Saving the Zune

Another Zune post. Besides the guys at Microsoft, I must be the only person obsessed with this device.

Below is a column that just appeared on last100.com by Michael Pinto, the Creative Director of Very Memorable, Inc. a design firm that specializes in the youth market and interactive media.

Micheal makes some good suggestions but nothing that will build a big, or profitable enough business for Microsoft to make the Zune a winner.

As I have written before, the way to save the Zune is to make it an ad-supported recorded music platform.

How to save the Zune May 28th, 2008

With the iPhone taking away the mind space of the iPod, the Zune already seems to be in an orphan category with consumers. A sign of this is the recent high profile blowout when GameStop announced that they planned to stop selling the Zune. However, to me the surprise was that GameStop had been selling the Zune in the first place. I’ve been to several locations over the last year or so and I’ve never spotted one in a store. Perhaps the reason for this is that I was hunting to buy yet another Nintendo DS Lite and not looking for an MP3 player as a stocking stuffer.

In fact the only time that I’ve seen a Zune in the wild was while I was running through Kmart. Now think about that for a second: The biggest market for this device would be those hungry for music — tweens, teens and young adults. This market is very style conscience to say the least, and the one place they might encounter this device is in-between the linens and pantry items. Also the few times that I’ve seen representatives of the youth market at Kmart they were hunting for dorm room necessities rather than objects of entertainment.

The first problem with the Zune is it’s price point, which ranges from $150 to $200. This is a disaster as the iPod, which is seen as more high end, sells the shuffle for $50. Zune needs to be Pepsi to Apple’s Coke in this department and have their main product on the lower end of the cost spectrum. In fact, the best thing for Zune to do is to have a $25 model if they want to thrive in a recession based economy. On the low end, the iPod shuffle doesn’t even feature a screen, however, what makes it work so well is that it acts as a fashion accessory more than anything else. Zune needs to focus more on the form factor rather than the technology inside the device.

After having a low priced base model, the next for Zune to do would be to offer limited edition versions of the device aimed at specific niche audiences. These limited edition Zunes should feature co-branding and creative collaborations with both well known trademarks and fashion forward artists. For example, there should be a Hello Kitty Zune, or on the high end a limited edition Takashi Murakami Zune. Microsoft should also go after unfashionable males with both sports and comic book themed Zunes. And then instead of having a generic display at Kmart, these limited edition Zunes should be available at targeted retail locations and high profile events. So for example, you’d be able to buy a Iron Man Zune at the Sand Diego Comic Book Con much in the same way you’d buy a Star Wars Mimobot Designer USB Flash Drive.

Zunes should always come pre-loaded with music, in fact this would be a natural direction as the White Stripes and Nine Inch Nails have already released pre-loaded USB drives in the past. This could be taken to the next step by including music videos and exculsive audio interviews. In fact, Microsoft should collaborate with services that sell audio recordings to an audience after a concert. So instead of people owning just one iPod, a fanboy or fangirl might own several special edition Zunes that they’ve collected over the years like a beloved set of Swatch watches.

Also see: Zune 2: five things Microsoft did right

The one thing that Microsoft has done well with the Zune is with their creative online branding efforts. In fact their website is much more innovative than anything that Apple has done so far (just look at their wonderful use of commissioned animation). However, they need to push this to the next level by addressing social media — this is a bit of an irony as their initial tagline was “welcome to the social”. Microsoft needs to have an interactive presence on MySpace, Facebook and Twitter in association with well known musicians. HP for example has an engaging website in which they collaborated with Gwen Stefani to sell printers, if anything this sort of strategy would be much more natural to sell an MP3 player.

About the Author

Michael Pinto is the Creative Director of Very Memorable, Inc. a design firm that specializes in the youth market and interactive media. He is also the Publisher of Anime.com and Fanboy.com.

Newsflash to Nokia

Regular readers of this blog know that I believe the cellphone is the ideal platform ad-supported recorded music. RCR Wireless News is a publication that provides good coverage of the cellular phone industry. I read it and if you are interested in this industry you should too.

Last week the print issue of RCR had two articles, which formed an interesting juxtaposition to me:

The first article, Ad-supported TV moves to mobile, was really a profile of mywaves, inc. and began with this sentence: "A new star is rising in mobile television and it’s all premised on the fact that people don’t want to pay for video on their cellphones. A few standout companies have blazed a path to free mobile content for consumers, but few, if any have grown as quickly as mywaves Inc."

