The Digital Entertainment Column by Greg Spotts
March 25, 2007
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Fans of indie rock bands like the Shins and Arcade Fire are doing something peculiar: they're buying downloadable albums online. Amidst a dismal first quarter in which album sales in all configurations are down nearly 17%, the Shins and Arcade fire are selling more albums than ever before, and nearly a third of those album sales are digital.
The Shins surprised the industry in February by debuting at #2 on the sales chart, selling 118,000 copies of their new album "Wincing the Night Away." An amazing 36% of these album sales were digital. According to Billboard Magazine, "the Shins had never been higher than No. 86 on The Billboard 200 prior to this week, nor had Sub Pop [the label] been higher than No. 79."
Six weeks later, Arcade Fire also debuted at #2, selling 92,000 copies of "Neon Bible," of which 30% were digital. Billboard noted that Arcade Fire's previous album never once sold 8,000 copies in a week, and the album was the fastest seller in the history of Merge Records. Clearly, something interesting is happening.
The audience for these two bands is growing fast, and digital album sales are fueling that growth rather than cannibalizing sales of CD's. Some industry watchers have wondered if indie rock fans are buying the albums as a way to financially support their heroes. Has buying an album become like the voluntary entrance fee at a museum, something you do because you "should" rather than because you "have to?"
We have noted in this space that Apple has only sold about 25 songs for each iPod. By "unbundling" the songs on a CD, iTunes allows listeners to cherry pick their favorite songs rather than buying the whole album. With options to rip, burn, file share, and cherry pick, indie rockers have a dozen reasons not to buy an entire digital album. The music industry would sure like to know more about this emerging group of fashion-forward consumers who are willing to pay the freight for new music.
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March 13, 2007
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Wal-Mart is legendary for providing terabytes of point-of-sale data to marketers like Procter & Gamble and Coca Cola. But when these same marketers want to know how many people watch their commercials, the networks tell them "fuggedaboudit."
As use of Digital Video Recorders continues to grow, advertisers want to know who is watching live, who is watching later, and who is skipping the commercials. One reason why the Super Bowl continues to be such a hot advertising property is that marketers assume it is watched live, meaning viewers cannot skip over the commercial breaks.
Last summer, Nielsen announced a project that would provide ratings for the commercials, not just the programs. Nine months later, the wrangling continues.
As described in today's New York Times, Nielsen is caught between its clients (the Networks) and the media buyers and marketers who are the end users of ratings data. Marketers want second-by-second reports on viewership so they can track the number of people who are watching each commercial. The Networks don't want Nielsen to collect or report this information.
The latest compromise proposal would generate an overall rating for the commercials within a particular program. Marketers would not know if some commercials within a program are better-watched than others. One reason the Networks want to keep this kind of information unknown is that it could identify "turnoff" commercials that cause viewers to skip the entire commercial break. If poorly rated commercials were identified, advertisers might want to avoid running spots directly after such ads. (At present, advertisers do not have a say in the placement within a show, even though it is generally assumed that the middle commercials in a break are less watched than the first and last ones.)
Yesterday, the Association of National Advertisers released a statement calling for "brand-specific commercial ratings." The Networks claim that Nielsen's set top boxes aren't up to the task. Technical questions aside, how long can the Networks keep marketers in the dark in an era where business partners share customer information and marketers make desicions on data rather than hunches?
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March 1, 2007
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Broadcasting from a basement studio at Santa Monica College, KCRW has built a national and even international audience on the web. According to General Manager Ruth Seymour, KCRW generates more than 1.6 million streaming hours per month via partnerships with Real Networks, AOL Radio, Shoutcast, Windows Media and Apple’s iTunes and QuickTime. In January, nearly one million KCRW podcasts were downloaded, and the station’s own website received more than 470,000 connections to its streaming audio service.
The station’s distribution partners defray the cost of bandwidth, but an essential problem remains: how to monetize the growing number of Internet listeners with a public radio model that depends on individual contributions and corporate underwriting?
Describing her predicament, Seymour quotes a Bob Dylan lyric, “she knows there's no success like failure and that failure's no success at all. The old business is shrinking, the new business is growing, and most of the revenue comes from the old business.” [Sounds just like the analysis in IBM's consulting report that I covered here last week.]
The old business she is referring to is terrestrial radio, an inherently local activity that appeals to local and regional marketers. With a strong signal that covers much of Southern California, KCRW has learned how to attract local businesses as underwriters of its music, arts and news programming. According to Seymour, these locally-focused underwriters are not necessarily interested in paying additional money to access the station’s national and international web audience.
