What if you could double the market for Internet radio, or triple the number of subscribers for on-demand services?
The answer may be simpler than you think — that is, the answer may be all about simplicity. As Steve Jobs frequently said, consumers want simplicity, and building a simple product is more difficult than building a complicated one. That’s one reason iTunes has more than 500 million active accounts (though not all are music buyers) while on-demand subscription had just 20 million paying customers globally at the end of 2012, according to IFPI.
After keeping mainstream consumers at arm’s length for years, digital music services have started simplifying their product to reach the broader market. New features and approaches at both Internet radio and on-demand services reveal concerted efforts to make digital music more accessible, more informative and just plain easier.
In marketing terms, current subscribers still count as “innovators” and “early adopters,” the 15% of a market that uses a product in its formative stage. Innovators, accounting for 2.5% of the market, will pay a higher price than later adopters and provide feedback that helps companies release products more suitable for the mass market. Early adopters, the next consumer group in the bell curve, account for 13.5%.
The upside is the huge potential sizes of the markets. Assuming today’s subscription market of 20 million comprises innovators and early adopters, that’s 15% of an entire market of 125 million. It could be much larger. If one assumes that current subscribers are all innovators, or 2.5% of the total market, the implied size of the global market is 800 million.
Internet radio has room to grow, too. In the United States, Web radio has 120 million listeners, compared with 243 million for terrestrial radio, according to Arbitron. Markets are relatively immature outside of the States. And terrestrial radio still dominates in time spent listening. Potentially, these markets are large enough to return the recorded-music industry to growth not seen since the ’90s.
There are huge challenges to reach this potential. The rest of the market — the early majority, the late majority and the laggards that represent the vast majority of consumers — requires services that are easier to use, less expensive and more contextual than those now on the market. In other words, what worked for more serious music consumers in mostly Western countries won’t work for everyone else.
Digital services have effectively been turning away first-time digital consumers, says Scott Ambrose Reilly, CEO of North America at X5 Music Group and a former Amazon executive. He worries that crossover hits like the “O Brother, Where Art Thou?” and “Buena Vista Social Club” soundtracks won’t happen because the occasional CD buyer lacks the friction-free digital experience on par with a mainstream brick-and-mortar retailer. “If you haven’t engaged with digital yet, your first step is pretty brutal right now — except for YouTube,” he says.
Digital services can focus on three areas to tap into the larger market: create cleaner user interfaces and better user experiences, improve how users discover music, and provide services and bundles with better value.
1. Keep It Clean
If services are to reach mainstream customers, they’ll need an updated product design that’s easy to understand, sign up for and use.
Rhapsody’s desktop application, an outdated relic of subscription music’s first era, is currently being redesigned, senior VP of product Paul Springer says. He believes Rhapsody’s challenge is to communicate that it has features for both heavy and mainstream consumers: thousands of radio stations, custom stations for every listener, a radio station for every artist and, coming soon, adaptive recommendations based on the “thumbs up” and “thumbs down” ratings made popular by Pandora. “The dumbing down of the services is a good introductory opportunity for the casual listener to migrate from broadcast over to full on-demand.”
Both Springer and Rdio senior VP of product Malte Sigurdsson say the “onboarding process,” those steps just after a person registers an account, is important to improving the user experience. Rdio, which bases discovery on social connections, has improved its onboarding by recommending other users and tastemakers for new users to follow. Its “heavy rotation” screen acts as a user’s home page and shows the most popular albums in a user’s social network.
Services are also changing their products for better situational usage. A listening environment like the automobile requires a more “lean-back” listening experience on a smaller mobile device screen. So Rhapsody is working on a “care” mode, the result of the company’s internal hackathon, that will emphasize voice search, offer programmed stations “that mimic SiriusXM offerings” and make it easier to save a song to a personal catalog, Springer says.
Songza has changed its user interface so a listener can get from point A to point B in less time. CEO Elias Roman estimates the time spent getting to a playlist has dropped to less than five seconds from more than 30 seconds through the years. Customer research told Songza that people wanted faster navigation. The result was a button on the new iPhone app. Press and hold the button of a top-level activity — such as “working out” — for two seconds and Songza will begin streaming a playlist rather than offer a selection of playlists to choose from.
Slacker, both an Internet radio and on-demand service, launched a redesigned interface in February that improves discovery. The new product is easier to navigate and more attractive, and retains the ability to fine-tune programmed and custom channels. Fine-tuning a channel is simpler because it’s now a more visual process. When a user changes a variable like “related artists,” a word cloud made up of artist names shows the changes to the station in real time.
Slacker CEO Jim Cady says the trick is designing a user experience that caters to both early and late adopters and allows listeners to shift between passive and hands-on listening. Slacker’s on-demand subscribers spend 83% of their listening time with radio, he says. “That’s going to continue to be the case more and more because the recommendation engines are getting better.”
The numbers suggest Slacker’s redesign, which coincided with a marketing and publicity campaign, brought in new listeners and resulted in more listening. The service has added 6 million listeners — 3.5 million on mobile devices — and 100,000 new subscribers, and average time spent listening is up 25% from before the redesign.