The second article, Can you hear me now? was about Nokia's Comes With Music effort. The article contained this line: "But perhaps the biggest question surrounding the forthcoming bundled offerings is whether users will shell out for music once their time at the all-you-can-eat buffet is up."

Newsflash to Nokia: People don't want to pay for recorded music either. The answer to mobile music is ad-supported recorded music.

Tuesday Tidbits

GameStop Stops Selling Zunes: I posted several times about the Zune last week, following up on Microsoft's demonstration of their concept for advertising on the device. In more Zune news from last week, GameStop announced that they would no longer sell the Zune. By itself I don't think this is big news. I can't believe that GameStop sold many Zunes or that people would even think to shop there for a Zune. However, could this be a harbinger of things to come? The Zune has not been selling well and getting dropped by a major retailer could be a death knell. The Zune needs a fundamental repositioning. See this post.

Should Licensors Take Equity in Lieu of Royalties? - Via hypebot comes word of this whitepaper suggesting that music licensors should consider taking equity in digital music start-ups instead of demanding royalty payments in the company's early days. Equity is not always the right approach for either the licensor or company but it is definitely an option to consider. High upfront royalty demands will only kill the music industry's golden goose, which is a successful digital music company.

Essay From Spiralfrog CEO - Joe Mohen, CEO and founder of Spiralfrog, authored a commentary piece that was published in MediaDailyNews today entitled: Future Of Music: Paid For And Free. I agree with everything he says.

Advertising On The Zune, Last Post - This Week

In my first post on Microsoft's Zune advertising concept, I linked to a Seattle PI blog post by Todd Bishop but didn't say anything about it. The topic of Bishop's post is MS's Entertainment and Devices advertising business group and Mark Kroese it's general manager. This is apparently the group that devised the Zune advertising concept.

I believe the concept is way too complex and will not work as demoed. However, Kroese said a couple of things in the Bishop piece that indicate he has an understanding of some of the key dynamics of advertising on MP3 players:

It's actually really surprising and staggering to a lot of people the volume of time that is being spent in these environments, and the level of engagement and intensity, and really intimacy.

The level of time and engagement spent with recorded music would not be surprising to readers of this blog. Mark, you are right about the intensity and intimacy. It is these factors that make advertising on MP3 players such a potentially powerful advertising medium.

We're thinking about the integrity of the user experience, and the appropriate way of doing this, where it feels like there's value exchange, as opposed to, 'Oh, this is just ads,'.

OK, but don't think too hard about the value exchange. Because they have been trained by traditional media, consumers intuitively understand the 'Invisible Contract' of ad-supported media: free content in exchange for exposure to ads. Resist the Microsoftian urge to re-invent this wheel.

Regarding the integrity of the user experience, don't start on the defensive assuming that advertising on the Zune automatically degrades the user experience. Done properly advertising on an MP3 player will enhance the user experience.

The technology of ad-supported recorded music is important but easy. Doing the advertising right and appropriate to the medium is key.

Whether or not Microsoft has the creativity and courage to do the advertising right remains to be seen.

Blogoshpere Reaction to Zune Advertising Demo

Some reaction in the blogoshpere to the "advertising on a Zune concept" that Microsoft demoed earlier this week. Overall the comments display a lack of understanding of what it will take to make ad-supported recorded music work (read properly done audio ads):

• From engadget: Microsoft turned a few heads at its Advance '08 advertising conference by announcing a type of ads for its Zune platform, in addition to those web, TV and Xbox "branding experiences" it already delivers. The primary method described merely involved corporate sponsorships of celebrity playlists, with the "ad" being consigned to branding on that musician's Social card -- and you'd have to have friended the musician to see any of it at all. Apocalyptic stuff, eh?
  

• From TechzTalk: Music is a very personal thing for me I normally use it to get away from surroundings for example while traveling. The reason I carry a MP3 player and not a FM radio is advertisements. If my MP3 player also starts getting advertisements, I will have to find some other way to listen to music.

• From Listening Post: As much as the idea of ads infiltrating our personal devices is potentially annoying, an album art ad is hardly the end of the world. As long as they stay away from audio ads, I'll take all the free music I can get.

