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Music

Spotify lines up against iTunes

By | Music | 5 Comments

As reported by Tim Bradshaw in the FT today, and also on the Guardian blog there is a new release of Spotfiy out imminently that will allow you to import your current music collection and mix it seamlessly with the Spotify streaming service.  The great thing about on-demand streaming services is the range of music you can access, but the big problem is that they are unlikely to ever have everything you want to listen to, with the result that most of us have had to run with two different music players.  This release gets over that problem which is a big step forward and will eliminate a lot of the distinction between owning and accessing music, something I expect to hasten the inevitable paradigm shift from an ownership mindset to an access mindset.  As Spotify founder Daniel Ek says, this is a huge shift in mindset and whilst I expect it will now happen more quickly it will still take some time.

Many people, if not most people, currently use iTunes to play the music they own and this move puts Spotify firmly in competition with Apple’s market leading music service.  It will be interesting to see if that changes Apple’s view on the suitability of Spotify’s iPhone app for inclusion in the App Store.  It would be a pretty cut-and-dried anti-competitive move if they chose to ban it now.

The other big thing in this release is deeper integration with Twitter and Facebook.  From the video below it appears as if you log in via Facebook or Twitter your friends will be listed in the Spotify client and you will be able to share tracks by dragging and dropping.  This should be good news for artists who will get more publicity and for Spotify as they seek to grow their user base.

When I first met Daniel a couple of years ago he told me how he would leverage third party social networks rather than build a social network inside Spotify.  In the intervening period some of his competitors opted for the opposite strategy but given Facebook’s announcement yesterday it seems to me his decision to focus resources on building a great music service looks vindicated.  I dwell on this point because I think the same will be true for many other consumer internet services.

From a commercial perspective Spotify have announced that they now have 320,000 customers on the €9.99 per month subscription service, up from 250,000 three months ago.

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The fight in the music industry is about where the money flows, not the quantum

By | Music | No Comments

Mike Masnick has a post up on Techdirt with this great description of the changes afoot in the music industry (emphasis mine):

You may have heard that the music industry is sort of falling apart. It isn’t really a matter of there being less money in the pool – just that the money people have to spend on entertainment (which will always be somewhat of a constant) is just being diverted away from where it historically has gone (record labels and managers). The music industry is by definition an operation invented to divert money spent on music away from actual musicians – the problems that the music industry is currently facing have specifically to do with the fact that the money that would usually flow directly to the bigger economic actors is now going somewhere else.

In other words the size of the pie remains the same, but the internet has disrupted the status quo for how the pie is split up.  Labels are suffering and bands who rely on labels rather than sorting themselves out are also suffering.  Put this way there is no crisis for music as such, just a period of re-adjustment during which the bands will figure out the new way to get their share and the labels may or may not (probably not in my opinion, particularly given the news about EMI this morning) be able to continue making a handsome profit by facilitating the flow of cash from consumer to artist.

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Music industry going to try reducing CD prices

By | Music | No Comments

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Peter Kafka has a piece up on MediaMemo reporting that Universal Music Group is pushing a plan to sell CDs at a retail price of $10 or less.  They have done some tests which show that such a move might dramatically increase sales:

In the last few months, Trans World Entertainment began testing the $9.99 price point in over 100 stores, while Wal-Mart has been telling the majors to release shorter albums at lower prices more frequently.

The Trans World test–in which most independents and every major except for the Warner Music Group participated–produced units sales increase of more than 100%, according to label executives who participated in the tests. The Trans World test helped sell the new pricing model to the Universal labels, sources say.

Yesterday I wrote about the challenge in judging market timing for big shifts like the one to music streaming services, and how in industries like music where industry insiders have an effective block on change there is only so much that startups can do to drive the timing of the shift.  This news about Universal reinforces that point.  I’m guessing that the execs at Universal will be much less willing to experiment with streaming services whilst they believe they can arrest the decline in recorded music sales by moving down the price-demand curve.  Warner’s recent statements against ad supported models may have been motivated by similar thinking.

Further, I would expect that if they get agreement from the other labels and push ahead with this strategy it will meet with initial success.  Sales would go up and the industry’s desire to embrace streaming would wane – but only for a while.  Sooner or later sales would start declining again and at that point margins would be lower and the industry would have less to lose and hence less worried about the impact of new business models.  But we would have lost some time, the startups in this space would have burned some more money, and maybe had to raise some more money, which would be bad news for their founders and investors.

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Is digital starting to pay for the music industry?

By | Music | 4 Comments

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Daniel Ek, founder of Spotify, was interviewed at SXSW today.  There is a full write up on VentureBeat which is well worth a read if you are interested in this space, but the standout nugget for me is captured in the following quotes from Ek.  They capture the industries main challenge, the evidence it is starting to overcome the challenge, and the article of faith that underpins many free-cheap music services.

