Last Thursday in my Digital Strategy class at the University of Oregon, the students and me spent a few hours trying to upend assumptions and clichés in different business models. Following some of the ideas in Luke Williams' book, Disrupt, we took the first steps in crafting a disruptive hypotheses by looking at disruptive marketing opportunities and then settling on some disruptive ideas. The Monocle magazine example of creating the subscription-premium plan for pricing, by breaking the pricing cliché, sparked a lot of new ideas. We haven't yet reached a single, disruptive solution but we did get to a disruptive idea: How can we disrupt the competitive landscape of the Internet music industry by delivering an unexpected solution?
That idea is an extension of my post - Why does Pandora exist?
This particular exercise will continue into next week but in the meantime some interesting results came up when we started to ask each other what were our favorite online music Apps or web services. We started out by asking ourselves - What if record labels didn't exist? What do record labels do, and what would happen if they disappeared? Here's some responses:
- 1. The connection between consumers and musicians will no longer scale
- 2. No one would track royalty payments
- 3. We'd focus more on bands
- 4. Revenue would flow directly to bands
- 5. No more financial investments in bands (Labels as banks)
- 6. Bands would have to work harder to build communities
- 7. It would be harder to find new music
- 8. Band's wouldn't have credibility without record labels
Clearly there are some assumptions in that list and so we set about dismantling them:
- 1. We decided that labels are not absolutely necessary to create scale but they do have a role. Musicians have the means today to create scale
- 2. This is not true as there are plenty of royalty tracking services and after all, labels report royalties to the musicians - no label, no need for reporting. More importantly, for what we were trying to determine, we decided that only a minority of music consumers would really think about a label and royalty payments
- 3. We agreed that musicians would have to work harder to get our attention. We also think that music fans already focus on musicians far more than on labels
- 4. We agreed that this is a positive result. Cutting out the middleman
- 5. While this is a negative result it is not entirely true. There are different ways for musicians to raise money - Kickstarter.com for e.g.
- 6. We agreed that musicians should be always working hard to build communities - even if record labels were still around - there's no such thing as a free lunch etc..
- 7. We decided that this is not entirely true. Music discovery services abound on the web. Not having a label promoting you could be a negative but not the end of the line.
- Not true. Some bands have already found new markets - Radiohead, NIN etc. Some, but not most, labels give a band credibility but as we were looking at a mass market we decided that only a minority of music fans would consider not having a label as harming a musician's credibility
Ok, so we dismissed some assumptions but I still had a question. Given that my students had posed the first list of considerations re a label-free world without having time to research the subject, I asked them - what do record labels actually do..? The answer - we don't know? Which is very interesting to me. Or not. Research is critical.
It's easy to assume that we know what a company does simply because we use that company's services or buy their products. For instance, I have a basic understanding of how banking works and I happily use banks yet I have no idea how an ATM works, nor do I care - I just want my cash on demand! By that logic why would I assume that a class full of students or music fans at large for that matter, actually know what record companies do? Which lead me to address the class with - if you don't know what record companies do, does it matter to you if they went away? Answer - no?
Of course now I wonder if that is entirely true. Therefore, does it automatically mean that a majority of music fans could care less about record labels? The answer to that requires further research.
So the students don't understand what a record label does. I decided to ask them another question - What is your favorite online music service or music App? Answers in order of preference with percent of use and if there's "an App for that..":
- YouTube - 99% - App √
- Pandora - 55% - App √
- Soundcloud - 33%
- Last.fm - 16% - App √
- Slacker - 15% - App √
- Vevo - *Only used when forced to go there by YouTube
*Numbers don't add up to 100% as the students use multiple services.
And the reasons given for the top 3 responses were:
- YouTube - Pluses: Interactive, I can upload, I can share, I can comment, I can discover new artists, I can create playlists, it's free. Minuses: advertising is annoying
- Pandora - Pluses: Helps me find new music, I use it in the background, I can choose artist types and make a playlist. Minuses: Get shut out of service for a while for using the "thumbs down" button, have to pay 99.cents to get more than 40 hours of streaming but it still gives me advertising, artists that I give the "thumbs down" to keep reappearing in my stream, not enough good independent music, way too much major label music, ad-free version too expensive, advertising is annoying
- Soundcloud - Pluses: Free, can create and upload my own music and mixes, can share with and follow other users, artists I love upload different versions of their songs, great community, love leaving comments in the stream. Minuses: None
As I have noted this was a very unscientific survey but we will continue to refine it further. YouTube is the clear winner amongst the students, but there are too many factors to take in to consideration for me to allow that this quick poll can be considered universal. What it hints at though is that advertising is not the best vehicle for raising revenue in an online music service's business plan. Just because advertising has been around for a long time, and is accepted in certain formats, does not mean that it will be embraced online at all. Also interactivity, real interactivity, will be more important if these online music services are to succeed. Young people create as much content as they consume, so your content better have more value than the content they are already posting and sharing on the web. (Meanwhile, YouTube just announced an upgrade to its music service - video chart.)
Finally, back to pricing clichés. If you look at the various online music business models, especially in streaming and subscription services, they have many parallels when it comes to pricing. The range tends to be from .99 cents to $9.99 a month, and for that one gets either an all-you-can-eat buffet or some kind of escape from advertising. I asked the students what they would be happy to pay per month for all-access to streaming music without advertising:
99% - .99 cents
1% - $0
I know, students don't have a lot of discretionary spending money, yet after further discussion they settled on a price that they felt was fair for all parties - the labels who license the music and the online service that provides access to the music: $3.00 per month. (The fact that the musicians will see very little of that $3.00 is left for another class discussion.)
I believe that there is an opportunity here that requires some critical thinking. On the surface it seems apparent that the current pricing clichés for online music services are the problem and not the answer. How about some of these services do some real research around a subscription-premium model ala Monocle? If no one can come up with a better value for music fans than a subscription streaming service then how about this - offer an annual subscription that allows access to all the music streaming you want, that includes free downloads and does not include advertising, for $600.00.
I'd be willing to bet there's a new market out there for that. At the end of the day it's all about perceived value.