How Apple is About to Reboot the Music Industry

It was almost twenty years ago today…

While that admittedly doesn’t have the punchy ring of the Beatles’ original, it sets the time nicely for two entities, Apple Computer (still to become Apple Inc.) and Jimmy Iovine, who was already building toward a post-Napster world for the music industry from artist discovery through distribution.

But first, a little here and now.

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Apple’s 2014 acquisition of Beats, co-founded by Iovine and Dr. Dre, may have created the savior the music industry has been looking for since the late 1990s.  Earlier this month at WWDC, Apple unveiled the highly anticipated, and soon to be released, music service resulting from their acquisition.

In short, Apple Music strives to combine your music library with a subscription service in a single cloud-based offering. This pits Apple against Spotify, Rhapsody, Rdio, Tidal and others in the next wave of consumer acquisition being hailed the “Playlist Wars.”

Flashback to 1999.

In 1999 Jimmy Iovine, Chairman of Interscope Records, partnered with Doug Morris, CEO of Universal Music in a startup venture called farmclub.com. Farmclub was visionary in nearly every way. It was a three-sided website with the support of a weekly co-branded TV show on USA Network. The three sides were as follows:

  1. Unsigned bands could create pages to market themselves, upload their music and communicate with fans.
  2. Fans could discover bands, download and share their music.
  3. A&R staff could monitor activity to see where critical mass was forming in order to sign up-and-coming artists or route them to the weekly TV show.

If this sounds lackluster or like standard fare by today’s standards, consider 1999 carefully:

  1. AOL was the biggest consumer ISP (still via 28k and 56k dialup modems, not broadband)
  2. The iPod wouldn’t debut for another 2 years
  3. MySpace didn’t launch until 2003 (nearly 4 years later)
  4. Music-oriented reality programming like American Idol was still 13 years away (2002)

What Jimmy had going for him was the vision, second-to-none artist-focused music industry experience and a legitimate, mainstream cross-media outlet for artists. What he had working against him was that MP3s were still geek chic, no consumer-friendly plug-and-play handheld tech (the Rio was state-of-the-art), and an uncontrollable consumer experience (it took ~10 minutes to download a single song IF you didn’t lose your connection and have to restart the process).

Back to the future… and that much needed reboot of the music industry.

The Internet heralded in an era and consumer mindset that has been called the “end of the album.” For historical purposes, it’s important to realize that even The Beatles started out in a what was then a singles driven business. While the “death of the album” is a fun debate over drinks (after all, who doesn’t want to talk about how life-changing “Wish You Were Here” was?), it’s a wasted argument from a business perspective. We’ve come full circle and are now in a world led by singles again.

Partially in the face of declining sales of digital singles, numerous “all-you-can-eat” subscription services have emerged. Tech companies in spirit, many have played to their strengths, focusing on playlist models created by algorithms or social curation.

It’s no secret that Apple has had an interest in the music industry for a long time and, while on the surface this could be seen as a defensive play to protect the leadership position of the iTunes ecosystem, there’s a lot more at stake than continued consumer acquisition and market dominance. If Apple Music is successful, it could be the much needed reboot of the music industry.

If Apple Music, by way of its parent company and iTunes ecosystem were a Big Mac, Jimmy Iovine is most definitely the “secret sauce” the competition should be most concerned about. In addition to Jimmy having worked with artists that includes John Lennon, Bruce Springsteen, Tom Petty, U2, Gwen Stefani, Lady Gaga, and Iggy Azalea over the past 40+ years, this isn’t his first foray into the post-Napster world.

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Here’s why Apple may not only lift their bottom line, but the entire industry in a way that their competition cannot:

  1. Jimmy: He’s a veteran insider with a music first and an artist forward perspective, not a tech startup focus, doing it from the “outside.” He has the industry weight, credibility and track record with artists and labels to get buy in across the industry. He’s spent nearly 20 of his 40+ year career learning, experimenting and getting ready for this play. While he was brave enough to fail with Farmclub, now he has the power of Apple behind him.
  2. Apple: The #1 paying customer base and paid digital music ecosystem, and history and credibility with record labels and artists which includes the highest royalty percentage in the industry.
  3. Subscription: In a move that harkens back to the days of FM radio, Apple Music is betting on trend-setting music tastemakers, DJs who curate playlists out of music epicenters New York, Los Angeles and London. This expert-driven music subscription with physical homes in cultural epicenters steeped in music history is their bet on the future. In addition to the aforementioned streaming services competition, paid radio service Sirius / XM also better watch out.
  4. Artists First: Apple retracted their initial plan (via tweet by Eddie Cue) to be royalty-free for the first three-months, during which the service will be free to consumers. While this was, at least in part, due to a letter Taylor Swift sent to Apple, it demonstrates that Apple is willing to be open-minded about the need to support artists.
  5. Social: Apple music provides a system that allows up-and-coming artists and unsigned acts to not only market themselves and engage with fans, but to convert to revenue, something that has been elusive for artists on social networks like Facebook (and once upon a time, MySpace).
  6. Your Music: Icing on the cake is that Apple Music is a one-stop-shop. In addition to the subscription service, all your music is also accessible right from the same app.