The industry is looking at new revenue opportunities and are generally positive on them. But nothing in digital has really been able to counter the decline in traditional revenue sources. [The challenge]

……..

If you also look at Sweden, between 15 and 18 percent Swedish population actually uses Spotify. The music industry revenues are up there. Legal music revenues are up. Everything is up. It’s only a few percentage points but it’s up. [The evidence of progress]

……..

I really believe that if music could be legally available on any device that you wanted… I think the music industry would be radically bigger than what it is today, [The article of faith]

It is dangerous to read too much into an extract from an interview at a conference, particularly when the interviewee has a vested interest, but if legal music revenues in Sweden continue to rise that will be of huge significance.  In supporting news elsewhere in the interview Ek said that the UK is showing signs of being similar.

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Warner comes out against free music services

By | Music | 3 Comments

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As you may have seen Edgar Bronfman Jr, CEO of Warner Music Group, yesterday came out against free streaming services, saying the following (full article on the BBC website):

Free streaming services are clearly not net positive for the industry and as far as Warner Music is concerned will not be licensed.

"The ‘get all your music you want for free, and then maybe with a few bells and whistles we can move you to a premium price’ strategy is not the kind of approach to business that we will be supporting in the future.

That is clearly bad news for companies like Spotify and We7, although in the short term I guess it won’t effect them as their current contracts with Warner obviously aren’t affected by the comments of the CEO.  What counts for all the music streaming services is Warner’s position when they come to renew their agreements, and given there has been a recent shift, their could well be another one back the other way.

Obviously if Warner did decide to withdraw their catalogue from free services it would deal them a huge blow.  Having a full(ish) range of tracks is a big deal for Spotify et al, because that is what the consumer expects.  A service which excludes a bunch of your favourite tracks leaves you needing to find an alternative solution to run alongside it – at which point you might as well switch entirely to that alternative.  E.g. if I have to put all my Warner music on my laptop directly I might as well put all my music on rather than use Spotify for some and iTunes for others (that said now that I’ve been using Spotify for a while there is a big gap in my ‘owned’ catalogue).

The big question here is whether services like Spotify can make enough money for the music industry, and whilst Bronfman thinks they can’t, Rob Wells, senior vice president of Universal Music Group International, thinks they can – in his words:

Spotify is a very sustainable financial model – full stop

The difference between Bronfman and Wells might lie in their respective views of how big the music market can be/should be/will be.  It seems to me that like newspaper classifieds and encyclopedias before them the size of the music industry is being shrunk by the internet, and maybe these two are at different stages in their acceptance of that fact.

The important thing for the long term health of the music industry is that artists make enough money.  At the moment they aren’t seeing enough out of the free music streaming sites, largely because the labels are taking all the cream via up front minimum guarantees and equity stakes, and that needs to change.  The fact that artists are making more money via concerts these days will also help.

Once artists are getting enough money to keep them producing (which for many will be less than the days of yore) the labels and music services can fight over the rest.  Failing to support the free streaming services will only serve to push people towards piracy, further shrinking the size of the pie for everyone.

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Top artists’ concert revenues typically 2-3x their album sales

By | Music | 10 Comments

The Vancouver Sun recently posted a list of the top ten music earners of the last decade.  Aside from being shocked at how few newish stars made the list I was interested to see that nearly all of them made more money from concert ticket sales than album sales.  It would be interesting to know if the same ratio holds for smaller artists.  Here are a couple of excerpts from the list:

Position in list Album sales Concert sales
Celine Dion 1 $256m $522m
U2 5 $219m $391m
Bruce Springsteen 7 $144m $443m
Britney Spears 10 $299m $196m

I included Britney to make the point that there are outliers, and Eminem is another, he sold more albums than anyone else, but he doesn’t tour much and so didn’t make the top ten.

The bigger point though, is that for most of the top stars live performances are where the action is at – which is important for the whole piracy and artist revenues from internet music services debate.  Specifically, I wonder how many of those concert tickets were bought by fans who got to like the artist after listening to tracks downloaded from bittorrent.  Maybe piracy is helping the artists to make money.  Going forward the same could be said about Spotify – even if artists feel they are not making enough money directly from the service it may be a strong driver of concert ticket sales.

Music artists are making more money than ever

By | Music, Video | 2 Comments

image This chart (originally in the UK Times and I found it on Hypebot) shows two things.  Firstly, and unsurprisingly, recorded music revenues are shrinking both for labels and artists, and revenues from live performances are rising.  Secondly, and this is the surprising bit, for artists the growth in income from live music is outstripping the decline in revenues from recorded music, meaning that they are actually better off, at least since 2004.

