I guess that by now, all music labels have already realized that music downloads and subscriptions are the only way forward to distribute music. CDs are dead, and rightly so.
Maybe because we just finished unpacking the shipment from KL in our new home in Shanghai, I just happen to realize how I hate CDs. I have hundreds of CDs purchased before the MP3 era, and while unpacking them, I could only feel how useless was the task of putting them on the shelves in my study room.
For my next move I only hope I will have already got rid of all the CDs after ripping them all to my music library, (or alternatively legally download private copies of them with Bittorrent).
I do not think I will ever buy a Music CD again. The last music CD I bought was played only once while ripped to my library.
The Music industry has changed in the past ten years and artists make their work known by distributing it for free. Their revenues come from fans fees, live performances, merchandising, ad endorsements and downloads of live concert videos.
Movie producers maintain theaters as their main source of revenue, but they also cash on HD downloads, at a few dollars each, and TV-rights from Pay-TV broadcasters. TV movie channels have survived due to the high number of people that still find “zapping” as the way to discover what to watch this evening.
The Immersive Game Consoles just announced promise to deliver a new genre of immersive games, but also immersive movies and immersive communications within a 3D virtual reality environment.
TV shows continue to be ad sponsored, and also available streamed from the Net with the option to download them for only $0.99, free from inserted and overlay ads.
The cash cows for Pay-TV operators are live sport events, broadcasted in HD and Ultra-HD and enriched with interactive features like multiple-angles and “watch-with-friends”. 3D VR immersive live events broadcasts are not available yet, but it will come in the next ten years before 2030.
This post is a fictitious prediction of what could be written about online video and movies in ten years from now. I can not guarantee it will happen but I am ready to take bets of $1.29, $0.99 or $0.69
Ten years ago the RIAA fought the decrease in sales of music CDs by different means, including: taking their customers to court, lobbying to have the ISPs stopping Internet Access to anyone who shared music files, and imposing taxes to any device able to store or play music, assuming everyone was in piracy.
Ten years later, all these actions from RIAA seem ridiculous. In 2019 music is no longer sold in discs or in any physical format. All music is distributed online and, to what would have been a surprise for RIAA in 2009, for free. Artist distribute their tracks freely online, and encourage their fans to share them with their friends.
Social Networks like Facebook, MySpace, uTube and Amazon.net play now a central role in the music industry. All artists compete for attention and try to influence others to become fans. Becoming a fan of a band gives the user access to their songs, to their music videos and to buy their merchandise online.
Artists get the ad revenues from their sites, and more substantial revenues for the $0.99 monthly fees that the SuperFans (premium fans) pay to have access to exclusive content around artists, such as interviews, live chats, or clips behind the scenes. Superfans enjoy other benefits, including discounts in tickets for live concerts.
In 2019, the labels and the RIAA have almost disappeared, and artists now deal directly with their audience, thanks to the social network platforms that manage the SuperFans subscriptions, as well as the online purchases.
Now there is a huge amount of semiprofessional artists that generate some revenues from their creations. Still there are a few celebrity artists that command hundreds of thousands of SuperFans.
Music did survive the era of the Recording Labels. The new Online Music era is more democratic in who gets the attention, and has removed inefficient intermediaries between artists and fans.
“I once debated Michael Porter at Davos on the overall value creation of the internet. I argued that the internet created valued and he argued that the internet destroyed value.”
Many examples come to mind, where Internet seem to be killing multi-billion industries:
- Skype is dropping the cost of voice to virtually zero. What before was a hefty business of international telephone calls, has been reduced by several orders of magnitude with VoIP.
- Instant Messaging killing SMS. We all know that SMS is terribly expensive in terms of price/byte. At a rate of 5 cents per SMS, considering 140 bytes per message, we are paying at $375 per Megabyte!! As you can imagine, with IM and unlimited data plans becoming popular, in the mid-term SMS will die.
- Music Industry. Used to charge $20 for a CD with 8-12 songs, the labels are struggling as they see the revenues from music downloads far too low to offset the reduction in revenues from CD sales. Music distribution in discs is likely to disappear in a few years, replaced by online distribution.
- Online Newspapers cannibalize sales from print editions, with online ads revenues not always compensating.
Are these examples really showing that Internet is destroying value? or is value simply shifting?
Looking back in history, it is not the first time there is a perception that technology progress destroys value. The Industrial Revolution saw workers protest as they lost their jobs to machines. Demand for unqualified workers doing repetitive activities dropped, forcing workers to get trained and qualified to build, operate and maintain machines. Those machines produced goods (and new machines) that were cheaper and in bigger volumes, deriving in more people benefiting from those goods. What initially seemed like job destruction, in fact it was wealth generation for the society by making goods affordable for more people.
History demonstrates that innovation simply removes inefficiencies, and in its way destroys industries if needed, shifting value to other parts of the economy, not necessarily within the same industry. And Internet is a fine example of that. Internet (and mobile) makes communications affordable to billions of people, and it is one of the engines behind Globalization, making knowledge and information available widespread.
So where is all this value (business) shifting to?
