The latest opinions on how to get consumers to pay for digital music were aired at the Digital Content Summit/Music in New York, Larry Jaffee reports.
There’s no denying that the prognosis a decade ago that digital downloads would be the way music would be largely distributed in the future has finally come to fruition. But what has not been clear to the various stakeholders is how the literally pennies per song download, as well as the royalties from internet streaming services, will be fairly divided. Much of the two days of sessions at the Digital Content Summit/Music in New York dealt with how to get people to pay for digital music, whether à la carte singles, full albums, subscription services or bundled with mobile phones and broadband services.
Other major debates pondered by speakers during the conference, held at the Highline Ballroom, one of Manhattan’s best live music nightclubs, covered whether ‘freemium’ offers really will result in paying subscribers, whether online advertising can offset streaming services’ royalty payments, and the continued interest of consumer brands to associate themselves with music. Interestingly, considering its leading status as the biggest seller of downloads and music in general, two weeks following the death of Apple’s Steve Jobs, iTunes was hardly spoken of.
While digital music behemoths Apple and Spotify were not present, the conference ended with a Facebook executive – Ime Archibong, the social network’s Manager of Strategic Partnerships, explaining its initiative announced at the f8 developers conference to allow its 750 million users globally to integrate music they’re listening to through streaming services Spotify, Rhapsody, Rdio, MOG and turntable.fm. Archibong clarified that Facebook is pursuing non- exclusive deals with music providers and it is interested in “working with everybody”. Conference attendee Emmanuel Zunz, of ONErpm, a digital music distributor, reported at a roundtable discussion that Facebook quickly is accounting for 20% of his company’s revenue.
Keynote speaker Richard Gottehrer, a legendary songwriter (‘My Boyfriend’s Back’) and producer (Blondie), kicked off the proceedings with a chronicle of how the music industry has always gone through periods of disruption. “The transistor radio took music mobile at the birth of rock ‘n’ roll [in the mid- 1950s],” said Gottehrer, whose selection to speak had less to do with his acumen as a record man with golden ears, as it did with his prescient move in 1997 to co-found The Orchard, the first and still largest online clearing house for digital music. The catalogue now totals 3.5 million tracks.
How could have Gottehrer predicted the future so accurately? “We noticed the internet... There had to be another way... It was a logical step.” In regard to where physical goods lie in the current landscape, Gottehrer didn’t mention CDs, but noted that he’s seeing “more people buy vinyl. I wonder what they do with it”. The downside of the way music is currently distributed in any form these days, according to Gottehrer, is that it has become commoditized: “I hate to think of it that way.”
The first panel covered subscriptions, and was well represented by the heads of Rhapsody and eMusic – two companies that have been toiling in that space for over a decade – a major label and two internet startups. “Spotify raises the awareness of free; it changed the game,” said Rhapsody International Inc President Jon Irwin. Panellist Carter Adamson, COO of streaming service Rdio, agreed with Irwin: “Free gets people in the door” with the goal being “upselling to subscription”. Jim Cady, CEO of Slacker, which allows users to create personal radio stations, reported that its average paying customer uses the service five times more than its free version. eMusic President and CEO Adam Klein said that his company’s research shows that 91% of its customers want to own, 75% buy full albums and 85% use free services for discovery only.
Bill Campbell, Senior VP of Global Digital Business for Universal Music Group, noted that there has been increased activity of mobile device manufacturers seeking to license music directly from UMG. Irwin said Rhapsody’s bundled deal with low-cost mobile phone provider Metro PCS is now reaching people who “haven’t had a chance to participate in the digital music economy”.
(After the session, Irwin spoke to Digital2Disc about Rhapsody’s planned acquisition of Napster – announced on October 3rd and scheduled to close on November 30th – from US consumer electronics retailer Best Buy, which has owned it since the autumn of 2008. Part of the appeal of the deal for his company, he said, was the brand awareness that Napster created in ushering in digital music in 1999, albeit illegal file-sharing at the time. Irwin said the deal was primarily an asset purchase for intellectual property and patents. He conceded that Rhapsody will be able to bring into the fold Napster’s users since it went legitimate, but not email addresses from when it was an illicit service. Rhapsody, which was spun off by RealNetworks in early 2010, reportedly has 800,000 subscribers, twice as many as Napster.)
On the second day, Russ Crupnick, NPD Group VP, senior industry analyst, cautioned that the majority of consumers will take advantage of free digital music: “They’ll pay for things, but it has to have some value.” When NPD asked consumers of freemium streaming services what it would take to upgrade to a paid subscription, “70% said nothing at all”. Despite all the hoopla surrounding digital music, the company’s latest research shows that the CD is not dead: 41% buy CDs and two-thirds of them still listen to their CDs at home and in the car. “Almost twice as many Americans bought a CD than paid for a download,” said Crupnick, who rattled off some other interesting consumer statistics:
- only 15% admit to file-sharing – “It’s not all about piracy and stealing; it’s a problem but not what it’s made out to be”
- 4% pay for online radio 30% listen to internet radio
- 44% use a portable digital music player (iPod, MP3)
- 40% use a smartphone
- 77% think it’s important to own music
- 59% do most of their music listening in the car
- 82% still listen to AM/FM radio only
- 17% think music should be free
- 50% of people who buy vinyl records don’t have a turntable to listen to them on; they buy them for their collectability.
