I had one of those “convergence of thoughts” reminders 
the other day. In the content and tech business sectors it has recently been impossible to go a day without a story on Netflix – further evidence this morning – a WSJ story on Netflix being added to the S&P 500 (kicking out the NYTimes and Kodak). Netflix is, to put it mildly, on fire at the moment. I’m not a subscriber or shareholder, and truthfully don’t have enough time to watch much recreational television. However a couple of weeks ago, I started ruminating over the value proposition of an unlimited $7.99 streaming option, that also allows me to view shows and movies on my iPhone and iPad, and also comes with a one month free trial. And I used that pricepoint to draw a direct comparison to unlimited mobile music subscriptions – currently at about $9.99/month from Napster, Mog, Rhapsody and Rdio (note – Pandora is not in this list as it’s a radio experience and not truly interactive). None of these services even offer a 30 day free trial – 14 days is the maximum. I think you can see where I’m going here… unlimited video – $7.99/month – unlimited music $9.99/month. (Napster also offers an $8/month annual plan but it can’t be canceled at any time like Netflix). The question in my mind has been, what makes labels (who are driving this pricing model) think their product is worth a 25% premium over video?
Earlier this week, I read a thoughtful post about Facebook Jumping The Shark on AdAge. In it, Judy Shapiro referenced a Clay Shirky blog article titled The Collapse Of Complex Business Models which draws inspiration from Joseph Tainter’s Collapse Of Complex Societies. In his entry, Shirky uses the analogy of cost-efficient television production to illustrate his “collapse” analogy. If you read the posting, you can see that it’s actually analogous to all 20th century media distribution forms - print, TV, radio and of course, the packaged content that fills those media types.
So my convergence thought was the perpetual notion of collapse, as applied to the music industry, tied to this seemingly high value low cost offer from Netflix. Putting on the consumer’s hat it’s clear that the Netflix offer is a value proposition – it offers something the consumer can’t get (TV shows and movies when they want), something that they could want for a very attractive price, and I anticipate that the streaming subscription will be an enormous business for Netflix and their content suppliers. Conversely, a $10 mobile subscription for music is as dead in the water as a $10 online subscription was 5 years ago. A little business, with struggling players and no breakout service, with labels impeding the companies’ success (due to punitive content costs) and ensuring their own slow motion collapse. Razor thin margins for the services, and no money left on the table for marketing. And the collateral damage, labels are driving away innovation which has historically helped the music business model.
Back to the question – what makes music think their product is worth more than video? Purely on the basis of numbers, and the value to the consumer, if Netflix has set the market price of $7.99 for video, what is the potential market price for a mobile subscription music service? It certainly isn’t $10 – I’m going to say it’s $1.99 and it should just be buried in your carrier bill.
That’s what I’ve thought for a number of years and those are the thoughts that converged once again this week.