• From Nerd Beach: Yes, Microsoft is pitching its plans for an advertising network built into its Zune players. While the hip demo shown involved Doritos and music (naturally), I really think that this is not a good thing. That is, unless they give you the music player for free or at a discount price, in which case I am cheap enough to at least entertain the ideal. This is not a new ideal - there are cell phones now with built in advertising networks, but you do not pay a premium for the device. But if I have to buy the player at full price, I do not want to wait for the spam video to download nor do I want a portion of space no doubt reserved for their ad network storage (subject to grow with each ROM update). After all, these are supposed to be personal media players.

• From dbtechno.com: Microsoft is hoping to expand the Zune Social through advertising, going beyond what they traditionally would display on an Internet search ad. The trick for Microsoft is to not go too overboard with what they actually do with the advertising on the Zune Social. They will begin with testing of the ad pages this summer, but no word yet on when it will officially be launched. They have managed to successfully pull it off on Xbox Live without scaring gamers away, so hopefully Microsoft can do it again on the Zune Social stage.

• From Zune Thoughts: My first reaction to this was "What??" I mean, how could they push ads onto our media players? We pay for the hardware and content. Putting an ad on the device? But then when I read the rest of it, it made a bit more sense. I know that I already have seen advertising as part of video podcasts (and part of a podcast or two) which never bothers me. The way that this is presented in the article it sounds very unobtrusive. Personally I'm up for anything that has the potential to increase the amount of content I can have on my device. I think it'd be awesome to be able to friend some of my favorite bands and get ad support content like they describe. I'd rather do it without the ads but since its opt-in I think if this is how they choose to do it then that works fine for me.

Microsoft's Plan for Advertising on the Zune

My post on Monday was my latest exhortation to Microsoft to bring advertising to the Zune. Yesterday, MS unfortunately announced a plan to do just that.

Why do I say 'unfortunately' to a move that I support? Because the proposed implementation is so complicated, kludgey and ultimately useless that it can only be called, well; Microsoftian.

The plan was demoed yesterday at MS's advertising conference. Here is how the Zune advertising plan is described in PC World:

In the demonstration, a user could visit a page on the Zune social Web site for information about a music festival sponsored by Doritos. The page included a profile of one of the musicians involved with the festival. Users could become a "friend" of the musician to view his profile on their Zune, and receive updates when the musician added new favorite artists to his profile.

In the example, Doritos offered Zune users free downloads of the musician's favorite music. A Zune user could e-mail the musician's profile to a friend who might be interested in the music. That friend could check the e-mail on a mobile phone through Microsoft's Live Hotmail service. When the friend clicks on the e-mail, a Doritos advertisement flashes briefly on the screen. Doritos is a popular American brand of snack chips.

In addition, embedded in the e-mail is a promotional game from Doritos that looked similar to the classic Asteroids game. If the user does well at the game the user receives a coupon on their phone for a free bag of Doritos. The coupon has a bar code that the user can swipe at a store checkout to collect the free bag of chips. The user can also click on a link to find nearby shops selling Doritos, with directions and a map.

WTF? I read this several times and I still don't understand it. Why do Music 2.0 offerings have to be so complicated?

The ideal implementation of advertising on the Zune, or any MP3 player is simple: interactive audio ads integrated with the music at unpredictable intervals with a value proposition of free tracks in exchange for exposure to the ads.

Like any large company, MS has lots of employees who need to justify their existence. However, the simple approach of integrating ads with content worked for television, radio, print and the Internet. Microsoft re-invents this wheel at their peril.

Which leaves me with this scary thought: Can you imagine the non-functional monstrosity Microsoft would create if they really did apply their design approach to re-inventing the wheel?

Tuesday Tidbits

Can The Music Industry Save Itself? - hypebot has a nice post outlining a five point plan for the music industry based on the research of two UK consulting firms.  Read the post for the whole plan but I want to highlight two of the five points:

"3. Free doesn’t mean no money: The music industry should not fear free. It needs to... embrace it. The culture of the net is free or at least feeling free. But money can still be made from other sources: everything from advertising supported services, to brands paying for an association with the artists to newspapers paying for giveaway CDs.

4. Change the charts: The Charts don’t make much sense anymore. Now that fewer and fewer people are buying music the charts need to reflect the other ways that people are consuming music." Right on!  In the future the most important metric of the health of the recorded music industry will be Time Spent Listening.

