Is the future of music in the clouds?

Shachar Oren’s article was originally posted here:

Every year there’s a rush in the music marketplace after one trend or another, and in the past year it’s been cloud services and the concept of ‘music as water’ subscription services.  While the notion of selling music subscription like cable TV may be appealing at first glance, it is proving hard to monetize on for both the companies that launch such services and the content owners who participate in them. There are several reasons why I have always been very skeptical about the future of all-you-can-eat subscription services and cloud service models:

First, consumers don’t consume music like they do TV programs. On TV you are likely to watch a show or a movie once. When you really like a song or an album, you want them with you for a long period of time and for repeated use – potentially for life. Indeed, look at the past decade of digital music sales: The mass market is buying and downloading music ala carte. Subscription services have found it very hard to climb into seven figure subscriber bases – sure, recurring revenues from 700,00+ subscribers are nice, but if after ten years you can’t move the needle much higher, then the market is telling you something.

Second, the complex offering model that subscription services offer makes them harder to sell: The consumer has to understand various DRM rules and deal with their implications. Additionally, the consumer has to deal with a lifetime commitment issues – after months of working their way thru a catalog of streams, if they decide to discontinue the subscription or switch services, they lose all their work, all their cached playlists and repositories. Also, the market still can’t offer consumers reliable connectivity on the go – even with pre-caching, it’s not a perfect picture. All these elements combined have rendered subscription services a niche that is best suited for tech-savvy taste makers (Pandora is different because it is more akin to Radio than to ownership-type consumption).

Enter cloud services… in a world where one can back up an entire hard drive – music, movies, e-mails, pictures, documents, programs – onto affordable backup/restore services such as Mozy, Apple, Google, Microsoft, etc., will there really be room for dedicated music-specific cloud services for additional money? Sure, there are some bells and whistles that Amazon, mSpot and others are adding to create unique value for the music user, but is that enough to drive a mass market adoption for such content-specific concepts? And will consumers pay for more than one account? Or just choose one major backup hub (Google, Microsoft, Apple), park their entire PC on it (including music), and be done?

The last frontier in this battle for a winning “all you can eat” music offering is the speed in which affordable storage space is increasing. Imagine a world in which you can purchase a 100TB storage chip for your smart phone (and PC) storage card slot.  Imagine a world where this card can either come pre-loaded with all the music you could care about, or you could load it up w/ critical catalogs, by genres, from many Bit Torrent sites for free. When this becomes reality in a handful of years, how appealing would it be for the consumer to pay for a music subscription service or a music-specific cloud storage service? If music in the clouds is free AND easy to grab in bulk, how can music cloud services be monetized on?

An affordable, large solid-state memory market may beat 4G+ networks to the punch in providing consumers an ideal way to access all the music they want on the go. This will re-focus consumer services on the new music “discovery” market (like Pandora) – this is the section of the market that will represent opportunity moving forward. In a market where access PLUS ownership becomes even easier, ubiquitous and affordable (or free), the industry should focus on building value around new releases – focus on the quality of new releases and the packaging that comes with them. This means an ongoing, strong a la carte business, avoiding the inclusion of hot new releases in cheap subscription and cloud services that devalue them. And indeed, this future spells trouble for those in the catalog business. The catalog business may not exist within a decade…

So, where does this leave the music industry? The progress made this week by content owners partnering with ISPs to prevent illegal downloads should be just the tip of the iceberg. The industry should now move to capture revenues from the “new distribution routes” of content – the disruptive companies that replaced the traditional physical mediums of distribution: Chip manufacturers and device manufacturers. If each device and storage system was taxed to compensate for the abuse it helps create – taxed in similar fashion to how content owners for years have been compensated from the sales of blank media such as cassette tapes and CD-Rs – then a strong multi-billion revenue stream should emerge, compensating right owners for the loss of control over pre-existing catalog sales. It would only take a handful of dollars from each $299 smart phone sold or any other computer. It would make little impact on the electronics industry – but would save the music industry.

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