myk’s mix

The carrier-dominated world of the mobile industry has created a mobile entertainment value chain that, ironically, has a lot in common with physical distribution models. High production costs, tightly-controlled distribution channels, and limited retail space are characteristics we normally think of as being part of the music industry’s past, when records and CDs were the products being sold, but today we find the same limitations in the mobile entertainment value chain.

And so it is perhaps not surprising that the music industry has found some success in this environment. Still struggling with the shift from physical to digital distribution on the internet, the artificial limits imposed on mobile technology have allowed a reprise of many of the same business practices that were honed over decades to sell music in the physical world.

Ringtones, for example, are methodically manufactured, focus group-tested, and released on carefully-controlled schedules that accommodate the weeks or months it takes to get creative to the carrier deck. The ridiculous transaction fees charged by mobile operators, often up to 50% of an item’s purchase price, are tolerated by physical distributors accustomed to giving retailers a similar markup.

But this model, like the physical distribution model before it, is quickly becoming an anachronism. Mobile phones have become full-fledged internet devices, and the same market forces that provide the beautiful mess of innovation that is the internet today are quickly converging on the mobile space. The costs of distribution, storage, and service provisioning are all asymptotically approaching zero, and consumers have developed an appetite for the open access and limitless shelf space that internet economics provide.

It’s now clear that long-term success with mobile music is not going to be achieved $1.99 (or even $0.99) at a time. And the potential for subscription models in mobile has been squandered by the tactics of unscrupulous companies with misleading bait-and-switch tactics that trick consumers into recurring $9.99/month charges they didn’t expect. The scummy underbelly of the mobile content market has damaged consumer confidence to the point where the convenience of mobile payment, already encumbered by ridiculous carrier fees, is often overshadowed by confusion and fear.

The good news is that, in the same way that music is not just an MP3, the mobile industry is not just ringtone downloads purchased through premium SMS. The mobile phone is an inherently personal device, the most personal computer ever to emerge, and the convergence of mobile phone technology with the internet is an opportunity for the music industry unparalleled in its entire existence.

Never before has such an intimate connection between artist and fan been possible; never before have market forces pushed distribution costs to effectively zero; never before has technology conspired to intertwine social expression and interaction so tightly with entertainment.

To take full advantage of this new opportunity, though, requires a mental shift, one in which we stop thinking of music as a collection of discrete units (CDs, MP3s, PSMS purchases, etc.) and go back to thinking more holistically of music as an experience. The limitations imposed by physical distribution (reflected in today’s artificially-stifled mobile entertainment market) have historically driven the music industry as a whole to an unnatural position in which value is represented by the number of units an artist can sell to the mass market.

When one removes the high production costs, constrained distribution, and limited shelf space of physical distribution, a new world is revealed. This has been extremely disruptive and disorienting to the music industry as it comes to grip with the internet. It will be just as disruptive as mobile advances, but this time around the industry has a chance to reflect on lessons learned in the shift to internet and apply that proactively to the emerging new mobile economy.

The knee-jerk reactions of fighting technological advances (suing innovative service providers instead of adapting the technology to one’s own benefit; preaching to consumers and lecturing against their desired usage patterns instead of engaging in a dialog and learning to adapt) have had - can have - no long term benefit. On one level, this is because technology changes the economic landscape such that the industry is fundamentally altered. Technology never moves backwards, so once technology takes us to a new place, the toothpaste is out of the (you)tube, and any attempt to put things back the way they were before is futile.

On a more human level, resistance to technological change is doomed because society itself is changed by technology. We simply are not the same people we were before the internet, and we are changing yet again as mobile takes the torch.

Faced with not just fluidity of distribution, but fluidity of value chains and of society as a whole, the best positioned companies in the music industry are those who have evolved to enhance the experience of music. Labels who work with their artists to create a valuable and sustainable brand that transcends any particular packaging are far more likely to succeed than those that measure value by units shipped on a weekly basis. The musical experience is multi-modal, encompassing everything from live performances to chat rooms to merch to MP3s and a thousand things besides, and new digital technologies provide new ways every day to profit by facilitating the interaction of artist with fan.

One of the reasons mobile technology is so exciting is because it has the potential to bring together so many aspects of the musical experience in a way that has never before been possible. Artists can communicate with their fans using the same tools the fans themselves communicate with each other (SMS); fans enjoy self-expression through music (ringtones); performances can be enjoyed anywhere (over the air video and song downloads); and even merch can be provisioned on impulse (mobile payments). There is no other application better suited than music to take advantage of mobile.

It’s fine for labels to make whatever money they can from ringtones today. But the greater promise of mobile for the music industry lies in its ability to be part of a much more holistic approach to the musical experience. One hopes that the hard lessons of the shift from physical to internet distribution will provide insight to the industry that allows it to take advantage of, rather than fight, the beautiful mess of the emerging new mobile economy.