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.

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To combat this, the site has just gone public with a new service of its own, last.fm/discover, aimed at helping users find independent artists and fresh music.

Music discovery tools aren’t new, but Last.fm’s betting that its huge trove of data — 40 million or so users, going back to the site’s inception nine years ago — can help uncover acts that might be unfamiliar to you. Specifically, it’s based around a library of some 2 million tracks mostly from independent artists, but also from some labels that have licensed their music for this purpose.

Unlike most other attempts at music discovery, which use the traditional iTunes-style lists or cover art, Discover uses a cute HTML5 interface to guide people through.

On loading the page, users are presented with a view of rolling hills stretching into the distance, each labelled with a tag related to a genre or sub-genre of music. Up close are the broader categories — “alternative”, “indie”, “electronic” and so on — while other less popular ones are visible in the background: like a sort of 3D word cloud.

As you click on tags and dig deeper, genres split into sub-genres, which split into incredibly specific meta-genres — fancy listening to some hiccup or kl4bb1n d0wn, anyone?

It’s all based on user data, yours and the rest of the site’s self-defined tags, and each tag represents a radio station: simply click to play a based on the tag you’re currently browsing. You can then ask for more of the same, shuffle off to something different or drag and drop tracks into a playlist for sharing.

This isn’t revolutionary, but it is fun. That makes a big difference in a market that relies, to some degree, on novelty. While I appreciate the utility of most music streaming services, the ones I tend to really enjoy are those that convey a sense of emotion or connection with music — services like The SixtyOne or Turntable.fm, for example. As Last.fm’s head of product, Matthew Hawn, told me, too often online music “ends up looking like a spreadsheet”.

That makes this an interesting move from Last.fm, which is really trying to gain back some ground and get back to its roots as a tool for helping music lovers get more out of their listening — not simply go toe-to-toe with Spotify, Pandora or the rest.

Earlier this year I met up with Hawn, who outlined in an interview how the site wanted to stay relevant: looks like this is the first real fruit of that labor, but I’m told there are more launches in the pipeline.

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“Global is quite big. We want to be the first ever truly global music service,” CEO Axel Dauchez said on stage at Le Web.

“There is a lot of fog around the U.S. market. Ten percent of music interest is in the U.S..

“In 2012, you have 160 million smartphones in the U.S. and 900 million elsewhere. Definitely, the market is not in the U.S.. The U.S. is low-growth, high-margin, high competition.

“When you’re looking at pay-TV, for instance, spending proportionate to cost of living is much higher (elsewhere) than in the U.S.”

There is no further detail on how Deezer has secured so many global music rights, but UK MD Mark Foster told paidContent in October it expanded first to the UK from France because most music rights are brokered with labels in London.

This is a market with four opportunities…

1. growing global smartphone adoption
2. high piracy in some markets, especially the Far East
3. riding Facebook’s platform parasitically also yields growth
4. striking other carrier relationships puts services in front of potential consumers

The subscription music segment makes its money by requiring payment for mobile access. Having already grown through partnerships with Orange in France and the UK and with Belgacom in Belgium, Deezer says 10 of the 85 roll-outs it will do by January will also have a telco component.

Now that services like Deezer and Spotify look set to make a dent in western piracy, labels are turning their attention to remaining piracy problem areas, like Spain and China. If the services can crack there, they will forever be in labels’ thrall. Annual Deezer revenue has tripled to €50 ($66.88/£42.87) million, Dauchez said.

Deezer’s roll-out is large-scale, but it is not alone – several others in digital music and entertainment are all going global right now. The race is finally on to become a global brand leader…

• Well-capitalised Spotify recently added the U.S., Belgium, Austria and Switzerland and is planning Germany, Australia, New Zealand, Singapore and Hong Kong.
• Rdio has launched in Brazil and is planning Germany and Australia.
• We7 is expanding from the UK to other parts of Europe.
• Netflix (NSDQ: NFLX) is expanding to the UK and Ireland.
• Guardian.co.uk and Mail Online are expanding in to the U.S.
• WSJ.com has been launching new European, German-language and Asian editions.
• Hulu is now in Japan.

