Wednesday, September 24, 2008

 

It’s mobile, expressive and has a long tail…..

One can perhaps argue successfully that communications, photography and music are the most ‘digitized’ industries in the world. Just think of email, digital cameras and camera-phones and ‘MP3’.

Further, in terms of format change, digital music is quite simply the pioneer in terms of a changed format settling into a commercialized industry (not without its own legacy issues with respect to piracy).

As digital music settles into its groove and evolves, it has already created several rules. The purpose of this paper is to discuss three mega-trends that the digital music landscape has thrown up.


  1. ‘The Long Tail’ and the death of the 80/20

In his hypothesis regarding ‘The Long Tail’, Chris Anderson postulates that digital retail consumer behaviour is dramatically different from physical retail behaviour because:

  1. A digital retail store is able to stock way more product than a physical store due to no ‘limited retail/shelf space’ issues that a physical store has and,
  2. Search functionalities and recommendation engines in digital stores allow for users to seek out their niche personal choices effectively.

The result of the above is that digital buying behaviour moves away from the ‘hits’ towards the ‘niches’. This results in purchases being much ‘deeper’ in the available catalogue.

This depth of reach into the catalogue is effectively ‘The Long Tail’.

Hence one finds that one sell ‘less of more’ rather than ‘more of less’ demonstrating clearly that the top 80% of digital sales do not come from the top 20% of items; rather, more than 80% of sales come from more than 80% of the catalogue.

Understandably the above works more typically for online music than it does for mobile music (though surprisingly the catalogue sales achieved for ringtones and ringback tones also goes into the thousands of tracks) but given the improvements in search technologies and recommendation engines for mobile music, the depths of the catalogues explored will be much greater in the future and will likely rival the online ‘tail’.

Hence, the catalogues of the music companies created and aggregated over yesteryear takes on a renewed sheen in this new retail reality.


  1. Mobile Music outsells Physical Music in the Asia-Pacific (and in India); Online music is relatively tiny

At the end of 2006, India became the second country in the Asia-Pacific (after South Korea) where consumers spent more on mobile music than on physical music.

Industry estimates stated the mobile music industry in India was worth Rs.1,026 Crores (IMRB, IAMAI) and the estimates for the physical music industry were Rs. 800 Crores. In the year 2007, mobile music doubled to more than Rs.2,000 Crores and the physical music market remained flat at best. Online music was just an infinitesimal fraction of these numbers.

This was a major milestone – the triumph of the digital format had indeed occurred! The only difference between the pundits predictions and the reality was that the triumphant format was mobile and not online music!


  1. The “full track” download is not the mobile destination

It appears that the most earth shattering reality to hit the music industry might be the interesting phenomenon that ‘full tracks’ are not really what the consumer wants to download and own across Asia and in India.

Let’s consider an interesting juxtaposition of facts:

  1. Ringback tones, ringtones and master tones dominate the mobile music landscape everywhere
  2. In the 3G markets and in many of the ‘2.75G / Edge’ markets including India, full track downloads are available side-by-side with the derivatives mentioned above.
  3. In many of these markets (and in India), full track downloads are also available online at almost half or less of the mobile download price and would allow the song to be downloaded and ported to the music phone as well as burnt to a CD
  4. In markets where downloads for full tracks have existed for more than 2 years, streaming services and/or music on demand services (over IVR or GPRS) have quickly overtaken them in a short time span.

Given the above, and the fact that music phones with easily expandable memory are commonplace, led me to hypothesize that consumers may not be interested in owning the music – the full song anyway.

Yes, they are interested in consuming the full track but not necessarily owning it. And they have countless sources to access and consume the music on demand – Radio, TV, Films (relevant especially for Bollywood and other Indian films), online services, mobile radio and streaming services.

Hence, armed with a GPRS / 3G connection and / or a broadband connection, the consumer is pretty much hooked into all the music in the ‘cloud’. Hence, he can access it on demand as and when and therefore does not need to own it.

