Consumerless Recovery: Music Revenues Are Up But Is More Pain Coming?

News this week, for once, was positive for the music business. The RIAA released its report for the first half of this year and there was an eight percent growth in revenues over the same time 2015, thanks to subscription streaming. At long last, after years and years of losses, we’re finally on the other side of the decline and now we’re going to see a huge run up of revenues as the industry continues to grow like gangbusters. At least that’s what you’d think from the headlines. I agree: it’s a good result. But there are also troubling signs in the numbers.

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Source: Recording Industry Association of America

You see, while revenues are up, the number of people who buy music has steadily fallen for the past decade. According to MusicWatch, a music industry research firm, the number of people buying rebounded a bit in 2015 to 85 million, it’s still significantly down from the buying population 10 years previous.

Not all consumers are created equally. Over the years the average consumer spent around $50 a year on music. Sounds pretty good, right? Well, the average consumer only about about 1.5 CDs a year. So how is that possible. Well, there was small number of consumers who bought 10 or 20 times what most consumers did. I used to see this all the time in line at my local record store. I’d be wondering if I should be buying the 10 CDs in my hand on my meager first job salary (the answer was no). Meanwhile, the woman in front of me was buying the Debbie Gibson CD for her daughter. It most likely was the only CD she’d buy all year.

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Sources: MusicWatch and U.S. Census Bureau                     Music Buyers in Millions

This has all changed in the subscription era.  We’ve flattened that curve between the casual buyer, who only bought Adele’s 25 last year, and that obsessive-compulsive music nut who happily subscribes to Spotify. Sure, the nut is still spending much more than casual fan. But at $10 a month, it’s capped at $120. And yes, the music nut might also purchase vinyl, buy up posters at Flatstock, and attend music festivals, but they don’t have to pay more for all that music. Many super fans I interviewed to while working at a streaming service thought they were getting away with something by only paying $10 a month.

The theory of the streaming era is that we’ll produce so many more subscribers, that we’ll make up the difference in revenue. But thinking that casual fan will pay twice as much as the average consumer spends is fairly flawed logic.

Especially when one considers how people are listening today.

 

Based on MusicWatch’s recent audiocensus report, more than 70% of all listening today is on services that are free, like Pandora, YouTube, Spotify’s free service and iHeartRadio. Because when faced with the choice of $10 a month for something they use rarely or free, casual fans choose free. Duh. Hence the massive decrease in the percentage of buyers.

Much like how the U.S. economy recovered in the years after the housing market collapse, but only with many fewer jobs, the music industry is recovering. But with many fewer customers. And the pain is just coming. Compact discs may only be a shadow of its former self, but there were still 38 million CDs shipped in the first half of this year. Question: when was the last year you bought a device that can even play a CD? While vinyl and even downloads have a purpose and will maintain some attractiveness, my contention is that CDs will go to zero. This, my friends, is a problem.

So what can be done?

Perhaps address the product itself. Streaming services main use case is access to all the music. While it’s great for the fan that knows what she or he wants to play, it causes more problem than it solves for the casual fan. After all, how many times do you sit at your computer and not know what to play next. Even with 30 million songs only a seconds from a search.

Considering after all these years peddling subscriptions to consumers, we now have a total of  18 million subscribers in the U.S., I’m sure it’s safe to say that the $10 all you can eat music subscription isn’t the product for anything but the super fan. Will there be more growth? Yeah, sure, no doubt. Can it grow to 50 million? Doubtful.

So what about lowering the price, which has been bandied about as a cure all? Beyond the fact that rights holders won’t budge on price, it probably is the wrong product for those who like to listen occasionally. “Casual fans have different needs than super fans and may be fine with a more basic experience,” Russ Crupnick, managing partner of MusicWatch, told me via email. “So converting them to paid requires a different set of strategies and tactics. Lowering price alone won’t automatically convert them into super fans.”

Last week Pandora announced improvements to its free service as well as Pandora Plus, a product that merges a few on demand features, like more skips and the ability to save tracks to the phone for offline use, to its core experience. Can the new product as well as Amazon’s planned subscription service, which apparently will share Pandora Plus’s $5 price, help? Perhaps.

But those are just two ideas. In the world of product development, it takes many attempts to find the perfect product market fit that people are willing to pay for. Licensing two and saying ‘okay, we’re done,’ is not going to cut it. It took 15 years, a handful of flopped companies and at least a couple hundred million in funding before AYCE streaming services finally produced a billion dollars in revenue. My guess is that it will take years to attract the casual fan. Fact is, we’re going to need wave after wave of ideas to grow customers again.

Variety: Music Streaming Wars: Consolidation Looms as Lower Prices Kick In

Music Industry Blog: Have Spotify and Apple Music Just Won The Streaming Wars?

 

 

Jon’s Top 10 Product Mistakes

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Who said anything about commandments? I’m talking about mistakes!

Mistakes. Yeah, I’ve made a few. Anyone who spends any time managing product teams has as well. It’s part and parcel of doing the job. And I’m not talking about the vaunted Failure Culture that we all aspire to create, where we embrace our failed product attempts as heroic learning opportunities. I’m talking more about the operational ones that can stall productivity, sag morale and halt a team cold in its tracks.