Much of station revenue comes from the listeners themselves, who are enticed to become “subscribers” during KCRW’s semiannual membership drives. Offering a wide variety of premiums and other benefits, KCRW has conditioned at least some portion of their over-the-air listeners to chip in. The KCRW "rewards card" given to subscribers has become a badge of honor among LA's fashion-forward, politically progressive cognoscenti. Yet Seymour worries that the same kind of community altruism may be harder to generate among netizens.
“Culture is a very profound thing. Can you affect the online culture? It’s still an outlaw, renegade culture,” explains Seymour, who cites that fact that few of the nation’s most powerful media properties have been able to charge users for web content. “We have spent years educating the [over-the-air] audience about the relationship between listener contributions and programming,” she says, “but that relationship doesn’t appear to resonate online.”
To help KCRW navigate these issues, the Annenberg Foundation had provided the station with a $600,000 grant to “develop business models to sustain the station’s webcasting activities and to further its innovative online music service.” Every hour, KCRW’s DJ’s and hosts announce the station’s call letters and frequency numbers, with the tagline "KCRW is a community service of Santa Monica College." Must the local community support the station's national outreach, or will the web audience pay their own frieght?
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February 23, 2007
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An IBM consulting report titled "The End of Television As We Know It" divides viewers into three distinct groups: Kool Kids, Gadgetiers and the Massive Passives. It's an interesting shorthand with implications that go beyond television viewing habits.
According to the report, there's a "Generational Chasm" between older viewers who passively receive live television, and a younger "lean forward" group who demands more control, flexibility and portability. The lean forward group is divided into two segments, teenage "Kool Kids" who are tech savvy but cash poor, and twenty-something "Gadgetiers" with lots of disposable income to buy devices and services.
The distinction between the Gadgetiers and the Kool Kids is a helpful one. According to the report, the Kool Kids are into user generated content, instant messaging, filesharing and mobility. They know the workarounds to defeat copyright protection, because they have more time than money.
The Gadgetiers, on the other hand, are willing to buy hundreds of songs on iTunes and pay for advanced subscription services. They may use peer-to–peer or YouTube to access material they can't get through traditional means, but are willing to pay for content and convenience.
I think this typology applies equally well to the music space. A look at the best selling albums of 2006 makes it clear that the older demographic dominates the purchase of traditional CD's. The Gadgetiers are iTunes best customers, and the Kool Kids are ripping, burning and trading.
IBM's brain trust warns the media business that the Massive Passives and their fat wallets will not last forever. "The Massive Passives, the largest group today, represent the annity to fund the industry's future growth." From TV to Movies to Music to Newspapers, that sentence pretty well sums up the challenge.
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February 13, 2007
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In the two days since the Grammy Awards, I've been surfing the web for "Best of 2006" lists with a more musically adventurous bent. One thing I noticed is how many "Best of" lists are filled with text about the albums but don't feature any listenable music.
Coming of age in New York City, I always looked forward to the Village Voice "Pazz and Jop Critics Poll," an insert to the arts weekly that compiled the Top 10 lists of hundreds of music journalists. The winner of this year's poll is none other than Bob Dylan.
Pazz and Jop's website has some nifty features, but I couldn't find a single mp3 to explore. (Digging deep, I did find a few podcasts, but nothing that offered instant point-n-click gratification.)
The online versions of other print classics from my youth are similarly devoid of streamable music. Spin Magazine's "40 Best" (winner: TV on the Radio) and College Music Journal's "Best of 2006" document their pics with well-written blurbs, but don't link to any song files or videos. Edgy upstart Filter Magazine also presents a variety of Top 10 lists without any links to the music.
RollingStone.com, however, does have its own Rhapsody-powered listening service, allowing you to check out a song from any of the Top 50 albums of 2006. Unfortunately, I couldn't get the Rhapsody player to work on my Mac to check out Dylan's #1 album, Modern Times.
Sticking with "old media" for the moment, I headed over to NPR's website. Surely a radio company would embrace streaming music! And indeed they do. NPR's listener-generated "Best CD's of 2006" provides a link to a Real Audio clip for each of the Top Ten albums. (#1 on this list is the Decembrists.)
Wanting more, I headed over to Amazon's "Top 100 Editor's Picks" which is nothing more than a clickable list of titles without editorial comment. You can listen extensively to most of the albums, but first you have to go to an album's own page, and then navigate back to the Top 100 list if you want to try another album. (Neko Case is Amazon's #1 Editor's Pick.)
