Now is Amazon going to come after Joe Sixpack for lending his kindle to his friend? No, but they could and it would hold up in a court of law because he clicked “YES” to agree to and get past the terms of use without ever looking at it or understanding what it really means. I, for one, am a fan of knowing that if I buy a DVD, then it is mine to keep and to use as I wish as long as I maintain it.

    I do also find it interesting that when you look at the raw numbers for music for 2011, which most would argue is a fairly “mature” download industry given the prevalence of iTunes and the like, physical sales of CDs outpaced digital albums more than 2 to 1 (223.5 million vs. 103.1 million – Nielsen SoundScan). Granted, those CD numbers are down 5.7% from 2010, but it just goes to show that physical media is still very much alive.

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    1. Absolutely true. Everybody’s going for downloaded content instead of physical media. But that means everybody’s going for content which has all kinds of restrictions attached. Does anyone care about that?
      If they do, it isn’t stopping them from buying!

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  4. I got into mobile identifying that the iPhone would need sophisticated tools to support app processes. In 2007, I said that everything would be an app if they were developed properly. As Steve noted, apps are verbs. Content is the adjective, and you are the noun. Om listens to rock music.

    We devised a set of technologies that would allow us to auto build albums as music from databases of content, but of course Apple was not interested in diluting iTunes. We also devised numerical control mechanisms for the interface itself, understanding that the application would need to adapt itself to metrics, feedback, behavior, and novelty.

    Most of the mobile world is still not there. But, apps need to be like constructs that adapt to our behaviors rather than containers. A shopping app needs to understand why I am there and my history with the company, and with other similar companies if necessary. I have some ideas around that, so I’ll stop there.

    Streaming is actually a bad methodology for feeding content in a world where we mostly do not have instantaneous response. HTML5 technologies will suffer the same fate for the foreseeable future. Caching will be the savior. Gaming has so much to offer in terms of behavior control relative to content and shopping experiences, because we are looking for novelty not certainty in the world around us. Our art is ever in motion and forever conversing with us. Our first experience with music is the reference point for its continual exploration not its encapsulation.

    Apps are like conversations. In the future, we will interact with devices and apps that understands us perhaps more than we do. I always say that the glistening devices are my biggest problem as a mobile designer. We design behavior.

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  5. Absolutely false. This is what the living in silicon valley will do to you, make you think that the universe revolves around you and your thinking. No one (outside of silicon valley) cares about any of the companies mentioned in this article.

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    1. Well you are reading a site that literally owes its existence to the technology created in the Valley over the past decade or so. You shouldn’t be surprised by the myopia.

      As for a criticism of Om’s point that apps are the way to go, I certainly don’t see it from the examples he provides.

      Montblanc and Cartier offering their catalogs as apps?

      What would I care–even if I care about these companies and their offerings?

      Why wouldn’t I be better served by seeing a tweet (or getting a text) announcing their new catalog, and then visiting their website to view it?

      How many platforms will developers have to target when building their apps? Montblanc and Cartier certainly aren’t going to hire a multiple developers to build apps for iOS, Android, Spotify, etc.

      And why would they? A web app is all most companies need to deliver really good content in a unique way to their customers and other interested people.

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      1. Because it isn’t about content, it’s about service. The user could care less about the package as the relatively rapid switch from vinyl to CDs to MP3s to iTunes has shown. iTunes is an app. And, while plenty would like to think that alternatives exist, if you talk to the artists, you find that they feel iTunes is the about the only viable alternative for making money.

        So, the services contain a connection from producer to consumer and mediate the exchange as well as continued relationship. The app is a service model, or at least it will be. Frankly, I am having these conversations in business, and the web models don’t suffice to manage the complexity we have to simmer down to an excellent experience.

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      2. I’d like to add, that people are missing the larger picture because of the current state of apps. The web should have become an app platform, instead it became Internet Explorer.

        Apps are a construct. An app should adapt to users and needs fluidly. They should use data to drive interaction patterns and data presentation. Apps should be so closely tied with the business itself that it is indistinguishable from it.

        We will not recognize mobile interfaces or app constructs in 5-10 years…

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      3. Good points Mr. Cooper (okay I will play along with that name ;-)

        My argument is that these “apps” regardless of the platform are replacing the old way of distributing and consuming information/data/content. And this could include web-apps, except these apps will be very different from the web apps in the past.

        We have defined the Internet experience via the browser (IE/Firefox ex) and instead now the browser is becoming embedded inside these apps that use Internet to create experiences based around information/content etc.

