The Cassette Store Called ...

Riding the coat tails of Record Store Day (20-April-2013), it was just announced that 7-September-2013 will be the first International Cassette Store Day. I swore this had to be a parody when I first got the Tweet, but the organizers seem sincere and committed (if misguided).

 

International Cassette Store Day makes no sense. Need convincing? Let me count the ways.

 

First, there is the name. We all know what a record store is. Record Store Day was created to celebrate them — the neighborhood bricks-and-mortar independent music retailer — not any particular music delivery format. The Cassette Store Day promotion aspires to be equally cool, but fails for the same reason the "Jerk Store" rejoinder failed in The Comeback episode of Seinfeld: no one knows what a Cassette Store is, or if any exist.

 

Consider raison d'etre. Why did tapes thrive for a time? The advantage of the cassette over any other competing physical format was portability. That advantage was obliterated by the audio CD, and then they were both rendered obsolete by weightless digital. The original tape-playing Sony Walkman is long gone, and tape decks and CD players have been displaced in new automobiles by iPod/USB ports. What is the market for new cassette titles?

As a result, let's look at market impact. Physical album sales declined 13% between 2011 and 2012. (Source: Neilsen Soundscan). While estimated cassette sales quadrupled in the same time period, they still accounted for 0.1% (one tenth of one percent) of the market share for album sales in 2012. Cassette sales peaked in 1988 (25 years ago!) and bottomed out in 2005. A Cassette Day sales bump would produce an insignificant change in a dying sector.

 

 Finally, there is sleeping with the enemy. Record Store Day was created at least in part as a protest against online music retailers threatening the livelihood of bricks-and-mortar record stores. The organizers of Cassette Store Day have elected to include online retailers in the promotion. If there are bricks-and-mortar cassette stores, aren't they afraid online cassette stores will kill their already-unsustainable business?

 

Let's celebrate September 7th as the anniversary of the first Miss America pageant (1921) or the opening of the Pro Football Hall of Fame (1963). No need to lionize obsolete physical media.

 

Related: Unsustainable business models, convenience v. fidelity, technology arcs.

 

            Physical-to-Digital Restoration #58            



Artist: Kate Bush
Title: The Whole Story
Genre: Alternative
Year: 1986






The Whole Story is a compilation album that reached no. 1 in the UK album chart and was certified 4x Platinum in the UK by the British Phonographic Industry. It is one of the 0.06% (zero point six percent) of the roughly one thousand titles in my lossless, weightless digital library originally sourced on cassette.


© 2013 Thomas G. Dennehy. All rights reserved.



Would Pandora Survive Russian Winter?

If the world was fair, a new rival entering your market would have to compete head-to-head on features. Innovation would rule. But the world is not fair, and new rivals often enter your market specifically because they can win with inherent advantages that make head-to-head comparisons irrelevant. The software industry coined a term for this—Russian Winter. (Why?) And Pandora may be about to experience it.

Russian Winter has been a factor in the rise and fall of many products. Two examples:

• Mosaic, the first inernet browser, was invented at NCSA. Netscape commercialized Mosaic in 1994, and Netscape Navigator commanded 80% market share at its peak in 1996. Microsoft countered by introducing Internet Explorer. Whether or not it was a better browser than Netscape Navigator was irrelevant. As a stand-alone product, you can't compete with "pre-installed with Windows." Microsoft achieved 80% market share by 2000, 95% at its peak in 2002, completely defeating the invasion of its Desktop.

• Similarly, the market for simple chart-drawing software was once dominated by Visio and Autodesk Actrix. Feature-for-feature, you could make the case for either one. But when Microsoft bought Visio (the company) in 1999, the climate became much chillier. As a stand-alone product, you can't compete with "bundled in Office." Autodesk cancelled Actrix almost the same day, ceding the market to Microsoft.

In both cases, the victory virtually shut down disruptive innovation in these technology areas.

Pandora invented user-customized radio. You select a song and it will program a stream of more like this music based on its musical "genome." It now streams more than a billion user hours per month. Consumer awareness of Pandora is 50% among internet users, double that of its nearest competitors.

