About six years years ago, David Goldberg (then GM of Yahoo Music) made a pronouncement that a la carte downloads were dead. Yahoo Music was the purveyor of a very ambitious music subscription service that has been gone for almost 4 years. At the time (circa ~2006) iTunes was advancing incredibly fast and proving itself to be the dominant online music retailer. The term “cloud computing” was not a common phrase (note: the first occurrence of “cloud computing” is arguably August 2006 by Eric Schmidt of Google). Spotify was just a dream. Rhapsody was going strong. Napster had launched its legal subscription service to great hoopla but slow adoption. Though I seriously questioned David’s pronouncement back in 2006, I find myself re-examining it in light of all the “cloud” and subscription services now being offered.
As everyone knows, the general debate in the music business is “access vs. ownership.” The major prediction is that users are not going to want to purchase music as long as they have unfettered and unrestricted access to it. Such access can be in the form of the cloud that let’s you play your music from any connected device. It can also be in the form of an “all you can eat” subscription service that hopefully has all the music that you want to hear.
First, what is “The Cloud.” This was formerly (and fondly) referred to as the celestial jukebox. It refers to services that allow you to access all of your music from any device wherever you have Internet access (i.e., either thru wireless, wired or wi-fi). Cloud services are offered by major music retailers such as Apple, Google, Amazon, etc. They can also be offered by third party services such as the beleaguered MP3tunes.com. In most cases, they will learn/upload your offline music catalog and then offer it back to you via an Internet connection.
Aside from ubiquitous access to all of your music regardless of your device’s storage, a major advantage of the cloud approach is that most of these services include applying a uniform, upgrade in audio quality. For example, if you ripped some tracks from a CD at a lower bit rate (to reduce the size of the file), most cloud services will match it to a higher quality version on their servers and play it back at the higher rate and better quality.
Since a cloud service relies on having an offline music collection that you want to access anywhere or any time, it can be considered a derivative of the a la carte method of consumption.
Opposed to this are streaming and subscription services that try to get the largest catalog possible so that you can always find the music you want. They need to strike deals with as many labels and distributors as possible in order to ensure that a listener always finds the music they want. While most streaming services have done very well, there have been some very public gaps in coverage for freemium services such as Spotify. It’s quite possible for an artist to be one service and not on another.
I have to agree that both offer a tremendous value to the music consumer. Personally, I enjoy checking out a new artist by visiting Rhapsody, Rdio or Spotify. It is highly unlikely that any new artist will not be found on one of these services. I can easily listen to entire albums or “best of” playlists while I am discovering new music (or, at least, new music to me). Then, if I want to permanently add it to my collection, I can choose to buy it from these services or switch to dedicated a la carte service like iTunes, Amazon or eMusic.
On the other hand, as a music distributor, I often have a ton of unreleased music in my music collection. With a cloud service, I can access all of this content (provided that it is not encoded as a wav or aiff file) when I am away from my computer. This is incredibly useful for me. It allows me to be completely spontaneous about my listening habits.
So what is a music lover supposed to do? The cloud or the stream.
As I ponder this question, not only do I have the famous Clash song “Should I Stay...” stuck in my head, I wonder what the average music consumer does. It is very easy on both coasts to forget about middle America where broadband is still nowhere close to 100%, where CDs are still being sold and where “subscription” or “clouds” are more associated with Sports Illustrated and weather reports.
Adding to my growing befuddlement are recent statistics showing that a la carte purchases are not dead. Recently Digital Music News had a great chart culled from RIAA data.
(source: Digital Music News)
Adoption of subscription services are definitely rising albeit slowly. A la carte sales continue to rise steadily even though subscription services could easily be presented as a much more bang for the buck. As you might imply from this chart, streaming and subscription revenues have not caught up with the a la carte revenues. Certainly, they have become a significant percentage of income for distributors such as BFM. However, in comparison, a la carte revenues are still the predominant revenue stream by far.
One thing that I find troubling is that that even Internet juggernauts such as Sony, Yahoo and Microsoft have all had great difficulties launching and sustaining subscription services. Microsoft’s Zune seems to be making progress lately. But it may not be enough.
The greatest concern about streaming and subscription services is that may cannibalize download sales without replacing the lost income. To date, several prominent labels and distributors (BFM included) have analyzed the data. All of the analyses indicate that this is not happening. Subscription and streaming services are proving to be additional income to the still-growing permanent download market.
Spotify has been the only one to have moved the meter, in my opinion. And still, it’s not a terribly significant portion of the overall music revenue. It is questionable if business models like Spotify can be sustainable in the long term.
A recent eMusic / AIM study conducted in the UK produced some intriguing stats. 87% of those surveyed still preferred the ownership model versus the streaming model. The reason being that there is still great doubt about the stability of streaming services and music consumers are worried that their virtual music library could suddenly vanish if the streaming company goes out of business.
So, can subscription services beat a la carte downloads or, even, The Cloud? Who will prevail?
To me, the answer is simple…No and no one. Different strokes for different folks and some of the folks may use both. To think that the bulk of consumers will substantially go one way or another is highly unlikely. If you look around, there are plenty of examples of polarized opposites. A few come immediately to mind: car leasing vs owning, free vs. pay TV, VOD vs. movie theaters, monthly subscriptions vs. annual fees, etc.
The music business may be headed for a predominantly digital world. But that does not obviate the need for a wide variety of consumer options that can exist concurrently. In my personal world, I love the combination of a la carte, subscription and cloud services. Together they fit a need that, individually, would leave gaping holes.