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Can Social Media Save the Music Business? December 27, 2010

Posted by David Card in Uncategorized.
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Sales of recorded music in the U.S. peaked back in 1999 at $15 billion. Since then, the industry has lost half its value. Digital music makes up over 40 percent of total sales, but it hasn’t been enough to return the industry to growth, let alone help recapture its former glory. After getting hammered by the recession, radio ad revenues seem to be stabilizing at around $16 billion, but that’s also well below the industry’s peak.

Online digital music can combine discovery, consumption and retail — all wrapped in social experiences like sharing, recommending and self-expression — in a way that physical goods and stores, and terrestrial radio, cannot. So what’s the problem? Did CD ripping and file-sharing outweigh any potential social media benefits for the industry?

Music Spending Realities

First, let’s look at some of the hard realities facing the music business:

  • While ripping and file sharing no doubt affected sales, the CD artificially inflated the market. CDs raised the price of an album and eliminated singles. Digital music returns popular music to its natural state as a singles business and lowers prices.
  • Although everybody listens to music, nearly half of Americans don’t buy any, and of the remainder, 25 percent account for 75 percent of the spending. A relatively small number of heavy buyers spend $200 a year, while all the other spenders buy an album or two. The heavy buyers are disproportionately Baby Boomers. Boomers are a big generation in terms of absolute numbers; they were raised on rock when it was a cultural phenomenon, and they’ve re-bought their collections in several formats (vinyl, cassette, CD).

Remixing Music with Social Media

These patterns don’t look good for music spending. Nor has the industry harnessed social media to its advantage. Music is inherently social, especially for youth audiences who use it for fashion and lifestyle cues and to express their “tribal” affiliations (e.g., goth, indie, mainstream). Although radio is the number one source of new music discovery, a friend’s recommendation is the second, and recommendations are more important the younger the audience.

New digital services like cloud-based lockers for streaming access and synchronization — likely Google’s digital music strategy — could take advantage of and even speed up the transition to fully digital music, but those offerings don’t appear particularly social. In contrast, YouTube and Myspace have led the way on providing free, ad-supported consumption and embedding of music videos and songs. And they pay much higher royalties than analog radio stations. Microsoft pioneered mobile song sharing with its unsuccessful Zune player — smartly trying to use DRM to invent a new business model rather than lock down an old one. If Apple’s Ping is an example of the future of social commerce, right now it’s missing the mark by using weak social content that’s kept mostly within Apple’s walled garden.

The newer freemium music services like Spotify and MOG focus a bit more on social media integration than original for-pay streamers like Rhapsody and second-gen Napster. That could help, but $10 a month on-demand services have never attracted more than a couple million users in the U.S., mostly selling to a high-spending, digitally savvy music fan that only constitutes 15 percent of the online population. Spotify’s premium business subsidizes its ad-based one, and it can’t get the royalty deals from the record labels it needs to be profitable — or even launch in the U.S.

In a year when the Beatles’ arrival on iTunes counted as “big news,” we’re starting to see more action in digital music, especially with social integration. There are a couple of location-based, socially influenced soundtracks of cities or neighborhoods. Audiogalaxy, a former file-sharing site, is trying to find a legal business, and MixApp has built a hybrid chatroom-listening space. But they all face the currently impossible task of covering royalty costs with advertising. It may be that social media makes its contribution in cost-savings, whether that’s crowdsourcing music videos or making artist development more efficient with online tryouts and audience-building.

Question of the week

How could social media save the music industry?

Best of 2010: Music December 22, 2010

Posted by David Card in Media.
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It’s the time of year for Top Ten lists. I won’t bother apologizing.

I bought a little less music this year than last: about 50 albums and EPs, no singles, almost exclusively digital downloads this year. The Virgin Megastore closed. And I buy from Amazon, not Apple. Amazon’s cheaper and ships a higher bitrate MP3. That’s not to say I don’t do all my playing back on a Mac or iPod or iPhone, and manage my collection in that horrid spreadsheet of a music software app, iTunes.