Speaking of TSL - Sonoro Audio, a maker of high-end radios, released a survey that found:

"Despite the wide popularity of portable music sources, consumers prefer to listen to some form of radio more than MP3 players and CDs, according to a new survey. A total of 560 respondents spend 16,814 hours per week listening to audio entertainment. Thirty-nine percent of that time is spent on FM radio, followed by 23 percent on MP3 players / iPods and 18 percent on CDs, to round out the top three audio sources. In an age of portable media devices like the iPod, individuals still satisfy their audio cravings with the longest-standing format, radio."

The way I spin the data; 39% of TSL to audio is with FM radio (music radio) and 41% is with recorded music. 

 

Monetize the TSL to recorded music with advertising like radio has and you have a huge new advertising medium - but you've heard me say that before right?

 

Deezer Gets Universal Catalog - According to billboard.biz:

"Universal Music has signed an agreement with French ad-supported on-demand streaming service Deezer, which will provide users from 35 European and Mediterranean countries free access to almost 1 million titles.Deezer co-founder Jonathan Benassaya told Billboard.biz the deal with Universal was based on revenue sharing with a minimum fee per stream, plus an advance paid by Deezer for an amount 'in line with the market'."

Scarlet Johansson on immem - The actrees Scarlet Johansson has debuted her first album on immem.  I think this is a great move by Johansson and one that should be followed by other celebrities who think they are musicians.  Few people would be willing to risk hard earned money on CDs or downloads from such wannabes.  However, their celebrity will certainly generate enough road-kill curiousity to make the corresponding TSL worth a lot if it is ad-supported.

Some More Advice to Microsoft

I have been reading quite a bit of negative press about Microsoft in the last few days. Much of it arose from the failed Yahoo! takeover bid and the pall that event casts on Microsoft's advertising efforts.

This week Microsoft will hold advance 08, its annual advertising conference. The Wall Street Journal doesn't expect much from the conference or Microsoft's current Internet advertising strategy.

According to Kevin Johnson, MS president of platforms and services, this strategy consists of four "pillars":

1. Consolidate ad platform and win in display

2. Innovate and disrupt in search

3. Deliver end-to-end user experiences across PC, phone, and web

4. Reinvent portal and social media experiences

To me this is a catch-up and try-to-beat-the-leader(Google)-at-their-own-game strategy. I agree with the Journal not to expect too much from this plan.

On another front the Zune is also taking a beating. One commentator is suggesting that Microsoft just abandon the device.

I am going to state again what I have written before - Microsoft needs to turn the Zune into an ad-supported recorded music platform.

Microsoft cannot compete with Google and Apple in the areas where they are so strong. Each has more than 75% market share in the sectors that Microsoft is competing with them - search and MP3 players.

Each has made feeble efforts to compete with Microsoft in operating systems. Nobody takes those efforts seriously just as we shouldn't take Microsoft's efforts seriously.

Microsoft has to stop thinking like the 800-pound gorrilla and start thinking like an upstart. The classic strategy for an upstart is to create new competitive space.

Ad-supported recorded music should be that new space.

Below I have reprinted an excellent article that appeared in AdAge.com today.

The author, Gene DeWitt, brings home the point that ad content and ad format (a topic I write about regularly) are critically important. What he says about television needs to be kept top-of-mind by those of creating the new medium of ad-supported recorded music.

It's the Ads, Stupid

MediaWorks Viewpoint: Viewers Are Avoiding Ads, not Programs. The Networks Get It. The Ad Agencies Don't.

By Gene DeWitt

Published: May 16, 2008

As I think back over the last four decades of TV advertising that I've experienced as an advertising professional, one thought predominates: A key aspect of the phenomenal power of the medium is that in the past even mediocre ads could effectively sell products and build brands.

We called this intrusiveness. Before the remote control, it took quite an effort for a viewer to get up and to flip the dial, standing around hoping for a better program alternative. Today of course the audience has a great deal more control over the ad exposure and is increasingly exercising it to zip by commercials or avoid them entirely.

The 'good' old days
If we could have back in the '60s, would we have zapped or zipped by annoying "Ring around the collar" ads from Lever Brothers' Wisk or "Iron Deficiency Anemia" spots from Geritol? You bet we would. But those ads worked then, and they spawned a template for the ad industry, an arrogant presumption that if the agency and client placed an ad, a passive audience would view it no matter how irrelevant or distracting it might be.