What they are interested in owning however, is the snippet, the expression derivative – that allows them to use it in various ways from a ringtone to a ringback tone. Hence, fundamentally what I am hypothesizing is that the full track is not the end destination for mobile music.

The above mega-trends have been instrumental in defining an industry in its early years; an industry that is well worth more than US$5bn in the Asia-Pacific today. As the industry steams towards its estimated US$10bn mark in 2010 there will undoubtedly be more trends that will emerge.

In Asia however, the beast that is digital music will always be mobile, supremely expressive and will undoubtedly have a growing tail.


(as written for Radio and Music, July 2008)



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Friday, May 30, 2008

 

Mobile Music - The “full track” download is not the mobile destination

Video killed the radio star (sorta). CDs given away to promote the concert.

And now, songs (or, ‘full tracks’ as they are charmingly called in the digital realm) promote the sale of the derivative – ringtones, ringback tones, master tones.

The rapid evolution of the digital music industry has led to seismic shifts in the retail of music.

First there was the stunning fact that across the Asia-Pacific, mobile music sales (all formats) dominated online music sales by a massive factor. And that it was set to stay that way for the foreseeable future.

And now, it appears that the most earth shattering reality to hit the music industry might be the interesting phenomenon that ‘full tracks’ are not really what the consumer wants to download and own across Asia.

Let’s consider an interesting juxtaposition of facts:

  1. Ringback tones, ringtones and master tones dominate the mobile music landscape in much of Asia
  2. In the 3G markets and in many of the ‘2.75G / Edge’ markets, full track downloads are available side-by-side with the derivatives mentioned above and are completely outsold by the derivatives
  3. In many of these markets, full track downloads are also available online at almost half or less of the mobile download price and would allow the song to be downloaded and ported to the music phone as well as burnt to a CD
  4. In markets where downloads for full tracks have existed for more than 2 years, streaming services and/or music on demand services (over IVR or GPRS) have quickly overtaken them in a short time span.

Given the above, and the fact that music phones with easily expandable memory are common place in most Asian markets, it led me to hypothesize that consumers are not really interested in owning the music – the full song anyway.

Yes, they are interested in consuming the full track but not necessarily owning it. And they have countless sources to access and consume the music on demand – Radio, TV, Films (relevant especially for Bollywood), online services, mobile radio and streaming services.

Hence, armed with a GPRS / 3G connection and / or a broadband connection, the consumer is pretty much hooked into all the music in the ‘cloud’. Hence, he can access it on demand as and when and therefore does not need to own it.

What they are interested in owning however, is the snippet, the expression derivative – that allows them to use it in various ways from a ringtone to a ringback tone.

Hence, fundamentally what I am hypothesizing is that the full track is not the end destination for mobile music in Asia at least. Yes there are some that will choose to do that. However, the vast majority will continue to seek and adapt new applications of mobile music that allow them to personalize or better still, express themselves.

And given that mobile music is the super-dominant part of digital music (outselling online by a factor of 9-10), the creators, the suits and the service providers better sit up and take note of this reality.


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Tuesday, June 19, 2007

 

Asia Pioneers Mobile Globalisation 4.0

Asia Pioneers Mobile Globalisation 4.0
(Written by Sudhanshu Sarronwala for the IAMAI, India)

In his watershed work, “The World is Flat”, Thomas Friedman talks about globalization 10 driven by countries, 2.0 by companies and 3.0 by individuals.

That brings us to globalisation 4.0, which I see as the evolution of mobile content shared among, and generated by, consumers as a means of self expression and self actualisation.

And, critically, globalization 4.0 is going to be driven out of Asia-Pacific, which is the first region in the world to-date to seriously monetize mobile content.

The trend towards music as a means of self expression, in contrast to pure heuristic entertainment, is an entirely new consumption pattern and, importantly from a business perspective, it commands a premium among consumers.