Shifting to the ever expanding world of online music commentary, I headed to idolator.com for their "Jackin' Pop Critics Poll," an expansive list of 1300 albums nominated by 503 contributors. The lengthy page of html had no links to band sites or streaming files. (Winner: TV on the Radio.)
Things got livelier at metacritic.com, a sort of higher-level "poll of the polls." On one page, metacritic gives you a compilation of various Top Ten lists from mainstream and alternative media, slicing and dicing the picks into various meta-charts. Albums listed in yellow link to an internal page for each album, with outbound links to the artist's own site and/or their MySpace page. (Metacritic's users picked TV on the Radio as the best album of 2006.)
The most useful and interactive lists can be found at popmatters.com and pitchfork.com. Both sites feature multiple outbound links for each artist. Pitchfork's "Top 100 Tracks of 2006" offers links to each artist's homepage and MySpace page, a "buy it" link to the ampcamp.com store, and a link to an external streaming audio or video file, if available. Curiously, Pitchforks "Top 50 Albums" list does not include any outbound links. (Winner: The Knife)
Popmatters.com has a blog-style list with the most satisfying set of options. Each album can be further explored by links to Amazon, AmazonUK, Insound and the iTunes Music Store. Embedded YouTube videoclips offer instant clickable gratification, sometimes sending you in interesting directions like winner Gnarls Barkley performing live on the British "Top of the Pops" television show. Singer Cee-Lo wore an airline pilot's uniform on that show as well as the Grammy's. Who knew?
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February 6, 2007
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Viacom is treating YouTube like a copyright infringer, but there's an easy win-win scenario: advertising barter and a per-subscriber fee. All Viacom needs to do is to think of YouTube as just another ad-supported distribution platform.
Consumers have been sharing Jon Stewart and Steven Colbert clips on YouTube, and Viacom is fed up. Last Friday, the corporate parent of Comedy Central demanded that YouTube remove over 100,000 clips of Viacom's copyrighted programming. YouTube is enabling viewers to watch bits and pieces of the Daily Show without paying for Viacom's precious content... the horror!
Actually, nobody pays Viacom specifically to watch the Daily Show. Yes, a tiny portion of your monthly cable bill is passed on to Viacom as a per-subscriber fee for Comedy Central, but most of Viacom's revenue comes from advertising. Since the Daily Show is already an ad-supported business, why not treat YouTube as a secondary advertising platform rather than a scary Internet revolution?
Unlike the music industry's confrontation with Napster, the Viacom/YouTube dispute can be solved with off-the-shelf ideas. Television networks are no strangers to revenue sharing; they incentivize their broadcast affiliates by giving up a few minutes of local TV advertising during each show. The industry calls this "barter," as in, you air my show in Cleveland, and I'll give you three minutes of ad time that you can sell locally.
Satirizing the latest news, the Daily Show has a particularly short shelf life, unlike dramas and comedies that can be further monetized on DVD. Daily Show clips are hot for a very brief time, and Viacom should maximize ad revenue during this brief window.
If Viacom treated YouTube as another cable company, then a per-subscriber fee and an ad barter arrangement could be quickly worked out. The definition of a "subscriber" would require some negotiation, but the general outlines of a deal would already be in place.
YouTube is now owned by Google, whose high-flying stock makes it the ultimate deep pocket. Viacom may be dreaming of a huge up-front payment from Google, but that may not be in the cards. Why should Google write a nine-figure check to Viacom, just because YouTube’s screen is a little different than Comcast’s?
If Viacom can see YouTube as a natural extension of broadcast television, all of those Internet eyeballs can be monetized. If Viacom sees YouTube as a monster that must be stopped, Daily Show fans will share their clips underground, dispersing YouTube’s huge audience and potentially killing off a valuable new revenue stream.
Greg Spotts is Creative Director of the Shortlist Music Prize, and rocks the digital media beat for Fast Company.
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February 2, 2007
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Around 33 million Americans paid an average of $6.50 per ticket to see Ben Stiller in Night at the Museum during the last six weeks. But that’s just the beginning: from DVD to pay-per-view to television broadcasts, Fox will be hauling in the bucks for years, charging different prices for the same movie based on each consumer’s “willingness to pay.”
