Streaming Services (again).

So the debate about streaming services continues. Last week we had Coldplay hold their new releases back from Spotify, while this morning, we have an opinion piece in Digital Music News suggesting a digital distribution strategy where streaming services are relegated to cater only for deep back catalogue.

Context

Estimates vary, but I think it’s pretty safe to say that 95% of music consumption is unlicensed, and earns the performer and composer nothing. I say “at least” because most statistics take little account of non internet sharing. I’m sure there are whole school classes where all the pupils have identical MP3 collections, sourced on torrent sites and propagated on portable drives. The same is probably true in many workplaces. We (the recorded music industry) are scavenging around in 5% of consumption, so any conversation on an industry strategy needs to be seen in this context. This statistic opens up the possibility of significant growth from harvested from the “95%” without, at least initially cannibalising the “5%”.

The allegiance of Technology
I’m sure at some point significant sales will migrate from a la carte to streaming. I would however hazard a guess that once migration starts denting Itune’s turnover, Cupertino will release a very beautiful and incredibly slick streaming service. With their current market share it simply makes no sense for them to change their business model at this stage, but you can bet they are watching with interest.

In this blog post from a year or so go, I made the point that cannibalisation is pretty much an irrelevant point in any case as we have lost the ability to determine which business models will succeed.. Consumers will eventually get the services they want, as long as there is the technology available to deliver it.  Our goal has to be to ensure that the content creators, the artists and songwriters, are the ultimate beneficiaries of that winning supply chain.

Who spends what on music.
Here are some more statistics, this time from the BPI year book. In 2010 only 52.8% of the UK population spent anything on music. Of that 52.8%, the average annual spend was £42.83 per annum. With subscription rates running at £120 per annum we have the potential of immediately growing that annual spend from music buyers three fold, while also monetising much of the 47.2% who currently don’t engage with us at all, This could be achieved through bundling streaming services with ISPs, and Mobile Contracts.

A Service worth Paying for ?
However, consumers will only upgrade to and maintain premium Spotify, Rhapsody, MOG and RDIO subscriptions if the content is top quality, and new releases are fully represented.

• Premium services are simply not attractive as “catalogue only”, No one is going to pay a monthly fee for old music.
• Free tiers have been shown to be necessary to gain market traction, but are not viable as anything other than a gateway to premium services.

It would be interesting to know how those Coldplay fans with streaming subscriptions dealt with this missing content. While some headed to Itunes, I’m quite sure there were many who reached straight for Bit Torrent and Rapidshare.  Some will now be considering whether their monthly subscription actually represents value for money.

Crossroads
We are at an important juncture in the evolution of digital music. We have a variety of services that can successfully compete with free by offering greater convenience and enhanced social functionality. Spotify’s conversion rates testify to this. There is also now tremendous service diversity both in terms of business models (a la carte –v- subscription) and functionality.  I have been fortunate enough lately to have had the opportunity to try out MOG and RDIO, both of which I found really compelling services, genuinely enriching my listening experience.  Exciting Times… potentially.

We, as an industry, can either fully engage with and support these new innovative services which genuinely appeal to consumers, or we can dick about for another decade, artificially crippling services and trying to dictate to our customers how they consume music.  If we take a fragmented, confused and arrogant approach we will still be splashing around in our 5% puddle for decades to come.

This is worth watching.  It’s a bit long, so if you are in a hurry skip forward to about 17mins in.

http://www.youtube.com/watch?feature=player_embedded&v=LbAT9Ap9EVs#!

– Danny at Kudos