With some notable exceptions like Australia, Japan, Hong Kong and Korea, Asia’s largely immature broadband markets are laggards in terms of digital entertainment and clearly trail the online experience in the United States and Europe.

What this the region is experiencing an exploding mobile market, virtually dominated by consumers under the age of 30 who are generating and sharing content on a spectrum ranging from pure entertainment, to self projection, to self expression and self actualization.

India has just in the past few months passed the point of no return, where consumers purchased more music on their mobile phones than they did physical music products like CDs and cassettes. This trend is exploding as we speak, to the point where mobile music products will be purchased nine times more often than physical products within the next 18-24 months.

The following graph of music sales between 2005 and 2009 illustrates this dramatic trend:












The seismic shift we are experiencing is driven by a unique set of psychographic trends:

1. Asia’s billion boomers – In the next 12 months, 12% of the world’s population will comprise of young singles in Asia who will command a purchasing power of about US$150 billion. This is a generation shaped by wealth, freedom and technology, and it appears to be embarking on a consumption spree that may rival that of the Western baby boomers.

2. It’s social – Despite India’s growing affluence, most young people still reside at home with limited access to personal TVs and PCs. Like their Western counterparts, their social networks are critical to them, but these networks are more likely to be accessed out of home and wirelessly via the only item they can truly call their own – their mobile phones.

3. Seeking an identity – With the overall population booming, and personal space and time hard to come by, young Indians are seeking a variety of forums to express their individuality. More than 60% of them possess a mobile phone, on which they can stamp their tastes and desires without restraint and without the need to share. And these consumers have demonstrated that they are willing to pay a premium for content that fulfills their needs.

Some statistics to truly whet your appetite:

* Indian consumers now purchase more mobile than physical music on an annual basis as of the end of 2006*.

* They will be purchasing almost 9 times more mobile music than any other format by 2009.

* Almost 50% of all music purchases in Asia in 2006 were digital – online or mobile.

* The digital music sector is dominated by mobile music – mobile music accounted for 85% of all digital music sales in the Asia-Pacific highlighting the difference in digital music consumption habits between the U.S. and the Asia-Pacific

* Asian music sales will continue to be driven by mobile music which will comprise 75% of all music purchased by Asian consumers by 2009.

* Whilst mature markets like Australia and the United States will see growing online music revenues at 1:1 online: mobile or greater, emerging markets like India will be virtually 100% mobile music-oriented.

*Source: IAMAI (“Mobile Value Added Services in India”, December 2006)

So in a few short years, what can we expect to see out of this mobile music boom?

We will be operating in the age of true wireless internet, which is fast becoming a reality in many markets. Audio and video content can be accessed where, and when, one wants and is fully portable.

We will see a day when interoperability between the PC and mobile handset becomes real, and when mobile music purchases have the same rights and flexibility attached to them as online music does now.

And to achieve this, we are looking at significant innovations in music applications, licensing and pricing. They are slowly beginning to see the light of day and will continue to emerge.

The most compelling question, in my mind, is over digital rights management (DRM) and its impact on truly interoperable mobile and online music purchasing and transfer of music between devices. Licensing and deploying full DRM solutions is currently a minefield, involving a complex ecosystem of legalities, publishing and technical requirements.

Whilst companies like Soundbuzz have, to-date, built businesses within this ecosystem, we see a day coming whereby major changes are going to be made by content owners to the licensing of their products. In fact, India already leads the way in this with owners readily licensing content without restrictive DRM, a trend which was recently followed by global music major EMI which announced the availability of a high fidelity, DRM-free online catalogue. We are waiting to see how this migrates into the mobile music arena which, as is clearly being seen, dominates music sales in Asia.

And finally video is, in my mind, going to be a key driver in growing consumer uptake of mobile music, and other mobile content. It’s also one of the best positioned vehicles for even more creation of content by consumers – think of YouTube’s mobile cousin in Asia!