2. Create Discovery Without Exploration
At or near the top of most services’ “to do” lists has been music discovery, or how a person finds either favorite tunes or completely new, unknown music. Facilitating music discovery is how a service makes sense of a catalog that can grow to 20 million tracks. Not only have approaches to music discovery varied, they’ve been better-suited for the early adopters willing to invest time and effort in a music service.
One approach is to avoid typical music discovery. Songza has a feature called Concierge that allows users to select playlists based on what they’re doing at a given time. A morning menu may offer playlists for “taking a shower” or “waking up.” An early afternoon menu is likely to have selections for “working to a beat” or “taking a sunny stroll.” As a result, consumers are more likely to find new, unfamiliar music, Roman says. “If you try to do [music discovery], it’s very tempting to make music discovery key off what people already know they like.”
Songza’s current philosophy didn’t exist in the company’s early days. Roman says that through the years and hundreds of hours of customer interviews, the company realized music is just a means to an end. Customers at Songza predecessor Amie Street were buying access to an experience — dynamic pricing, recommendations, editorial — rather than buying music. Similarly, Songza listeners want music to match their lives’ daily activities, not a big catalog or a better way to search for music.
Social connections were originally driving much music discovery, but now top-down discovery is in vogue. While Beats Electronics’ forthcoming subscription service, due later this year, is perhaps the most vocal proponent of human curation, other services have added features for finding music and gaining insight about music.
Spotify, the leading subscription service with more than 6 million paying customers, started moving beyond social discovery in earnest in late 2011 by outsourcing discovery to third-party app developers. Its Web-based version has a discovery page with recommendations and new releases of favorite artists that imitates photo-heavy social network Pinterest. The “discovery” section will roll out to the desktop and mobile apps, and in May, Spotify acquired Tunigo, a music discovery and editorial service.
Slacker is simplifying discovery through programming. “101 Classic Rock Songs,” featuring acts like Led Zeppelin, Paul McCartney & Wings and Electric Light Orchestra, is an appropriately named channel with the occasional sound bite from the artist explaining the song’s background. Cady says the station has an average listening session of more than 80 minutes, well above the roughly 30-minute average, and additional stations with similar themes are in the works.
3. Price It for the Masses
New customer acquisition goes well beyond improvements in music discovery and product design. A few companies (Apple, Google, Amazon) can leverage their strengths in e-commerce, hardware and software to facilitate customer acquisition and retention. Once someone is a customer of a company’s main product or service, it’s easy to become one for digital goods and services. Other services can improve customer acquisition through pricing and partnerships.
Digital services’ current prices may simply be unsuitable for the mainstream consumer. “The fundamental issue is that $9.99 is not a mass-market price point,” Midia Consulting co-founder Mark Mulligan says. “If the aspiration is to push more toward the mainstream, which it obviously is, something will have to give.” Current prices are especially ill-suited for the developing countries that represent the greatest number of potential subscribers.
Consider the spending of the most avid music fans. According to Nielsen, the top-spending segment in the United States, accounting for 14% of music consumers, spends $422 annually on music. More than half that spending goes toward concert tickets and merchandise. The bulk of the remainder goes toward purchases of CDs and downloads. A small fraction goes toward digital and satellite radio subscriptions. At $9.99 per month — or 9.99 Euros or £9.99 in other countries — a typical music subscription service’s annual cost limits the size of the market.
Mulligan points to U.K.-based Bloom.fm as an example of a service that bridges the gap between niche and mass market. Offered only as a mobile app, Bloom.fm has Internet radio, with on-demand access available in gradations. Internet radio is free, but Bloom.fm charges £1 per month to “borrow,” or cache, up to 20 tracks and £5 per month to cache up to 200. The top tier costs £10 per month and adds on-demand streaming and unlimited caching to the base Internet radio tier.
Apple is using pricing and bundling to attract users to its upcoming iTunes Radio service. The Web radio service, to launch in the United States in the fall, will be ad-free for subscribers to its premium cloud music service, iTunes Match. Non-subscribers can use the free service supported by advertisements.
In offering iTunes Radio free to iTunes Match subscribers, Apple has created a bundle with a competitive price. The $24.99 annual fee for iTunes Match works out to about $2 per month, making it far less than the annual cost of Pandora’s ad-free subscription tier, Pandora One ($36 per year or $3.99 per month), and Slacker’s Radio Plus ($3.99 per month).
Some subscription prices have dropped to address the market’s potential. Muve Music, which has more than 1.5 million subscribers in the United States, bundles its on-demand music service with Cricket Wireless mobile plans at no extra charge. Brazilian mobile carrier TIM has licensed Muve and offers pre- and post-paid plans appropriately priced for that market. Rhapsody is available for $5 per month — with integrated billing — to customers of U.S. pre-paid carrier MetroPCS.
All three examples have integrated billing — the customer pays for the music service through the mobile carrier bill — to help reduce the friction involved in acquiring new customers. Slacker has also simplified customer acquisition by partnering with all major mobile carriers in North America for distribution and integrated billing. “You’ve got to do everything in the most simple fashion,” Cady says, “to grab the mass listening audience.”