Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Friday, January 07, 2005

The Future of the Music Industry

Had a great chat yesterday with a former industry luminary. It got me thinking about the future of the industry. Here are my thoughts - there are two primary effects, a demand effect, and a distribution effect:

First, in the near future, iPod and ilk will get connected, as WiFi (or substitute technologies) chipset prices drop, and get integrated into larger functionality. In fact, the iPod phone is apparently just around the corner. Connectivity is going to shape the future of demand in the music industry.

Obviously, a short term demand-side gain is beaming music directly into your iPod. Another simple one is costless replication across all your devices. Fine. But probably a more important one is ad-hoc file-sharing with people you know - or better yet, want to know. Like introducing yourself to the hottie you see on the bus every morning by beaming him/her a track you like. Music has always been an object of social consumption - connected players will transform the value equation, like connected gaming is transforming the gaming value equation.

Second, connected music players will totally reshape the future of music distribution. Record stores haven't vanished because, let's face it, shopping for music is fun - part of our utility in consuming media is sampling different goods.

When you combine connected music players with RFID, you get a whole new ecosystem of possbilities for music distribution. Ponder this for a second. RFID opens up whole new kinds of network possibilities for media goods in retail locations. The most obvious is record stores which can beam tracks directly into your iPod without a massive infrastructure investment, while you walk around different listening stations (or similar scenario).

But my money is on clubs becoming music distributors/retailers - when you go to a club, you can get the DJ set or selected tracks beamed into your player. This is a natural evolution for clubs, the most iconic of which (Tresor, Ministry) have evolved naturally into labels with dedicated shops. There are huge synergies here - we go to clubs to hear the tracks DJ's have selected - that's the value they add. But we don't get to consume them later without incurring significant additional cost (ie, tracking down the right tracks on the right CDs at the right record stores). Eliminating this additional cost creates huge gains for consumers.

Of course, the above argument holds for all kinds of digital media - from movies, to books, to art. Think of how many people treat their local Border's as a 'club' for books - a place where they can chill out and sample the latest books.

But music is where we'll see the model emerge - because iPod penetration is growing nicely, and the price (and size) of connectivity is dropping exponentially. In fact, if you think of the market power connected video devices would give a Tivo over it's cable rivals at the moment - you begin to see that this kind of paradigm is almost inevitable.

The infrastructure for this paradigm is emerging: check out Sonos and Motorola's Liquid Media.

-- umair // 1:07 PM // 2 comments


Great post. I particularly liked the idea of clubs becoming distributors / retailers. Part of the value a good DJ adds, in addition to picking great tracks, is mixing them together and selecting an appropriate sequence. There is really no way to reproduce this even if you take the time to hunt down all the individual tracks. In a sense, this replaces the A&R function of record companies.

Of course navigating the digital rights management issues will complicate all of this.

// Anonymous Anonymous // 5:36 PM

I think the consumable package isn't small emough yet, and the device market is too confused to make "dynamic downloading" arrive before the compelling argument of "pay"-to-listen kills downloading.

"Downloading" songs themselves(rather than a list of recommedations) is in the end a dead-end idea. I'd gladly give up my CD collection to semi-public use if I could join a set of fellow streaming/sharing users, "paying"(which may be payment by membership) only for each listen.

This will take time to happen, but the confusion in the Music Player market, and a lack of a credible standard for the next round communications based functionality (can you download from your "club" to the next gen iPOD? What about Creative MP3 players? What about my cheap nock-off player?) will hamper the proposed distributed model outlined here.

The phone is looking increasingly like the music player/downloader/streamer de jour. This then leads us back to a centralised telco/music industry distribution model. Of course I'm hoping some wifi/iPOD thing wins the day, but its looking unlikely right now..there's too much FUD.
// Anonymous Anonymous // 12:52 AM
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