An Industry in the Dark?

It has been another interesting few weeks for the music industry. In the same week that Spotify’s iPhone app has stormed to the number one spot of iTunes Top Free Apps within just 48 hours of Apple approving it, we have had Sony and EMI come out and slam Virgin’s plans to offer a subscription based music download service.

This of course this is nothing new from an industry that is determined to avoid change of any kind. The industry has even been given renewed confidence in recent months as Peter Mandelson waded into the debate by announcing the government’s plans to cut off the internet connection of those who file share - a government decision even more extreme than Lord Carter’s recent Digital Britain report. Mandelson’s intervention may well have been influenced by recent meetings with certain music industry figure heads; but it highlights (as some commentators have suggested) that this really is a case of an analogue man living in a digital world. Trivial details such as who is going to be responsible for regulating this across ISP’s and not to mention who is going to pay for it, as usual, seem to have been brushed aside as minor formalities.

Whilst this Government backing may show signs that the music industry is winning its battle to desperately carry on with business as usual, I feel it may be short lived. In recent weeks we have seen YouTube lift its block on music videos after the PRS and Google came to a licensing agreement.  Whilst the lump sum has not been disclosed, I wouldn’t mind betting it is a lot less than the PRS was initially demanding. However, a deal was always going to have to be struck as the prospect of cutting off one of the industries key marketing channels was never a long term solution.

You might hope that this is a sign that the industry will start to face the realities of the digital world it has resisted for so long. This however will not sit easy with the major labels; they have for too long enjoyed far too much control over their distribution channels and avoided any deviation from their long established ways of doing things. Losing grip of even a little bit of this power does not sit easy with them. However, no matter how much government support they are able to drum up, a business model that relies on harassing, bulling and even suing its customer base seems destined for failure.

It has of course been obvious for years that the music industry will eventually have to move with the times and face up to a changing market which is seeing their revenues dwindling. What they seem to be missing is that people sharing and accessing music for free has always been a vital life blood of the music industry. Ok 25 years ago you had to sit down and make a mixed cassette tape, but the point is music has always been driven by a buzz that is created from people talking about and sharing music. The technology may have changed the scale on which this is possible, but this has also expanded the potential. 

People have to make living and it is yet to be seen if the likes of Spotify, Virgin and others can actually turn a profit out of subscription or ad supported revenue. My guess is that the industry will have to start embracing a more varied approach and spread their interests across licensing, ad supported revenue, subscription, merchandising and live music promotion. And yes there may even be a case that people will pay for a certain amount of digital tracks, although I feel a higher quality offering than is currently available will be needed. Naturally the major labels will continue to lobby for the government to support their out dated business models, but sooner or later they will have to take their heads out of the sand and come to terms with the fact that a more creative use of digital channels is the future of their industry.

The end of DVD rentals?

With the launch of the Spotify App for the iPhone interest for streaming music is higher than ever. There seems to be no limit for its reach, with new users streaming free music every day, changing the way people think about ownership of music forever. And it’s spreading.

LoveFilm, the video rental company that sends DVDs directly to your door, has announced a new (and for some films completely free) online streaming service that could completely change the way films are rented. With films available immediately at your fingertips , ‘traditional’ rental companies like Blockbuster would have to think long and hard about how to compete. Their sluggish uptake of the LoveFilm model of sending DVDs to your door hurt them badly, and if they make the same mistake this time around, it could spell disaster.  Admittedly, most films are currently ‘pay per view’ when streaming, and with the average internet download speed being where it is the quality of the films is not exactly ‘Blu-Ray standard’. But the room for expansion is massive, and with broadband speeds constantly increasing surely the only way for this market is up.

With the prospect of such a big market there have been rumours that Google, as always, may be throwing its hat in to the ring. Following trials that included making the movie Ghostbusters available on the site to watch for free for a limited time Google-owned Youtube have apparently been in talks with Sony and Time Warner to discuss an online streaming service and the effect was dramatic. Shares in Blockbuster dropped by 10% overnight!

Streaming films online is nothing new however, for years films have been available on illegal (but popular) websites, even on YouTube as it is today some films can be found. It is with these sites that LoveFilm and similar sites will have to compete, and this will be a difficult task, with many people simply not willing to pay to watch a film online. If YouTube brings films to our screens for free It will be very interesting to see what advertising formats open up to support these new content distribution channels and, importantly, whether 'free' can really support content which has, up until now at least, been considered premium.

What's in a (brand) name?

