creative deconstruction

Forrester Report: The Way Forward for the Music Industry or a Step Backward?

Posted on 13. Sep, 2009 by refe in MUSIC INDUSTRY, NEWS

A new report from the Forrester Research Group has been getting a lot of buzz lately, fueled largely by the fact that due to its hefty $500 price tag very few people have actually read it. Nothing like a bit of mystery to spice up what is being heralded by some as “a plan to save the music industry.”

The 18 page report is called Music Release Windows: The Product Innovation That The Music Business Can’t Do Without by Mark Mulligan. The Forrester Group was kind enough to send me a copy, so I thought I’d put together a brief summary of the report, adding my own two cents as I go. If you really want to drop five-hundred bucks on a copy of your own, by all means click here.

The Context

The report is built on the premise that free digital distribution has transformed recorded music from a scarce good into an infinite good. In Mulligan’s words “content scarcity is dead.” Digital music files can be copied an unlimited number of times without degradation and without cost. Infinite goods are next to impossible to monetize, unless they can be paired with other forms of scarcity that add value. So far so good. I don’t think there are too many people out there who still disagree with this concept. If you don’t quite get what I’m talking about read this before going any further.

Mulligan suggests that this presents the music industry with the opportunity for the “album straight-jacket” to be thrown off so that “releases can become part of a continual artist-fan relationship.” He goes on to say something we’ve been saying around here for a while, “We want to see labels empower artists to think outside the confines of the album and maintain steady, continual streams of creative output.” (Emphasis mine.) This includes not only recorded music, but other types of content as well such as music videos, interviews, behind the scenes features, etc.

The Plan

The bulk of the report deals with Mulligan’s plan to “establish structured release windows that communicate value.” Mulligan argues that the “proliferation of new music services makes it difficult for consumers to discern any one service’s relative position in the product range and to understand value and premium.” Basically, with all the options consumers now have to discover, enjoy and purchase music it has become too hard for them to figure out how much music should be worth. Some services are paid, some are free, etc.

Mulligan’s answer to this is to establish a 3-tiered system of release windows, similar to what has been used in the movie industry for years. Music is first released to premium channels, then to mainstream channels such as conventional retailers, and finally to “free and feels like free” services like online streaming. The chart below provides an illustration of how this might look.

Aside from establishing a clear hierarchy of value, Mulligan also proposes that this system would provide additional value through the scarcity of convenience. “At the top of the release window chain will be highly convenient services that deliver real premium value with the best content first. At the other end will be services  that are less convenient with less content last.” (Emphasis mine.)

The Problems

Unfortunately, this plan doesn’t really do what it sets out to do. It doesn’t add convenience – it only adds an artificial sense of convenience.

Right now, when music comes out it just comes out. You can get it online, you can get in the store, you can stream it on Last.fm, – all at the same time. Listeners have the choice to get their music the way they want it. What Mulligan’s plan does is put up artificial restrictions to keep various groups of consumers from having access to content until as long as six weeks have passed. This may establish a value hierarchy, but it also completely ignores what consumers actually want. As Mike Masnick of Techdirt puts it, “Artificially holding [content] back doesn’t do much good and doesn’t give anyone a reason to buy.” Sounds more like inconvenience, doesn’t it?

Which brings us to the elephant in the room: unauthorized file sharing. These release windows are meaningless if someone leaks the content early. If the U2 album bundled with that fancy black and red iPod suddenly becomes widely available, for example, the value of that ‘premium channel’ goes way down.

Here’s what the report has to say about that:

Of course, music will still leak onto file sharing networks and reduce the scarcity. But that’s why we’re focusing on convenience first. And there will even be content scarcity of sorts: in the legitimate arena. This will still be important, as it will be a valuable asset for high-end buyers who want to pay to get stuff first. Freeloaders will still turn to filesharing, but that’s not who the services at the top of the release window chain are aimed at.

I agree that in the ‘legitimate arena’ content scarcity still exists. I purchase every track that I download. I don’t download unauthorized music and I won’t even if Mulligan succeeds in convincing the industry to make me wait six weeks to stream an album to find out if I like it enough to buy. But there remains a large number of people aren’t likely to play along with this plan.

The report attempts to address these issues, but isn’t very convincing:

It might seem a bit contrary to be talking up the idea of release windows just as the movie industry is compressing its windows as global TV release schedules start to become harmonized. But we think there are valuable lessons to be learned (including learning from the movie industry’s mistakes.) Also, it is worth noting that movie releases are unlikely to ever end up entirely compressed and that global release synchronization is both long overdue and essential in the digital age for TV as much as it is for music. If you don’t synchronize globally, BitTorrent and a host of others will do it for you. (Emphasis mine.)

Isn’t this very report suggesting that the music industry un-synchronize?

Conclusion

All in all I found the report to be a mixed bag.

The good:

• Recognizes the need to add scarce value to recorded music.
• Attempts to establish a clear value hierarchy between various music formats.
• Embraces the idea of artists producing a steady stream of creative output rather than staggered album releases.
• Advocates an increased focus on product innovation. (I didn’t cover this idea much in this post due to space. I will talk a lot more about it in a subsequent post.)

The bad:

• Fails to produce a true value-adding scarcity
• The convenience offered to some consumers by release windows is only relative to the inconvenience they impose on everyone else.
• The effects of unauthorized file sharing are all but ignored.
• The solution offered (release windows) is a step backward at a time when the industry should be looking to the future.

That should just about cover it. I tried to be as comprehensive and clear as possible for those of you who have not had a chance to read the actual report. Let me know if you have any questions about it that I don’t seem to cover here.

What do you think? Are release windows the way forward or a step backwards?

Tags: economics, file sharing, forrester research, music, STRATEGY, value