2015 Trends Digital Advertising Mobile Marketing

The End of Owned Music and the Dawn of Mobile Audio Advertising

April 3, 2015

Bill Kincaid first heard of the MP3 on the way to Willows, California for a day on the racetrack in his Formula Ford. His interest was piqued listening to an NPR segment on a portable music player called the Rio. A former Apple guy turned startup geek, Kincaid was confident he could take the Windows technology and make it work on a Mac. He called Jeff Robbin, another former Apple guy, and convinced him to help write the code. Two years, one startup and thousands of hours later, Kincaid and Robbin created what we now know as iTunes.

ipodiTunes effectively killed the album – and mortally-wounded physical media with the ensuing iPod – shortly after its initial launch in 2001, a year after Apple purchased the Kincaid/Robbin startup and retooled the software. The ability to purchase single tracks and play them on solid-state hardware undermined music labels’ affinity for overpriced albums. At that time, streaming music was in its infancy, its growth stunted by the DMCA (Digital Music Copyright Act) that saddled Internet-based broadcasters with additional performance royalties for playing music that traditional broadcasters were not required to pay. Sales of digital music boomed. By 2010, more than ten billion tracks had been downloaded through iTunes.

Still, Internet bandwidth got faster, devices smarter, and streaming technology evolved. So much so that in early 2009, after years of jockeying by artists, labels, broadcasters and startups, the U.S. Copyright Royalty Board announced that Internet music royalties would be levied only as a percentage of revenue, in effect paving the way for a new generation of streaming services. Companies like Pandora, a startup with marvelous technology and horrendous financials, suddenly had a viable business. Others noticed, and Spotify, Google Music, Beats and a slew of other streaming companies popped up seemingly overnight.

tidal-logoToday, music sales are down. Way down. Digital album sales dropped 9 percent in 2014 to just $117.6 million. Even more surprising, individual songs fell 12 percent to $1.26 billion. More and more, people prefer renting music to buying it. The competition for leased music is heating up. Last year Apple invested nearly $3B to buy beats in the hopes of using its brand cache and complete dominance in the audio player category to entice consumers to switch streamers, even as it squeezes the last pennies out of music downloads. Earlier this week, a bunch of tone deaf, completely out of touch, filthy rich performers got together in support of Jay-Z’s Tidal streaming music service. Aimed squarely at Spotify and perhaps the upcoming Apple/Beats entry, Tidal is being sold to consumers as a higher quality, musician-friendly (read: pocket lining) service with exclusive content. For double the price.

Apple-Beats-Electronics-300x300Only to the most popular acts will the spoils go. Technology, culture and crumbling business models are coalescing to create an environment where people pay to watch performances, not build massive personal music libraries. It is a wonderful time for music lovers.

What will be interesting to watch is the role advertisers will play in hastening the demise of old music distribution models. While paid streaming services promise reduced/zero advertising, it’s hard to imagine price competition won’t continue as the technology matures and saturates. That model will require advertising to stay afloat. The good news for brands is that consumers understand the exchange. The better news is that the streaming audience is both captive and less distracted (you can’t hear more than one audio ad at a time). A safe bet is that streaming audio advertising will attract more and more advertisers in the near future. For mobile, it beats the tar out of display.

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