Although I’m skeptical that Apple will allow direct integration with my Sonos system, I’m looking forward to the free 3 month trial that starts later this month… and what’s to follow for Apple and the music industry as a whole.

For context and transparency, I led the development and delivery of farmclub.com on the Internet for Jimmy Iovine and Doug Morris in 1999-2000.

Originally published on Digital Surgeons’ blog on 6/23/15.

Google’s Latest Ad Play: Becoming A Wireless Carrier

 

Last week, Google finalized a deal to become a mobile virtual network operator (MVNO), offering consumers branded mobile services through a partnership with Sprint.

For the uninitiated, a MVNO is essentially any company that buys wholesale mobile services from a physical network operator (ATT, Sprint, T-Mobile or Verizon in the US) and repackages them for retail sale to consumer or business customers.

On the surface, this sounds like a pretty straightforward and safe model, especially for a trusted brand like Google, but succeeding as a MVNO is tricky business, and there are more casualties, including high profile brands like Disney, than there are success stories like Virgin Mobile.

So why is Google doing it?

Google is a pragmatic company, and their play is more about protecting and growing their core revenue stream (advertising) than it is about furthering Android’s already globally dominant market share. As the price of mobile services continues to decrease, and consumer dependency on smartphones and tablets continues to rise at the expense of desktop usage, mobile ads are becoming increasingly important. Despite Google’s already significant percentage of the mobile ad market, they have to be aggressive and creative about channel growth since mobile ad rates are significantly lower than their desktop counterparts.

This leads to two important, related questions…

  1. How does Google plan to succeed?
  2. What’s in it for me, the consumer?

Big Data

Google is an Internet company that makes money from ads when we consume content, not when we make phone calls, so expect big, attractively priced data bundles to facilitate increased consumer data consumption.

Tiers are Falling

We’re already accustomed to inline ads on the web, in mobile apps, etc. (unlike Amazon’s kindle with offers which places awkward ads alongside books), so Google may offer dramatically reduced-cost / subsidized tiers in exchange for additional ad placements. If so, these tiers are likely to be the lowest prices consumers have seen, and expect that the ad solution will be something much more creative than just increasing the volume of ads served.

Hyper(Active) Targeting

In addition to serving ads, Google will have access to a different level of personal information about every subscriber (name, address, credit score to just scratch the surface) for behavioral profiling and targeting. Their subscription agreement may require use of this data, or they may let subscribers opt-in for less expensive service (see above).

Predictions

Google will likely be successful operating as a MVNO, in part for doing the necessary tightrope walk to offer Android handsets on their service while nurturing Android OEMs and carriers, even though their primary play isn’t selling more Android handsets… but that’s not all.

Google will be agnostic with regard to handsets. We’re about to be in a world where iOS devices (and Windows Mobile and Blackberry too) are made available on a Google branded service, which leaves me wondering about the future Apple’s spartanly branded iPhone. I’m fairly certain this won’t work for Tim Cook and company:

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The Impact of Content Ecosystems on User Experience

 

It’s no secret that consumers want an alternative to cable. Even heavyweight HBO has responded to the call, announcing earlier this year that they will launch an a la carte digital service in 2015 (details pending). Sister channel Cinemax will likely leverage the platform, and competition will follow in short order.

Although an everything on-demand world is amazing for the instant gratification the Internet has provided, it requires a significantly different way of thinking about programming. It’s a great benefit that we no longer have to know a program schedule (or set a DVR to record a whole season, etc.), but all these channels we want on an a la carte basis are dependent on some kind of hardware to deliver them to your television, and the agenda of the hardware manufacturers is where some important issues arise for the consumer.