My purchase mix was about 60/40 new versus back catalog, and I bought a little more jazz and a lot more Americana/roots than last year. I ripped a handful of other people’s CDs, but some of those I bought as gifts. I’m still way above the average American in music spending, even though the stuff I bought ranged in price between free, $3.99 and $5 (thank you, Amazon promotions) and $12-$13. Accent on the cheap stuff.

My favorite new albums of the year, in rough order were:

Best Albums of 2010

  • Titus Andronicus “The Monitor” – as if Springsteen were punk, channeled the Pogues, and did a concept album on the Civil War
  • Surfer Blood “Astro Coast” – lo-fi Beach Boys
  • Paul Weller “Wake up the Nation” – way more eclectic and lively than his recent post-Jam stuff
  • Various artists “Crazy Heart Soundtrack” – the actors actually sing borderline – but not quite – parody country songs very well
  • The Walkmen “Lisbon” – melancholy suits a sad year
  • John Mellencamp “No Better than This” – convincingly rootsy
  • Swans “My Father Will Guide Me up a Rope to the Sky” – outright dirge
  • Neil Young “Le Noise” – old hippie sounds very modern
  • David Byrne & Fatboy Slim “Here Lies Love” – yeah, it’s a disco musical about Imelda Marcos, deal with it
  • Grinderman “Grinderman 2” – does Nick Cave get hornier the older he gets?

I liked another aging punk, former Sleater Kinney singer Corin Tucker’s “1,000 Years,” another soundtrack, Trent Reznor and Atticus Ross doing “The Social Network,” New Orleans funk from Galactic (“Yo-Ka-May”), the collaborative headed by Danger Mouse & Sparklehorse (“Dark Night of the Soul”), another collaboration featuring The Chieftans and Ry Cooder and others (“San Patricio” Latino-Irish!). I was disappointed by the latest from Elvis Costello, the National, M.I.A., the Thermals, the Dead Weather, and Killing Joke.

Can Mining and Filtering Monetize NewNet? December 20, 2010

Posted by David Card in Uncategorized.
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One of the keys to monetizing NewNet technologies like real-time feeds and social media will be harnessing the massive amounts of data they create. In recent weeks, there have been a handful of announcements illustrating creative ways of using this data to enhance products, often via recommendations. But most of them have not shown clear revenue strategies.

What the initiatives have in common is their use of information from feeds or social graphs. Foursquare posted a job listing for a data scientist to assist in mining its own data to enhance product features, but there may be more opportunities — and competitive differentiation — in combining data sources. The recent initiatives display at least two ways of tapping those veins:

  • Mining happens behind the scenes. Companies license and/or utilize APIs to extract information and apply it to applications and services to aid in targeted marketing, aid personalization, or create entirely new products.
  • Filtering is more visible to the end customer. Like mining, filtering adds relevance, but is generally controlled by the user.

Who’s Doing It, and How

Mining NewNet data from multiple sources may require the resources of a company with a big, established business —rather than a startup — for deployment if not development. Social media buzz-monitoring companies like Cymfony (part of ad agency giant WPP) and Buzzmetrics (part of Nielsen) sold themselves to ad agencies and market research firms. Because changing an established user interface is a tricky thing, innovations in filtering multiple data sources will likely originate at startups.

Examples of each include:

  • Wowd filters Facebook’s feed. It applies its own algorithms to Facebook APIs to automatically create natural groups of a user’s friends by analyzing users relationships to each other and posted info. Wowd allows the user to filter by time, topic, and trends.
  • Clicker, that makes an Internet video guide, is one of the few companies that pulls in Facebook data via “Instant Personalization.” It maps a user’s self-professed Likes into genres and topics to produce recommendations it shows alongside editorial suggestions, friends’ viewing, and popularity.
  • Google mined its own traffic and embedded content for YouTube Trends, and tweaked its social search presentation. Microsoft appears to be using Facebook data in its basic Bing results, as well as offering an alternative social view. MTV Networks created a new music discovery space by mining social data.

