A recent report that surfaced in the Wall Street Journal indicates that Apple’s iTunes (the world’s largest record shop) is encountering a downturn in music & entertainment sales with a 13 – 14% decline from the start of this year.
The irony is that this is probably because of a problem that Apple is in part responsible for creating: the ubiquity of smartphones and apps that let us stream music anywhere we are, from an almost limitless music library. In short we are moving away from digital forms of music and entertainment ownership, and replacing it with the subscription model.
We asked MEF members and the wider industry for their thoughts. Will Apple’s iTunes and others, where the streaming / subscription model (like Amazon) is disrupting sales, have a problem adapting to the new notion of ownership? Are consumers changing their habits? And what will happen next in this most disruptive mobile space?
CEO
Psonar
Martin RigbyMartin Rigby, CEO, Psonar
“Presciently, at Midem in 2011 Mark Mulligan said “For digital natives music is the pervasive soundtrack to their interactive, immersive, social environments. Ownership matters less. Place of origin matters less. Context and experience is everything.“
In 2013 that reality started to manifest itself as a mass-market phenomenon when streaming music volumes grew 103% in the year in the USA and download growth flattened. Since then, in 2014, download volumes have started to collapse and, for music at least, streaming is fast becoming the only game in town.
Clearly, the $9.99/£9.99/€9.99 per month streaming model is unaffordable for the majority of consumers in developed economies, let alone in the rest of the world. We need new models for mass-market consumers, the ‘forgotten fans’ as described by Mark Mulligan. These are consumers who want either a limited catalogue curated service, like MTV Trax, or a PAYG on-demand streaming service, like Psonar, or a combination of both.
Whatever the prognosis for the future of digital music, mass-market fans want affordable, no strings access to streaming music, and other digital content, in a way that doesn’t sting them with unaffordable data charges or other hidden costs. This is a challenge that requires mobile operators and digital service providers to co-operate closely – all the wreckage of previous, failed partnerships mustn’t deter us from working together to make streaming affordable and accessible.”
Celestino Alves
CEO
NMusic
Celestino Alves, CEO, NMusic
“The last decade has been very interesting for the Music Industry. Consumption habits have mutated along time and, therefore, so have the multiple players in the Industry. À la carte music stores like iTunes were perceived, just a few years ago, as the answer to the declining of physical sales. But, though consumers drifted towards the digital format, the digital world introduced them to P2P platforms that quickly devalued music.
What companies like nMusic did with streaming, was to offer the market exactly it wanted: millions of albums, songs and playlists to listen to, whenever and wherever it wanted, respecting simultaneously all the agents in the market, for free or at a low cost. Moreover and disrupting, in 2010 nMusic started and still offers 10 free MP3 downloads to users per month as a marketing and educational tool. Our analysis shows that users only use the download feature on their first month. After that period, the downloads turn completely obsolete (0,08 per user/month).
Players like nMusic have come to stay if they are financially sustainable. We have identified the consumers’ needs and proudly make part of the markets’ tendencies. The exciting thing here is that there is still a lot to do. We are looking at a market that will not only belong to music, but that will integrate other kinds of media content. All at the distance of our fingertips.”
Saurabh Vartikar
CCO
Mondia Media
Saurabh Vartikar, Chief Commercial Officer, Mondia Media Group
“We think it’s a combination of 3 facts – Primarily, iTunes kept growing for over 13 years, it had to stop at some time. Second fact, streaming is becoming mainstream and consumers are accepting this, whether Radio, Listen or Access based. Whether Ad-funded or Premium Subscription. Third, LTE and Wifi have become ubiquitous, atleast in the developed markets and consumers have lesser need to own content than they had in the past.
Having said that, since we manage both download as well as streaming in various markets, we think there is space for download and streaming to co-exist. They appeal to different segments. Download is impulsive. Streaming needs a commitment due to subscription. In markets like Germany, premium streaming subscription cost is twice the average monthly spend on music. Such consumers download only certain songs that appeal to them, hence keeping both models alive.
But over time, potentially as soon as 24-36 months, we see rental becoming the norm as compared to owning. Key reason is the proliferation of connected devices – we believe that consumers will shift to renting through subscriptions just to be able to maintain a common catalogue. This may work through premium subscriptions of OTT services or just by moving their content into the cloud and then accessing through connected devices, but it will happen. We also see the price of streaming services getting fragmented – rather than the 0 or 9.99 that exists today. There will be a much wider bouquet at price points from 0 to 19.99 offering something for everyone.”
