Back to the Roots: Innovator Apple wants to get back on track
At the WWDC ( World Wide Developer Conference) in the beginning of June Apple CEO Tim Cook stated that his teams are working hard on developping new hardware, software and services. Apple is coming back on track with new technology. And with their new “iRadio” they might symbolise a huge competition for smaller companies that originally have brought digital music streaming to the market. They plan to build it up as a streaming platform that works like for example Pandora, Spotify or Rdio which are free and financed through advertisement. But on top of that users can then directly buy music that they stream and like.
Being currently in discussion with several labels like Universal, Warner Music and Sony to conclude contracts Apple creates a profound base of connections to the business. And music companies will earn money from streams as well as from downloads at iTunes.
According to Billboard Magazine iTunes Radio is not just a Pandora copy because it has the direct link to the iTunes store in order to buy music. And because Apple’s music library has 26 million songs versus one million at Pandora. So we can really see the difference between an innovative global player like Apple and smaller companies that have been a start-up not so long time ago. Apple spokesman Tom Neumayr highlights this fact when he explains Apple’s aim of having the biggest music catalogue of all Internet radio services.
Apple plans a two-bucket payout system, which means that they will store 10%-20% of ad revenue to cover costs in lining up advertisement and the rest will be divided evenly among the labels. Thus, Apple pays out more than Pandora to labels according to sources. Also, Apple will pay more per stream: $ 0.0012 per song.
What are the effects on other digital music providers?
Apple was the first company to come up with the idea to legally make access to digital music with opening its iTunes store. So that it became legal for people to download and purchase songs digitally. (New York Times) So we see Apple was the founder of the whole shift towards digitalization – and they made it applicable to the mainstream. Taking into consideration what Russ Crupnik, an analyst at NPD Group who studies the digital music market, says about the new online radio we can see that Apple can and will profit from its role as a global player since more people already use Apple services and therefore it will win over smaller competitors as Pandora or Spotify which have a way smaller customer base. Crupnik sees the company’s genius in its ability to make the mainstream consumer understand what digital music is, even back in 2003.
Whereas Crupnik expects Apple to have a big influence on the digital market according to its size and customer base, James McQuivey, an analyst at Forrester Research, thinks that Apple is coming too late. He finds the planned “iRadio” that functions as many other services like Pandora or Spotify not enough to be successful. It has to have something innovative.
Nevertheless, chief market strategist at Oracle Investment Research, Laurence Isaac Balter reinforces Crupnik’s opinion and trusts on Apple’s solid customer base. He also sees Apple’s advantage in its huge network of different hardwares and softwares like the iPhone, iPad, iPod and Mac computers that are mostly interconnected. So in the end, customers using Apple devices will most likely tend to use the “iRadio” in addition since it is designed for their devices. Balter also puts focus on Apple’s strength to have better access to customer data which they receive from its mentioned “hardware-network” so that they would perform better than others when it comes to music recommendations. In his opinion it will be difficult for other companies to compete.
What other companies can do to keep up with Apple
As Steve Jobs once said:
“Consumers want simplicity, and building a simple product is more difficult than building a complicated one.”
Jobs underlines the importance of simplicity when you want to successfully sell technology on the market. This is also one of the reasons why iTunes counts more than 500 million active accounts. So what to do now for the other firms to have a reasonable chance to survive on the market?
Malte Sigurdsson, both springer and Rdio senior VP of product, suggests to concentrate on the “onboarding process”, so to say to concentrate on how to reach new customers. And in order to have success with that and to keep them it is important to create a simple and customer friendly user interface.
Slacker CEO Jim Cady adds another advice for smaller digital music service providers. He would not only put focus on new customers but also on how to create a fascinating user experience which can satisfy existing customers as well as attract new ones.
So there is a lot to do for the smaller firms now. Digital music services have started simplifying their products to reach the broader market. As a result, we can see how important it is for the digital and technological market to always come up with new ideas.
Next to design, businesses can also work on their marketing. Taking the example of Spotify that has just published its first ad campaign (see the spot here), we can see how little is done by digital music service companies now to be more present on the market and to reach new customers. This can be traced to their mostly low capital since many companies are still in their start-up phase. But advertisement is still one of the most common and most effective ways to promote a product. And Apple invests a lot of money in advertising as seen with its periodically changing TV spots.
Thinking of music labels, I found a good example of music marketing at Universal: the label has a special department that takes care of brand partnerships. Here they bring together brands and musicians to cooperate. This may include a singer being the new face of the brand’s new ad campaign or both sides doing a selling deal.
Music-Brand-Partnerships as the new smart marketing: Jay-Z makes common cause with Samsung
We can observe a new trend in music marketing. Global players are starting to go into partnerships with big names of the music business. We can see this at the current example of Samsung and Jay-Z. It was the first time that a major release had an exclusive premiere carried out by a brand. Samsung created exclusive access to Jay-Z ‘s new record released in the beginning of July via an app to the first million customers that buy the new Samsung Galaxy mobile phone. According to Samsung senior VP of media solution TJ Kang Samsung wants to play a bigger role in the digital music market and wants to integrate music as a basic element of their devices so that it attracts customers more in the future. Samsung works hard to develop from just a hardware manufacturer to also be a media platform. The New York Post reported that the deal values close to $30 million and Jay-Z is about to receive $7.5 million from it.
I find it very interesting how companies that have not had much to do with music now want to explore a new field with music. I think music is a good horse to bet on since it will always be consumed by people. Additionally, it is about to completely go digital and therefore can be well combined with technology businesses.
Smart Music Marketing Vol. 2: Kanye West
Another good example for smart marketing in the music business is Kanye West with promoting his most current album “Yeezus”. West initiated a kind of global happening where he streamed the video to his new single “New Slaves” at 66 different public places on houses in cities all around the globe. See an example of Berlin here. To find out more about the happening click here or here.
Thus, Kanye even made it to promote his new record without big ad campaigns. One might say he would not even need a record label for this kind of promotion. What raises the question of whether labels are needed any longer since CD sales are declining anyway. And then we see how artists behave as their own brand taking care of their own promotion. In the beginning of my researches I wondered how the music industry’s future will look like. Now I can say that there is a lot happening that changes the music market as we know it entirely. People tend to consume music in a digital format so that new companies that provide music online experience a boom. Other big names of the IT business enter the market trying to compete with devices, software and services. This new power for such companies makes it possible for musicians to go into profitable cooperations with them. Since they own a big customer base, all the people that are up-to-date use those devices or online services and since CD sales shrink anyway, artists do not depend as much on their labels anymore. I think music labels have to exist in some way to bring an artist to the market but they are not very likely to grow any bigger in the near future.