But a new competitor may be entering the market. The Wall Street Journal and New York Times reported that Apple is preparing an audio streaming service to compete with Pandora. How does Apple bring Russian Winter to the streaming audio market? Five things are immediately apparent:

1. Installed Base. You can't compete with "pre-installed on 365 million iOS devices."
2. Halo Effect. There is no brand loyalty like Apple brand loyalty. Not only will an Apple streaming service trigger an exodus of Pandora users who were there merely because there was no equivalent Apple service, the cool factor of Apple will bring many new users into the sector who were sitting on the sidelines. Pandora desperately needs these subscribers.
3. Lack of Transparency. Pandora is having trouble turning a profit, and has to say so every fiscal quarter in SEC filings, incurring negative brand image. Apple will bundle its streaming service with iTunes, burying the costs inside the rosy financials of the world's largest music retailer.
4. Leverage. The New York Post reported that Apple is negotiating directly with music labels for content, rather than adopt Pandora's disadvantageous statutory licensing model. Apple doesn't need Congressional support to make its business work.
5. Game-Changing Ability. Pandora's service defines user-customized radio. But, with more that $100B in cash and securities available, Apple could raise the stakes by introducing new capabilities requiring capital investment that Pandora couldn't match in its current financial condition. Or, taking another cue from the software industry, Apple could offer its service free to listeners. In August 2012, UK retailer Tesco announced that it was closing its MP3 store, citing the rising capital costs of trying to stay competitive with the big players, Apple and Amazon.

Could it be that the real target of Apple's ambitions is Amazon? By adding a streaming music service to iTunes, Apple would force Amazon to roll out a similar service to stay competitive. Being acquired by Amazon could be Pandora's way out of the cold.

            Vinyl-to-Digital Restoration #43             

Artist: Paul Winter Consort
Title: Earthdance
Genre: New Age
Year: 1977



I'll admit, I chose this library title for this piece because of the artist name. But The Paul Winter Consort is a foundation group in my collection, with metadata tentacles radiating through many other titles. Among the descendent links: the groups Oregon and Gallery, and the musicians Glen Moore, Paul McCandless, Collin Walcott (1945-1984), David Darling and Ralph Towner.

© 2012 Thomas G. Dennehy. All rights reserved.



What If Your Cloud Suddenly Vanished?

You have abandoned music possession and are now completely dependent on streaming services in the cloud to deliver their vast-but-low-bit-rate song libraries for your listening enjoyment. Are you prepared for the day when your cloud, or any other cloud, may no longer be there? From all indications, that day may be inevitable.

The most popular streaming services, Pandora and Spotify, have unsustainable business models. If these two pioneering giants can't survive in the long run, what chance does any other service have? Maybe music possession isn't as quaintly 20th Century as pundits would have you believe.

Pandora, which had its IPO in 2011, has never been profitable. Its revenues are growing steadily, but so are its losses. For the quarter ending July 30, 2012 revenue was up more than 50% year-to-year to $101.3M, but its quarterly losses of $5.4M were 3x last year's. According to filings in Spotify's home country of Luxembourg, the company lost $57M on $236M in revenue for fiscal year 2011. The red ink cannot continue indefinitely.

"Cost of sales" is the highest contributing factor to the sustained losses. Pandora operates as a limited-play radio service and does not have to negotiate royalty deals with individual labels. Still, last year the company paid 54% of its revenue out in royalites under the provision of federal copyright law that lets it use (almost) any song. Spotify operates as an unlimited on-demand music service and negotiates directly with labels and publishers for the songs it makes available, paying a staggering 97% of its revenue on licensing fees and distribution costs. (Source: NY Times.)

To climb out of its hole, Pandora is lobbying Congress for a copyright license deal more aligned with satellite radio and cable outlets, the so-called Internet Radio Fairness Act. The licensing rate for satellite is set at 7.5% of gross revenue. Cable music services pay 15% of gross revenue. On the other hand, Pandora pays 2 cents per hour for the more than one billion streaming-hours it runs per month. (Source: LA Times.) Music publishers, becoming more dependent on revenue from streaming as CD sales continue their decline, oppose any change. Additionally, statutory licensing is unique to the USA; overseas growth for Pandora will be hard to achieve without similar license deals in other countries.

To reverse its current fortunes, Spotify faces the daunting task of trying to make monopoly economics work. If the EMI sale closes, there will only be only three major music labels. As explained by Michael Robertson of MP3tunes.com, the jaw-dropping secret licensing demands of record label monopolies would not be tolerated in any other industry as they "crush innovation, as well as any hope of profitiability." Since failure to reach a deal with any of the labels would put a huge hole in Spotify's catalog, the company really has no choice but to concede to industry demands.

Listeners have embraced streaming audio services in the cloud. At least 33 million people have tried Spotify, more than 150 million have registered for Pandora. But maybe now is not the time to abandon music possession completely in favor of streaming; the current cost structure of the industry is unsustainable. Are you prepared for the day when there is nothing but blue sky where your cloud used to be?

            Vinyl-to-Digital Restoration #42             

Artist: Willie Nelson

Title: Stardust
Genre: Country
Year: 1978



Willie Nelson has never been one to do the safe or expected, and this Booker T. Jones-produced album of pop "standards" from the '30s and '40s certainly fits the profile. The success of Stardust paved the way for the late-career standards album of virtually any singer you can name. I had never heard more than a couple lines from Irving Berlin's cloud-free "Blue Skies" (via montage in the movie White Christmas) until picking up this album as my introduction to Mr. Nelson's work.