Generally, all digital music companies are “trying to build sustainable business models going forward,” noted Rhapsody’s Irwin, who believes that “advertising can only offset a portion of costs” although it can be “a valuable tool.”
Sponsorship – or brands aligning themselves with a particular artist – is going to continue in a big way, numerous speakers concurred. A session composed of three traditional ad agency executives and another from a promotions agency talked about the revenue opportunities that exist within branding and the creative markets. Michelle Klein, Smirnoff VP, Global Content and Communications, showed a video of a global dance promotion the vodka brand is doing with Madonna, who will choose, from 10 finalists in November, a winner to go on tour with her.
“We believe ad dollars can power the entire music industry,” remarked Paul Geller, SVP of External Affairs for Grooveshark, an internet radio service that is based in Florida. A key to success in digital music is for companies to focus on specific demographics. Klein noted that eMusic’s strategy is on adults and not teenagers, which partly explains why its customers are purchasing complete albums. On another panel dealing with the freemium business model, Clive Gardiner, SVP of the London-based, Pandora-like streaming service We7, which was co- founded by artist Peter Gabriel, said 65% of its users are less than 24 years old.
Not all companies are thinking about tackling the US like Spotify did, although We7 eventually plans to make inroads there. The Paris- based free music streaming service Deezer, which serves four million users, is perfectly satisfied operating in Europe and doesn’t have plans to cross the Atlantic, reported co-panellist Axel Dauchez, the company’s Director General. He added that all digital music companies are aiming to replicate Spotify's success.
“Failing in the US is game over,” Geller said, adding that it’s easy for internet startups to blow $150 million in investment money. Spotify’s client-based software that needs to be downloaded by users, pointed out Dauchez, was a different operational choice from most of its competitors, which stream the music from a website. Speaking of technical matters, Gardiner noted “seamless integration on Facebook is not as easy as click and play”. On the issue of musicians getting paid from legitimate streaming services, Gardiner said, “Every play generates some money.”
In a somewhat heated exchange on the stage, Dauchez took issue with Geller for Grooveshark operating without major label license agreements despite making the music available. Citing Gottehrer’s keynote theme, Geller took umbrage to the suggestion that Grooveshark was operating illegally, and countered that rather his company, which uses the subtitle ‘The World’s Music Library’, represents “disruption in the marketplace”. According to Grooveshark’s website, the service has more than 1,000 independent labels licensed, representing a repertoire of more than 25,000 artists. Grooveshark also says that it will honour takedown requests from copyright owners, and that musicians are paid when their music is played on Grooveshark.
Sometimes successful digital music startups morph into something beyond their original purpose. For example, Shazam, the fourth most downloaded app of all time, allows a mobile device to detect a song and then buy it. But Will Mills, Shazam’s Music and Content Director, said on the cloud panel that the company is finding many labels and advertisers interested in using its platform. “We see trends 30 to 60 days before they hit Billboard,” said Evan Krauss, Shazam EVP of Advertising Sales, later in the conference.
Shazam has 160 million users, 1.4 million new users download the app every week, 4.5 million Shazams are conducted each day, and 12% of those Shazams result in an iTunes purchase, Krauss reported. Cloud-based music lockers will appeal to those consumers who don’t necessarily care about owning their tracks but rather just have them accessible from a variety of devices, speakers concurred. Another cloud panellist, Daren Tsui, CEO and founder of mSpot, reported that his company just started offering 5GB free to users, in addition to paid tiers for greater storage capacities. “The perfect cloud has different kinds of usage models,” Mills commented.
The importance of metadata and data curation was raised in a ‘Rovi Innovation Showcase’ presented by John Moakley, the company’s EVP of Data Solutions. “You want people to get lost in your metadata,” he said.
The small-label perspective was provided by Daptone Records General Manager Cathy Bauer. Daptone’s flagship artist Sharon Jones & the Dap-Kings backed up the late Amy Winehouse on the enormously successful Back to Black album, and have albums of their own. However, every time they have released a CD in the past few years a major retailer has disappeared – Tower, Virgin and most recently Borders. Bauer lamented, “Borders was a key partner for us,” adding that the label is now partnering with clothing retailer Urban Outfitters, which sells vinyl and turntables. “Vinyl has had our highest growth by far,” she added.
Artists are finding that tweets to fans and their own mobile device apps can generate sales. Ayal Kleinman, Warner Bros Records VP, New Media, cited Linkin Park as a band that’s particularly new-media savvy.
Perhaps the session that received the most attention from the audience was a focus group of four music consumers, including a 23-year-old male, second-year law student, who has been downloading illegally from private BitTorrent networks since he was 12, but happily paid for the deluxe Radiohead boxed set; a 29-year-old woman who buys CDs at live shows of local musicians; a 39-year-old woman who hates clutter and happily got rid of her CD collection in favour of iTunes single track purchases and a Pandora subscription; and a 50-year-old technology-challenged woman who still buys CDs and needed help to load up her iPod with music.