A successful commercial business model will involve the licensing of this content and the development of delivery platforms so the content can easily reach consumers. Very few companies play both ends of this spectrum, hence delivering significant advantages to those of us who do.

The bottom line, in the Asian context, is that the digital music business which is currently viewed through US-centric eyes as an “online game” is quickly morphing into a “mobile gateway” to meet the changing consumption patterns we are experiencing in the Asia-Pacific.

Globalisation 4.0 is coming from Asia and the rest of the world now has to position itself to replicate the Indian, Korean and Japanese experience!

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Tuesday, April 10, 2007

 

DRM-Free: What about mobile?

Music lovers in Singapore threw up their hands in glee this week when one of the world’s four major music labels decided for the first time that consumers could 100 percent own the music they purchased from digital music stores to do with what they wanted.

But does this future of easy, simple, high fidelity musical enjoyment await those of us who prefer to use our mobile handsets to purchase and play our favourite tunes?

That, as they say, is the $3 billion dollar question (given this is the value of mobile music in our part of the world), and one which we will continue to work through with EMI and mobile carriers.

In the Asia-Pacific mobile music defines “digital music”, with more than 90 per cent of all digital music sales coming from mobile music derivatives in the form of ringtones, truetones, ringback tones, and full songs and videos. So it’s core to EMI’s announcement for us.

To briefly recap on the rationale for EMI revising its business model. Fundamentally, there have been two major issues that consumer have had with digital music as they know it:

1. The lack of interoperability, meaning music bought from say, Soundbuzz, cannot be played on an iPod. Or music purchased from iTunes in countries where it is available - only Australia and Japan in Asia - cannot be ported to cellphones, non-iPod portable music players and the like.

This lack of interoperability is a function of the digital rights management (DRM) in which the music labels require retailers to wrap and sell music.

2. The second pain point for consumers has been pricing. Although people have accepted a premium price point for mobile music, their motivation is quite different from the mere enjoyment of a track purchased online to their PC. Mobile music to-date has been used to personalize cellphones and for self expression.

In contrast, the volume of full songs downloaded direct to mobile or over the internet to one’s PC, has been relatively low, as consumers have indicated a lack of willingness to pay current retail prices.

Even in the United States the only retailer to generate reasonable sales, apart from iTunes, has been eMusic which retails music without DRM from independent artists and at a low, low price of approximately US$0.30c a track (it can even be lower with escalated plans!). eMusic is now the second largest online music retailer in the U.S.

So whilst EMI’s announcement responds to the issue of interoperability, it also points to an increased, not decreased, price point as a result of the “premium” wholesale price it indicated it would charge digital retailers.

How are consumers going to react to this when they have has been seeking unfettered, cheaper music to make the switch from ‘free’?

And that brings us back to the question of translating this bold initiative from EMI to mobile, remembering that the majority of digital music sold in the Asia-Pacific is sold to mobile.

EMI has taken the initiative to make its entire catalogue available in AAC, WMA and MP3 formats to digital retailers like Soundbuzz, and has required that this DRM-free content be of a higher fidelity. iTunes announced that it would retail DRM-free tracks at 256 kbps.

Clearly there needs to be clarity on what the acceptable mobile equivalent would be since that same file would simply be too large for mobile networks, including 3G networks, not to mention the corresponding data charge that would accrue for many consumers.

But, with all the above issues to work out, I still salute EMI for breaking ranks and listening to the consumer. After all, consumers have been in the driver’s seat since day one in the digital music world and it seems this is now being recognized by content owners.

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Friday, February 09, 2007

 

DRM-Free music - is there another 800 pound gorilla in the room especially in Asia besides DRM?

The recent thought piece by Steve Jobs - http://www.apple.com/hotnews/thoughtsonmusic/- the references and the DRM-free piece posted on this blog earlier in January 2007 and the recent report about EMI in discussions to sell DRM-free music, are squarely pointing to a direction that the music industry may well have to go in.