On the surface, the aesthetic interface of all these devices (Amazon Fire TV, Apple TV, Roku, etc.*) is very similar. Channels represented by square-ish buttons, which reveal scrolling bands containing that channel’s content, etc. Scratching beneath this mostly interchangeable veneer reveals some pretty drastic user experience implications based on the business model of the device manufacturer:

Amazon Fire TV: By design, this is another Amazon cash register designed to get you to all things Amazon first. Despite the box implying that there’s a ready-to-go suite of 3rd party channels (e.g. Hulu, Netflix, Showtime, etc.), you have to find and download them. This isn’t difficult, but they are buried in the “Apps” menu… hardly the most obvious place to look for what people currently think of as a TV channel. Once added, they become part of a seemingly useful “most recent” band of items near the top of the screen, but in a world of on-demand, how relevant is the last channel viewed being at the top? There’s also a top-level search on the Fire TV, which was initially promising, but searching for “Homeland” only reveals purchase options via Amazon, a complete miss from a Showtime subscriber’s perspective.

Apple TV: Not surprisingly, Apple TV is centered around their iTunes ecosystem. True to form, they also control what third party services and channels are available on deck, and their order. As a long-time Apple user, I’m not going to debate Apple’s control of what’s on their devices, but controlling the order certainly cripples and for some probably kills the user experience. The problem is that the order is clearly the result of business deals, not a focus on users (e.g. channels or services individuals don’t subscribe to or care about should be removable, or at least moveable to the bottom). The only presumable benefit of a dictated order is that one becomes familiar with what channel is where, but that starts to feel like a one-size-fits-all cable lineup, not like any of Apple TV’s iOS sister products.

Roku: Until the supreme court ruling against Aereo, Roku was probably the lead contender for actually being able to cut the cord and not look back. Roku is the most flexible of the three, with literally 1000s of services and channels that include pretty much everything except iTunes. Granted, nobody would need more than a couple of dozen on the high side. And while M-GO has prime placement for movies because of a revenue share deal, even that doesn’t box a consumer in. One of the nicest feature is Roku’s top-level search, which actually looks across all subscribed services and channels (in addition to M-GO), and gives results that include the cost from each. The order of the channels is also editable, which is useful since most of us are, ultimately, creatures of habit.

A key (theoretical) benefit of cord-cutting from a consumer perspective is the ability to quickly find and watch desired content which, likely to the distaste of individual channels and services, isn’t led by a channel’s brand. Although it’s early in the game, what’s happening so far is more akin to trading out a cable subscription for a device whose manufacturer has their own “me first” content agenda appended with a la carte services. Using the “Homeland” example above, what matters to a consumer is that they are able to get to the content intelligently from the top level of their device of choice, not have to navigate to it by channel hierarchy or pay for it again if they already subscribe to Showtime.

To some degree, there is a parallel to how the music industry responded to the (pre-Napster) wild west days of web 1.0. Record labels thought they could go direct to consumer by delivering music online, bypassing retail record stores. It didn’t work because even a band’s biggest fans don’t typically know what label they are on. The difference here is that the channels are being delivered by third-party devices that still choose to organize content primarily by channel. To be clear, it would be foolish to lose channel branding entirely, but it is becoming less primary and should evolve into an optional organizational method for consumers that lives somewhere underneath a global search-based design.

Unfortunately, as channels begin to offer a la carte subscriptions independent of cable subscriptions in 2015, the main user experience change cord cutters are likely to see is a separate bill for each service and channel. This is for two reasons: there’s a hard cost in device manufacturers aggregating subscriptions (which will have consumers crying foul in no time), and there’s a conflict of interest with each hardware manufacturer’s content ecosystem.

* Google Chromecast was intentionally left out, not to imply it isn’t a significant player, but because I haven’t personally used one.

Remembering Steve Jobs: In the Words of Children

We’re extremely sad to hear of Steve Jobs‘ passing. He’s directly and indirectly touched so many lives around the world (most definitively everyone in our house).

We think the innocent wisdom of our children may have captured it most poignantly when they overheard us talking and watching the news:

Julia (5): That’s terrible. I wish he didn’t die so he could keep making cool things.

Rachel (8): Is there someone who will carry on?

Tim and team, while the world will never be quite the same, we offer our deepest sympathy, and hope you continue to think different as you do carry on, both for Apple and in Steve’s memory.

Sincerely,

Robert and Svetlana Lasky

Authored on my iPhone