Thursday, May 1, 2008

What's the Value of a CD?


According to digitalmusicnews.com, Wal Mart will begin offering new release CD's from certain artists at the low low price of $5 or $6. This move could be very informative on the future of the CD.

According to the story, eMusic chief David Pakman was quoted saying " I think this will ahve the most impact on the music industry this year."

David could be right. This could really reveal whether the decline in music sales, in particualr CD's have been price related. If consumers can really get their music at a price they are willing to pay, will they begin to buy more music.

Wal Mart' s power as a retailer of music probably enabled them to negotiate such a wholesale price that would allow them to sell at such a low price. However, they could be testing to see if the CD, in the current form it represents, is even worth the shelf space even more.

Wal Mart might not be the most ideal place for music to be lowered to such a price to test its ability to sell. I think it would be more effective if prices were this low across most major distributors of music to be able to accurately asses the future of the CD as a relevant form of distribution.

I think this low price actually devalues music to a point that will ultimately be harmful to the sale of music.

I fully support CD's and music to be sold at the price of $5 or sub $10, but lets make digital distribution and all of its conviniences an obvious premium product by supporting the drop in price of physical CD's by integrating advertising content.

Advertising content integrated into physical CD's in the form of print ad's on the actual physical CD, audio/video , and interactive ad's integrated into the digital content of the CD. This would enable users to elect to pay a lower price for music by having to endure advertisements on the physical product and during the import process of the CD into the consumer's digital jukebox software.

While the lower price at Wal Mart may increase sales, by not creating a clear value, I think this truly devalues music in an unproductive way. This could be solved by supporting that lower price with ad-supported CD's in major retailers like Wal Mart and Best Buy.

Thursday, April 24, 2008

iPod Sales Slowing. Is the Market Saturated?


Yesterday, Apple released its Q2 earnings, significantly topping all of Wall Street's estimates by reporting a Q2 profit of $1.05 billion, 36% increase from the same quarter last year. Even with the decreased consumer spending due to the economy's current state, its not that surprising to see Apple performing well in such conditions. However, what is surprising is that Apple produced these numbers with virtually no growth in their iPod sales from the same quarter last year.

What does that mean?

According to a New York Times article, iPod sales grew only 1% from the same quarter last year. Apple iPod sales were dangerously close to not growing at all this quarter, making this an interesting situation for Apple. Mac sales, and not iPod sales drove the increases in profit and revenues for this past quarter.

These numbers beg the question, "is the market saturated with iPods?" This is a distinct possibility, and something people have quietly been whispering about for some time. Maybe a different situation is worth pondering.

Is this the beginning of the end for the Mp3 player? Is this the first sign that phones and all-in-one devices are becoming the popular choice over mp3 players and mp3/video devices?

Consumers seem to finally be coming around to the fact that it might be more convenient to have your mp3/video player, camera, phone, personal organizer, and everything else all in one device. With the popularity of devices like the iPhone, iPod Touch, Blackberry, and Windows Mobile devices, the functionality of an ordianry iPod classic seems to have become bare bones. They try to spruce the functionality of the iPod classic up with new visual interfaces, but its just the same product with some different make up on.

Apple has made improvements to its iPod line over the past year with the addition of the iPod touch and the lower prices on the shuffle. All of these things help perpetuate the iPod brand and keep it relevant, however I would be interested to see the break down of sales between all the iPod family members and see who is coming out on top. I have a suspicion that the iPod classic model is not cleaning up in sales like it has in the past. However, Apple does not release data on the specific iPods it sells, so this suspicion cannot be proven.

The relevance of the one trick pony that is the iPod classic maybe dwindling in the eyes of consumers, but the iPod family seems like it will continue to be around for a while.

Thursday, April 17, 2008

Leasons from Hulu


NBC and Fox's joint online distribution venture, Hulu, provokes me to ponder the lessons the music industry and the record labels could learn from a such an endeavor.

Its inspiring to me to see two huge networks/studios come together to try to tackle the quagmire that is online distribution of video, specifically television and movies. According to TV Week, Hulu CEO Jason Kilar announced that Hulu "had surpassed their financial goals in the first three months" of operation. Kilar announced this news at the National Association of Broadcasters annual conference in Las Vegas today, also noting that in the past 24 months, online viewing of video has increased 300%.

