Take a look around: Amazon, Google and of course Apple have all jumped on the locker bandwagon. While downloads may not disappear entirely, their role is set to lessen markedly in the midterm future and most of the alternatives in play from the big three players generate much lower income for artists.
The simple fact is that the disparity between paid downloads and streaming is unsustainable. It looks increasingly like the Freemium model itself is fundamentally flawed, that any fix will do little more than paper over the cracks. And the new wave of locker services are only marginally better. They share the same fundamental revenue share dynamics when compared to download income for all parties. So what is the answer? As I said in my June Midem post click here to read more , first and foremost business models and products must be innovated.
But most importantly we need a new generation of music products that leverage social, user participation, access models, multimedia and device connectivity to the full. Over the coming month or so I will be migrating all of my activity there. I will soon be posting new information here for you to amend your feeds and subscriptions. Follow me on. As I posted earlier in the month, the music subscriptions space is going through an important period of transition.
It took much of the last decade to realize that the 9. The niche audience is getting bigger. Firstly, the appeal for premium subscriptions is still a niche addressable audience of tech savvy music aficionados, but that audience is growing. A few million per major music market perhaps. Also improvements in consumer technology and connectivity make it easier to deliver a high quality on-the-go cloud based experience, a crucial asset.
New routes to market. Perhaps the most important change though is that numerous new channel partners are emerging that can help shoulder the to-consumer cost. ISPs, mobile operators, device manufacturers, even brands all are becoming realistic partners for subsidizing premium subscriptions, in turn reducing the price point to an extent where appeal is much broader.
The music industry is waking up to the fact that a recurring household music purchasing relationship is much more valuable and secure than ad hoc individual spending and illegal downloading. MOG has an additional crucial asset: the service is inherently social. MOG joins those dots. Those assets alone though may not be enough. Spotify undoubtedly has momentum and potential in abundance.
But, even without considering the issue of cash burn, it is also important to keep a sense of scale. Spotify has done a great job of acquiring a sizeable audience after a short period of time, but needs many users more before it can be considered on a par with some more established services that get a lot less attention these days at any rate. In the chart below I have mapped the number of users of Spotify and a number of other key free music services, each from launch.
What is clear is that Spotify has made a solid start is growing at a stronger rate than Pandora was at the same stage. But it is also clear that other services like Last.
FM and imeem grew more quickly. No coincidence of course that Spotify see the iPhone app as a crucially important ticket to further success. The last point is key. All of the other services in the chart have had to deal with the challenge of audience cost sustainability:.
How do you make sense out of 20 million songs? Steve Purdham, CEO and Founder Investor — We7 Two things, in the UK, the silent landmark in was the launch of the BBC iPlayer Radio app this has the potential in to be the catalyst for mainstream adoption of streaming, without the need to know its streaming and secondly the driving momentum of smart phone and tablet adoption reaching what I believe was a tipping point in Nick Massey, CEO — Rara The introduction of frictionless music sharing across social networks has led to a massive increase in the adoption of music streaming in Mike Bebel, Head of Music — Nokia was a year when many of the mainstream music service providers realized that the typical mobile music consumer is seeking more effortless and delightful entertainment.
However, adoption is far from uniform. Nordics lead the way. Norway and Sweden the home of Spotify are respectively the 1 st and 3 rd most active streaming markets globally. Key to this trend is the relative sophistication of Internet users in these markets. Streaming is a good fit for piracy riddled Spain.
But whereas consumer sophistication was key to Nordic adoption, in Spain piracy and the legacy of free were the most important drivers. Free is a good fit for France too. The role of piracy and free have also been important in France. French authorities have pushed through the controversial Hadopi legislation but the carrot of Spotify and local streaming success Deezer has delivered immediate results.
Purchase conversion rates are higher in lower penetration markets. Streaming Drives Music Discovery and Consumption. Although it is still too early to draw definitive conclusions about exactly how much streaming impacts piracy and sales, the case for driving discovery and consumption is much clearer. Usage is steady among existing users. Selling paid content from the supermarket aisle The task is more robust for Tesco than it is for Amazon. So how have Deezer managed to pull off the T-Mobile partnership?
