Saturday, November 20, 2010

Musics in the 21st century, record store versus library or both. Using a segmented market to create an Information empire

OK. I seem to raise some hackles with my last post. I would prefer to be thought a fool for what I was actually saying, so I will attempt to lay out a small corner of my reasoning on the subject at hand.

People want “Hollywood movies and TV shows,”....“they don’t want amateur hour.”
Steve Jobs 9/1/2010

I think Mr. Jobs has succinctly summed up how apple will relate to what culture it will deem feasible to distribute. As itunes is already the largest purveyor of music the world has yet to see, this would be worrisome. However I believe that while in the short run Apple is having huge success continuing this 20th century mode of operation, in the end it will prove it's undoing when technology moves just a few steps further in making information packets smaller, faster to download, and affordable to store. Because in the end it is all about convenience.

With over 13 million songs, itunes sounds like it has an impressive head start on any future competition. But even with it's early entry into the market, and a formidable parent company, that is no guarantee of continuing dominance. So let us look at these salient facts, and see if they are as large a barrier to entry.

Personally, I have almost 13,000 songs in my itunes library (a paltry 70 gigs, including less than a quarter of my CD's, and almost none of my LPs). Thus the itunes store at 13,000,000, has only 1000 times that amount of music as one fellow (me) who buys the majority of his music one CD at a time, and only loads them into itunes sporadically. One can imagining any serious contender for the online music crown closing that gap with just a bit of money and elbow grease. As for the apple itunes vertical integration connection. To some extent this can act as a negative. Apple is competing with other music players, and more significantly, phone providers. As the mobile is well on the way to replacing all other gadgets (camera, laptop, entertainment center) apples has not been motivated to let everyone in to play on their field, and certainly not with their ball. The web is awash in complaints and advice about making itunes work for your Droid, your Razr, or for those unfortunates who are running Vista on their PC. If I were seeking to launch a new web based music emporium, 3 guesses where I would seek my funding

Apple has a formidable R&D team, and a great can do culture. I have many friends there working on a variety of the Apple products/apps. They are a bright, talented, and hard working crew. I have no doubt that Apple can stay a step ahead of the technological competition barring any unforeseen game changers (a leap forward in nano technology for example). Yet we are swiftly approaching a juncture where the scalable base line technology for storing, organizing, searching, and distributing data (musical or otherwise) will be available to a much wider array of players. At that point other much more volatile factors will become decisive in who controls the online music market.

itunes, with over 5,000,000,000 served is certainly making money hand over fist. However we know that the majority of those sales come from a relatively few numbers of items. Much of the rest (like Go Van Gogh) makes only a few pennies a month, or has "not yet" been unearthed. While we were all caught up with the Long Tail concept back in the early days of the web, those with cooler heads, and better business models have concentrated on pushing their users/consumers towards that which makes a sale. However that does not invalidate the long tail theory, more so, it points out that we were not yet ready to make the transition to a more mature web commerce. The briefly lived Lala cloud model had much to recommend it. You could port your whole playlist around with you, and load up what ever you already had in your library (a very slow process) . But they were a bit ahead of the curve, and I certainly wasn't willing to buy a song, even for a dime, if I could not port it to the other parts of my musical world (you need to posses the mp3 file, to make it the soundtrack of your youtube video). So without a stronger revenue model, they died a terrible death. IMHO the cloud/individual ownership hybrid will win in the end, if a savvy player can utilize both the targeted market of the hit parade, and one stop shop of retaining and growing long tail capabilities.

As I said above, it;s all about convenience. Of the 13,000 songs in my itunes library, only 40% are represented in the itunes store. Thus not only are they un-pingable, so a waste from the marketing/social network perspective, but I had to find and purchase 60% of my music from a divergence of non apple sources. "Had I had a single place to turn to for my "destination for music" , I would not be spending so much time down at Amoeba Records, and may have saved many barrels of oil.

Obviously there are issues inherent to having all the recorded music on the planet available from a single source. Take licensing. It's a big world, the music is owned by a plethora of artists and labels, and add to the pot all the market differences between selling songs for a dime online in Ghana, and a buck online in the USA. Makes for a scary set of legal and intellectual logistics. And who will pay for content that generates no revenue, just sitting there waiting to become the flavor of the month. These problems are not insurmountable, but require someone looking at the the long term, not the short payoff. To date, itunes is still using the 20th century business model of an individual artifact selling for a specific fee in a specific market. This is a holdover from the days of records, and radio where access to music was constrained by the physical limitations of time (airplay) and space (retail square footage). At 160 gigs, the ipod can already carry a quarter years worth of continual music Pandora, with its small library of 700,000 songs would take almost 4 years of continual streaming to get through, so while we still have a limited amount of time to learn of music, we certainly are well on the way to solving the space issue,

So why this insistence on selling songs one by one as the only workable model. We know that as individuals we need to have full portability and control before the dollars can be pried from our tight little fists. We also know many of us are only interested in buying a small number of items preselected for us by marketeers, freeing us from the tyranny of choice. But we also know that a significant sub set of us are seeking exposure to more options, and that even the most mundane tastes can still seek a bit of depth in their proclivity, and be shopping for tracks too obscure to fit the itunes bill.

The model with most hope to shoulder aside itunes will succeed with a multi channel approach, like itunes they will sell single downloads, but also offer a subscription service like Netflix watch instantly, married to a pay per extra download function. The consumer can choose to buy the one off, or pay a small monthly fee ($10 is small enough to get a groundswell) which entitled them to unlimited streaming of all content, plus the download of a few tracks (enough to get them thinking about downloads every month, but not so many as to eat up the cost of doing business). If one wishes to download more, they can pay a members rate per extra download. Content providers would be paid based on actual traffic percentage of the pie ( by per stream or per download). Providers like Go Van Gogh would continue to make their pennies, but could attain more revenue by driving traffic to the service for streaming and potential downloads. much as we do with our current song widget which links to the itunes store, This will increase overall traffic, and thus more filling overall in the pie. Apple/EMI would still make their millions off the Beatles as they would still be driving sales.

The consumer will be happy to have the convenience of a one stop shop for all of their music needs. The punters will have their instant Lady Gaga, and the curious will have an endless supply of fresh music. And unlike itunes, with it's anti amateur hour, and lack of musical breadth and depth, as the culture continues to fragment, and tastes become more and more balkanized, the fact that all tastes are catered too will keep this boat afloat.


Trouble maker
Friend to the band

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