Share Dialog
As part of Internet week, there is an event tonight organized by SoundCtrl to talk about music and the net. Here is what I am planning to say at the event:
The other day my 9-year old daughter came up to me and said “Daddy, when you were a kid, what were your favorite web sites?" I had to tell her that when I was young there was no Internet. She looked at me as if I were putting her on. She simply could not imagine that all this information, all these web sites, just did not exist at all.
I think this is a quintessential human reaction. We tend to view the world through our own experience. As a result we often get taken by surprise when change is an order of magnitude or more outside what we have seen. This is true even when the buildup to the dramatic change takes place in plain view. One of my favorite cartoons from the financial crisis shows two guys standing under a street sign saying "Wall Street." They are looking into the distance where a small wave appears. The wave grows larger and approaches them while they look right at it. Then the wave washes over them and they stand there totally drenched. One turns to the other and says "I totally did not see that coming!”
Now as an outsider it looks to me like such a moment may be about in the music industry. Mine is very much the perspective of an outsider having never worked in the music industry and not even having an investment in a music company. So with that as a disclaimer, here are four and a half candidates for changes that might be faster than most imagine today:
From downloads to streaming. Sure, Apple has a great business now with iTunes paid downloads, but having files is ultimately a pain. You have to figure out where your music is, how to move it around, how to back it up, etc. I was on a cross-country flight a couple of weeks ago with great wifi listening to streaming music for the entire flight. Would I really wanted to have to figure out which songs to bring along on my laptop or phone or music player? No - in addition most of the songs I wound up listening to were song I had not heard before! Why even have a music player when you have a phone? In an interesting related development, Google just confirmed that they are entering the ebook market and they will do so with a cloud model.
Decline in total revenues. I was listening to a panel recently where Thomas Hesse the president of Sony Music’s global digital business mentioned that Sony’s revenues were already about 40% from digital in the US and he added somewhat hopefully that as soon as they reach 50:50 then all that is needed to stabilize revenues is for digital to grow as fast or faster than analog declines. Tell that to the newspaper industry. In Q1 of 2009, newspaper ad sales declined by almost 30% compared to 2008 at the same time newspaper online revenues barely increased (and for some papers fell). I believe that there is a fundamental reason for the size decline that applies to both news and music. Demand is limited by attention which is more or less fixed. Supply, on the Internet, however is orders of magnitude larger than it was in a world of physical goods. The net result will be much lower prices for sure and I believe smaller total industry revenues.
Share Dialog
As part of Internet week, there is an event tonight organized by SoundCtrl to talk about music and the net. Here is what I am planning to say at the event:
The other day my 9-year old daughter came up to me and said “Daddy, when you were a kid, what were your favorite web sites?" I had to tell her that when I was young there was no Internet. She looked at me as if I were putting her on. She simply could not imagine that all this information, all these web sites, just did not exist at all.
I think this is a quintessential human reaction. We tend to view the world through our own experience. As a result we often get taken by surprise when change is an order of magnitude or more outside what we have seen. This is true even when the buildup to the dramatic change takes place in plain view. One of my favorite cartoons from the financial crisis shows two guys standing under a street sign saying "Wall Street." They are looking into the distance where a small wave appears. The wave grows larger and approaches them while they look right at it. Then the wave washes over them and they stand there totally drenched. One turns to the other and says "I totally did not see that coming!”
Now as an outsider it looks to me like such a moment may be about in the music industry. Mine is very much the perspective of an outsider having never worked in the music industry and not even having an investment in a music company. So with that as a disclaimer, here are four and a half candidates for changes that might be faster than most imagine today:
From downloads to streaming. Sure, Apple has a great business now with iTunes paid downloads, but having files is ultimately a pain. You have to figure out where your music is, how to move it around, how to back it up, etc. I was on a cross-country flight a couple of weeks ago with great wifi listening to streaming music for the entire flight. Would I really wanted to have to figure out which songs to bring along on my laptop or phone or music player? No - in addition most of the songs I wound up listening to were song I had not heard before! Why even have a music player when you have a phone? In an interesting related development, Google just confirmed that they are entering the ebook market and they will do so with a cloud model.
