Apple Moves Toward Music As Service

Posted by | Dec. 14, 2009 | 4,205 views

apple.spanFor nearly four years, I’ve been evangelizing the transition of the music industry from a product-based business to a service-based economy. I’ve never viewed this as a possible scenario but as the only eventuality. It’s going to happen, it’s got to happen, now maybe sooner than later. With Apple’s acquisition this week of LaLa, the cloud-based music service that started out as a CD swapping marketplace, the Cuppertino giant appears to be making moves toward launching a cloud-based music service.

This will change the game forever.

As consumers have challenged the traditional value of music, the offerings have evolved from full-album digital downloads to a la carte track availability, pioneered by Liquid Audio and Rioport in 2000 and mainstreamed by Apple’s prime time launch of the iTunes Store in April ’03. While iTunes has done a brilliant job of serving the track-based economy, it’s been obvious that music fans want more: more value for their dollar, more information, more tools and unlimited access. Rhapsody and Napster have done a great job demonstrating the service value proposition, but have done a relatively poor job, as evidenced by their low subscriber numbers, of articulating/selling the offering to the masses. In short, Rhapsody is great but their success rate sucks. This is pointed out to me every time I rave about Rhapsody. I had high hopes when Rhapsody aligned with MTV and Verizon, but those dreams were dashed by recent rumblings that the partners want out of the deal.

As a very bright light, Spotify took Europe by storm this past year with their simple, clean and elegant ad-supported freemium model; the USA is currently petitioning the United Nations for equal treatment. At the same time, the economics around ad-supported models are being challenged. Under the current pay-per-play deal structure, the CPM’s necessary to provide profitability are difficult to maintain. As I stated in a previous TMV article, we need to move to a transparent revenue-share model to insure the success of these services. Apple has the necessary market muscle to force that move.

I’ve frequently joked that when Apple finally announces their subscription service, the public will wonder why it took Apple to invent the subscription model. While this might be amusing, it’s completely true. Apple’s ability to connect with consumers is awe-inspiring. They weren’t first with the portable music player, the portable video player, or the media-centric mobile phone, yet they own all three verticals by a large margin, an Apple music service offering should be no exception.

Glenn Peoples of Billboard sees it a bit differently. He states, “Apple appears to have bet on a digital music strategy that places ownership – no matter how ephemeral – over subscription.” I, respectfully, believe that it’s more of a hedged bet, cloud access to owned music AND subscription, the absolute best of both worlds.

It is in Apple’s best interest to offer subscription. With flattening iPod sales, a global footprint of over 200 million owners, an extra $10 a month per user would, even for Apple, represent a significant contribution to the bottom line. Apple’s current offerings in film allow for time-controlled content delivery to their portable devices, it is not a big technological leap for their engineering staff to apply the model to music. Even if only half of the devices in use support timed-out services, this could bring in $1 billion of additional monthly gross revenue.
This number should not be ignored by the stakeholders that will need to bless this hybrid model.

100 million users paying for music each month on a recurring basis!

Do the math, it is a no-brainer! It really blunts the excitement around a million-selling album, doesn’t it?

Currently, Simplify (http://www.simplifymedia.com) allows me access to my entire library of 75,000 tracks on any of my Macs or my iPhone. My Rhapsody account gives me 7 million more tracks wherever I am, but currently those are two separate experiences.

When I can finally access the music I own from ‘the cloud’ and combine my iTunes library with an all-you-eat subscription service on my iPhone, my vision of our digital future will be truly fulfilled.

Other Users Also Read:
Lala Land: How Apple’s Deal Gives It A Leg-Up To The Cloud
SPOTIFY AND THE USA. WHY NOT?
MySpace Music: Going Freemium?

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Posted by on Dec 14 2009. Filed under Business Models, featured. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

12 Comments for “Apple Moves Toward Music As Service”

  1. Paul Harris

    it’s nice to read an intelligent debate on this issue – from all parties. The debate in the UK has been perverted by so much spurious logic that it has got frustrating.

    I’ve always said that just because the general public WANT something, doesn’t make it economically, or morally justified or indeed viable.

    I’ve always said that just because the MEANS exist (in this case, high speed connections and sophisticated file compression technology) doesn’t make the ENDS right. If we lived in a world where skeleton keys were freely available, letting yourself in to someone’s home and stealing their possessions would not be right. That is the point that has been forgotten in so many of the moral arguments.

    I do beleive that a good sub model is the ONLY way that low-level music fans will consume music. Music lovers will always wnat more, an artefact. It’s the difference between buying a print of an art work or the artwork itself.

    Wayne – the fact is, if you knew how much of a risk every new act is to a label or a publisher, then you’d see that the content is not particularly over-valued in context with the volume of sales. I am a partner at an independent publisher, and I loose sleep over every signing but i still sign them because I love music and I want to see my writers succeed and make a living.

    Reuben – you’re correct. Whatever model is adopted, it must recompense the artist and all involved in the creation of that music, otherwise peopel simply wouldn’t do it.

    And unfortunately, we as consumers do pay for the failures as well as the well-publicized successes. No R&D department in any industry can have a 100% hit rate. Except Simon Cowell, but then in my opinion the music that Syco puts out is not the type of music I’d like my age to be remembered for.

    So there you go – I agree with the sub model, but it’s also about understanding the value system in place and making sure everyone gets paid. Yes, labels CAN make profits, but they are neccessary for any business to keep going. And yes, CDs used to be over priced – but they aren’t anymore. You can get a CD of ten songs now for the price of two pints of beer in a London pub now – but I don’t see all these brave protestors marving against the breweries.

    Thanks for the intelligent debate everyone.

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  3. How do you see musicians getting paid with these new models? Consumers want music. They want it now, with uber convenience. And, they don’t really want to pay. So how *do* musicians get paid? Especially, truly independent artists who are frequently locked out of digital deals that are offered to the major labels.

  4. Hi Wayne,
    Lets talk on SKYPE.
    We can alow you to access all your collection on multiple devices from the cloud.
    best wishes and Seasons Greetings from me.
    Harry

  5. Wayne Rosso

    Eddie

    I totally agree. The problem is that the price point that users will embrace is not in sync with what the content owners want. Seems to me that the cheaper the subscription, the more users that sign up. I think that’s a pretty basic law of economics. I’ve always said that record labels overvalue their content. Hopefully they’ll start to face reality and adjust accordingly.

  6. Eddie Schwartz

    You can’t really say that consumers “have challenged the traditional value of music” as Ted does when they have never been offered an authorized, paid file sharing model. In a recent British survey over 85% of those surveyed said they would pay a monthly fee to music share. Streaming etc is not the same experience and does not offer the immense repertoire of virtually all the world’s music. As long as file sharing remains un-monetized, a huge piece of the puzzle will continue to be missing.

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  10. Hi some very good points indeed.

    What I am personally still waiting for is a storefront (service or purchase) that has REAL PEOPLE recommending stuff (properly employed by the retailer), with their photos, blogs, tastes, moods, and weird hats. People that know their stuff and are happy to advise / recommend. People that labels can plug into to promote, and that show up at gigs. That will beat any mega recommendation engine any day.

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