Economists call this practice “price discrimination,” and it’s a great way to make money. Price discrimination allows the movie studios to monetize a wide range of consumers, from rabid fans to channel-surfing couch potatoes. The movie business figured it out decades ago, but the music business stubbornly refuses to try it.
Movie people call it “windowing,” as in rolling out a film in stages, each distribution platform having its own window of time. If you want to talk about Ben Stiller’s escapades at the office water cooler, then you have to pay $6.50 for a movie ticket. If you don’t mind waiting a few months, you can rent it at Blockbuster and show it to the whole family for just a few bucks. And if you’re willing to wait a year or more and sit through commercials, you can watch the movie on television for free.
Meanwhile, the music business clings to the idea that all consumers should be willing to pay fifteen bucks and up for a CD. While lamenting the “Napster generation” of teens who rip, burn, and file-share, the industry has never made a bona-fide, genuine offer to these price-sensitive consumers. They may not be willing to pay $15 for a CD or even 99 cents for a download at iTunes, but could there be a price point at which free-riders would become paying customers?
Whether it’s an ad-supported download service like the soon-to-launch Spiralfrog, or a monthly allotment of downloads that are bundled into cellphone or satellite radio service, there are many possible answers to the question, if the industry is willing to experiment. If the film studios and the airlines have found ways to segment their customers and charge different prices based on convenience and willingness-to-pay, why can’t the music industry?
Greg Spotts is Creative Director of the Shortlist Music Prize, and rocks the digital media beat for Fast Company.
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January 26, 2007
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Often referred to as the “Netflix of video games,” the GameFly online video game rental service allows users rent a game, play it as much as they want, and then send it back in a postpaid envelope. As soon as GameFly receives the package, it sends the user the next game on his wish list. Subscribers can keep one game at home for $14.95/month, or two games for $21.95/month. I interviewed GameFly co-founder Sean Spector on Friday January 26 about his company and overall trends in the video game business.
Q: The fourth quarter of 2006 was a big period for sales of game consoles, both new and old. What trends are you seeing from your vantage point, and did the Q4 console sales figures contain any surprises?
A) We see all of the systems looking healthy at the moment...360 is surely leading the charge with our members. The Wii and the PS3 are showing a high level of popularity with our member base as well. No big surprises in Q4 other than the lack of the new consoles compared to the demand.
Q) Which consoles were in shortest supply? Do you think some of these lost sales resulted in the consumer buying a different console, or are consumers waiting patiently for their console of choice?
A) During Q4 both new consoles were hard to find, although Nintendo had more units in the marketplace than Sony. Not sure if they lost sales to other hardware, but they lost sales. In Q1 Sony has done a better job of getting their PS3 hardware out to consumers, but the Wii is still difficult to get one's hands on. This coming holiday season will be an important indicator. All three platforms will be out in full force and there will be a broad array of games.
Q) Why do you think the majority of your subscriber base is comprised of Xbox 360 users? Is it the high price of games for the 360?
A) Several reasons: 1) our service is very popular with core gamers, 2) the 360 audience skews older than Nintendo and Sony, therefore they tend to be more comfortable with subscription based services, 3) Xbox has promoted their "LIVE" service, which extends the life and playability of the software. The Xbox Live marketplace allows for free demo downloads as well as free levels and maps to be distributed. So we get a lot of gamers you want to try games and use Xbox LIVE.
Q) Is the teenage gamer is more likely to rent a game at Blockbuster using his parents account than to open up his own account with GameFly?
A) Yes. In the larger picture it's probably easier to tag on to your existing family account at your local video store then to negotiate an additional service for the family. That being said, we track new members that sign up for the their sons and daughters and they make a sizable piece of our rental business.
Q) A twenty-two year old friend tells me he buys Xbox 360 games new for $60 and sells them used to a brick-and-mortar retailer for $30. He keeps about four games at home during any particular period. So are you competing with consumers who have their own methods for cycling games in and out of the house?
A) That's a lot of work...our service is much more convenient and far cheaper then your friends method. He should sign up for a GameFly free trial.
Q) Tell me about the business plan. Have you met your own goals for the first four years of the company's existence? And what are the current goals for the company?
A) Things are going well. Current goals are to continue to offer a superior game rental experience and game sales experience to our consumers.
Q) Could you put a little more meat in that sandwich?
A) We are privately held and for competitive reasons we do not disclose further information.
Q) Have you found any ways to mine your data that produce a better understanding of gaming trends than a brick-and-mortar retailer would be able to generate?