The one question about this data, as discussed in this hypebot piece, is whether the top artists are taking nearly all the live revenues and all the other artists aren’t moving forward at all.  My intuition is that the market for live music is growing for all types of artists.

This is another example of a story we have seen elsewhere on the internet of middlemen getting cut out of a market leaving other participants better off even as the market shrinks over all.  In the music industry record labels are the middlemen.  If we think about TV and film, the equivalent middleman companies are traditional broadcasters and maybe the Hollywood studios.  I wonder if in a few years we will see a chart similar to this one with their revenues declining.

Of course live performances won’t compensate for lost programme/movie sales in the same way for TV and film as it has for the music industry.  Instead I suspect the industry will find new blends of advertising, pay per view, and subscription models which allow the more efficient channelling of cash from viewers to producers.

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Social media will make us all more human

By | Music, Social networks | 3 Comments

American gospel/Christian rock singer Shaun Groves wrote a post back in May arguing that if the music business dies it will be because artists didn’t change rather than because technology killed it (thanks to Techdirt for the pointer).  Shaun’s point is that social media have given artists the tools to have direct relationships with fans, and that now some artists are taking advantage of them those artists that don’t will start to lose their popularity.  Further, this development will be a challenge for many top artists who have traditionally relied on other people to take care of their public persona – an option that is becoming less and less viable.  Shaun put it like this:

Someone can be hired to hit the “publish” button on a blog post that gets e-mailed over, invite people to a Facebook event and even write to people for an artist and signed their name (it happens), but no one can convincingly be the artist every day in post after post or interact with commenters regularly.  Artists can’t hire anyone to be them 24/7 and the internet demands those kind of hours.

I think this is also becoming true for brands more generally.  I’m not convinced that everyone wants to have a relationship with all the brands they like, but they do want to know that what they see is what they get and that no-one is pretending that anything is something that it isn’t – i.e. they want to trust the company that they are buying from.  That trust only comes when companies act and speak with integrity, which I think – and this is where the leap comes – means empowering everyone who has contact with the customer to have the sort of interactions that Shaun is describing.  They may not be as long lasting or as intense with brands as they will be with popstars but they need the same feeling of integrity.

All of which is why one of my great hopes for social media is that it will make us all more human.

Big labels believe their lock on talent will survive the transition to free

By | Music | 6 Comments

Mike Arrington has a great write up on a lunch he had with un -named executive from a major record label which throws some light on why the music industry continues to look so clueless.

According to this executive:

The labels fully understand that recorded music, streamed or downloaded, is going to be free in the future (we’ve argued this relentlessly). CD sales continue to decline by 20% per year, and the only thing that’ll stop that trend is when those sales reach zero. Nothing will replace those revenues.They also understand that recorded music will largely be little more than marketing collateral, meaning that the Internet services being sued today for copyright infringement will be embraced in the future as ways to get the word out on hot new music. These services pay for the privilege today (either through high streaming rates or in court), but in the future they’ll be the ones getting paid by labels. Think radio payola at a whole new level, and there won’t be any more talk about social networks giving stock to labels and artists. Money will flow the other way, as it should.

No argument from me on the trend towards free and where the money will be made in the future, but surprising (and a little refreshing) to hear it from a record label executive.

This raises the obvious question of why the labels seem to be fighting the future rather than embracing it, and in the process alienating (even making criminals of) just about all of their future customers.

Apparently the answer is that they believe they hae a lock on the creative talent, and that in the next 3-5 years they will have all their artists on 360 degree contracts where they take a slice of all of their income streams.  At that point they will switch to more fully supporting services which give the music away for free.

In the meantime (however) there is too much money on the table for them to turn away.  As Mike says VCs have directed a ton of money to labels via their startups (up front payments and litigation costs) and Apple, Myspace Music, Imeem, Last.fm and others all pay royalties per stream/per download.

The bet the labels are taking, therefore, is that their lock on the talent is such that pissing off all their customers isn’t too much of a risk (or more properly that the risk is small enough that the short term money is worth risking their future’s for).

If all of this is correct (and some of the comments on the TC post take issue with it) then it is a demonstration of breathtaking arrogance by the labels, but it is also a strategy they might get away with.

Despite the fact that artists have had no love for their labels for a long time their hasn’t yet been a breakthrough startup which has reorganised on the A&R end of the value chain, and getting signed by a label remains the ambition of most new acts (Myspace has changed the way that labels and artists find each other, but the important point here is that they are still trying to find each other).

I wrote above that the labels might get away with this strategy – I sincerely hope that they don’t remain interested in companies that are trying to stop them!  To this end I think startups like SliceThePie, Sellaband, Bandstocks and also SoundCloud have interesting businesses.  Parts of We7 also play in this area.

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