SpectatorBytes

A couple of days ago, Fred Wilson posted an interesting note on the future of the music business (see here). Fred’s main point was that streaming will likely emerged as the new model for music online. Fred posits that given the increased availability of connectivity and portable connected devices, streaming will eventually prove to be the main method, which consumers will use to consume music.

One of the things that I have learned in my career is that new technologies and consumption habits take about 5 years to hit mainstream level. It used to be 10 years. So, Fred’s post got me thinking about whether or not the path chosen by the record labels is a good one. What is going to happen over the next five years until streaming hits mainstream behavior and consumption levels?

Today, consumers have fallen in love with music downloads. This format has put them in full control over their music experience. It has allowed them to make music a core part of their lives, a 24/7 experience. Downloads allow anytime, anywhere access one’s personal catalogs, and discover new acts through social sharing. Overall, downloads have made music a great experience. The stats speak for themselves about consumers feel about the format.

According to the IFPI, consumers downloaded an estimated 34 billion tracks in 2007 (only 1.7 billion were legal and they generated only $1.4 B in revenues – 7% of total global sales)
I hope the record labels have not simply anointed streaming as the only model that they will support. They will continue to lose significant value if they do not continue to work on creating a legal download model that meets consumers’ expectations. Record labels would benefit greatly from harnessing the power of legal download distribution.

Music has been used as a loss leader by many businesses to create significant value Think MTV, WalMart, Live concerts. Record companies have begun to reposition themselves to be able to participate in the next wave of value creation. Entry into artist management is an example of this effort. Helping create platforms for legal distribution of music can better position music companies to go down that path. They would be able to monitor and track how music is being consumed across geographies, they would be able to promote new acts, revitalize old genres of music, stimulate sharing of music across geographies. Also, they could leverage downloads to create new ad-supported promotional platforms.

The record labels don’t want to lose the next five years waiting for music streaming to take off. This model may not completely fully satisfy consumer’s expectations. At the same time, new discovery (e.g., blogging, social networks) may emerge as viable distribution platforms for new and established acts, and thus record companies may find themselves in position of less leverage than they are today.
The change the record companies have to undergo is not an easy one. Yet, it is better to start now than continue to focus on simply protecting the old model. A lot of things can be done in five years.