Now with these numbers and the convincing initial success of the Hulu venture, its no question that the internet and personal computers will continue to increase their share as a primary distribution channel. In Hulu's case, I believe their success was found due to the great attention to detail the site exhibits.

The developer team that designed Hulu held the mantra "To help people find and enjoy the world’s premium content, when, where, and how they want to." according to the same TV week report. This mission statement allowed the Hulu developers to put just as much effort and thought into the operation and streamlined qualities of the site as they did the business plan to make this a revenue generating venture. The attention to design, user experience, and easy operation remind me vaguely of another company who has had success in the digital distribution of media...I think their name is Apple.

So what can the music industry gather from this venture?

If its the goal of the record labels to develop and execute an online distribution channel that can compete with Apple's iTunes, they should pay close attention to the methods and ideology developed by Hulu.

NBC and Fox did not consolidate to compete like it is so common amongst the record labels, however they joined forces and collaborated and brought something truly valuable and well thought out to the consumer.

I'm not ignorant to the fact that while its all media, the distribution of video and the distribution of music on the internet differ greatly. To say the least, the cat is out of the bag on music as piracy runs more rampant on music than it does on video. However, it doesn't mean that lessons can't be learned.

The ad-supported nature of the content is what intrigues me most. I think if record companies want to have a chance with competing with "free" than they must lower the cost of music to consumers. However, the profit margins of music could be protected by supplementing this with advertisements.

Variations on this model have been attempted though less than effective music discovery sites such as last.fm, but a true investment into this realm of distribution has yet to be made by the record labels.

In order to survive, the labels need to join forces and actually commit to making a sizeable investment into the arena of digital distribution focusing on adding innovative elements to differentiate from the current offerings. Considering that the labels control the content, this shouldn't be as difficult as they are making it to be. Its time for the labels to stop waiting for someone else to develop it so they can buy it on the cheap, and actually dedicate themselves to solving the problem through collaboration.

Wednesday, March 19, 2008

Apple Subscription Service?


The Financial Times, among other sources, is reporting that Apple is considering a subscription based music service attached to iPhones and iPods.

The rumored service would be added on to the cost of the hardware device and provide the user with unlimited downloading capabilities from the iTunes music store.

This is similar to the Universal Music Group (UMG) deal recently struck with Nokia to offer unlimited streaming to mobile phones of all of UMG's catalog for $80 per Nokia device/phone sold.

However, reportedly Apple's plan will only pay $20/device, which is significantly lower than Nokia's deal. The purchase of an iPod or iPhone with the attached plan would allow users to have unlimited downloads for a year, with the option to continue the service after the initial period is over for another annual fee. If users opt how, it is speculated that they would be able to keep some of the music that they already purchased.

The fruition of this deal could have significant effects on the music industry as a whole. If Apple and the labels were to enact this plan, it would be the first step towards the label's preferred method of distribution, a subscription model. It would also be a step towards amending the rift between Apple and the labels over the label's desire to get a piece of the revenue associated with device sales.

Becasue of Apple's dominance in the online distribution of music, a subscription model, which has failed in the past with other companies, would likely be well received among consumers because it would be developed within the existing iTunes ecosystem.

However, from a labels perspective, I would look at this deal cautiously. The subscription model, while seemingly attractive because of the constant payments being received, could potentially have the same problems an ISP tax would have by capping revenues and stifling creativity.

This deal for consumers though might have some great benefits and could change the way we discover music. If there is a subscription model which would allow to keep a portion of downloads if a user decides to opt out would take a portion of the pressure of the consumer who does not want to be locked in to a fee for the rest of their life, that could change the perception of subscription based models. Users could now feel comfortable taking a risk on new music and discovering new bands that they like, without the large investment of buying a CD.

This deal would be a complete reversal in the Apple philosophy that the consumer wants only to "own music". Yet this would not be the first time they changed their tune. Video on iPods was not something Steve Jobs was interested in a few years ago. However, all the iPods now except the shuffle, have video capability.

Apple's entry into a subscription based model would be the decisive test to whether this distribution model is really the answer to online distribution.