The medium and its underlying technology have changed dramatically over the years, but advertising has not. It seems to me that the reason for this paradox is that up to now the network sellers have not wanted to bring to the attention of the ad makers and buyers that it's the ads people are zipping by or just avoiding by migrating to other less cluttered media, not the programs.

In fact, it seems to me after this week's network upfront presentations that the networks get it. They recognize the need to focus on our collective "customers" for programs and TV ads, the viewers, their needs, wants, habits, etc. And I thought many of the program offerings -- returning and new shows -- looked quite good.

Fox moves in right direction
That's why I think that Fox's "remote-free" idea of scheduling fewer ads in some programs is brilliant -- although way short of what is needed and is to come which is prescreening of ads for suitability for airing. Why put so much effort and money into producing and airing fantastic programs only to have a 15- or 30-second ad drive the viewer to change the channel or migrate to a DVR or the internet? Makes no sense.

The ad agency industry needs to wake up to the fact that "the new media" are not going to save them from obsolescence; in fact, the new media options give people even more control over the ad exposure experience. More importantly, television in its broadcast and network forms remains the most effective marketing communications medium yet devised and since it is the driver of content for virtually all platforms will be around for many years to come.

Perhaps the ultimate result of integrating ads into programs will be that the ad creation process will be taken over by people who understand what viewers want: the networks and their production companies. Something has to replace the damage being caused to TV by the destructive dinosaurs we call ad agencies.

~~~
Read more from Gene DeWitt at http://www.genedewitt.com/

Random Data

I like data. Some random relevant data points I came across in the last few days:

From an article in Mediapost referring to CPM's for mobile banner ads. If a banner is worth $20 then an audio ad integrated with music played on a handset is worth a lot more.

Data from a recent study by BIGresearch. Further evidence that ad-supported recorded music is a great way to reach targeted audiences.

From compete.com. Even in generating web traffic, free music, ad-supported included, trumps paid music.

Tuesday Tidbits

Comments on Ad-Support from NARM - Perhaps there was some substance at the NARM convention last week:

According to Ed Christman of Billboard, both Universal Music Group Distribution (UMGD) VP/GM digital distribution Amanda Marks and Thomas Hesse, Sony BMG president of global digital and U.S. sales, said at a convention panel that: "...ad-supported services will soon hit its stride and be a steady income producer."

According to hypebot, "Douglas Merrill (EMI Music) believes that the future of digital music lies in monetizing targeted ads… but in order to target ads effectively, we must understand music customer behavior better... "

Nice to hear kind words for ad-support from label execs but I am afraid that it is just talk.

New Digital Music Business Blog - The Deal is launching a new blog on the business of digital music called The Note. One of the interesting stories in the blog is about how a new model for Internet music start-ups is to disregard copyright until the site scales and then use the scale for leverage in negotiation with the labels.

I wrote last month that if I was launching an Internet music company this is the strategy I would follow.


Warner Revenues, Including From Mobile, Continue to Fall - WMG issued their quarterly report last week. From Mediapost: "Mobile music revenue for Warner Music Group fell to $49.2 million in the second quarter from $56.4 million in the prior quarter. Overall, the major label reported a second-quarter loss of $37 million on revenue of $800 million, compared to a $27 million loss on sales of $784 million in the year-earlier period."

No surprise that overall revenues are falling. It is pretty sad, though, that the record industry doesn't seem to be able to participate in the once-in-a-generation meteoric growth of a new technology.

I don't have a high opinion of record label execs but did they really think that ringtone revenue was going to last?

Ads Before Movies: What's In It For Me?

I took my family to see Iron Man this weekend in downtown Chicago. I paid $10.50 each for two adult tickets and $8.50 each for three kids tickets. I spent about $20 for popcorn, a slushee and candy.

So I spent about $65.00. No problem. That is what I expected to pay and we had a great time.

What I didn't expect was the nearly dozen commercials we sat through, not including the movie trailers and the digital preshow. Screenvision produces the preshow and describes it thusly:

Screenvision’s High-Definition Digital Preshow has received high praise from audiences across the country. The hosted program which runs in advance of trailers provides advertisers and consumers with a compelling platform that includes a mix of entertainment, exhibitor content, local and national advertising. The unique format is hosted by entertainment news personality Bradford How who leads moviegoers through the Preshow experience, announces the show, introduces show segments and wraps it all up at the end.

