French digital music entrepreneur Gilles Babinet - chairman of Eyeka, MXP4 & Awdio - makes his predictions for this new year about digital music industry trends.
For each of the past ten years almost without exception, the music industry has been associated with bad news. It is widely held that music is a shrinking business (yes, sales have dropped by almost two thirds this decade), incapable of shifting its model, and moreover not really able to cope with the internet.
It is a well-known fact that not only did the industry poorly manage the transition towards the internet (I can remember that in 2000, we were often advised not to utter the word mp3 when we had a meeting with execs from the industry) but in addition it has been unable to create any kind of alternative offering… As a result, the industry didn’t really counter the inscrease in piracy and things went only from bad to worse.
However, 2010 has been an interesting year and there are many reasons to believe that 2011 will be a critical – and surprisingly positive – year. Here are ten key trends for the year to come:
1° In Europe, the drop in sales will come to a halt:
We admit that this is quite a risky prediction, but based on interim sales reports from several European countries, it seems that the downturn has, for the first time, stopped in most developed countries. Even France, where piracy is rife, witnessed a small increase in consolidated music sales on a runrate year basis. We believe that for the first time, paid-for online music could compensate the loss of physical sales. This may not mean that traditional players will stop suffering; rather, internet newcomers and majors will enjoy most of the growth, while indies will keep suffering.
2° Cloud is Music:
Streaming music has become common… Even though Spotify has been struggling for almost a year to sign the licenses that would let it enter the US market, its model is admittedly becoming the best one, far beyond iTunes’: no mp3 files to manage, accessibility from any computer, social features embedded, almost unlimited catalogue, and piracy rendered almost impossible…
3° iTunes will shift to the cloud:
From its inception ten years ago until now, iTunes’ offering has hardly changed, bar the removal of all DRM 2 years ago. As a result iTunes is clearly perceived as old fashioned, while a significant part of its user base sees it as tricky to use, according to researchers. We can bet they are having a hard time finding better features than Spotify already offers.
4° No longer one leading player:
Over the past ten years, the dominance of iTunes has been impressive. Up to 88% market share in the US – according to Steve Jobs – and a global market share of 70%. Majors have learned the lesson and will make sure that it won’t happen again. Good news for them: there are plenty of newcomers ready to take their share of the business.
5° Mp3 is progressively getting old:
The once-hip format was invented more than 20 years ago. It is clear now that in terms of compression efficiency and fingerprinting, it is far from the best. Above all, the shift to the cloud will turn it into history.
6° P2P traffic decreases:
Maybe for the first time in more than ten years, P2P exchange has experienced a strong backlash, with actors such as LimeWire being obliged to stop their activity while the founders of PirateBay’s prison sentences have been confirmed by a Swedish court. As a result, overall P2P traffic has either stalled or decreased. Piracy though is still doing fine thanks to fast download, VPN and illegal streaming sites. For 2011, the increasing number of laws (such as Hadopi in France) may reverse the trends, at least in Europe.
7° Fans are coming back… on Facebook:
You don’t care about Facebook’s hipness and you think “fans” are insignificant in terms of music business? You may be wrong. In recent years, researchers have demonstrated that youngsters are not listening to music alone anymore, or as their elders did: they watch videos or play videogames at the same time. This explains a lot why the face value of music has plummeted almost to zero for this demographic category. However the good news is that 12 of the top 20 biggest fan communities of Facebook are music artist-related. And these artists are just about now realising that they can easily monetise these fans. The example of the boom in social gaming has also proved that the number of page fans is not just bullshit, but rather a very serious income source. Linking up fans (through social networks) and music may be the next music killer move. Not only would it at last create a funnel to recruit new music fans, but it would bring to youngsters the listening experience they have been involved with for these last few years; listening to music while they are doing other stuff. A few start-ups – including mxp4 – are now engaging themselves into this area. Business is still in infancy, but there are reasons to believe that it can boom even more than the once the ringtone business did…
8° Value changes hands and clearly shifts from traditional labels towards internet players…:
Obviously, e-tailers (iTunes, Amazon…) and media players (Spotify, Pandora…) are definitely taking an increasing share of the music revenues (majors can defend their share but indies clearly can’t) ; but more interestingly numerous producing or licensing segments (CDBaby, Orchard, Believe are good example…) are increasing their market share. It is still unclear if these new players’ revenues are recognised and acknowledged by the music industry (we assume the situation differs from a country to another).
9° Long tail creates value:
Even though this concept popularised by Chris Anderson has gone through a lot of criticism, we cannot void the fact that the long tail music business has significantly grown and that it now represents a large chunk of the newly-created revenues.
10° 2011 may see an artist breaking on Facebook:
Recently Mark Zuckerberg made clear that he wants to “reorganise” the Content (including music) business, thanks to new features on Facebook. He clearly understands that he has built the most powerful media to break new artist. Our bet is that in 2011, we will have the first artist to hit worldwide fame and recognition, thanks to Facebook alone.
Source: http://blog.midem.com/2010/12/gilles-babinet-10-digital-music-bets-for-2011/
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