A) We have this amazing piece of technology called the GameQ (game wish list). The GameQ gives us an immediate and accurate picture of rental demand for any given game title. That is next to impossible to emulate in a brick-and-mortar world.
[Check out this link for a list of GameFly’s top ten most requested titles for the week ending January 15, 2007, plus some armchair analysis by a blogger.]
Q) How about a prediction... a year from now, which of the new generation consoles will be most successful?
A) For the first time in the video game industry I think we have a chance for three viable platforms...the gaming audience is so broad that three platforms can be successful. A lot will depend on what games come out this year and price drops on the hardware.
Greg Spotts is the Creative Director of the Shortlist Music Prize, and rocks the digital media beat for Fast Company.
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January 17, 2007
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Today the IFPI released 2006 figures for the global music industry, demonstrating the continued growth of downloadable songs, ringtones, and other digital music services. Here are a few numbers from the report:
Worldwide Digital Music Sales, in Dollars
2004: $380 million
2005: $1.1 billion (5% of total industry revenues)
2006: $2.0 billion (10% of total industry revenues)
Single Track Downloads, in units
2005: 420 million worldwide
2006: 795 million worldwide (of which 582 million were sold in US, and 53 million in UK)
Albums Downloaded, in units
2005: 16 million in US
2006: 33 million in US
The impressive growth in digital sales was not enough to replace the lost revenue from the declining market for physical CD's. Worldwide, the total dollar value of music sold in all physical and digital formats declined by 3%.
In the US, the five year sales decline of physical CD's continues unabated. In 2006, only 588.2 million CD albums were sold, down from 618.9 million in 2005. This week's number one top selling album, the Dreamgirls soundtrack, moved just 60,000 units, the lowest weekly sales for a #1 album since Soundscan began tracking weekly sales in 1991.
Could these weak numbers pave the way for EU approval of a Warner-EMI merger this year, reducing the number of major music companies from 4 to 3?
Greg Spotts is Creative Director of the Shortlist Music Prize, and rocks the Digital Media beat for Fast Company.
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January 11, 2007
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It's official: Apple has announced the iPhone handset, featuring a gorgeous design and a sparkling, innovative user interface. Will Apple function as a mere handset vendor, or a disruptor/transformer of the mobile phone industry?
Let's review Apple's five year foray into the music business for some clues about what might happen in the phone business. Apple introduced the first iPod music player in October 2001, bringing style and simplicity to the MP3 player category. Yet the masterstroke occurred seventeen months later, when Apple launched the iTunes Music Store. Apple had sold less than one million iPods when the iTunes Music Store was launched.
The combination of 99 cent pricing, full participation by the major labels, reliable performance and ease-of-use made the iTunes store into the Amazon of downloadable music. Industry observers hailed Apple, and the record companies finally started to get paid on at least some of the music files flowing around the Internet.
Flash forward to January 2006, when Apple announced cumulative sales of 42 million iPods and 850 million songs. That's a mere twenty songs per iPod.
Think about it: Apple enjoys $200 in revenue per iPod, and the record companies realize only $14 in revenue from their 2/3 cut of digital music sales. (It would be nice to think that iPods stimulate sales of physical CD's, but CD sales have been shrinking throughout the iPod era.)
The fresh numbers announced at MacWorld and in Apple's quarterly results tell a similar tale. iTunes has now sold 2 billion songs across an installed base of approximately 86 million iPods. With this new data, the number of songs purchased per iPod is still less than 25.
Simply put, Apple turned a "razor-and-blades" business inside out. In 2001, CD players were a commody product, and all the profit was in the CD's. The DVD business is similar: film studios make billions of dollars on DVD sales while the DVD player has become a $39 doorbuster. So in a business where content is king and the player is a commodity, Apple makes $200/player and the content companies make less than twenty bucks in incremental sales.
Could Apple bring the same creative transformation to the cell phone business? Is the iPhone merely the trojan horse for a future end-to-end, high-touch customer experience? We already have a clue, in the form of Cingular's "visual voicemail," exclusively available on the iPhone. Instead of listening to messages sequentially, you can look at a list of voicemails and touch the ones you want to hear. It's a simple, elegant, "why didn't I think of it" innovation.
In our increasing complex hardware/software/net ecology, Apple has a unique ability to integrate all three elements into a fun, innovative and reliable experience. Hmmmm: fun, innovation and reliability... sound like competencies of America's mobile phone industry?
Greg Spotts is Creative Director of the Shortlist Music Prize, and rocks the Digital Media beat for Fast Company.
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