DRM'd If You Do and DRM'd If You Don't

Late last year I posted the graphic above and made this prediciton about 2008:

Here is my first new year's prediction and it comes in two parts:
Part 1 -In 2008 all digital music will be available as DRM free downloads.
Part 2 - This will have no impact on music sales.

Well, it looks like I was right. Read this post from Peter Kafka at Silicon Alley Insider, which contains the following passage:

But finally, we have an admission from one of the labels: Dropping DRM hasn't made a difference. Via Digital Music News, here's Warner Music's Edgar Bronfman Jr. at the Goldman conference yesterday: "DRM on the download business hasn't really moved the needle frankly, growth trends haven't changed DRM or DRM-free."

My Take on myspace music

myspace music has launched. Reviews of the service are available from hundreds of sources.

I have used the service. I like it. It needs some polish, which it will certainly receive. It will probably become my first source for free streaming music. Still, my pre-launch reservations over its business model remain.

As I listen myspace will incur royalty liabilities that it will have to pay. Theoretically, myspace will sell display advertising in my player and will pay its royalties out of the ad revenue.

Great - but what happens when I press play and then minimize the player so that I am no longer exposed to the advertising? Isn't this what every other user will do? Isn't this mainstream, streaming music listening behavior?

I have read that myspace might triple its CPM for ads on myspace music. Don't you think these advertisers will want some assurance that people will see their ads?

The content/advertising format mismatch that is the foundation of all the advertising supported streaming services makes their business models unsustainable. myspace music is no exception.

Using visual ads to pay for music content is like showing braille ads on television.

Zachary Rodgers at clickZ got it right:

The cool kids say MySpace Music has a good shot. That may be, but at some point it'll have to answer marketers' concerns about the effectiveness of display ads on an audio-based service. The alternative -- radio-style audio ads -- is anathema to digital music listeners but may be inevitable. After all, digital radio executives sing the praises of companion banners on station Web sites, but I've yet to speak to a marketer who puts much stock in them.

Invisible Listening

I came across an interesting study from Coleman Insights that was presented at the National Association of Broadcasters Radio Show last week.

The study makes the distinction between intentional radio listening and incidental, or invisible, radio listening. From the study press release:

Coleman Insights defines Intentional listening as when people are aware of a station and intend to listen to it. Incidental listening is to stations that people are aware of and have some sense of, but that is driven by other forces that are generally out of their control (such as someone being exposed to a station played in an office environment). Invisible listening is completely unexplained listening that the PPM captures, but that the listeners have no recollection of. The findings demonstrate that there is very little a radio station can do to impact the amount of Incidental and Invisible listening it generates in PPM.

Unsurprisingly, the study authors encourage radio stations to focus on intentional listening.

Compare radio listening to listening to ad-supported downloaded music on a portable player. One thing you can be pretty sure of is that listening to music on an MP3 player is intentional. This enables high engagement, high CPM advertising.

slotMusic - Gimme A Break!

slotMusic. Wow, where do I start?

I guess I'll start by saying that SD is a superior format to CD - but that is completely irrelevant.

Since the introduction of the CD no new physical format for storing music has ever gained even a toehold. And this new format is being introduced at a time when physical music formats are going the way of the Dodo bird.

What are SanDisk and the labels thinking? They are certainly not thinking about what music consumers want. They are thinking only about what they can offer.

This mindset, I am afraid, is what perpetuates the innovation constipation in the digital music industry.

Yahoo! Music Search Service - Get It While It Lasts

Yahoo! introduced a new music search service the other day. Here is how Staci at paidcontent.org describes it:

Yahoo Music and Rhapsody Networks are live with the latest example of their partnership: full tracks served up with Yahoo U.S. search results. For instance, search for Bruce Springsteen and the top unsponsored result is a search box with links to five tracks; pick one and the FoxyTunes player pops up near the bottom of the browser. The music kicks right in. Browsing can continue and you can even use other screens. The catch: unless you’re a Rhapsody subscriber, full-stream play is limited to 25 songs a month.

According to Peter at Silicon Alley Insider, Rhapsody pays Yahoo! for each subscriber signed up through this service.

So, Yahoo! makes money from search ad clicks and referral payments from Rhapsody. Rhapsody pays the royalty on streamed songs and hopes to make money from new subscriptions.

Since I don't think this service will convert many users to Rhapsody subscribers, Yahoo! will make whatever money it does make, from advertising.

There are however two self-destruct features built in to the service. The first time a user hits the 25 play monthly max will be the last time he uses the service - he just won't trust it again. Second, since Rhapsody won't sign up enough subscribers to even cover their costs they will pull the plug on this soon.

Nice little feature, but like other music discovery services - not likely to last very long or make much money for anybody.