All in all we were probably exposed to about 20 minutes of advertising prior to the movie. Now I am as strong a proponent of advertising that anyone will find but I have one question about in-theater advertising:

What is the value proposition for the audience?

It isn't a financial benefit because I certainly didn't get free or reduced price admission or snacks.

Is the proposition that the audience receives additional entertainment in exchange for watching the ads? I can accept this for some of the ads we saw like the Coca-Cola Refreshing Filmmaker’s short film or even the Screenvision Digital PreShow.

But what about the numerous recycled television ads for cars, TV shows and even yogurt that we were exposed to? I can think of no audience benefit from exposure to these ads.

It is predicted that in-theater advertising spending reached $455 million in 2006 and will grow 17.5% in 2008 over 2007 levels.

To me in-theater advertising is an example of American consumers's very high tolerance for advertising.

We see survey after survey that finds people don't like ads. Duh. Given a choice, people prefer not to be exposed to ads but when they don't have a choice, like in movie theaters, or when avoiding the ad requires some effort (beyond punching a button on a remote) they will view or listen to the ads without revolt.

What I take away from this weekend experience is that because of its powerful value proposition - free music in exchange for exposure to ads - the right implementation of ad-supported recorded music will be a blockbuster.

Recorded Music Reaches it's Audience Everywhere

In my post yesterday I stated that 'recorded music is the best portable media experience'. This was not a good expression of what I meant.

What I should have written is: Ad-supported recorded music is the medium that goes where the listener goes and so is the best medium for advertisers to reach a busy, multi-tasking audience such as teenagers.

The proof is in the chart below, which is from the High School Media Too: A School Day in the Lives of Fifteen Teenagers report produced by the Ball State University Center for Media Design.

Look at how time spent with music is almost evenly divided between home, travel, school and other. No other medium even comes close.

AdAge Article on New Advertising Media

AdAge.com put up an interesting story by Troy Young earlier this week entitled: When Everything is Media, What is Media Worth?

I am reprinting the story with my comments:

When Everything Is Media, What Is Media Worth?

Why the Market Has Strugged With New Categories of Ad Inventory

Posted by Troy Young on 05.05.08 @ 11:41 AM

Troy Young

Note: Ian Shaffer and I are working some cosmic connection. I put a few words together for the blog last week and was surprised to see Ian working the same territory. Our sentiments seem to intersect nicely, albeit from different industry vantage points. My comments below speak to the explosion of impressions largely driven by social media, and the implications from a media value perspective.

The market has struggled to place value on social media as an ad vehicle, but with more than 30% of Internet traffic driven by social activities, a lot is at stake. (I don't think the advertising value of social media will ever equal it's share of Internet traffic.) This struggle is part of a larger media phenomenon that is raising significant new challenges for publishers and media professionals. Specifically, what is inventory worth, how do media channels compare and what creates premium value?

In the past 10 years, new categories of ad inventory have opened up as human activity has been digitized. I put them into five categories -- communications and self expression (social networks, e-mail, chat, photo and video sharing); commerce (shopping sites like Amazon, EBay); gaming (game platforms, virtual environments like Second Life, social gaming, etc.); reference (dictionary, health sites, wikis, etc.); service or utility (file sharing, even service environments like Comcast bill pay); and directory (search, maps). (Where does ad-supported recorded music fit? Communications and self-expression? Or has the author missed this new source of a huge amount of ad inventory?) For the most part, these are new additions to traditional content or environmental media channels (TV, print, radio, outdoor). They've given marketers more options but created confusion around how to value and map the media landscape and achieve reach.

Let's think about the implications. First, more monetizable ad inventory will pressure media prices as a whole. This is a function of volume and the cost structure of emerging media platforms. Content and distribution costs are significantly reduced or eliminated in many new platforms. We are seeing this today with sub-50-cent CPMs on basic bulk inventory.

The market will continue to look at a few drivers to justify premium media value. First and most obviously, inventory that can be linked to sales activity will continue to find premiums. Reach, while not as important as it once was, will also drive demand. No brainers.