Others are farther behind…

• Rhapsody is considering its globalisation through partnerships but doesn’t appear in any hurry.
• Pandora (NYSE: P), too, is mulling internationalising but sees risk after exiting the UK several years ago.
• Mog’s UK launch is running almost two years late.
• Hulu has found no chance of UK launch in three years of trying.

Spotify, in particular, looks like it developing significant brand traction, so Deezer is pushing its globalisation button quick and hard. It thinks the key is surfacing relevant local music through editorially-led discovery.

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Faced with an inability to get more press than its competitors, Deezer is taking the gloves off today — making an announcement at the Le Web conference in Paris that it is launching an ambitious program to become the world’s leading music streaming service.

In a release, the company said it would spend the next six months aggressively rolling out around the world (right now it is only available in Belgium, France and the United Kingdom, where it launched a couple of months ago). That includes Ireland and the Netherlands this week, the rest of Europe this month, Canada and Latin America next month and “the rest of the world” by June”:

“Four years after having invented music streaming, and following its successes in France, Belgium and the United Kingdom, Deezer will roll out in a number of new territories every week starting 8th December 2011 to reach 200 countries by June 2012″

And there, in one short paragraph, the company has managed to outline my problem with it in several different ways.

Although Deezer is a perfectly adequate online streaming service that conforms to most industry norms (think Rdio, rather than Pandora) I have consistently been under the impression that it talks a great game but fails to deliver. Sure, it’s made a deal with French telco Orange to subsidize access for their mobile users and it has an interesting approach to rights (explicitly avoiding the complex United States market).

But it feels like there’s a chasm between what it says and what it does.

Here are my issues with that short statement:

As a service, Deezer isn’t entirely without merit — so why say these things? I’ve reached out to the company for an explanation of these bold claims.

They haven’t got back to me yet.

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According to conventional wisdom, consumer startups should move to San Francisco for access to capital, talent, and ideas. But if you’re launching an online music company, consider London or Berlin. For the past few years, a crop of internet music startups have been plying their trade in Europe, away from the glare of the major labels in the United States. Their playbook has been to achieve critical mass — with their product, users, and business model — before jumping over the pond.

Why Europe? One major reason is that it’s relatively easier to do licensing deals with the major labels there than in the United States. The U.S. is a much larger market, so new licensing models and frameworks undergo greater scrutiny because of the risk involved.

“The minute that I tell the major music labels that I am not interested in signing for rights to the U.S., the negotiations over terms become much, much easier,” said Axel Dauchez, CEO of the French start-up Deezer, in a recent Reuters story. The company plans to launch nearly everywhere but in the United States.

Entrepreneurs should also note that investors in Europe aren’t as jaded when it comes to music startups as their U.S. counterparts. Index Ventures stands out in this regard. Bolstered by their success with Last.fm, they’ve added Songkick, Soundcloud, and RJDJ to their portfolio in recent years. As a VC told me earlier this year, the reason he likes consumer music plays — as opposed to video ones — is that the licensing models are relatively well defined. There is a degree of certainty regarding the rates one has to pay for electronic sell-through, versus on-demand streaming, versus non-interactive radio, which Rolling Stone recently documented. Compare that with licensing premium video content, where the various licensing windows and unclear economics involved leads to uncertainty and risk.

All this has effectively turned Europe into a test bed for innovation in music (with the notable exception of internet radio, where the fragmented licensing regimes resulted in Pandora blocking non-U.S. listening).

Spotify is an excellent example of a digital music company that launched first in Europe and then expanded to the U.S., and their growth has been well documented. Much of their delay in getting licensed for the U.S. was rumored to be around the cash advances desired by the labels based on how “freemium” their model would be.

Before Spotify, there was Last.fm, the grandfather of European music startups. They came onto the scene just as I was winding up as COO at the internet radio network Live365. At the time, Last.fm’s look and feel was fresh, and they were innovating at an unbeatable pace. It boggled the mind that someone would invest in internet radio in 2002 given the industry’s trials and tribulations, but they persevered and CBS bought them five years later for a cool $280 million, making the company one of Europe’s biggest consumer start-up success stories.

Besides Last.fm and Spotify, these are the music start-ups to watch in Europe:

Songkick: Started by a Brit and an American, they are on a roll, having reached 100,000 activations within two weeks of launching their iPhone app. They’ve raised funding from Index, and earlier this year they poached an exec from Google to be their CTO. Songkick is centered around a concert listings service, but with social and commerce features that make it much easier to know when shows are happening near you.