We’ve all been there. Here’s a few of the issues that I’ve seen over the years and a few solutions.
1. A lack of trust leads to broken features, releases and team commitment. A team that doesn’t work correctly isn’t going to function correctly. Period. 

2. When I say a lack of trust, I mean Product Managers not trusting Developers to build the product the right way and developers not trusting PMs to define the right product. And if that relationship is broken, it most likely will emanate throughout the whole company.

3. If you don’t have trust between PMs and Devs, you can forget about shipping great products. Or even good ones.

4. The concept of the Minimum Viable Product works. But teams forget to define what Viable means. It’s a great idea to create the smallest amount of features and software to test a theory. But far too often under developed ideas get shipped and you cannot discern if it was the idea or the execution. If you spend a lot more time in early stages figuring out what viable means for your users, you will alleviate this issue.
5. A good product process is an insurance policy against wasting time and resources. It does not mean you will ship a product that succeeds. That’s something else entirely. You’ll need to go a lot deeper to get to great ideation.
6. No matter how much you say it, people just want to build a product for themselves. Fighting this is the most important job a PM can do.
7. If you hear team members say ‘That’s not the way I use the product’ it means that your PM is failing on number six. 
8. If you hear ‘That’s not the way I use the product’ from your PM, you’ve got a very serious problem. If a PM has had experience running a product that she or he has no interest in it–or even openly dislikes–it can help mitigate this issue.
9. You don’t get credit for ideas. Only products and features that you shipped. You don’t get glory for stuff that you shipped. Only products that perform. Product isn’t a thinking and doing job. It’s a performing job.
10. If the team isn’t performing, consider changing your PM. While not always fair, it’s the PM’s job to get that performance out of team. Think of a PM like a manager of a professional baseball team. When a club struggles it replaces the manager because you can’t replace the other 25 members of the team. Same thing with the PM. It might not even be the case that a PM is doing a bad job. It could be you just need another voice that resonates with your team.
I'm going to make you an offer you can't refuse

Welcome To The Content App Era

Good news! We’re starting a new epoch in the titanic shift technology has foisted upon content creation and consumption. No longer are we stuck under the thumb of huge behemoth companies like Spotify, Facebook, YouTube and Pandora. Those dinosaurs are on their way out.

Oh what’s that you say? ‘Jon, have you been sniffing glue again? YouTube is flexing its muscles and bossing around creators. Didn’t you see the headlines about how poor Zoe Keating is being so mistreated?’ Yep. I sure did. And I say good riddance. Because it is done. Kaput. Collapsing. Sure, maybe not today or in the next couple years. But when bullies like YouTube start dictating insane terms to artists, it forces creators to look at different ways to distribute their work and that creates new opportunities. And companies are already starting to sprout up to take advantage.

Just last week the startup Vessel announced a new model designed to provide a much larger percentage of revenue for content creators than YouTube offers. Of course Vessel must build audience to create big buckets of revenue, which is far from a simple task. But as Peter Kafka of Re/code reported, Vessel is offering a much better experience, including a new advertising product that might mean the end of the dreaded video ad pre-roll. Vessel’s CEO Jason Kilar has long wanted to improve the experience for both viewers and advertisers, which is way overdue.

And Vessel is just the start. We’re at the beginning of the Content App Era. Just like how industries have been affected by the tech boom, there will be a phalanx of highly focused content apps of all different kinds to take on the big guys. In music this phenomenon is already taking shape with the recent launch of the Christian focused Overflow app.

Are all the upstarts going to succeed? Absolutely not. Most will fail spectacular. But a few will find the right audience with the right content and product innovations. They’ll learn from their mistakes, get smarter, and start making more money for creators. There will be a healthy competition for best content and talent. So sure, we’ll still have the big guys, at least for some time. But all these small players will throw enough stones at these monsters until they become a shell of their former selves.

An example of how this might go? Take a gander at broadcast television. For decades, three players dominated ratings. Nearly all Americans watched CBS, ABC or NBC. Advertisers paid a massive premium to reach, well, everyone. And then the audience started to erode away as all kinds of options for casual time came on the scene. Nowadays consumers have the choice of cable, satellite, Call Of Duty, Netflix, Crunchyroll, and hundreds of other services.

So what can these Goliaths do? How about starting with fair policies? YouTube grew monstrously big by ripping off all the video content in the world and allowing their audience and creators to remix it. Its popularity built a massive reach. Now it’s taking that audience hostage by demanding creators grant the company most favored nation status in order to get access to Content ID, which–as a reminder—was first designed to allow creators get at least some compensation for the videos that YouTube users posted without paying creators in the first place. It’s like YouTube is saying: help stop us from stealing your life’s work by just giving us all your life’s work and get paid whatever we decide. That’s some Orwellian logic.

I’m sure as a business school case study you’d get an A+ for devising such a brilliant strategy. But in terms of real life business ethics, it is unconscionable.

More News About Bullies

Music Industry Blog Zoe Keating’s Experience Shows Us Why YouTube’ Attitudes To Its Creators Must Change

Stratechery Dear Zoe Keating: Tell YouTube to Take a Hike

Hulu Blog The Future of TV