But Payoff Remains a Challenge

A simple ad revenue model for a site or app that filters a Twitter or Facebook feed produces pretty small dollars. I used traffic data from Compete, “visits” as a proxy for page views, and assumed a low-cost ad (CPM of fifty cents to a dollar). If a filter company showed a single, relatively untargeted ad per page, and siphoned of 10 percent of Twitter’s site traffic, it could generate yearly ad sales that would be measured in the tens of thousands of dollars to perhaps half a million. If the company managed to appeal to one percent of Facebook’s US users, the figures are in the same ballpark.

My model is very simple, and very conservative. If Facebook is really approaching $2 billion in revenues, it generates roughly $2 to $3 per user per year. Google is more efficient: it gets $25 per user/year. To get to multi-million dollar yearly ad sales, a filtering company would have to attract a million users, preferably of a distinct demographic, job description or sphere of interest. That would enable it to offer a better-targeted audience and a richer palette of ads and marketing opportunities to advertisers, and charge a CPM in the $3-plus range.

Active personalization — convincing a user to set up a customized experience — is tough. Yahoo never got more than 15 to 20 percent of its users to build out a My Yahoo page. Those who did were its most valuable users, the ones that used multiple Yahoo products and converted to paid services. The passive personalization enabled by mining could indirectly contribute to customer monetization via retention and increased usage frequency.

Question of the week

How can you make money off of social media and real-time data?

Google’s Chrome OS: Dead Before Arrival? December 13, 2010

Posted by David Card in Uncategorized.
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Last week Google showed off its progress on Chrome OS, introducing an apps store in support of it and offering up a pre-release hardware trial program (real machines won’t ship until the middle of next year). But it’s likely all for naught. Google CEO Eric Schmidt’s objective of making Chrome OS a “viable third choice” in operating systems looks doomed.

The Problem With Chrome

Right now, the hot trends in technology are social, real-time, mobile and cloud computing. Chrome OS is only optimized for one of them — its machines are true cloud clients. Schmidt even evoked the old Network Computer vision. Chrome OS computers will be highly dependent on the cloud for applications and minimally functional when disconnected. They’ll have cellular modems, but it’s not clear that existing networks can handle the network traffic demands of a cloud-centric client. Meanwhile, there’s nothing in Chrome OS or its user interface that accommodates social media or real-time information feeds.

Chrome OS also suffers from awkward positioning, both externally, to developers and potential customers, and internally within Google’s own product line-up. While it’s true that PCs serve both companies and consumers, the value of the Network Computer premise appeals only to enterprise IT managers. Its manageability and simplified functionality play best in applications like airline reservations, point of sale terminals and ATMs, or in limited-application mobile devices used in shipping and store inventory management. Yet at least for now, app stores are purely consumer offerings. The apps Google showed last week all came from media companies (New York Times, NPR, Sports Illustrated), Electronic Arts and Amazon.

Opportunities for a New OS-Based Platform

Meanwhile, Google itself says Android will be its primary tablet operating system. In fact, Google aims Android at most of the best opportunities to establish new or alternative operating systems. I’d argue that there are three product categories where Google could try to establish a new OS platform, either with Android or Chrome OS:

1) Mobile phones. Google has Android.

2) Tablets. Gesture-based tablets have all the momentum over netbooks, and are also Android targets.

3) Single-function Internet devices based on a customizable OS kernel. This category also includes The Internet of Things, with its connected gas pumps and refrigerators, that may be better served by something that looks more like a sensor than an OS. But other single-function devices include, in order of current volume:

  • TV set-top boxes. Google TV is based on Android, with a Chrome browser-based UI that shows its limitations.
  • Game consoles. The “compatible console” concept with hardware running a third-party OS has not worked so far (e.g., Sega Dreamcast with Windows CE, 3DO.)
  • E-books. Barnes & Noble’s Nook Color already runs Android.
  • Widget machines. Chumby has set the standard for “Internet viewers.” The Sony Dash is built off Chumby.
  • Dedicated social devices. Just like Chrome OS, Jolicloud uses HTML5 and a Chrome browser on top of Ubuntu Linux, but it uses Facebook Connect heavily. Handheld social devices like the TweetPeek and Sony Mylo seem to be going nowhere, while others include phones (Sidekick, Motoblur, Kin).

