DENVER (Billboard) – Apple remains the world’s dominant digital music retailer, but it’s a distinction that might be of decreasing significance as the digital market transforms from a model based on a la carte downloads to one of streaming access. Indeed, Apple’s late-year acquisition of streaming music provider Lala points to the company’s own expected shift in that direction.
The migration from downloads to streams is driven by several factors. First is the realization that the digital download market is beginning to level off.
While digital downloads account for the vast majority of digital music revenue, they aren’t even close to making up for the lost revenue from falling CD sales. That’s why labels and digital music services are turning more attention to streaming music access services that carry either a monthly fee or provide opportunities to “upsell” to other products.
The download-to-own model has trumped streaming in part because only downloads give music fans the kind of control over their music that they want. Want to listen to downloads on a PC and a hand-held media player? Until recently, the only way for most consumers to do so was to buy a download.
That’s changing with new advancements like smart-phone apps that allow on-demand streaming of music not stored on the device, Web-connected TVs and stereo systems like the Sonos and such services as Spotify, MOG and Lala that have emerged to take advantage of this evolution.
The ease of use and flexibility of this music-in-the-cloud paradigm makes the old iTunes model of downloading proprietary software and transferring files from device to device seem archaic.
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“With connectivity improving and devices getting better and better, we really are seeing an increase in streaming activity,” says David Ring, executive vice president of business development and business affairs for Universal Music Group’s eLabs division. “It’s becoming slightly more consumer-friendly, and more consumers are enjoying music that way. So we want to make sure we’re there delivering the right product and building businesses around that product.”
What’s more, converting to an access-based model will give Apple and other device manufacturers a chance to sell new devices to those music fans still using older-generation, nonconnected MP3 players.
A lingering question is how Amazon will respond. The online retailer’s MP3 store remains a solid second-place contender behind iTunes in U.S. digital downloads. Will the retailer also adopt some manner of cloud-based music access, or will it double down on downloads to gain a larger portion of a shrinking market?
Amazon has already shown its ability to move large numbers of digital albums through freebies and deep discounts. During the year-end holidays, it ran a “25 Days of Free” campaign during which it offered 25 holiday-themed tracks available at no charge. It also offered another 100 digital albums for $5 during the month, including hit titles like Lady Gaga‘s “The Fame Monster” and 50 Cent’s “Before I Self-Destruct.”
Amazon largely eats the cost of offering such deals as a customer acquisition and marketing expense. Whether it can afford to continue doing so in the face of even cheaper competition from access-over-ownership services will be a topic of close scrutiny in 2010.
None of this is to say that a la carte downloads will disappear in the near future, if ever. The transition to an access model will be slow but deliberate. Skyrocketing growth in digital music downloads is over, and if the music industry is to drive growth in the years ahead, it must prepare for yet another new distribution model.
