Consumers want more music than ever, yet monetizing that appetite has never been more difficult. The typical music fan carries hundreds or thousands of songs on an iPod, iPhone, or other portable. Online, the same fan frequently gorges on a buffet of free singles, and offline, purchases far fewer CDs than before. That is great for hardware companies like Apple and broadband providers like Verizon, though major labels are facing dire financial difficulties.
The greatest carnage has been focused on the recording, though even publishers are feeling the pinch. Major label group balance sheets frequently reveal flat or slightly declining publishing revenues, thanks partly to decreased mechanical royalties on CDs. Meanwhile, the quest to monetize online has been brutal, and most operations either lose money, or barely shave a profit.
The iTunes Store has sold more than five billion downloads since 2003, but the real money for Apple has always been in ha! rdware. Meanwhile, almost every other online store has been marginalized and punished with weak volume. On mobile decks, the story on ringtones continues to ebb - at least outside hyper-markets like Asia. On an aggregated level, digital has failed to cover the monstrous void left by sinking CDs.
So, why won't they buy, at least in the quantities required to sustain a meaningful recording industry? One analysis relies on simple economics - alongside free, a slightly-better product is positioned for 99-cents, $14.95 a month, or something in-between. That makes it difficult to sell more straight-ahead music experiences, though shift contexts, and the story changes for assets like ringtones and in-game downloads.
Outside of the obvious pricing issues, a 99-cent download or monthly subscription may simply be a dull purchase. "What we've seen with all these different models is that music by itself doesn't quite hold water," said KamranV, head of CyK! iK, during a Digital Hollywood panel in Santa Monica on Thursd! ay.
That echoes sentiments from other executives, including VCs. In a discussion several months ago at the SanFran MusicTech Summit, Tim Chang of Norwest Venture Partners noted that more attractive startups frequently wrap some "bling" around their music content. "A ringtone is worth money because it expresses who you are," Chang said. "An MP3 is worth nothing because it's a static piece of content."
Of course, it all starts with a song, though other industries may have some lessons for music. According to Bill Crandall, music vice president at AOL, the music industry is often hyper-focused on massive song catalogs and direct listening experiences, an approach that only addresses a narrow usage scenario. "It's not just about putting headphones on, leaning back in your chair, and listening to Dark Side of the Moon," Crandall said. "Look at ESPN, how they built an industry. It's not just about watching games, it's people talking about sports and creating ! this bigger relationship."
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