Those options don’t look promising for Chrome OS. They’re either tiny markets today,  already staked out by Android, or, in the case of game consoles, brutally competitive and unproven for third-party OSes. I suppose Google could fight it out with PC operating systems based on price. A Microsoft OS makes up 10 to 20 percent of cost of netbook, but Schmidt says Chrome OS devices should cost $300 to $400, about the same as netbooks. An Intel processor, solid-state storage, and an integrated cellular modem raise costs. I’m tempted to agree with Om, and suggest Google dump Chrome OS and put its muscle behind Android.

Question of the week

Should Google dump Chrome OS and put its muscle behind Android?

A Modern Media Manifesto for the Digital-First Era December 6, 2010

Posted by David Card in Uncategorized.
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There’s talk of the future of media in the air. Rupert Murdoch’s iPad-only pub, The Daily, is about to launch, mini-mogul Nick Denton wants to merge the best of TV, magazines and online into his Gawker Media blog network and Journal Register CEO John Patton recently told attendees at an International Newsmedia Marketing Association event that even newspapers need to be digital first. The source of all this is the harsh spotlight digital and NewNet technologies currently cast on traditional media businesses, which tools like social media and real-time feeds are helping to re-invent.

First, since NewNet technologies are the catalyst for building off proven Internet media models, here’s a manifesto modern media companies should follow to thrive:

All media must be multimedia: One brand, one audience, multiple channels. Optimize programming for each channel; fine-tune revenue models as well, but drive traffic across all. Make the audience active in creation, consumption and distribution.

What’s the Model?

Patton is right in saying midsize newspapers need to focus on digital — that’s where their audience is, after all. He said his online audience is bigger than that of print (similar to the UK’s Daily Mail), and though digital dollars lag, they’re nonetheless growing. Even TV advertisers are coming around: Fox is getting advertisers to accept Hulu ad inventory as “make-goods” to fulfill network audience reach promises.

“Digital first” is the right mindset for media companies for three reasons:

  1. Digital audiences and ad revenues are growing.
  2. Online and mobile are the platforms for the social media interactivity that consumers are demanding.
  3. Online is the driver of modern content aggregation and syndication.

Big media brands like News Corp. and Time Warner should consider ESPN the very model of a modern media company. Originating in cable TV, ESPN’s brand is usurping that of sister company ABC Sports, and ESPN has leading online, magazine and radio properties. ESPN is not what you’d call a leader in social media vs. competitors; its efforts center instead on providing a successful fantasy sports business with lots of on-air and online programming support.

Rating the New Initiatives

Two new initiatives — one from a traditional player and one from an online startup — bear examining in this modern digital media context. Neither model looks perfect, but each has tactics other media companies should monitor:

  • News Corp.’s forthcoming The Daily is bold in its effort to establish value in the consumer’s mind by charging for its digital content, and the walled garden that is Apple’s iPad enables that. But that could limit the publication’s social and syndication opportunities. To-date, most iPad mags aren’t very connected to the rest of the world, but that’s a matter of choice rather than platform. Publishing once a day, though, is an outmoded convention.
  • Gawker Media’s redesigns feel a lot like online magazine sites circa 2008. But the new approach accommodates multiple media formats, and its UI gracefully blends promotion and a feed. Gawker properties have always had lively user commentary, active linking and curated aggregation. But like The Daily, Gawker Media limits its advertising opportunities by being online-only.

Some might ask, what type of media company should do which? It’s the wrong question. NewNet digital media is defined by topic (national news, sports, local, tech, entertainment) and audience (mass, niche, professional, youth), and the individual company must deliver to advertisers and subscribers across channels. But each company has its roots:

  • Newspapers should be most comfortable with real-time, but need to re-allocate resources away from content that can be outsourced.
  • Magazines face tough business model changes, but can promote audience/topic alignment to brand advertisers. They need to build out sponsorship opportunities that leverage social media.
  • TV Networks have the most difficult challenge in replacing content. So their focus must be using NewNet media to promote and re-engage their audience. They too should evolve social sponsorships that exploit the reach of their hit shows.
  • Online pure-plays should accommodate social more easily, and have relatively smaller staffs that utilize commodity content. They need networks and partners for reach and off-line promotion and advertising.

Question of the week

How do you define a modern media company?