Let’s take the Music Industry. By removing inefficiencies (like physical distribution of information in discs or in print) the Digital Revolution is shifting the value from selling expensive disc copies to improving fan’s experience, by forcing artists to do more live concerts and spectacular shows as Madonna’s latest World Tour. Value is also shifting from the monopoly of recording labels to select the next star, to the most democratic system ever, with Internet empowering all sorts of musicians to publish their work. Labels and intermediaries are clearly losing business, but isn’t the Digital Revolution bringing more value to both fans and thousands of creators?
There are still many things to do to make this World a better place for our children and grandchildren. Let’s put the focus on improving it harnessing the power of innovation that Internet brings.
Internet clearly creates huge value for the society. A different question is, are Internet start-ups with unclear business cases (other than getting funds from VC) sustainable? We got an answer to that question when the late 90s bubble burst. Now we are getting the same answer after Bubble 2.0 is bursting too.
The news of the day is that SanDisk has just launched SlotMusic. The memory chip maker will distribute music from the four major labels on microSD cards. Music tracks will be encoded in MP3 at 320Kbps, DRM-free and pre-loaded on a 1GB microSD card that will sell for $7-$10.
Obviously the tiny memory card as a format to distribute media is a big improvement compared to the CD. It is smaller, it is erasable and it can “play” on most smartphones that have microSD slots, including Blackberry, Nokia, Motorola , HTC and Samsung to name a few. If the format succeeds, expect car stereos and DVD/music players to adopt it. But how does a physical card compare to online download? People love mp3, among other things, because it has freed us from the constraints of a physical disc. What was the last time you played a music audio CD on a CD player? I do not recall it myself. The last CD I bought was played only once on the PC while ripping it to the hard-drive.
So why SanDisk and the labels are coming back to physical distribution?
1) To overcome people reluctance to pay for intangibles, by selling music again as a tangible good that people can pay for and buy at Walmart (impulsively maybe)
2) To make microSD format THE standard for memory cards, and translate it into royalties for SanDisk.
Are those arguments enough to appeal teenagers to buy music on tiny cards? Not the second one, for sure. What else could make SlotMusic succeed? Here is my advice:
1) Go 2 or 4GB cards and do not sell just one album, but discographies: Queen’s discography, Mozart’s Piano Concertos or Puccini’s operas
2) Go for 2 or 4GB cards and sell video too: Movies and soundtrack together. Or TV series.
3) Get Apple to include a microSD slot in the iPhone and iPods. (Good luck)
What is the only chance of success? Points 1 and 2 above are based on the old principle, updated: “Never underestimate the bandwidth of a truck full of micro-SD cards”. It might be faster (and cheaper) to buy a card with all Madonna’s albums or the last movie from Woody Allen than downloading them from iTunes or BitTorrent. It is a matter of making it more convenient. So SlotMusic, you’d better go fast before we all get 100Mbps fiber-to-the-home, and can download movies in tens of seconds.
In summary: Who wins? The user, that will get cheaper microSD cards. SanDisk that will give an extra boost to its format.
Who loses? With few chances of success, one would say the labels… but wait, they have nothing else to lose by this time…
Nokia keeps its race with Apple to reach agreements with the record labels, in order to bundle content with the sale of devices.
NY Times, Nokia signs Sony BMG for Free Music Offering, reports that Nokia will offer 12-month access to music downloads from SonyBMG catalog, to buyers of Nokia music phones. What is new, is that users will be able to keep all the music they have downloaded during the twelve months. Nokia call this initiative “Comes With Music”, and is expected to be available in the second half of 2008.
The good news is that record labels seem to finally understand that CDs will soon die, and are looking for new models to survive.
Going to a model where music is bundled with a device, instead of with a service, shows how consumers are still reluctant to pay for intangibles, but are ready to pay when they get something physical in return. That also happens in the software world. Microsoft has most of its software sales to consumers come bundled with new PCs. Adobe bundles Photoshop with Canon scanners and Nero comes with many DVD recorders. Consumers are ready to pay a bit more for a scanner and get in return Photoshop too. But buying stand-alone software is still rare in consumers.
Apple and Nokia know well the consumer behavior, and want to use the bundle model to better sell music (and their devices).
Thanks to KDDI Lismo music service, 90% of the digital music sales in Japan comes from mobile, according to Wireless Watch Japan. The Record Industry Association of Japan (RIAJ) has reported 2007 figures, with total sales increasing for third year in a row, and with an spectacular 91% increase in Mobile Music downloads.
Quoting Music Media Watch, :
“Total music sales for 2007 in Japan came to JPY 466 billion (US $4.66 billion). While CD/DVD sales declined 4% from the previous year, digital downloads jumped up 41% to JPY 75.5 billion (US $755 million), comprising 16% of all music sold in Japan. Mobile downloads accounted for JPY 68 billion (US $680 million), more than 90% of the total figure for digital sales.”
Japan is the biggest mobile music market in the world, fifty times bigger than the German one. This raises 2 questions:
1) Would it be so successful if the RIAJ had imposed a tax on mobile phones to account for (or rather to legitimize) piracy?