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august 17, 2007:
the attention economy and the music industry

A few months ago, the UK law firm and research company Olswang released a new report called The Impact of Social Networks on Music Commerce. I have had the PDF on my desktop, marked in red, for a long time, and I finally got to dig into it today.

This is an absolutely brilliant piece of research (albeit with a fairly small number of UK-only participants, about 1,700 I think) that very clearly spells out where the future of music will take us: licensing access, sharing new revenues, ad-supported monetization, diversified revenue streams, complete music and video convergence, user-generated playlists and viral syndication, and so on – you’ve heard all that from me before I reckon.

Here are some excerpts and comments:
Social networks are changing the accessibility of music, helping it to become more democratic and utilitarian and this is having a profound impact upon the discovery and purchase of music, with far-reaching implications for the music business.

My comment: You can say that again. Streaming full-length music tracks, fully selectable by the users without any restrictions whatsoever, is now becoming the default on social networks and blogs. Basically – and I said this two years ago – this is the new radio, and it should be licensed like radio (albeit for a higher share of revenues).

The Impact of Social Networks on Music Discovery & Purchase: The Digital Music Survey is currently in its fourth year and is an independent survey of 1,700 UK consumers. The research indicates massive increases over the last 12 months in usage of sites containing music such as YouTube (up 310% to 53%) and MySpace (up 57% to 55%). Amongst teenagers the incidence is huge – 77% have used MySpace and 69%, YouTube. For users of these social networks, music is playing an increasingly important role. For example, 39% of social network users have embedded music in their personal profiles (65% of teenagers). Approximately 70% do so to show off their taste and half do so to reflect their personality. What’s more, it seems to work as almost 60% agreed that they could tell a lot about a person from the music in their profile.

My comment: Embedded music and media players will indeed be the #1 driver of content syndication, and will play a huge role in how music is being found and purchased. Give it just another 12–18 months and every web user will know what a widget is – and probably use them, too. Imagine Amazon.com offering MP3-only downloads that are based on a weekly or monthly flat rate, and/or bundling deals that “feel like free” to the consumers that are on the receiving end of click-throughs from 500 million social net users. (They already did this with Premium Shipping and are now

doing it with Kindle, their new book-device that has the connectivity already included.) It will no longer matter where and how the purchase happens, and whether any new friction can be interjected to shore up that good old scarcity paradigm. All that matters will be who gets the clicks and who does not – getting and retaining attention is the new mission; distribution is simply the default. Friction is Fiction.

Olswang continues:
The survey findings strongly suggest that social networks are also impacting music discovery. 53% of people revealed they actively surf social network sites to discover new music and artists and two-thirds of all users regularly or occasionally discover music that they love on their preferred social network site. The incidence is higher still on MySpace (75%), Bebo (72%), and YouTube (66%).

My comment: This is indeed a huge marketing nirvana for the record labels, and one they need to embrace a lot deeper than they have been doing until now. Just like the New York Times dumped its Times Select offering in favor of an open, ad-sup-ported approach (and the WSJ is sure to follow), record labels need to shelf the idea of fixed per-stream fees. It just sets up hurdles that won’t be meaningful, anyway, and it will dampen everything. Being in the pipeline is what matters, and getting more people to pay attention is what will drive future music commerce. Don’t abolish the tollbooth – just move it down a bit further, and be smarter about it. Pull before you push!

Crucially, the discovery is translating into changing purchase behavior. 17% of social network users claimed it has a “big/massive impact” on the way they purchase music and 30% state that they “regularly/occasionally” buy CDs or downloads of music that they discovered on a social network site. This rises to 36% of MySpace users. However, more needs to be done to make purchasing this music easier, with 46% of respondents agreeing with the statement “I wish it was easier to purchase music that I find on these sites.”

My comment:
I think it is shockingly pathetic how little the record industry has done so far to harvest the fruits of this enormous interest in music. People are totally interested in music, but until now the industry has only done its utmost to deter the interest, with impossible commercial terms, copyprotection obsession, format wars, territorial restrictions, and licensing turf wars. Ouch! Talk about a dysfunctional ecosystem – this is winning the grand prize, in my humble opinion.

Russell Hart, Chief Executive of Entertainment Media Research commented: “Social networks are fundamentally changing the way we discover, purchase, and use music. The dynamics of democratisation, word of mouth recommendation, and instant purchase challenge the established order and offer huge opportunities to forward-thinking businesses.” John Enser, partner and head of music at Olswang, says: “The music industry needs to embrace new opportunities being generated by the increasing popularity of music on social networking sites. Surfing these sites and discovering new music is widespread with the latest generation of online consumers but the process of actually purchasing the music needs to be made easier to encourage sales and develop this new market.”

My comment: Record labels: Are you really listening? I am going to stop here as you can read the rest on the Olswang site, but here is one more morsel that must be shared: Enser says, “As illegal downloading hits an all-time high and consumers’ fear of prosecution falls, the music industry must look for more ways to encourage the public to download music legally. Variable pricing models and DRM-free music, which would allow consumers legally to transfer music to other devices, were popular among respondents and represent new ways of enticing people away from breaking the law.”