Monday, March 3, 2008

Issues Concerning Music Discovery

As the amount of competing forms of media continues to increase, and the time a consumer has available to devote to media consumption stays the same, the problem of how to discover new content becomes increasingly important. This problem reveals itself most prominently in music. Significant advances in technology concerning music creation, distribution and consumption have left consumers with the benefit and the curse of endless amounts of music from which to choose. Music discovery services and methods have recently come to the forefront of industry discussions in an effort to increase awareness and consumption of multitudes of music available to all consumers.

The recent developments in music discovery services prompts an analysis of the past methods and services used to locate new music. To begin, radio has always been the promotional wing of the music industry. In the 60’s and 70’s, besides the top 40, radio’s main function was to promote new artists and their music. Today, radio competes with many more forms of media causing them to cater to the lowest common denominator. Radio is no longer concerned with connecting users to a wide range of new artists and genres music. However, a study conducted by Bilboard in 2005, still contends that radio is the “primary source for learning about new music” for 48% of people. This came in “way above word of mouth, television, internet radio, retail music stores, satellite radio, online word of mouth, purchased CD’s, online music stores and file sharing.” This data clearly shows that there are issues concerning the discovery of new music because if radio is only playing a small portion of the music available, yet almost half of the music listening population uses radio as their primary source of music discovery, there must be a problem. Gone are the days of influential and trend setting DJs playing their favorite music on the radio, introducing new genres and artists to troves of listeners. Now it appears that the limited playlists of conglomerated radio are informing the music public, meaning a plethora of music is being ignored and underappreciated.

However, with bleak circumstances in the music discovery arena, comes great opportunity. The decline of radio as a reliable source of music discovery prompted the emergence of online music discovery services. This situation provided the perfect opportunity for companies like Pandora, and Last.fm. These services have brought new perspectives to the music discovery process and represent the beginnings of the future of music discovery.

Pandora’s unique structure and story begins with the Music Genome Project. Started in 2000, the music genome project boasts itself as the “most sophisticated taxonomy of music information ever collected.” Pandora uses the music analysis data provided by the Music Genome Project to recommend songs and artists to listeners based on musical elements. By cataloguing the “melody, harmony, instrumentation, vocals, rhythm, and lyrics.” Pandora can use this information to allow users to discover new music and artists similar to their search term. Last.fm operates a little differently from Pandora. Instead of relying on the Music Genome project, Last.fm recommends music for you to listen to by voluntarily downloading a program which spies on your music listening habits. The service is dependent on the fact that you listen to a lot of music on your computer, otherwise it will be unable to measure your habits and recommend properly. Both programs have a social network component to them, but Last.fm’s social networking component is more comprehensive and more pivotal to its recommendation service.

The trend in the past year or so in music discovery has been the inclusion and development of social networking components into music discovery services and the other way around. Sites like Facebook and MySpace have introduced music recommendation services and applications into their frameworks. This is an important innovation because now music discovery can be achieved in a community setting, which plays upon some of the greatest strengths the radio of the past had in regards to music discovery. This social framework allows for trendsetters and taste leaders to emerge as well as an easy solution for anyone to search and find new music. These music discovery services and methods are merely helping people sift through the massive amounts of music and content in an efficient and enriching manner.

Yet, even with the great innovations in music discovery in the past three years, people still aren’t utilizing the services in as overwhelmingly as fashion as one might think. However, this leaves room for improvements and enhancements to what is currently being offered. One depiction of the future of music discovery is through the development, creation and posting of playlists. Dave Kusek of Future Music explains in his March 2007 article that music retailers and distributors should look to playlists as the “way to guide listeners through catalogs of millions of songs.” While this phenomenon is catching on in subscription services, it won’t be long until it works its way into the web based music discovery systems and elsewhere.
Additionally, as people are collecting more and more music digitally, music discovery techniques should not only be created for discovering new music, but for rediscovering music within the massive digital catalogs that individual have collected and own. There is a huge opportunity for playlist generators and music analysis programs that will quickly organize music and help listeners rediscover music they haven’t listened to in a while.