Soundcloud: Billed as “YouTube for audio,” this is one of Berlin’s most prominent startups. Founded by Swedish entrepreneur, Alexander Ljung, the company is growing exponentially. It recently surpassed 8 million contributors, up from 3 million in February.

7Digital: Led by industry veteran, Ben Drury, the company is a pioneer in selling digital music. It continues to grow and be profitable, despite walking among giants like Apple and Amazon. Bolstered by its one million mobile users, 7Digital has expanded into the Asia Pacific region.

Mixcloud: Bootstrapped by computer science students from Cambridge, this startup provides a platform for sharing talk radio and music mixes. The site’s members have already uploaded 100,000 programs, and the founders have become fixtures on the Silicon Roundabout scene.

About the Author: Rags Gupta, based in London, is currently on sabbatical from the online video company Brightcove, where he has been vice president, international. Prior to that, he was an executive at Live365 from 1999 to 2004 and is currently an investor/advisor at 8tracks. He can be found at twitter.com/ragsgupta.

Image courtesy of Flickr user photosteve101.

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Vodafone yesterday reported results that indicated that data revenue is still growing strong, rising by 23.8 percent to £3.1 billion across the group. Data now accounts for 14 percent of the group’s service revenue. Similarly smartphones are going gangbusters: in Europe they now account for 21.7 percent of all mobiles on Vodafone networks. Vodafone notes that 58.7 percent of those smartphone users take data allowances with their devices. And in Germany the company has picked up 50,000 LTE customers since launching the service in September.

But in terms overall revenues, which take into account the declines in voice revenues, growth in Europe has slowed right down, with service revenues for the region actually declining by 1.3 percent for the first half of the year.

European countries where Vodafone’s operations have been hit the worst are those being slammed in the current economic crisis: Spain’s service revenues were down by 9.6 percent, while Italy’s were down 2.3 percent. Greece’s revenues are not broken out in Vodafone’s balance sheet (they are listed under “others”) although the company did admit to taking a £450 million ($725 million) charge for that operation.

Not so though in emerging markets, which Vodafone points out are in many seeing higher GDP growth than their European counterparts. Revenues in India were up by 18.4 percent; South Africa’s Vodacom was up 7.3 percent and Turkey up 27.9 percent.

“Vodafone is becoming a little more an emerging market company and a little bit less a European company,” CEO Vittorio Colao said during Vodafone’s earnings presentation (via Guardian).

Overall the company reported revenues up 4.1 percent to £23.5 billion ($37.8 billion), with pretax profits up 2.3 percent rise to £7.5 billion ($12 billion), and increased its dividend payment to shareholders by seven percent: it will pay out £4.7 billion in ordinary dividends this financial year, and an additional £2 billion in January, partly fuelled by earnings at Verizon, which will be paying out a dividend to 45 percent owner Vodafone for the first time in six years.

Vodafone’s focus on and benefits from fast-growing markets outside of Europe is in contrast to some of the recent investments announced by France Telecom/Orange, which appears to be looking to developing new services closer to home as a way of expanding its business, with the start of a VC fund with Publicis and an investment in a French social media company.

Of course, Orange too has extensive holdings outside of Europe, with operations in Africa, the Middle East and Asia, but in the last few days it has proven that it is also focusing on growing revenues at home with a series of new media investments.

Orange has paid €14 million ($19 million) to take a 34.15 percent minority interest in Cascadia, a newly-formed company that holds the web operations for Skyrock, a French radio station targeting 12-24 year-olds.

The deal does not signal a move into traditional radio for Orange; it’s for Orange to get more exposure to young people through new media services, and enhance the services it offers to its existing subscribers — a strategy it has already been investing in with its stakes in streaming music provider Deezer and online video company Dailymotion.

The web operations mainly consist of a blog platform on Skyrock.com, which Orange says is the leading blog platform in France with over one billion page views per month covering some 33 million active blogs. But the company also runs an instant messaging service and is now exploring “future geo-localized and group messaging services for mobile users.”

