Breaking News: Multi-channel consumers are good in the music industry, too

Sorry for the ironic title.

Music Ally published an interesting piece Sony Entertainment Network talks Music Unlimited at Midem where  Sony Music’s brand new President of Global Digital Business and Sales, Dennis Kooker, had some interesting comments regarding Streaming services and so called Cannibalization.

If you’re new to the concept – it means that sales in one channel is hurting another channels sale, having a total negative impact. Not sure why that would be called cannibalization, I never heard of cannibals eating themselves, but then again I am not an expert on cannibals.

Some key quotes from Dennis Kooker:

“We are constantly watching our business very closely and looking at how different channels are affecting and impacting each other,” he said.

“At this point we don’t see any evidence that any one area is significantly cannibalistic to any other. Is there substitution? There is always going to be some as people move around and have choice. At this point there is no evidence that any one model is seriously danaging any other model.”

“Ultimately, what we see is that our business is growing in the areas where subscription services are the predominant player in the market, and as a result we’re very convinced that consumers ultimately want to experience music in different ways. Sometimes they want to own, other times they want to experience and listen. As a result of that consumer behavior, we are looking at growing the business overall.”

Happy to see a guy talking about consumer needs first. The thing with these quotes are that they completely mirror the discussions I’ve had a number of times on multichannel consumers for other industries. Retail consumers that are multi-channel are simply worth more than the traditional offline-only consumers. There are tons of research available on this, e.g.1 minute googling gave this here. Depending on industry, the consumer value differs, but typical numbers I’ve seen range from 30% to 100% higher spend by consumers. This is one of the foundations behind a business case for investing in good content online. Customer Lifetime Value is another (details of course depending on industry)

The question is why multi-channel consumers spend more? I don’t think there is a simple one-size-fits-all truth. There are probably many contributing factors, e.g. increased engagement & trust in a brand and many things that sums up to that the consumer feels well informed before making a purchase. (Knowing options, well met rational needs, etc etc)

Now, why would this differ in the music industry? It seems to be a reasonable hypothesis to start with, that consumers that get access to streaming services, builds playlists etc will have a higher propensity to go to a concert, buy a physical copy, buy a digital copy and synch to her iPod etc. The same digital consumer that spends 2x as much in a retail store, would all of a sudden show a completely different behavior when purchasing entertainment? I find that hard to believe without being presented with hard data. It seems by Kooker’s argument that the hard data is supporting the hypothesis.

Any argument against? Hmm. I’d expect some short to medium-term channel shift transients, but the long term trend should be total growth. And the artists / brands grabbing the opportunity now will come out better in the end.

Even if it was just a channel shift scenario, improving access to the content is a good thing. And for a product with a fixed one-time production cost and continuous eternal incremental revenue, revoking access to the product does not make sense to me.