New Report on Teens, Cellphones and Music

Harris Interactive just published a study on teens and cellphones.

Their data support at least two points that I have made repeatedly in this blog:

• Cellphones are an ideal device for ad-supported music.
• Teens and tweens are the ideal target market for ad-supported music.

Growing The Pie

I am waiting to write about myspace music until it launches. However, I couldn't resist putting up this quote reported in a New York Times article about myspace music:

Greg Scholl, chief executive of the Orchard, the largest distributor of digital music from independent labels, says a music business based on advertising “could well dwarf today’s $30 billion global recorded music industry.”

Amen Greg.

Napster and Best Buy: Doomed Love

So Best Buy has purchased Napster.

Stephen Colbert could do another AT&T thing on this one:

In 2004 Circuit City purchased MusicNow; the next year AOL bought MusicNow from Circuit City; in 2007 AOL shut down MusicNow and Napster acquired its subscribers. Now Circuit City competitor Best Buy is acquiring Napster.

This acquisition will not work for Best Buy. Best Buy customers are not subscription music customers. I have written before that subscription music is for the rich. Regular music consumers - the people who shop at Best Buy - can't (and wouldn't) pay the big bill for subscription music.

I predict that the next transaction on this troubled trail will occur within 18 months when Real picks up the Napster scraps from Best Buy for the big subscription music dog named Rhapsody.

On the other hand, if Best Buy converts Napster into an ad-supported subscription download service...

Hitting The Wall In Music Innovation

Kevin Maney has a great post on Portfolio.com regarding Apple's iPod/iTunes announcements yesterday entitled: Has Apple Hit the Wall In Music Innovation? Go ahead and read it. I'll wait for you.

I will extend Maney's thesis and argue that the entire industry has hit the wall in music innovation.

Artists continue to create great music but the business and technology people in the industry don't seem able to come up with any inspired new applications. More colors, more gigabytes and more music discovery options are just more of the same.

Innovation driven by a solid business case (not just the "we can do it, so we might as well" imperative) is what the music industry and the technology companies with music products and applications - need but are sorely lacking.

MS Falls Into The Music Discovery Trap

Here is the headline on the just issued Zune press release: Zune Takes Music Discovery to the Next Level With New Ways to Find and Access Digital Music.

It seems like every new digital music offering is hyping discovery. Why? Is it because consumers are dissatisfied with current sources of music discovery? No. It is because discovery is one of the few music applications companies can think of for their technology.

Microsoft has fallen into the trap of music discovery - consumers don't care about it and there is no way to make money from it.

Regarding the Zune announcement, I agree with David Card: "...I'd feel a lot better about Zune's fortunes if I heard something super-aggressive about on-demand services, advertising, and syndication."

Music Preference Tips Personality Traits

In July I wrote this in a post:

Kudos to last.fm for the ad targeting initiative described in the Financial Times article below. Basically, the site is using the music that is being played as a means of selecting the ads to present. I believe that a detailed and accurate psychographic and demographic profile can be built from an individual's music selections alone (I did a lot of reasearch in this area and will blog about it soon). Just another factor that makes recorded music a powerful advertising medium.

Last week a researcher in England announced findings from a study that links preference for certain musical genres to specific personality traits. Here is a brief audio interview with the researcher, Professor Adrian North.

We have known about the link between music preference and personality for a while. A couple of Longhorn professors published similar results five years ago, and there is data that pre-dates this.

What makes this information important now is its relevance to the growing interest in ad-supported music. Track metadata makes this information actionable.

I'll repeat what I said in my July post: Just another factor that makes recorded music a powerful advertising medium.

More on Comes With Music

On Monday I posted about Nokia's announcement of the Comes With Music launch in the UK. Yesterday, Music Ally posted some details from Carphone Warehouse about the service.

From this I learned a few things worth commenting on:

• The service will initially be available only to pre-paid customers. This is smart. I can't put my finger on the cite right now but I have seen data that show pre-paid cellphone customers are more interested in music than post-paid customers. My guess is that Nokia has seen this data also.
• Music is only provided through OTA download. Tracks can then by synched between phone and PC. This goes counter to current consumer behavior, which follows the opposite, much less expensive, path - music downloaded to PC and then sideloaded to phone. Correction - From MusicAlly: Nokia has confirmed to Music Ally that the 5310 WON’T support OTA downloads for Comes With Music - meaning users will have to download and sync tracks via their PCs instead. Therefore, Nokia will be pitching the service as a PC-based one, at least in this first iteration, until more handsets are available.
  Simon Ainslie, MD of Nokia UK, tells us that the company has “agreed ways of working with most of the operators, and contracts [are] in place”, although he’s not saying who just yet. But he’s bullish. “This is not a test, it’s the full launch. We’re going to be very loud and very big about it as we head into the Christmas period.”
• Users need to pay data charges for the OTA downloads. Surely, Nokia is doing this for the labels - not for the consumer. Not a good feature of a "free" service.

