For 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.