Jay Frank: What Does iCloud Really Mean For Music?
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.
My younger employees don’t care about owning music as a product. They stream Rhapsody all day at work, where they don’t have to pay for it and they cue up playlists on YouTube when they listen to music in the evening. They don’t make mix CDs for parties, they DJ YouTube clips. They love Rhapsody and if something is missing from that streaming catalog, they download it elsewhere.
Jay,
Storage won’t be the driving value proposition. It’s all about moving up the music manipulation curve (http://bit.ly/cQGUBH). The easier it is to manipulate the listening experience, the greater music consumption will be.
As for adoption of cloud services, I look at metrics like Shazam (4,000,000 tags a day and growing like crazy),and the adoption of smart phones as leading indicators.
My guess: cloud based consumption will be more than significant within three years.
Cheers,
Bruce
Cloud consumption will be significant. But cloud consumption will mean paid subscriptions, storage lockers, free audio services, free streaming services, etc. The point is that storage lockers will likely not dominate, but will just be one more piece of a fragmented pie.
I think a certain percentage of consumers will be turned off by the level of data mining that Apple will inevitably do. They will be able to track what songs are listened to, by whom, and thanks to GPS-enabled devices, where they’re being played.
This may sound like tin-foil hat talk, but don’t think for a second Apple won’t try to mine as much data from this service as they possibly can. The privacy implications are something that should be discussed. And people are paying $25/yr for the privilege of having this information collected.
As companies whose main focus lie outside of the music business continue to drive the currency value of music lower and lower, it will be the artists who suffer the most in the end. And any industry that allows the creators of that industry to suffer will eventually lead to that industry suffering.
It’s conversations like this that make me think that even if they’re weren’t file sharing sites out there, we would still see a decline of sales in the industry. Why? Because Youtube would still exist. Kids and teenagers, who don’t have a lot of money (or any), would do exactly what I would do if I had the Internet as a teenager… they would go to Youtube to play and discover new music.
So yeah, as I’ve asked before, what’s the big deal about cloud? We already have a percentage of consumers who can get their music fix for free legally, a percentage that gets it illegally, and a percentage that doesn’t care about limited storage anymore. The Cloud even has a humungous draw back if you ask me… you can only access your library if you have a connection. If you take the subway, find yourself in most basements, or are traveling and have no signal you’re out of luck. Sorry, but I NEED my music wherever I go because that’s the one constant I’ve grown used to even after changes of music media storage… I can listen to my music anywhere.
The Cloud is too little, too late.
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I really enjoy this article, is very well written, and makes a few very strong points. Youtube does dominate, and will continue to dominate as longs as its free and people don’t have to go thru loops to play music, you type in what you want and press play. There is no, please subscribe before you play, or take a trial and then pay a monthly fee or anything like that. Spotify and facebook are talking about having a partnership where spotify would be added to facebook. That could potentially have a great impact on the music. But lets face it the cats out of the bag, and a lot of people won’t pay for music ever again regardless of what the industry tries.
Jay, great post. Bottom line to me is iCloud, Google Music, et al, are solutions to a 2001 problem. Spotfiy/Rhapsody/Mog/Rdio are something worth getting excited about from a user + revenue perspective…but YouTube streaming is the elephant in the room.
That’s b/c the younger generations are being raised as communists. They don’t understand economics and don’t care, so when they hear the words “free” and “unlimited”, they just jump on board. The dire effects that this will have on the quality of music doesn’t matter b/c newer and crappier music is marketed to the young, who are the most impressionable since they don’t have a clue.
They’re communists who are happy to pay for an iPad, iPhone, or iPod. Regardless of income, those expenditures are essential to them. Apple will capitalize mightily off of music seeming free. Now these kids will need all of those products with more storage capacity – always.
Sure. It may seem contradictory, but communists are full of double-standards (just look at the ones that live in mansions).
Anyways, the engineers will get paid for the hardware and software, and thus have incentive to improve technology. This is fine.
The musicians who create music (that becomes such an integral part of one’s life just as much as those devices) will not get paid. So if there’s no incentive to make music, then the quality has to keep on going down.
Plus, Apple having a monopoly over the music industry should be a scary thought in itself.