Monday morning we all woke up the news that Kraft Foods had made a £10bn bid for Cadbury, a bid which Cadbury quickly rejected the offer as it ‘undervalues the company’. Who says no to a takeover bid with a 31% premium on top of share price? – A brand which knows it can get a lot more.

Cadbury is the world’s second largest confectionery company with a stronghold in Britain and emerging markets which account for over one-third of the company’s revenue. Kraft is strong in markets such as Scandinavia and Brazil, where Cadbury has small presence.

Kraft is looking to use Cadbury’s strong brand presence in Britain and its positioning in emerging markets to create ‘a global powerhouse in snacks, confectionery and quick meals’.

I am not suggesting that a strong brand name is all a business should be about, but Cadbury’s decision to decline the Kraft bid had a lot to do with the strong brand Cadbury has created through innovative ad campaigns. We all know building a brand / brand equity requires huge investment and a long term commitment (not to mention a lot of creativity and market intelligence) and unfortunately the performance and return are never as easy to measure as they are with a direct response campaign. In the last couple of years, Cadbury has grown their brand through brilliantly planned and executed campaigns such as the ‘Gorilla’ and ‘Trucks’ spots – campaigns so persuasive we all forgot about the huge Cadbury product recall in June 2006. This means that, if they were to purchase Cadbury, Kraft would be able to focus on growing sales in Cadbury’s existing markets rather than their current conundrum – how to build Kraft’s own brands to be more personal and meaningful.

Kraft executive Michael Osanloo suggested that Cadbury was only worth what someone was willing to pay for it – as the world’s second largest confectionary company with average 12% growth per annum in emerging markets and a strong brand identity Cadbury doesn’t have to sell. Whether Kraft decides to put in a new (higher) bid or Hershey’s and Nestlé propose a counter offer, Cadbury is in the fortunate position of choosing when to sell.  Osanloo would perhaps have been closer to the mark then if he had said that Cadbury is only worth what someone is willing to pay when (and if) it actually decides to sell.

Yahoo target Twitter with a Meme of their own

There may once have been a time when a Yahoo! product launch, even if it is a sneak-it-out-the-back-door Beta style event, would have been a hot topic for discussion so it says a lot that many readers may not even have heard of Yahoo! Meme, their attempt to move into the world of Twitter and Tumblr. As Yahoo's first move into proper user-generated content creation for some time (ignoring purchases and Yahoo Answers) you would think they have spent their time coming up with something worthwhile - unfortunately it's a little difficult to avoid the feeling that this is a rushed job.

Currently Meme is only available in Portugese and that, to some extent, may justify it's existence. Indeed, our own international PR work at LBi has taught us the value of understanding different market's approaches to social networks. Unfortunately there does not seem to be too much to Meme beyond that. It differs from Twitter in that it lets you post text, images, MP3s and YouTube videos and it doesn't have a limit on the length of posts, unlike Twitter's restrictive 140 character limit. Other than that the main difference is that in order to comment on anything on Meme you re-post (an equivalent to a 're-tweet' on Twitter) it on your profile and then add your thoughts, meaning other users get to see what you are reading.

These features may sound interesting but I can't help but feel Yahoo might have missed the point. Firstly you can fairly easily post any of these types of content on Twitter already using links to third party sites, with more and more companies springing up aiming to make this as seamless as possible. Admittedly it means users have to go outside of Twitter to get the content but this has the benefit of making Twitter much easier to consume on the go and has made it very easy for almost endless third-party systems to plug in to the Twitter API. More to the point, if you want to share this type of content you are probably already doing so on Facebook or Tumblr anyway (or even a proper old-fashioned blog)! Even the re-post feature / requirement for commenting, which may be a good way to stimulate connections (as users will quickly see who other users are following), won't take long before it starts to interfere with the difficult signal to noise ratio that Twitter itself stuggles with.

I would probably be prepared to give Meme a temporary reprieve, however, if it were not for one thing... The fact that it has launched as an invite only beta. Spot the problem? Invite only betas are a great way to carry out a controlled launch whilst you iron out teething problems / get a handling on bandwidth costs / figure out a business model / boil the kettle, provided the service doesn't need critical mass to be useful. Gmail launched invite only - it didn't matter because you didn't need to know people who also used Gmail for it to be useful. Social networks on the other hand live or die by user numbers - I might use Facebook or LinkedIn because other people do, but if everyone left so would I - and if they weren't there in the first place (because they had to be 'invited') I might never have joined.