The ostensible objective of all this is interoperability between music services and devices. Essentially so that all music services can take advantage of the dominant position of the iPod and be compatible with it. And of course, removal of the various restrictions surrounding DRM-protected music - the allowable number of ports and burns of a downloaded track - to give it the same rights as a CD.

But, I have to ask the question, is this going to encourage more downloads from iTunes? Is there going to be a reduction in the 2 billion illegally traded tracks each month because of the removal of DRM?
If the DRM factor is the only variable that changes, I think the impact will be minimal.

Because, another key component - pricing - is probably the other 800 pound gorilla in the room.

In the US, the iTunes-led US$0.99c/US$9.99 pricing has obviously impacted CD pricing - list prices of US$18.98 largely are regularly slashed to US$12.98 (or even US$9.99 as CD retailers try and bring the CD prices closer to the pro-rated or album price of digital).
For a 10 song album this discounted price would imply a US$1.30c per track and for a 12 song album, a US$1.08 a track.
Hence, at rack rates, the physical pricing per track is approximately between US$1.30-US$1.90 (for a 10 track album) and between US$1.08-US$1.58 per track for a 12 track album.

If we were to compare the 99c digital price point, we are therefore looking at a digital track being, on an average, 24% cheaper.

Look at it in Asia using examples of India and Singapore.

Here the problem is compounded by 2 significant factors:
1. The presence of parallel imports (Singapore, HK issue mainly and totally legal) and
2. The legal presence of MP3 CDs (India largely)


To start with, in markets like Singapore, the online digital pricing did not have the iTunes 24% price advantage to start with. In fact, quite the opposite. Because CD prices were used to set online prices.
A S$18 CD meant a 10 track album was priced at S$1.80 a track and a 12 track album at S$1.50 a track.
The online digital market debuted at S$1.99 a track - 11-33% more expensive than physical. Clearly, no price advantage there.
Now, add the parallel imports scenario. A CD could cost in the range of S$9-11 for the same product. That further drops the per track price to between S$0.90c-S$0.92c.
The online pricing has stayed at S$1.99.

Lets look at India. Here too, CD prices were used to set online prices. Since CD prices are lower in India (Rs.100 for domestic repertoire and Rs.300 for international repertoire), the online prices followed and were set at Rs.9.99 for domestic and Rs.19.99 for international.
Now add the (legal) MP3 CDs into the mix - for Rs.100 you could get between 40-60 tracks. Or
around, Rs.1.70-2.50 a track.

Online pricing has remained unchanged at Rs.9.99/19.99 per track.

The Asian markets have no competitiveness when it come to online pricing vs physical pricing. Online music continues to be a tiny fraction of mobile music where the various expression applications (ringtones, ringback tones etc) continue to strike a chord.

Is it any wonder then, given the above economics, that online music continues to be a serious laggard.

And, in all this, we have not even taken into account all that is free......

For online music to see the kind of growth it probably deserves, unraveling the DRM factor is not sufficient. The pricing element is critical.

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Thursday, January 25, 2007

 

Digital Music to outsell Physical Music in Asia-Pacific in 2007

Towards the end of 2006 the team at Soundbuzz analysed data from PricewaterhouseCoopers' Media & Entertainment Outlook, plus figures provided in several reports by the IFPI along with our own sales data. We developed out of that a single set of numbers which delivered some startling insights.

What is clearly evident, is that digital music in the Asian context is defined by mobile music. This is in contrast to the U.S. and Europe where online sales are larger than mobile music sales. Our conclusions are as follows:

1. In Asia, we will see digital music sales (and specifically mobile music) overtake physical sales at some point in the coming 12 months, with global markets to follow in the subsequent 18-24 months.
2. India will be the second country in the world, after South Korea, where digital music sales (specifically mobile music) will surpass those of physical music.
3. Mobile music growth will be fuelled by additional formats to current ringtones, including ringback tones, caller id tones plus full track audio and video downloads.
4. Online sales will remain relatively static in the coming three years.