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    2. Fascinating — Instead of having valid criticism (like the gentleman below using the handle, Sterling Cooper) an empty comment from someone who pretends to be someone else.

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    3. @Nicholas… “if you talk to the artists, you find that they feel iTunes is the about the only viable alternative for making money.” As a recording artist, I have to tell you that you could not be more wrong about this. Artists by and large detest the iTunes model. I literally bank $0.11 for every $.99 song I sell in iTunes after Apple and their partners take their whack. And the listeners hate that the content is saddled with DRM. By comparison, a service like Bandcamp lets me earn 100% of the cost of the downloads, it’s DRM-free, the file quality is higher and the site is more artist- and listener-friendly. Those examples aside, artists across the board will tell you the money is all in touring now, not music sales. Many bands will give away their music to get enough reach to make a tour viable.

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  6. Great piece, Om. I don’t know whether Apple will ever fully pursue this, but they are remarkably well-positioned to skim more and more of the ‘jobs’ that folks currently hire USPS for (note: they have already dipped foot in with Cards and Catalogs).

    Armed with identity, payment, curation, distribution and availability (via iCloud), how could they transform the direct mail business, for example, taking what currently is a hugely, inefficient financial liability for direct marketers and a pain in the ass for consumers, and turn it into an asset for both constituencies?

    Think about it. From intent to in-box to engagement in a couple of clicks. To me, this path seems even more compelling than the tired meme about re-inventing email.

    Re-think the message, the payload and the stamp, and the opportunities are limitless.

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    1. That business has already been transformed by the web.

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      1. Actually, that business has been disrupted. It’s not really be transformed.

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  7. Blake Robinson Tuesday, April 17, 2012

    HTML5 will kills apps in the next few years.

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    1. Blake

      U are confusing underlying technologies with a bigger behavior change and apps as a metaphor for how we consumed media so far.

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      1. Randy Spangler Wednesday, April 18, 2012

        One other issue on adoption is the age group of the adoptor. Us ‘older’ folks still tend to want physical media. It is what we are familiar with. I think that the under-30 crowd is so used to virtual everything (money, possessions, media, even work…) that using apps and getting all entertainment streamed is preferrable.

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  8. Go to a good indie record store and pick up some good stereolab, pere ubu, sonic youth etc records cheap. You’ll see why rock and roll is destroyed by this brave new world of which you speak.

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    1. Tinyvox

      Not sure I agree. I buy a lot of music, mostly small indie labels. I buy it from amazon and apple. I subscribe to Spotify and spend a ton of money on music. I just don’t spend money of marginal albums and videos that don’t have an amazing appeal that I want to own them.

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    2. Rock and roll has been destroyed by the money in the larger system and the unwillingness to adapt. None of the artists you mention ever made much more than a record store salary ever if easily. Sad, but true. The music industry never pays much to artists, so allow them to control their own output…

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  9. Movies on Netflix and Hulu? What planet are you living on OM? The selection of movies on Hulu is pathetic. Even with a Hulu+ subscription I’ve yet to find anything on there that has been released in theaters over the past three years. As for Netflix, I have maybe 5 movies out of the 25 in my DVD queue available for instant streaming.

    Making the statement that physical media is dead is the ultimate ignorance. Unless of course you want to suggest a more convenient way of getting the latest movies in HD than walking into a Blockbuster and renting a 0-day Blu ray. As for streaming, the only guaranteed device that can do that is still the PC, as everything else (smartphones, tablets) requires licensing before it is made available. More often than not, I’m streaming content through my HTPC and netbook, either because it’s not available to watch on any of my handhelds, or would eat into my pathetic data cap when outside of wifi.

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  10. Cd sales outpace digital album sales because you can purchase individual songs digitally. In other words you do not have to purchase the whole album if you only want a few songs on it.

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    1. Which is exactly why artists need a curated package. This exactly why we created the tools that we did. An artist picks a template, populates the music, media, and app assets through a web browser, and automatically builds an album experience. Release the music later.

      Music needs experiences not songs.

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      1. News to me. The market seems to love the ability to purchase whatever song they want. The market already has the power to create their own “albums.”. I do not think the market values the purchase of digital music experiences. Their use will be limited to promoting an artist’s concert dates or so it seems to me.

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      2. Well, if you look at the successes in independently distributed music, the artists include Radiohead and Nine Inch Nails both of which have sold album experiences and are not interested in the singles market. Have you talked to labels?

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