Open Your Umbrellas: Welcome Total Music!

If a recent October article in Business Week had been published six months earlier, I would have most certainly thought it to be an April Fool’s joke: Business Week had reported that the largest major label, Universal Music, was embarking on a radically different and progressive business model in alliance with all the other majors. The model, supposedly meant to save the record industry, was dubbed “Total Music”. I will elaborate on it below.
Total Music is, in essence, a subscription service. A number of experts have recently been claiming that subscriptions will eventually lead the record industry towards salvation. They include Gerd Leonard and Dave Kusek, authors of “The Future of Music,” as well as Rick Rubin, famed record producer and newly appointed director of Columbia Records. For them, the iTunes model of 99 cents per song is not good enough for the consumer or the business. They proclaim the need for the industry to shift away from product marketing and distribution to servicing.
However, Total Music is not your typical subscription service. The business model is intriguing. Mobile phone manufactures or providers would absorb a prepaid subscription fee that equates to roughly $5 per month for the consumer. This is based on research that says that the average consumer has a mobile device for approximately eighteen months before replacing it with a new device. A consumer would in fact pay for the subscription in a novel scheme: an upfront payment for the device so that the subscription fee would be “baked into” that cost. There would be no check to write for the service, and the music would seemingly be “free.”
What about content and DRM considerations? And why is it only meant for mobile phones?

To start with, Total Music would solve some of the main features that have prevented current subscription services, like Rhapsody or Napster, from selling. First of all, Total Music would offer the entire catalogues of every major label as well as all of their distributed affiliates. This is the vast majority of music that has been, or is being, released. Currently, the kinds of subscription services offered by such companies are limited in content. Moreover, since users are confined to computers, there is hardly portability. Yet these are precisely the two key components that must be present to entice consumers to use the service. Total Music has attempted to deal effectively with both.
While no particular details exist regarding DRM, Total Music could just as easily be a move towards more DRM or less DRM. There might be a very strict DRM in place to limit transference to other devices, thereby encouraging people to listen to music exclusively via their Total Music powered device. However, many major labels have moved towards selling MP3 files with no DRM in place via Amazon’s new MP3 store, the new Wal-Mart MP3 store, or as EMI did with their catalogue via “iTunes Plus” earlier this year.
At this time, Total Music is to be installed, primarily, on mobile phones. While this may seem new to many American users, we must remember that in many countries, already the majority of digital music is consumed via a person’s mobile phone. For example, 90% of all digital music sales in Japan for 2006 occurred via mobile OTA (Over The Air) downloads. In South Korea, digital sales account for over 60% of all music sales, with the large majority being delivered OTA to mobile phones. With the introduction of new devices like the iPhone and the LG Voyager on the Verizon network, which have the abilities to play and store large amounts of digital music coupled with true 3G data connections offering broadband-like download speeds, the mobile music market in the United States is now also positioned to be a dominant force in the way that American’s consume music.
Total Music would have to reach an international audience to attain its full potential. While an average $5 per month cost is $60 per year, and this may seem too small to make a significant impact on the recorded music industry, the following statistics tell a different story. World population is somewhere in the area of 6 billion people. The current number of mobile phone subscriptions is growing at an exponential rate. Currently over half of the world’s population, or about 3.5 billion, has a mobile phone powered by a traditional subscription plan. If even 10% of that subscribing population purchased a Total Music enabled device, the amount of annual revenue that the recording industry stands to make is approximately $21 billion per year. That would be almost 66% of the total global recorded industry physical and digital market which generated almost $32 billion in 2006. Of course $60 per capita per year is a very tall order today, when even the top countries fall below $50, but any massive shift towards mobile consumption would undoubtedly energize the market.
However, for Total Music to become an internationally accepted platform may also take time. Currently, the licenses that are usually needed to approve these kinds of distributions are handed out on a national basis rather than a global one. The entire idea behind Total Music is for the major labels to own, operate, and govern this service by themselves—so this may not be such a pressing issue. The companies would have to assemble a single blanket license for the system to be truly effective, and prevail on their subsidiaries to tow the line.
And what about the artists? Doug Morris, CEO of Universal Music and instigator of the Total Music service, claims the artists will receive a 50/50 split with their labels after the publishing is taken care of (and the publishing slice is still being negotiated). Each play or download could be tracked, and the artist would be paid accordingly.
Total Music also stands to remedy the ailing area of artist development. Since there are no shelf space limitations, Total Music offers an infinite amount of choices to the listener. If Total Music was coupled with the type of radio model offered by or Pandora, the listener would be exposed to new artists that are congruent with their own tastes or that of others with similar preferences. Once a listener discovers an artist, the ability to obtain the rest of that artist’s material would be instantaneous. And because the subscription has already been paid upfront, downloading the artist’s album would happen at no additional cost. The marketing potential that lies within this methodology is huge.
But how is $5 a month going to provide enough revenue to support the record companies and pay the artists? What is stopping someone from just constantly downloading music? The answer lies in a business concept called “Breakage.” Many businesses rely on breakage to realize profit. One of the best examples of this is an “all you can eat” buffet at a restaurant. Clearly if everyone that came in for the buffet never stopped eating food, the restaurant would go out of business. However, for every one person who comes in and gorges on five plates of food, there are many more who come in and only eat one. This is the same concept that will occur with a system like Total Music. For every listener who downloads ten albums a week, there will be many more who download one, or maybe even less.
Will Total Music save the record industry? It’s tough to say. However, the model may stand to deliver a massive industry jolt in revenues just with a small fraction of subscribers around the world. If so, the futurist prophecy that music is likely to become a utility like water would be a welcome outcome.

By Kenny Czadzeck



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