Martin Kummer Ministry of Sound Music 4.5 The Music In-app Economy

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The in-app economy mirroring the music industry? …

The in-app economy mirroring the music industry?
For real growth to happen there needs to be long-term investment. Is the infrastructure in place for selling music to be a profitable standalone business? Are the appropriate commercial rewards established? Or is the in-app economy just a micro-cosmos mirror image of the overall recorded music industry? What are the implications?

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  • 1. The Music In-App Economy must break with the past to leverage the accelerating growth of the Internet Martin Kummer, Head Of Digital Channels & Group Marketing, Ministry of Sound Group 1
  • 2. Promising beginnings, poor execution Music and Tech looked liked the perfect match: • Great start when ringtones sold en masse at £3 • General feeling that if ringtones sold well at £3 then full-tracks would sell even better for £1 It turned out to be different: • Marketers ignored the difference between personalisation and consumption products. The result were loveless stores hardly better than pirate sites • DRM complexity made legal downloads inferior to legal ones • Wrong decisions and arrogance caused failure Apple are the only ones who’ve made digital downloads work... ...but with far reaching implications: digital music commercials have been coined by a market leader that doesn’t need to make money from selling music 2
  • 3. Value perception gap There is a significant gap between how tech companies and major labels value music Reasons why Tech companies think music is overpriced: • breakage (paying for customers who don’t use it) • lack of margins • extra commitments • monopolistic power Reasons that concern the labels dislike about big tech companies: • lack of long-term commitment/not dependent on music • poor marketing & product execution (“not music people!”)/no priority at POS • frequently changing interfaces/slow to react • the risk of creating significant value without being paid enough As a result of these often fractious discussions Tech companies have sought alternatives: • meal deals as loyalty rewards • sponsorship of music venues/priority tickets, e.g. O2 • partnerships to move the risk to third parties, e.g. Vodafone & Spotify 3
  • 4. Three dominating music services, but no viable business model for standalone music Would not exist if it wasn’t part of Apple’s highly profitable hardware ecosystem Six years in the game and, despite improving margins, no profit yet, relying on investors to pour in more money 1bn customers but only “$1bn music payout over the last several years” and questions remain on how much this discovery service cannibalises consumption services 4
  • 5. The growing Internet is a second chance for digital music Internet Accessing Devices (m) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 June 2010 Ipad June 2013 IOS/Android phones PCs Source: Enders, Twitter and the Internet Graph, 21 January 2014 • The rise of smartphones (replaced after 2 years vs. PCs replaced after 4-5 years) and tablets have increased the size and innovation speed of the Internet significantly • Mobile access is fastest growing and apps are the dominant way of interaction on mobile • Apps are now cannibalising music downloads on iTunes 5
  • 6. To leverage the Internet growth the in-app economy needs to be more attractive • current in–app economics reflect commercial models coined by the challenging digital music environment of the past 10 years • revenue shares don’t fully reflect the value contribution from R&D • the music in-app economy needs to make distributing & selling music a worthwhile business Music labels and tech companies have to overcome the baggage of the past and have to create an environment that protects the value of music, but also makes it worthwhile to invest in music as a standalone business. 6