It is clear that Nokia fails to grasp two critical aspects of mobile music:

1. The principle of selling the Time Spent Listening applies to this channel just as it does to every other channel for recorded music. Nokia and its partners will not make money by selling other units associated with recorded music - in this case handsets or OTA bandwidth.
2. In mobile music the handset is the interface between the listener and his music. Nokia, therefore, is in the best position to control and profit from selling the Time Spent Listening to music. Not recognizing that they are in this enviable position is Nokia's biggest mistake.

Tuesday Tidbits

Forget Apple - Lets Speculate About the Microsoft Zune - Selected quote from thusly titiled New York Times article: “I have a wobbly table. The Zune fits perfectly under the broken leg,” said Richard Doherty, a consumer electronics industry market researcher with Envisioneering.

In other Zune news, MS is apparently coming out with a 120GB model. This has to be targeted at video users.

We7 Gets EMI - Streaming Only - Billboard reports: UK ad-supported digital music service We7 has added content from EMI Music Group under a new licensing deal. Like it's deals with Sony BMG and Warner Music Group, the pact allows We7 to stream full songs supported by audio ads, and lets fans buy DRM-free downloads on an a la carte basis. We7 originally proposed making downloads available for free, supported by embedding audio ads into the downloaded file, but labels have been wary of adopting that approach. The EMI deal covers about 400,000 tracks, including those by We7 founding investor Peter Gabriel.

Gee, what a surprise. The genuises running the labels are cutting off the most potentially lucrative part of the ad-supported music market.

Comes With Music Launch Announcement

So Nokia has announced the first availability of it's Comes With Music service in Europe. Nothing definitive on price but it seems from the Forbes piece below that the service will entail a significant up-front charge.

So let me get this straight - consumers don't want to pay for music yet Nokia thinks that the way around this is to ask them to pay a big sum upfront? I understand it is for all you can eat (and you get to keep the tracks) and the fee is bundled with the phone but putting up this hurdle seems to go counter to expressed market preference.

I will be watching this carefully come Christmas.

Market Scan
Nokia Woos Cash-Strapped Music Lovers
Lionel Laurent, 09.02.08, 10:25 AM ET

LONDON - Finnish handset-maker Nokia is bringing its much-vaunted flat-fee music store to Britain later this year--most likely October--before attacking the rest of Europe in 2009. Judging by the relatively cheap and cheerful phone its launch model is based on, Nokia is clearly looking to strike a chord with cash-starved consumers reeling from Britain's painful macroeconomic crosswinds.

"If you're going to display the value clearly enough, then consumers will want to buy it," said Simon Ainslie, head of Nokia in Great Britain, in an interview. "Even in difficult times, consumers want to find something right."

The music store will only be available through a souped-up version of the Nokia 5310, when it comes out later this year. Although the exact pricing of the phone has not been sorted out yet, Ainslie told Forbes.com that it would retail for "significantly" more than the current version of the model, or between 100 pounds ($178.52) and 300 pounds ($535.92). The current Nokia 5310 retails for around 80 pounds ($142.91). With an estimated subscription fee of 100 pounds ($178.64) on top--for the all-you-can-download music service itself--Nokia hopes that the phone will make a perfect Christmas gift in the midst of a credit crunch.

"It is interesting that Nokia is using a mid-tier device, not a high-end one," said Carolina Milanesi, analyst with Gartner Research. She told Forbes.com that the economic downturn in developed markets had hurt consumption of high-end phones, whether Nokia's or Sony Ericsson's, and that the mid-tier segment had become more competitive as a result.

The attraction of a flat-fee music service could potentially be strong, although the details have yet to be ironed out. Users will have access to 2.1 million songs from major record labels like Sony, Warner Music and Vivendi's Universal--only EMI has not signed up yet--and will be able to download them via a computer Internet connection. They can then keep as many as they want for the one-year subscription fee.

But which operator is going to sign up to this, given that the service cannibalizes operators' own offerings, while also allowing users to bypass mobile downloads in favor of using a desktop computer? Nokia's Ainslie said "one or two" networks would be on-board by the launch date, but this is hardly a heartening figure.

And more importantly, will the Nokia 5310 have the "wow factor" that is driving people to Apple's iPhone? CCS Insight analyst Paolo Pescatore said Nokia was clearly only "testing the waters" with its plan, and that it remained to be seen whether it could decisively win the Christmas phone wars.