Media that creates (or is perceived to create) measurable brand value will be prized (note to self ... do not say "content is king "). Content's ability to create transitive value to brands and/or deliver proximity to elusive psychographic groups will remain important. Brands will demand integration to get closer to the content and value associated with it. (Qtrax and Spiralfrog read this again - ads must be integrated with content to be effective!) Watch for more sophisticated analytical approaches to measuring -- and selling -- this premium content.

Much of the new inventory does not carry strong signals around purchase intent and will underperform as a direct response channel, just as we've seen e-mail inventory do in the past. Publishers will push to market this inventory to brand advertisers for its attention value and target it with demographic and interest data made available by social media.

Publishers and networks will have to work hard to package the mass of inventory that lies between these ends of the spectrum. If the value is not intimately connected to the transaction or the premium association, it will come from delivering measureable time with the brand. Advertising platforms that bring rich ad experiences (entertainment and/or utility ... content, video, games, interactivity, etc.), to the right consumer in a friction free way are the path forward. (Yes! Ad-supported recorded music is one of the best vehicles for rich experiences.) And it goes without saying, as impressions compete for advertising dollars, there will be an inevitable push for accountability. (Metrics will be critical to growth of ad-supported music.) Watch for pricing to shift to demonstrable engagement defined by discrete interactions and time spent.

Marketers too, will have their work cut out for them to create experiences that consumers choose to interact with. This is about content creation, and it's hard to deliver and scale. Think portable media experiences, not banners or pop-ups. (Recorded music is the best portable media experience - see post tomorrow.)

Social media will be monetized and marketers will find ways of creating value in these new environments. It's just going to take a bit of time.

Qtrax and UMG Have a Deal

Yesterday Qtrax announced that it had signed a licensing agreement with Universal Music Group and UMG confirmed the deal.

The announcement spurred considerable activity in the blogoshpere, but I'll point you to posts by Peter Kafka of Silicon Alley Insider and Mark Mulligan of JupiterResearch.

Mulligan's post included this paragraph:

As regular readers know I dubbed 2008 as the ‘Year of Free’ (after admittedly calling it too early in 2007). This time though everything is well on track. The irony of it all though is that the free pioneers like Spiral Frog and Qtrax will probably end up playing second fiddle to the likes of Nokia’s Comes With Music and quite possibly even Apple – who may well even beat Nokia to market with a pre-stored value/pre-loaded music device.

I pretty much disagree with everything in this paragraph:

• 2008 will not be the "Year of the Free", it is still too early.
• Qtrax will not play second fiddle to anyone. It is DOA and if launched will have a short dull life.
• Nokia's Comes With Music is not a free service and Apple will not get into the free music business.

I do agree with Mark's first paragraph though. Read his post.

Tuesday Tidbits

NARM - The National Association of Recording Merchandisers is holding their 50th anniversary convention in San Francisco. The convention "features" Digital NARM. I conducted an unscientific anlaysis of the convention schedule and counted 19 substantive sessions and 36 concerts and awards. Nero played his lyre while Rome burned and NARM rocked to Alanis Morissette while its market disappeared.

Ad-Supported Media - From The Hollywood Reporter: "A majority of industry executives expect that advertising-supported content will remain king and that digital advertising will eclipse traditional advertising during the next five years, according to a new survey. Accenture's 2008 Global Media Content Survey found that 52% of more than 100 senior media and entertainment industry executives from North America, Europe and Brazil predict such a sea change."

A word to NARM convention attendees: When the concert lets out please take a look at this study.

Ad-Subsidized Ringtones - Virgin Mobile is offering ringtones for $1, subsidized by Burger King. These ringtones are cheaper than others, but even with the subsidy, they still cost more than the full track. I think that consumers will soon tire of paying for ringtones, let alone paying a premium over the full track. This type of corporate sponsorship is probably the future of ringtone revenue.

Clouds Gather Over Comes With Music

Here is an article about the Nokia Comes With Music service by Reuters that appeared online at Billboard.biz last week.

The article contains this chilling quote from Liz Schimel, head of Nokia's music business: "I can assure you that we are looking out for everyone's interests in creating these new business models, including our own."

I see her lips moving but what I hear is: "Everyone will lose money, including us."

Nokia Confident Free Music Downloads Will Profit
May 01, 2008 - Digital and Mobile
By Reuters

