Digital music at an impasse

I have earlier written about how the music business now seems more doomed than ever. Stagnating demand for live concerts appears to have stopped offsetting the decline in CD sales. Sale of digital music is far away from being compensation enough, as it’s growth halved last year despite increased action on behalf of governments to tackle digital piracy globally. To look at the future of digital music more in depth, I turn to the wise words of Mark Mulligan, a music analyst at Forrester Research.

Writing on the Midem blog, Mulligan points out that “Digital music is at an impasse” because “it has not achieved any of its three key objectives”, specifically:

1. to offset the impact of declining CD sales
2. to generate a format replacement cycle and
3. to compete effectively with piracy.

Mulligan argues that “the divergence between emerging consumer behaviour and legitimate music products is widening at an alarming rate. And consumers are voting with their feet: Forrester’s latest consumer data shows digital music activity adoption is flat across ALL activity types compared to 1 year previously (in fact the data shows a slight decline).”

The music business hoped that the iPod, iTunes and digital music stores of all sorts would be its saviour – unfortunately this has turned out to be false, according to Mulligan.

“all music activity is niche, except for video. Just 10% of Europeans and 18% of US consumers pay for digital music. Only music video has more than 20% adoption (and only in Europe at that): YouTube is digital music’s killer app.”

The problem with Spotify and the likes is that in the eyes of the record companies it simply doesn’t pay them enough. Whereas in Spotify’s eyes the record companies have for too long demanded too much.

Mulligan adds that the “transition generation” – the 16-24 year-olds – aren’t the future. Instead, the future lies with the 12-15 year olds.

“In fact, when you look closely at the activities where 16-24’s over-index [do more than other age groups], you can see that their activity coalesces around recreating analogue behaviours in a digital context. The 16-24’s started out in the analogue era. They are the transition generation with transitional behaviours.

“The 12-15 year olds, though, don’t have analog baggage. All they’ve known is digital. Online video and mobile are their killer apps. These Digital Natives see music as the pervasive soundtrack to their interactive, immersive, social environments. Ownership matters less. Place of origin matters less. But context and experience are everything. The Digital Natives are hugely disruptive, but their disruption needs harnessing.”

“The reason this all matters so much is that current digital music product strategy is built around the transition generation with transition products to meet their transitional needs and expectations. Neither the 99 cent download and the 9.99 streaming subscription are the future. They are transition products. They were useful for bridging the gap between analogue and digital, to get us on the first step of the digital path, but now it’s time to start the journey in earnest. We’d be naïve to argue that we’re anything close to the end game yet. But the problem is that consumer demand has already outpaced product evolution, again.”

I agree with Mulligan that it’s time for the music companies to deal with the world as it is, rather than as it used to be or as they would like it to be. However, many in the business will tell you that that is exactly what they are doing. The fact that the hottest acts, be it Simon Cowell’s Idols, Take That or Lady GaGa, make the industry lots of money may be distracting them, when what they should be doing is innovating business models in a disruptive manner.

Back to Mulligan, who points out that “the digital natives have only ever known a world with on-demand access based music experiences … And the experience part is crucial. In a post-content-scarcity world where all content is available, experience is now everything. Experience IS the product. With the contagion of free infecting everything the content itself is no longer king. Experience now has the throne.”

This last point really embodies the epiphany of how new digital products and services could be developed in the future. Music being a part of an experience, perhaps everything from an interactive advertising campaign to a social network (like Soundkick), rather than the only part of a product.

So what’s needed? He thinks future music products need “SPARC”:
1. Social: put the crowd in the cloud
2. Participative: make them interactive and immersive
3. Accessible: ownership still matters but access matters more
4. Relevant: ensure they co-exist and joint the dots in the fragmented digital environment
5. Connected: 174m Europeans have two or more connected devices. Music fans are connected and expect their music experiences to be also.

Can iCloud and iTunes Match, which together may help monetise pirated music, be some sort of a saviour? Probably not, as music will not be augmented into rich musical experiences according to SPARC.


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