© 2012 Thomas G. Dennehy. All rights reserved.


An 11th Simple Truth For a Delusional Music Industry

It seems like a week doesn't go by without new proposals for streaming music services — some real, some imagined. Most services position themselves to be more convenient than digital downloads. Few promise better quality than CD audio. Therein lies the problem with listener-paid business models, a simple truth from the software industry that should be heeded.

When I got into the commercial software business, titles were delivered in boxes containing install discs accompanied by paper user manuals. From there it became commonplace to purchase a license key to download software and soft-copy documentation. It remains to be seen whether full-feature software can be now be accessed solely through the cloud.

The analogy to music is obvious. The industry has progressed from physical media to digital downloads to the promise of streaming services that make music ownership irrelevant.

A concept the (3D design) software industry embraced, that the music industry still struggles with, is that there is a difference between modeling and having read-only online access to a model. Modeling is scarce and high-value; access is infinite and low-value. Model creation requires full-feature software; access requires only reader/viewer apps. The latter provide low-res representations where complex curved surfaces are approximated by triangular facets suitable for cloud streaming. These so-called tessellated models may look OK for casual viewing (so you can tell you are looking at the right model) but aren't nearly accurate enough for even simple measurements.

Again, the analogy to music is obvious. Low-resolution streaming services are fine for social interaction and music discovery, but not nearly accurate enough for full-fidelity listening enjoyment.

So, if streaming services are the equivalent of reader/viewer apps, here's the 11th simple truth for a delusional music industry, courtesy of the software industry. There is no sustainable business model based on payment for low-res read-only online access. The reader app is always free.

            Vinyl-to-Digital Restoration #40            

Artist: Pink Floyd

Title: Wish You Were Here
Genre: Rock
Year: 1975



On its release in 1975, Wish You Were Here topped the album charts in both the UK and the USA. Reflecting the band’s thoughts of the time on the music business, and exploring themes of absence, WYWH contains the classic cut Shine On You Crazy Diamond, a tribute to founder member Syd Barrett.

© 2012 Thomas G. Dennehy. All rights reserved.

Decide What to Be and Go Be It

Author Alistair MacLeod once said starting to write a story without a vision of its ending to guide him was like handing a cabdriver $20 and saying, "take me somewhere." I was reminded of this when the largest African-American-owned bookstore in the USA abruptly announced it would close. If you are in either the music or consumer audio industry, there is a lesson here for you.

[Image credit: Ric Stultz.]

It's not that sales are down at the Hue-Man Bookstore & Cafe in Harlem. In fact, co-owner Marva Allen told Marketplace Radio that "sales are up 37 percent." Though currently successful, the store is ceasing operations because the owners recognized their business model is unsustainable in the long term.

This would be a sad end if Ms. Allen was solely in the business of selling books.  But if, as she says, her vision is giving ethnic writers an advantage in the global marketplace, while preserving [books'] purpose of entertaining, imparting knowledge and honing creativity, then operating a bricks-and-mortar bookstore in one New York City location is now an impediment rather than an enabler. Closing it to pursue new projects, though painful, was the only choice to sustain the vision. Read her farewell manifesto.

How does this relate to music and consumer audio?

• If you are in the business of selling music on CD, your business model is unsustainable … industry reports show not only declining CD market share, but an accelerating rate of decline.
• If your business is manufacturing audio components designed for customers who play physical media in dedicated home listening rooms, your business model is unsustainable … the mobile generation doesn’t listen this way and may still not listen this way even after they start nesting.
• If you are selling MP3-quality digital audio downloads, the rise of similar-quality streaming services may soon make your business model unsustainable … a post-iTunes world is distinctly possible.
• If you are aksing listeners to pay for MP3-quality streaming, your business model is unsustainable … the software industry would call this a “reader,” and the reader is always free.

To survive long-term, look beyond your current business. Develop and execute a sustainable vision.


            Vinyl-to-Digital Restoration #39            

Artist: Linda Ronstadt

Title: What's New
Genre: Vocal
Year: 1983



At the height of her popularity, Linda Ronstadt recognized that her business model — "rocker chick" — was unsustainable. Abruptly changing direction, What's New was the first of a three-album series of American standards featuring Ms. Ronstadt backed by Nelson Riddle and His Orchestra, followed by Lush Life and For Sentimental Reasons. As she told inteviewer Peter Sagal in 2007, "I needed a catalog of songs I could still perform when I got old."

© 2012 Thomas G. Dennehy. All rights reserved.