Since 1999, the industry has been predicting a 'format shift' in music from physical formats to a digital one. Earlier on, the general impression was that the digital format to watch would be online music but as mobile telephony grew (and grew) in the Asia-Pacific and the phenomenon of the ringtone grew to incorporate ringback tones and full track downloads, it became evident that mobile was the format to watch.

2007 will be a historic milestone in the music industry when mobile music surpasses physical music formats in sales.

The 'format shift' has begun.

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Thursday, January 11, 2007

 

DRM-free Online Music - is the storm gathering?

http://www.pcpro.co.uk/news/101706/music-stores-face-closure-of-microsoft-drm-programme-reports.html

There was this article in the PC Pro yesterday (Jan 10th, 2007) that sort of underlined everything I have thinking about digital music, the standards associated with it and the conclusion that DRM needs to go.

Background

As we know, around 1999/2000, Microsoft created Microsoft DRM and licensed it to several MP3 player manufacturers and distributors (the PlaysforSure programme) in an attempt to make it the de facto standard for digital music. It was a good strategy that effectively gave Microsoft a massive share of the MP3 Player and distribution market - please note that this does not mean a dominant share of digital music sales, just of the players and distributors.

Apple entered the fray in 2003 with its iTunes Music Store and its proprietary music system, Fairplay. The rest, as they say, is history.
iTunes commands approximately 75% of the online digital market for legitimate sales and has recently (January 10th, 2007) announced the sale of its 2 billionth song.

In late 2006, Microsoft decided to ostensibly follow the Apple strategy with their very own 'Zune' that protected content using its own propreitary technology, and competing with its own Windows DRM system licensed out to most of the world.

And finally, the article above, where Microsoft is said to be considering withdrawing its Windows DRM system and retaining only its propreitary DRM system.

The market need is obvious for non-DRM music

Meanwhile, the market is evolving and moving along:

1. eMusic, the digital retailer with non-DRM content has made significant inroads into the digital space having eliminated interoperability problems with its raw MP3 offering (the Majors though, still keep away from it.....inexplicably). eMusic is now the No.2 digital retailer in the U.S.

2. Players like Yahoo and Amazon are strongly pushing for a DRM-free environment (see link below) so that users can take advantage of the ubiquitous iPod and eliminate all other interoperability issues (even across cellphones) - just like eMusic has. To this end, they have even had big label artists release non-DRM tracks.
http://online.wsj.com/public/article/SB116537603826741985-TfD3l60iYwyYgj2wH5P9gTDGDy0_20070105.html?mod=tff_main_tff_top

and,

3. Consumers are swapping more than 2 billion (yes, with a 'B') songs a month(!) on P2P networks - illegally of course.

Moving ahead

While consumers continue to be educated on music piracy, the complexity of DRM products has kept many of them away (though some just enjoy the steal no doubt!). The illegal P2P numbers show that quite clearly. The business models of players like eMusic have demonstrated that consumers are willing to pay for music - even if it is non-mainstream - as long as they are not restricted in its usage (like they are not with a CD purchase).

Labels need to come to terms with the fact that online music needs a boost. Data from the IFPI and PwC show that mobile music will be 10 times as big as online music in the Asia-Pacific by 2009 (and online music will still be under US$1bn by 2009).

The music industry at large needs to embrace DRM free music to ensure that the online music market does not continue to get stifled but can grow and fulfill its potential with the hurdles of DRM.

The immortal words of Peter Jenner when he said "Big labels are f*cked, and DRM is dead" will undoubtedly keep this debate on the boil....till its done!
(http://www.theregister.co.uk/2006/11/03/peter_jenner/)

Above all, DRM free music would take 'control' and put it squarely in the hands of the people that matter - the consumer.

Come to think of it, thats what Microsoft/Zune should have done - it might even have finally endeared them to the consumer. And, changed the world for the better.

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