NPD Group's Russ Crupnick gave what was probably the most interesting and illuminating presentation at NARM this week, illustrating how the digital availability of music is affecting the music industry.
Of all the stats and analysis offered, what really stuck out was the notion that digital music is actually DETERRING some fans from buying music. For instance, satellite radio subscribers are 30% less likely to buy a physical CD than the average consumer. Why? Because with all the music you like available to you 24/7, where's the need?
"For all the benefit that digital has done, it's created a huge barrier from getting (consumers) to purchase as much as we'd like them to," Crupnick says. "You can listen to it and sample so many times, that something else comes in to distract you, and you end up not buying anything. Is there discover that leads to purchase, or is there discovery that leads to more discovery?
Now he was speaking to a NARM audience, primarily consisting of retailers who still have their head in the sand a bit when it comes to digital, so Crupnick was trying to help them find ways to convert digital discovery to physical CD sales. And I'm sure there will be many ways to do that (wait for next week's Digital Entertainment column for more on that).
But I think he kind of missed the point on the big picture. If digital is leading us to constant discovery and less purchasing, that illustrates the reality that music is becoming more of a service, and less of a product. Rather than bemoaning the lack of sales, the industry's time and effort would be better spend MONETIZING that discovery experience. Rather than trying to change customer behavior to a preferred model, alter the model to align with what consumers are already doing.
Subscription music services are a good start. The industry as a whole should do a whole lot more to embrace and support these paid subscription services despite what Steve Jobs says about the model having "failed."
Additionally, there's advertising. Find the sites that fans are using most to discover their music, and strike ad-revenue sharing deals.
This should be viewed as an opportunity, not a concern.
Billboard is running a story this week about several indie labels who have grown disgruntled with the eMusic digital music service and plan to cancel their relationship with the service once their licensing deals expire.
Their beef is that they make sometimes as low as 12 cents per track downloaded on eMusic, based on the company's subscription pricing model, which is far less than what they make per track on iTunes. These labels also believe -- rightly or wrongly -- that eMusic is shopping around for a buyer, and is lowballing their music as a way to bulk up their subscriber base and make itself more attractive to buyers. Should the company in fact be sold, labels won't see any of the purchase price.
I think these labels are off the mark on both fronts.
Sure they make less per track than iTunes, but they're making more in aggregate on eMusic than they will on iTunes. There's some sort of mass hallucination among the music industry that the current prices being paid to license music -- be it for a la carte, subscription or streaming radio services -- represent a "fair market value" that the industry itself arbitrarily set based on what they wanted to be paid. I've said it before and I'll say it again, fair market value is based on what consumers are willing to pay, not way the sellers want to charge.
eMusic has subscribers willing to pay up to $75 a month for music, and the average user spends between $15-$20 a month. The average iPod owner spends about $10 a year. With 300,000 subscribers, it seems clear eMusic has hit upon a model that resonates with consumers -- a rarity among digital music services today. Labels who pull out now essentially will be punishing eMusic for being too successful, which seems a bit backwards.
As for the potential sale of eMusic, since when do content providers have any say or claim over mergers and acquisitions? It's crazy enough that some labels feel they're due a fee on the sale of MP3 players, now they want a cut of a company's purchase price?
Look, if you don't like the way a service provider does business, then by all means stop working with it. But sometimes it's worth taking a second to ensure you're not missing the forest for the trees.