Digital NARM - Day #1 Overview

As you might expect, yesterday’s panelists at Digital NARM expressed concerns about the present and future state of digital music. But despite these challenges, there seemed to be quite a bit of optimism for the industry’s future. Some of the key challenges discussed:   

Pricing -  Everyone on the “Digital Landscape” panel agreed that consumers are sensitive to price. David Pakman and Rob Wetstone of eMusic stated that music prices are facing downward pressure in both the online and mobile spaces as the prices of other entertainment like video games and DVDs declines. Greg Scholl of The Orchard was adamant that music is currently priced too high at $0.99/track, and that the industry will have to experiment to determine what the appropriate price point is.

 

Finding sustainable business models - Brad Duea (Napster) explained that the a-la-carte download model doesn’t provide much margin for sellers and isn’t economically attractive to many buyers. Simon Renshaw of  (Strategic Artist Management) and others suggested that subscription is the model of the future. However, Pat Rains (Patrick Rains & Associates) noted that we haven’t seen a subscription model yet that works financially for all parties.

Steve Jang spoke a bit about Imeem’s attempts to monetize attention and share ad revenue with artists and labels. But according to Duea, Napster’s...

ad-supported Free service is not yet economically attractive from a business standpoint, despite interest from consumers and advertisers. 

Scholl, Pakman and Bill Carr (Amazon) all stressed that the industry must experiment with new models, see what consumers like, and then figure out the economics from there – and that it doesn’t work when content owners demand certain economic terms before the experiment begins.

Music discovery -

Discovery remains a challenge for consumers and retailers, particularly in mobile where search capabilities have been limited by handset designs. In the online space, there remains debate about which recommendation algorithms are most effective, and at what point promotional activities like free streams cannibalize sales (if at all). Matt Adell (Napster) also cautioned that different consumers prefer different amounts of discovery, and that it is possible to overwhelm certain users with too much recommendation.

SOME BRIGHT SPOTS FOR THE FUTURE 

The market will grow  - Greg Scholl sees a lot of latent demand for digital music that is not being stimulated at the present. He believes music companies are still learning how to market to niche audiences, and once they do, revenues will go up. Trevor Madigan (Nokia) also pointed out that much of the world is still without the infrastructure (broadband, PCs, credit card penetration, etc.) to support digital music. As these populations come online, the market will expand.

Music discovery will improve -

The “Mobile Movement” panelists stated that mobile search will dramatically improve in the near future and that social networking applications for handsets are on their way. According to Jonas Woost, Last.fm’s experience with full-length streams is one example of how improvements in discovery can drive sales.

 

New products and services can drive revenue up - Kevin Arnold (IODA) expressed confidence that people will pay for a convenient, valuable music-acquisition experience. Ted Suh (9 squared) reported that while ringtone sales have declined, ringtones bundled with digital tracks have seen an increase in sales. And David Pakman identified content like bootleg live recordings, which are currently being consumed in large quantities, could be brought into legitimate distribution chains and monetized if ownership rights and other issues can be sorted out.

What do you think about the panelists’ comments? What do you think the future holds for digital music? - Laurence Trifon