Rebooting the conversation Streaming music, and Spotify in particular, has been cause of much controversy and debate of late. What we know. Streaming is proving popular with consumers at a time when download growth is slowing.
A dynamic which is complicated by the fact there are many different types of artist deals. Whatever data you see on either side of the argument we are simply too early in the evolution of streaming to draw conclusions.
We need a few more years yet and even then separating cause from effect is challenging at best. What we suspect. It is looking like streaming does help reduce the amount people use file sharing. Access based services are the first post-transition technology products Any new technology looks more like what came before than what will come next. Putting streaming income into context A number of record labels provided Music Tank with data illustrating the level of income across various platforms which can see here at aggregate level see figure 3.
Some methodological notes: YouTube is not included because although it is by far the largest online music destination it is not a pure music service. There is a mixture of paid and total users numbers in here. This chart is intended to give a sense of relative scale of service adoption across a diverse range of user experiences and business models.
The list is illustrative, not exhaustive. That is to say that installed base numbers have been created for each device using replacement and new sales assumptions, and that then a unique installed base number was created using assumptions about multiple device ownership etc. The assumptions were cross referenced and checked in multiple ways including calculating the average number of downloads per buyer, cross referencing against total market level statistics for buyer penetration and digital download sales.
The number is an informed directional estimate not a definitive measure. What follows are highlights from my speech at the Westminster Forum on the UK Music Industry and Beyond I want to spend the next few minutes building the case that digital music is in a period of transition, a stage that presents us with a unique and ever narrowing window of opportunity to drive truly transformational change within the music industry.
So what exactly has gone wrong? So how do we get out of this situation? Well, both a little and a lot. So what can we conclude from these numbers? All of the other services in the chart have had to deal with the challenge of audience cost sustainability: imeem has had well publicized financial difficulties with WMG writing off millions of debt Last.
Pandora has long focused on building financially sustainable audiences, a strategy echoed by We7 in the UK. Spotify has run a fast first lap, but it is a very, very long race.
Follow Following. Music Industry Blog Join 7, other followers. We7 has done deals with the big four record companies as well as a host of independent labels and is charged different rates by different labels. In March, for the first time, the advertising revenues generated by We7 met both its royalty costs and its running costs.
And there were no advertising campaigns that were above the norm over the last month and none that were paying advertising rates that were above what you would expect a large scaleable operation to have. The advertising-backed streaming music market is littered with failures, while other companies have become subsumed into larger organisations. Spiralfrog and Ruckus both collapsed last year despite having backers among the music labels. Rival Qtrax, meanwhile, hit the headlines after a glitzy launch two years ago, only for it to emerge that it did not in fact have the rights to the tracks it was offering.
It has still not launched. We7's biggest rival is Spotify, but the level of royalties paid to artists by that service appears opaque , sparking speculation that some artists — such as Lady Gaga — are being underpaid for their songs. When I asked a spokesman for the independents whether they did indeed own part of Spotify, he gave the most evasive non-answer you've ever heard. At which he could only laugh. And yet that's a positive thing, says Purdham: "iMeem and MySpace Music haven't launched outside because their costs are so high on the old models.
Two years ago it was almost mathematically impossible to make a profitable music service; which is sort of why I did it - I love the challenge. But you know a lot of people have a dig at the music industry. But the labels are trying, they're looking to survive and want to support new companies. The conversations we're having today are far more positive than 18 months or two years ago. Free music does cost a lot to deliver.
People weren't doing filesharing because they really wanted to steal music; they were there to find music. We've had to create a better-than-free model: you search, click, find. We've got 2. That's 5m people who have been consuming music elsewhere. And now we can sell them something, even if it's not the music: T-shirts, tickets to gigs, ads, the collector's version of the DVD or CD, or whatever.
We create an environment where music is the honeypot. The final answer therefore on Spotify's costs? Much more - in theory - than my previous estimate. But, in reality very probably much less in reality than the calculations suggest.
We7 chief helps calculate those elusive Spotify numbers. We7: a fairer music streaming site for all? Photograph: Public Domain. As Purdham points out, at the very least that means 2bn tracks per month.
Er, OK, perhaps we can make it up with advertising revenue? Topics Spotify Technology blog Internet blogposts.
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