Carey Kolaja of PayPal on the Looming Battle Beyond Digital Music Distribution
Carey Kolaja of PayPal on the Looming Battle Beyond Digital Music Distribution

Carey Kolaja is the Senior Director of Digital Goods Operations at PayPal.

The Looming Battle Beyond Digital Music Distribution

By Carey Kolaja

With the music festival season now in full swing I wanted to share a few thoughts on what is turning out to be an extremely interesting space to watch: digital music distribution.

Many people believe Apple has won the digital music war--and some industry stats would say they're correct. Data puts Apple at an impressive 70 percent market share in the mobile downloadable space; however what many don't realize is that as a top online retailer Apple's growth has flat-lined while other alternatives become more prominent.

There's a ton of innovation happening around digital music and it's easy to see why. Consider the following:

• By 2014 the digital music opportunity is predicted to be an $8 billion industry that is growing at an 18 percent CAGR
• Digital distribution will grow by 16% while physical distribution is projected to drop by 98 percent.
• Broadband growth and proliferation of smart phones are expected to continue to drive global growth and penetration.

Led by Apple, the downloadable model found success with micro-transactions, while the streaming subscription model has become mainstream through the work of Rhapsody, Pandora, and Spotify to name a few. Amazon's recent entrance into the space shook things up further.

Music industry upstarts are increasingly experimenting, innovating, and fueling choice for consumers' many motivations, preferences and lifestyles. Here are three examples that hint at the future of digital music distribution.

Moontoast is a hip new organization that's partnering with major record labels and artists like Taylor Swift and Rascal Flats to set up storefronts on Facebook. Fans can purchase their favorite music without ever leaving their Facebook News Feed.

Fantrail allows artists like Erykah Badu and The Roots to create free and powerful mobile apps for connecting to fans in new ways. Artists can provide insights and special offers pre, during, and post event.

FanTrail Introduction from FanTrail on Vimeo.

Fairshare Music is an online music store that allows you to donate to good causes by downloading and paying for music.

The bottom line is that artists are increasingly looking for ways to be closer to their fans in order to connect, learn and explore how their needs evolve year to year, month to month, day to day. The music file is rapidly becoming a commodity and revenue growth accompanied with healthy margins in the future is going to lie beyond the discoverability of a .99 cent song.

The ultimate question players in the music industry will need to face is "What value added services or product can you wrap around a music offering?" It will be the combination of 1) broad distribution 2) device agnostic usability, 3) merchandising and 4) direct connection to the social ecosystem of a particular artist.

Owning the community and broader ecosystem is where future money will be made--my sense is distribution of all aspects of an artist's brand, or integrated music commerce, is a green field opportunity.