The methods and services for music discovery have come a long way since the radio DJs of the 50’s, 60’s, and 70’s. The innovations in the past few years have created the beginnings of growingly important part of the music listening experience. Further development of the technologies and services could yield gains and increase music consumption across all demographics and help make the troves of music content readily accessible and listenable.

Sunday, February 10, 2008

Is Owning Music Dead?

Its no secret that current music distribution channels and methods are not performing as well. Sales continue to drop year by year, and while digital is growing, it isn't growing enough to counter the decline in physical sales. With this turmoil comes the speculation that different distribution models and methods could fix this problem.

It seems that there are two different viewpoints on how music should be distributed in the future, owning music vs. subscription.

Subscription models have been around for a while now and have seen little or no improvement on their market share. Services like Napster and Zune Marketplace have subscription components, but because they are outside of the iTunes ecosystem and have DRM issues associated with them, its difficult for them to make a dent into the market share.

The more extreme and seemingly impossible solution to this would be an ISP model or music tax system. Removing DRM from music and offering it through your ISP for a set charge per month.

However, this system seems to set a ceiling for music revenues and remove incentives for innovation and creativity. Michael Arrington at Tech Crunch explains in an article that, "music industry revenues will be a set size, regardless of the quality or type of music they release. Incentives to innovate will evaporate. There will only be competition for market share, with no attempt to build the size of market or serve less-popular niches"

The last thing this industry needs is another reason to stifle creativity and innovation.

Yet, with the recent LastFM announcement that they will now offer full length streams of millions of songs, people still cry that owning music is dead. This article explains that as these sort of technologies develop and this become the norm, "he ownership of recorded music will someday be seen as a weird historical anomaly, born during a decades-long spasm of corporate enthusiam about — and complete control over — the production and distribution of recorded music"

However, the author of this article seems to completely ignore the tangible benefits of actually owning music. Currently, unless you own the music, you are plagued with portability and usage issues. As DRM-free tracks become more abundant, some of these problems will fade, but I contend that consumers do not want to be cornered into paying a steady fee every month. Music is a luxury not a necessity, and people want to control the amount they spend on luxury items. Music is not the same as television, because it is listened to over and over. It has timeless qualities that some elements of television lack.

Owning music will be around for a while, as these new digital strategies work them self out. I am not sure which of these methods of distribution is the lesser of two evils because both of them have faults, but currently I still prefer to own my music because it has the most value to me that way.

Wednesday, January 23, 2008

The Blame Game: The negative perceptions of the College Consumer

Something I have gathered from my countless experiences as a consumer is that when I am treated with respect and dignity, I am more inclined to return the favor by becoming a loyal customer. Whether it be through returning for future business or recommending to friends and family, when a company or business treats the consumer right, it usually means more business.

However, it has been the practice of the music industry the past 4 or 5 years to completely alienate and disrespect important members of their consumer base. Whether it be by suing eight year old children and their unsuspecting mothers, or by writing off all college students as ruthless pirates who abuse their high speed university networks to steal music at unprecedented rates. Any and all of these tactics accomplish a couple things for the music industry as a whole.

First, this destroys the public perception of the major labels and distributors who generally act as the authority figure within the industry. These tactics enable the consumer to have vehemently negative perceptions of the corporations that run the industry. Largely, these accusations occur as a manner of justification for the poor state in which the industry currently resides. This childish defensive tactic at pointing the finger at consumers who, if presented with the right circumstances, would actually pay money again to listen to music.

A prime example of this finger pointing and how ridiculous it makes the media industries on a whole look is the gross errors recently discovered within a study conducted by the MPAA (Motion Picture Association of America). While this was not conducted by the RIAA or a music specific trade organization, this mindset is certainly indicative of the music industry as well.

An artical discussing the subject on All Things Digital quoted that the MPAA recently "admitted that a 2005 study that blamed a significant portion of the film industry’s domestic losses on college movie pirates was erroneous." Originally the study stated teh 44% of its losses could be attributed to college students. Turns out the number is closer to 15%. The justification for such a gross exageration of the numbers is attributed to "human error" by the MPAA.

This notion is ridiculous and epitomizes the problems of perception this industry is facing. Unless companies change their tune and start treating consumers and potential buyers as people again with dignity and respect, the trends that music industry is facing will no doubt continue to worsen.