Offering unlimited music downloads to phone buyers will make money for Nokia as well as record labels, the handset maker said, dismissing talk the move would come at the expense of profits.

"We expect to make money both from our traditional device sales, as well as from the 'Comes With Music' service," said Liz Schimel, head of Nokia's music business. "I can assure you that we are looking out for everyone's interests in creating these new business models, including our own."

The new music offering from Nokia, the first cellphone maker to push heavily into content, would differ from any other package on the market as users can keep all the music they have downloaded during the 12 months. Last week Nokia struck a deal with Sony BMG to offer the label's tracks in its "Comes with Music" service, adding to last December's deal with top record label Universal.

Having the world's two largest labels on board looks set to help Nokia attract smaller music companies and challenge the dominant pay-per-track sales model for digital music.

"This new model is innovative and creates a positive situation for all stakeholders, but it does require a different way of thinking for our content partners," Schimel said, but declined to go into details.

Reports on different Internet media have suggested the world's biggest handset maker was paying $35 to Universal alone for each sold handset; and some reports suggest Nokia would be paying an extra fee for each downloaded song after the first 35 songs, potentially eroding its close to 40 percent gross margins in cellphone operations.

"Recent articles that I've seen have fundamentally misunderstood the concept behind the Comes With Music model," Schimel said.

Such unlimited download models could offer a shot in the arm to the ailing music industry, which is struggling to find ways to make up for falling CD sales.
However, the success of Nokia's service could hurt CD sales further when clients who still buy their CDs turn to phones, said Mark Mulligan, research director at Jupiter Research. "There is inherent tension in there," he said.

The digital music market totalled just $2.9 billion in 2007. Nokia sold 146 million music phones last year -- if all of those had included the "Comes with Music" bundle, just an extra $20 per phone would make Nokia's service bigger than the total market.

"Comes With Music has the potential to equal -- and even exceed -- the current value of the business," Tero Ojanpera, head of entertainment and communities business at Nokia, told a news conference last week when unveiling Sony BMG deal.

"If we sell a single percentage of our total sales as Comes With Music bundles, the revenue for the music industry would be almost the same," Ojanpera said.
Total sales of Nokia's top music phones, the 5310 and the 5610, were more than 4 million during the January-March quarter. Unsubsidised retail prices for the phones were 215 euros ($334) and 280 euros.

With its iconic touch-screen model, Apple's iPhone shocked the handset industry last year, but at prices starting from 400 euros it has not captured a mass following in Europe. Now, Nokia has stolen the spotlight from Apple in the digital music world, analysts said. Record labels are looking to Nokia and others to challenge the dominance of Apple's iTunes as they have struggled to negotiate with the American group on a level footing when it comes to issues such as pricing.

"Comes with Music is one of the most exiting things out there in the digital music," said Jupiter's Mulligan. "Apple is facing market perception of iTunes looking like yesterday's service. Basically, iTunes looks pretty much the same it looked 4 or 5 years ago," he said.

Notes From AAAA Leadership Conference

The American Association of Advertising Agencies just wrapped up their Leadership Conference in California.

Below are some meaningful coverage and speaker quotes from the conference:

• Irwin Gotlieb: If Gotlieb had one charge for the advertising agencies before him, it was for them to create many more versions of ads, tinkered and tailored to specific audiences, specific times of day, and more. In the future, the GroupM CEO predicted, all media will be delivered digitally, the old classifications of "TV" and "Print" will be obsolete, and we'll be able to target messages to the household-level - hence the need for all those ads. Gotlieb, whose company manages more advertising money than anyone else in the world, is a techie's techie, and the speech was a bit dense -- he boiled his vision down to "seven salient points," and each required some unpacking. Afterwards I overheard one audience member say, ”He’s obviously very intelligent. It’s all a little overwhelming.”

Gotlieb's vision of the future of advertising seems very similar to the one vision laid out by Microsoft's Steve Ballmer at an advertising conference last fall. Both companies, not to mention Google, see opportunity in targeting consumers with laser-focused ads. They'll be competitors with very different strengths, and I'm interested how it plays out. (Source: BusinessWeek)

• “If we all stop advertising in a recession,” said Mr. Silverman of NBC, “it would be the fastest way to a depression.” (Source: New York Times)

• “All industries recalibrate themselves,” Mr. Carroll said, illustrating his point with a rhetorical question, “How’d you like to be in the CD business?” (Source: New York Times)