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Jay Frank: What Does iCloud Really Mean For Music?

image from www.google.com Jay Frank is the SVP of Music Strategy at CMT. His book and FutureHitDNA blog are must-reads.

After Apple’s announcement of the iCloud, my instinct, as always, was to write an immediate reaction piece on “what it means”. Yet, the more I thought about it, the more thoughts popped in my head. The more I discussed this with friends, the more angles I arrived at. When I summarized the pros and cons in my head, I came to this conclusion:

The iCloud will have a minimal impact on the music business. 

The iCloud revenues will start out as additive. Given historical data, the “cloud” concept has not taken off like wildfire and will likely just be an option some people do. The most mass comparison I could think of was Google Docs. According to Alexa, only 1.4% of Google users use Docs. Another 0.7% use the Spreadsheets. That’s approximately a 2% adoption rate on a service about to celebrate its 7th anniversary. On a service that’s mostly free.

This leads me to presume that the small percentage of people who switch to iCloud won’t replace their other methods of music consumption. Remember that in the first Napster wave of 1999-2000, people were boasting of statistics that suggested those users of piracy were actually buying more music than the average consumer. If this is true, then one could expect an iCloud user also still buys downloads, CDs, limited edition 7” vinyl, and more.

Some of that revenue, however, will be offset by iTunes Match, the feature that scans your library of previously purchased tracks and puts them in the cloud. One of the things that has perennially kept the music business going is repurchasing of music people already owned. Maybe the vinyl was too scratched or the CD got lost or the hard drive crashed. Now, with iTunes Match, the hardcore music fan won’t have to repurchase anything, resulting in lost revenue for the labels.

Other revenue may be offset by the confusing message the cloud may send about piracy. Jeff Price of Tunecore is correct that iCloud can monetize pirated content from these specific users. However, these same users may take subscription to the iCloud as a license to pirate, which it is not. Piracy is, and remains, illegal. If a person who has some pirated content in their collection subscribes to the cloud and then proceeds to pirate at a more aggressive rate, the monetization becomes a wash. While true, Price’s statement about monetizing piracy actually becomes dangerous and may unwind some ground gained on education of this subject.

What is important to recognize, however, is that these types of offerings in bulk will be what saves the music business. Watch Digital Music News’ 10 Years Of The Music Business and visually see how the most dramatic impact of the last decade has been a shift from revenue in one format to revenue in multiple formats. Cloud technology will become one of those thin slices of the pie, but it won’t be the pie.

Storage of music just isn’t a concern for most music consumers and never has been. Those people have been perfectly satisfied over the years with one modestly sized storage unit that would never be filled. Even the suggested growth of iPod storage hasn’t changed that with most people failing to come close to maxing out their memory. This lack of interest in storing music also explains the meteoric rise of free streaming services like MySpace 5 years ago and YouTube today.

The bigger story should be the growing view amongst teens that ownership (legal or otherwise) is not necessary. The growth area of the pie is in this regard, with some musicians claiming that YouTube is becoming the 2nd or 3rd biggest revenue source for their recorded music income. Spotify’s success in Europe also suggests that there is a successful model for subscription music as more people grow up without caring about ownership.

So should a label sign up for the iCloud or opt out as indie label Numero has? In my opinion, there is no foreseeable risk to opting out of the cloud. At the same time, there’s likely no huge financial upside either, as revenues will likely grow to around 1% of recorded music revenue. Yet that’s the very reason to sign up, because the music business of the future is going to be collecting a lot of checks that are 1% or even less to make the financial whole of a project. This is a reality to get used to more than where the music will be stored.

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