Decline in total revenues. I was listening to a panel recently where Thomas Hesse the president of Sony Music’s global digital business mentioned that Sony’s revenues were already about 40% from digital in the US and he added somewhat hopefully that as soon as they reach 50:50 then all that is needed to stabilize revenues is for digital to grow as fast or faster than analog declines. Tell that to the newspaper industry. In Q1 of 2009, newspaper ad sales declined by almost 30% compared to 2008 at the same time newspaper online revenues barely increased (and for some papers fell). I believe that there is a fundamental reason for the size decline that applies to both news and music. Demand is limited by attention which is more or less fixed. Supply, on the Internet, however is orders of magnitude larger than it was in a world of physical goods. The net result will be much lower prices for sure and I believe smaller total industry revenues.
Change in industry structure. Along with a decline in total revenues inevitably come changes in the major players. We are seeing that played out dramatically in the finance and automotive industries. There has been a lot of consolidation in the music industry already which has shrunk to only four majors but with the troubles at EMI it may not stop there. The consolidation is now also hitting other areas, such as talent agencies as was seen by the merger of William Morris and Endeavor. Other large players, most notably LiveNation, have also been muscling their way into the market. And even though LIve Nation has run into some difficulties, they are already a larger company than EMI in total and industry charts should really start to show performance along music sales.
Rise of the new independents. This is really just more change in industry structure, but deserves its own point because it is all too easy to focus – as in the discussion of the newspaper industry – on the troubles of the incumbents. By the new independents I mean an emerging ecosystem of artists, labels and service providers and others that have fully embraced the digital future. That includes a large number of new acts, labels such as RCRD LBL and S-Curve, service providers such as Topspin and Songkick and online discovery sites such as Hype Machine, MOG and TheSixtyOne. Sure, even collectively these are tiny today from a revenue perspective, but they are unencumbered by old deals, cost structures etc which means they have the potential for rapid and profitable growth. Now I on purpose did not include Pandora, Last.fm, Imeem and MySpace Music in this group. They are already big, but they are also caught up to varying degrees with the struggling majors. Their ultimate success will depend a lot on how those relationships play themselves out.
Wildcards. This is really number 4.5 and a placeholder since I don’t know what they might be – although I certainly wish I did! But this is the kind of situation where something might come from left field. Maybe it’s an even bigger role for games. I should have probably mentioned Guitar Hero and the like earlier. Maybe it is the rapid growth of a new revenue model, much like the rise of virtual goods as a way to monetize games.
All of these changes are of course already taking place today. I am simply saying they are candidates for surprising us with their ultimate speed and magnitude. Despite the many complaints heard along the way about the demise of music, I believe that they will also surprise us with quite the opposite: an explosion in the variety and availability of music unlike any we have ever seen before.
Change in industry structure. Along with a decline in total revenues inevitably come changes in the major players. We are seeing that played out dramatically in the finance and automotive industries. There has been a lot of consolidation in the music industry already which has shrunk to only four majors but with the troubles at EMI it may not stop there. The consolidation is now also hitting other areas, such as talent agencies as was seen by the merger of William Morris and Endeavor. Other large players, most notably LiveNation, have also been muscling their way into the market. And even though LIve Nation has run into some difficulties, they are already a larger company than EMI in total and industry charts should really start to show performance along music sales.
Rise of the new independents. This is really just more change in industry structure, but deserves its own point because it is all too easy to focus – as in the discussion of the newspaper industry – on the troubles of the incumbents. By the new independents I mean an emerging ecosystem of artists, labels and service providers and others that have fully embraced the digital future. That includes a large number of new acts, labels such as RCRD LBL and S-Curve, service providers such as Topspin and Songkick and online discovery sites such as Hype Machine, MOG and TheSixtyOne. Sure, even collectively these are tiny today from a revenue perspective, but they are unencumbered by old deals, cost structures etc which means they have the potential for rapid and profitable growth. Now I on purpose did not include Pandora, Last.fm, Imeem and MySpace Music in this group. They are already big, but they are also caught up to varying degrees with the struggling majors. Their ultimate success will depend a lot on how those relationships play themselves out.
Wildcards. This is really number 4.5 and a placeholder since I don’t know what they might be – although I certainly wish I did! But this is the kind of situation where something might come from left field. Maybe it’s an even bigger role for games. I should have probably mentioned Guitar Hero and the like earlier. Maybe it is the rapid growth of a new revenue model, much like the rise of virtual goods as a way to monetize games.
All of these changes are of course already taking place today. I am simply saying they are candidates for surprising us with their ultimate speed and magnitude. Despite the many complaints heard along the way about the demise of music, I believe that they will also surprise us with quite the opposite: an explosion in the variety and availability of music unlike any we have ever seen before.
Albert Wenger
Albert Wenger
>300 subscribers
>300 subscribers
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