Orange is looking to leverage the investment with its other holdings from the word go. Skyrock.com and Dailymotion will promote each other regularly, and Orange’s R&D and design teams will work with those of Skyrock.com on new services. Skyrock will also help sell advertising for both Deezer and Liveradio — which, if successful, might prove to be a most direct impact of all on the revenues of these other ventures.

That is not the only investment that Orange has committed to in the last few days: it is also teaming up with the advertising giant Publicis to start a VC fund that the two say digital technology startups.

Among the “likely sectors” are marketing, e-commerce, mobile content and services, online gaming and social networks; as well as related technologies and infrastructures such as middleware, cloud computing, security, and online payments.

The two are jointly putting in €150 million ($208 million) and are looking for more investors to bring the total up to €300 million. The amount invested in each project will vary depending on the stage of funding although the two say that a typical amount for a late-stage investment might be €15 million ($20.8 million).

Which route is likely to yield better returns for the two carriers: more investment abroad or drilling down at home? It will be interesting to see which approach proves the more successful.

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The announcement follows on from last week’s news that Deezer would be extending its service to the UK, headed up by new MD Mark Foster, who has had a long career in the music industry, with executive positions at Warner Music and other labels.

According to the release from Orange, Orange will be the exclusive partner for Deezer Mobile, a service that gives users unlimited access to the whole of the Deezer catalog of 13 million tracks on their phones.

Orange will be using the service as an incentive to would-be customers: those who sign up for Deezer independently will need to pay $9.99 per month to access music tracks, albums, radio channels, recommendations and supplementary content. But those who sign up for Orange’s Pay Monthly “Panther” tariffs — price: between £25 and £80 per month on a 24-month contract — will get a mobile-only version of the service bundled into those phone deals. It’s not clear whether T-Mobile, as Orange’s partner in Everything Everywhere, will have access to offering the service as well.

As it does in France, Deezer will also offer its radio station service — where a user cannot choose which specific tracks are included — free of charge.

Will this deal bring in the masses? We have seen a number of partnerships between mobile operators and streaming music companies — Music Station was an early mover with deals with Vodafone (NYSE: VOD) and others (and has more recently moved into a music streaming service with RIM (NSDQ: RIMM) on the BBM social network); and Spotify works with 3UK, Telia and Virgin Media (NSDQ: VMED) — but it’s unclear whether any of these have hit the high notes everyone was expecting.

But given the current buzz around cloud-based media services and the growing ubiquity of smartphones, we are likely to see more partnerships anyway.

This is not the first time that Orange and Deezer have worked together. In 2010, Orange took a minority stake in the company and the two have been offering a music service since August 2010 in France. While the two have not revealed how many subscribers they have today, the partnership picked up 500,000 in the first six months of operation — a number that is likely to have grown, as the service is bundled into Orange’s broadband and mobile content offerings in France, where it is the most dominant player on both platforms.

Deezer says that overall it has a total of 20 million subscribers worldwide, with services not only across France, but also Germany, Italy and Spain. Of that 20 million, there are 1.2 million taking premium packages. The rest listen using the Deezer’s free radio stations.

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Apple (NSDQ: AAPL) could overtake Nokia (NYSE: NOK) in smartphone shipments by the end of this year. Also, how Apple and Microsoft (NSDQ: MSFT) compare in user interfaces. (via Digitimes; ZDNet)

Meanwhile, Apple is gearing up for its first store in Hong Kong, further encroaching on turf where Nokia has been strong. (via Bloomberg)

We wrote last week about progress with Baidu‘s mobile app store ambitions. Today it’s emerging that Dell will be its key partner in Baidu’s tablet and smartphone push. (via Reuters)

» Telefonica, owner of O2 and other mobile operators, is restructuring its online business to create a new unit, Telefonica (NYSE: TEF) Digital. (via Telefonica)

» The UK government looks like it might delay its 4G spectrum auction to Q2 2012 — a problem for Three but potentially good news for its competitors. (via Guardian)

» Mobile operator Orange could be bringing Spotify competitor Deezer into the UK market by the end of this month. (via The Independent)

» Could Deutsche Telkom‘s $6 million break fee could be forfeited if the deal with AT&T (NYSE: T) stumbles on regulatory hurdles? DT says no. (via Reuters; Dow Jones/Total Telecom)

» Could Intel‘s “Ultrabook” beat Apple at its own game? (via Ars Technica)

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