Arturo Galván
Founder & CEO
Naranya
Arturo Galván, Founder & CEO, Naranya
“Content consumption and monetization throughout the years has evolved and transformed several times, but it has always been influenced by the technology used to distribute and deliver content to the consumer. When print media was distributed physically to the reader, a pay per copy model was applied. Then the distribution evolved to home delivery and a subscription model took place. When this media moved to online, and was limited by the monetization tools available in this new channel, the business model generally moved to an advertising supported model.
Distribution of TV media was established via radio wave technology that limited the business model to advertising supported. This evolved with the development of the digital TV technology that required a set-up box at each home enabling a subscription based model.
In all cases, the new subscription model never replaced the previous one, but complemented it.
With music is happening again. The industry started with a transactional business model and a whole industry was developed including analog & digital disk distribution and then digital music stores. The industry is now evolving to offer an alternative model, subscription based, for people willing to pay a monthly fee in order to have unlimited access to a huge catalogue of music.
The same thing is happening /has/will happen with Apps, Games, and other digital content.
The business models are always looking to find new consumer niches and provide them new value. When this happens, new players arise and challenge the incumbents. At the end, the consumer wins. The innovative also win.”
Ludmilla Veloso
CFO
Eyso
Ludmilla Veloso, Co-founder and CFO, Eyso
“There was a time when being an independent musician meant starving, then iTunes became the internet record studio and becoming famous overnight was doable. Now the next big thing is streaming and it has caused Apple’s digital music share to decrease considerably. There is also the challenge of Amazon being much cheaper with its subscription model.
Even though Apple has over 26 million files on its music library, music is no longer about quantity; it is more about access and convenience. Another down side for iTunes was the fact that it did not stick to music only, and it is harder and harder to become a hit in a sea of TV shows, podcasts and more.
Streaming is the new way to consume music but the question remains: How will the companies make money? As it is a knowingly money-losing business, with all the royalties involved and the small margins, and the fact that the larger your user base, the higher is your operation cost. Neither Pandora nor Spotify have had a profit yet, in spite of having had huge investments.
Recently Apple made a move in the music market with Beats Music, which is mainly a hardware company, but with the right people and Apple’s uncanny ability to deal with labels and its appeal with artists; they could make Beats into a sustainable streaming business and no label would want to stay out of an Apple’s streaming service.”
Arthur Castro
Product Owner Mobile
Dafiti
Arthur Castro, Product Owner Mobile , Dafiti
“This disruptive and collaborative economy that we are witnessing for a while now, in industries like transportation, e.g. taxi apps, and tourism, e.g. accommodation booking, surely got to the music industry’s as well.
If we look back, we can see how this change is part of a ‘domino effect’. Before, we used to used to buy CDs to listen in Discman’s, later moved to song download and listen in MP3 players, then to buy songs and have them on an iPod and subsequently on the iPhone too. In parallel to this evolution, we had the explosion of smartphones sales, increasingly connected the 3G/4G networks. From a user perspective: why ‘wasting time’ downloading/buying a certain number of songs if you can listen to several songs that you like and on top receive recommendations and other services?
From the streaming services perspective, more subscribers mean higher revenues, more music and more partnershipsSpotify, Deezer, Rdio, Superplayer and other services are taking advantage. There are that Apple soon plan to join the party, with iTunes + Beats Music, but still have millions of labels and artists who profit from songs sold on iTunes, and a streaming service could cannibalize the music purchase service, leaving these artists/labels orphans overnight, with obvious consequences. On the other hand, thinking how iTunes helped selling more iPods, iPhones, MacBooks and other iGadgets, the more musical users are, the more music and more headphones (Beats) users will want to buy. It seems like a win-win for everybody!”
How consumers access and purchase music and entertainment services via their mobile devices (amongst a whole range of other mobile content and commerce behaviours) will be analysed in the forthcoming MEF Global Consumer Survey (15k respondents in 15 countries) which will be launched at MEF Global Forum, 17-19th November in San Francisco.
If you would like to contribute a comment to this article contact us at editorial@mefmobile.org or leave your thoughts in the replies below.
