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.

A Christmas Gift From Elon Musk

 

December 25th is generally a day that companies and brands avoid making big announcements… for fear they will be lost in either the noise of the holiday or missed entirely as people “tune out” to be with family and loved ones.

But Elon Musk doesn’t do anything by anyone else’s playbook.

On December 25th, Elon tweeted the following:

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This tweet did several things to strengthen both the Tesla and Elon Musk brands:

  1. It started a viral swell, setting the Twitterverse of Tesla enthusiasts on fire with speculation of what was to come
  2. It ensured Tesla’s formal press release would be rabidly consumed and analyzed word-by-word for additional clues
  3. It created even more loyalty with his already passionate customer and fan bases

Let’s be honest, announcing an upgrade to a car isn’t really news in itself, so it’s important to understand the larger context. The Tesla Roadster is a vehicle that hasn’t been in production since 2012, making it clear that Elon’s tweet was just a sheep costume around the wolf.

On Christmas day, Musk was really firing a warning shot across the bow of every automobile manufacturer, indicating that the days of producing a vehicle and supporting it merely through a warranty (and recalls) are over. To be seen is whether he also initiated a change in the mindset of consumers toward a model where existing vehicles will be upgraded incrementally with new technology, prolonging the new car purchase cycle for many consumers.

While this may seem counter-intuitive from an automobile manufacturer’s perspective, it actually stands to benefit manufacturers and consumers alike:

Manufacturers

  • New technology innovation, which is expensive, can be partially subsidized and even turned into a high-margin revenue stream, by offering upgrade packages to vehicle owners
  • The support window for older (or multiple) platforms can be shortened as newer technology is adopted
  • A deeper relationship (brand loyalty) with consumers can be better fostered through a long-term product view
  • Relationships with dealer networks who do the upgrades are strengthened by the new CRM and revenue opportunities this creates

Consumers

  • Technology upgrade packages can improve the safety, range, MPG, eco-footprint, and other aspects of existing vehicles without the full expense of replacement
  • Upgrades may slow down (or change) the way in which automobiles depreciate in value
  • Upgrades demonstrate manufacturers are committed to relationships with their customers for the long haul

Although it’s not a 100% parallel, this is evocative of Apple’s model of selling hardware and continually offering a better experience over its life through software upgrades (e.g. iOS 8 keeps an iPhone 5s relevant in a world of iPhone 6’s). Operationally, it also allows them to be more streamlined by limiting the number of legacy iOS versions they have to actively support.

In case there’s any remaining doubt about Elon’s intention to further disrupt the automobile industry, the closing line in Tesla’s December 26th press release makes his intentions very clear:

We are confident that this will not be the last update the Roadster will receive in the many years to come.

Perhaps “A Call to Arms for the Automobile Industry” would have been a better title. Either way, I expect this will prove to make a happier new year for some, not others.

Viosk – CMO Club Labs Presentation

 

March 25, 2014 — As the Interim CEO of Viosk, I was one of five hand-picked startups invited to present at The CMO Club’s annual Innovation and Inspiration Summit in New York. I am proud to say that Viosk won the event (no that’s not me in the video thumbnail, but the video will start at the beginning of my presentation).

The cameraman didn’t cut over to the screen the audience saw during my presentation, so here’s what was on screen:

Viosk is a simple to use video creation platform designed to create high-definintion animated business video in minutes. If you can make a deck in PowerPoint deck, you can produce video with Viosk… Really!

Netflix vs. HBO

netflix-vs-hboJanko Roettgers published an article “Netflix exec: HBO would have many more customers if it sold online-only subscriptions” earlier this week on GigaOM in response to David Wells’ (CFO of Netflix) statement at a Goldman Sachs conference that HBO should be more like Netflix (read: direct to consumer) to grow. Frankly, it’s not that simple and, coming on the heels of Netflix’s recent original programming award wins, this smells a little like a PR play for Netflix to draw a comparison with HBO, especially as Well’s made another comment (unmentioned in the GigaOM article, but reported by Cynopsis) at the same conference that “We [Netflix] would love… to be available via the existing device in the home, which is the set-top box.”

Netflix doesn’t have the legacy business model (or related nuances) to consider in making such a broad statement, whereas HBO has an established and profitable revenue model, one which offering subscriptions over the Internet would, at a minimum, disrupt. Not something to do lightly.

HBO’s stance of having “no plans to sell subscriptions directly over the Internet,” it’s at least partially posturing due to the MSOs having anticipated content owner’s potential desire to go direct to consumers in their carriage agreements. Most current agreements have “most favored nation” clauses that, in short, mean MSOs don’t have to pay the network more per subscriber than any other outlet they offer their service on.

Considering Netflix subscriptions hover at around $8 a month, that would be considerable lost revenue for any premium cable network. For a network like HBO, this means that they would have to immediately exceed their current subscriber base just to match their current revenue. Unless HBO were taking on significant water in their current model, there’s little immediate incentive for HBO to take the risk.

MSO deals also allow the stronger network brands to negotiate carriage for sister and child networks, something that may very well get lost in an online / direct model. And for networks with advertising, it’s even more complicated because, if they don’t hit their subscription numbers, they negatively impact both of their primary revenue streams, subscription and advertising.

HBO is already on the forefront of TVE with HBOGo and MAXGo, both as apps / services and via their on deck positions on products like Apple TV. From a consumer standpoint, a direct offering give that an online subscriber online access, but they now have to stream to their television (Apple TV, Roku, etc.) because if MSOs aren’t making any revenue on the subscription, they certainly aren’t delivering it via cable or satellite.

Meanwhile, HBO is no doubt learning a ton about the consumption habits of HBOGo and MAXGo users without having put all their proverbial eggs in that basket. Trend data they have at this point in time however is short-term (e.g the binge-viewing and non-linear programming options that Netflix thrives on), and they may not have a large enough sample set across generational demographics to make an informed decision on David Wells’ suggestion.

We will see the day in the not too distant future where networks become unbundled offerings, whether it’s an evolution of MSO offerings, networks taking the Internet plunge and going direct or some TBD hybrid. For now, HBO seems to be striking the right balance.

Assets or Opportunity: Which Should Drive Growth?

In response to Dave Morgan’s editorial entitled “Assets or Opportunity: Which Should Drive Your Growth Strategy?” at Mediapost, I offer the following…
Love the article, but disagree that you can’t say both because it’s about perspective. Parallel it to strategies of war... you have to play to your strengths. If you have assets of value that are worth or in need of protection, you can still navigate new markets to achieve growth, but it’s more likely to be based on a defensive strategy that yields incremental growth. If you’re a startup, you have an opportunity to take guerilla-like risks in new or emerging markets to spark change, yield massive growth… or go down in flames trying.
Game changers like once start-up Netflix (massive growth) wouldn’t exist or be able to continue innovating without the deep pocketed studios (healthy incremental growth) with massive back libraries of content.
Also, only considering “game changers” on the opportunity side isn’t a complete way to form an opinion. There are more Alta Vistas and Friendsters that have been left on the side of the road than there are Googles and Facebooks paving it. “Old world” public companies have pressures that limit risk taking, and successful game changers almost always become old companies to a newer breed of start-ups.
In the interest of sport, I’ll commit to the opportunity side because I’m much more excited by disrupting the way things have been done in the past than I am in the status quo. Perhaps I’d feel differently had I been born into Charles Foster Kane‘s dynasty.