When will American consumers get the memo about mobile music? You know, the one that said for us to start listening to music on our mobile phones. Or are our expectations unreasonable? And should we be asking a different set of questions? Are we missing the Big Picture here?
I saw a report out from Forrester on this topic a few days ago. Forrester is an excellent firm, and I’m sure that The Future of Music On Cell Phones is a fine report, but I have issues with the questions that we (as an industry) are asking about mobility. And I have questions about the nature of inquiry in the communications and consumer electronics industries.
I think we’re asking a bunch of knee-jerk questions and are focusing on meaningless answers…while missing the Big Picture. Which is that mobile device manufacturers have been selling wireless operators on the idea that mobile media is “sticky” and therefore lowers churn while increasing ARPU. This may be a trojan horse for the device manufacturers. Meanwhile, U.S. wireless operators aren’t seeing the revenues that the device manufacturers (supported by research firms) predicted. And now, everyone’s looking for an explanation.
Here’s the Big Picture take on mobile media.
The Wrong Questions
If you read Forrester’s abstract, you’ll see answers to a common set of questions that researchers across the industry have continued to ask for a number of years — why aren’t mobile media (music, video, gaming, etc.) revenues growing as quickly as _(we)__ predicted just a few short years ago?
When the real question is whether our expectations for mobile media are reasonable. OK, so paid media consumption in the U.S. is lower on mobile devices than in comparison to the rest of the world.
But why is that? Does it have to do with the media market? Mobile penetration? The cost of mobile services? Consumer wallet share?
Wallet share? What’s that? – It’s the amount of money that people spend on a certain basket of items. It turns out that people are pretty consistent and spend the same amount of money (on average) every year in the same categories such as food, entertainment, communications services, etc.
Wallet share is the first place to start when talking about consumer markets. And it’s definitely the place to start when talking about how consumers are going to change their behaviors.
The Answer From the Consumer Data
So when you go into consumer data such as surveys and the like, it doesn’t take much statistical analysis to see that people aren’t listening to music on their cell phones. If you use survey data, this is straight crosstabs analysis. The numbers have been consistently low year after year. And if you want to get into logistic regression, you can find out that there isn’t much to do in terms of statistically-significant data mining. The usage is low, and consumers don’t appear to be interested.
The consumer data gives you a simple answer: consumers aren’t listening to music on their mobile devices.
But this doesn’t explain why the predictions were wrong, and it doesn’t give us much in terms of the next set of questions to ask. All it tells us to do is to (1) lower our expectations, and (2) wait for the market to turn around.
Reading between the lines, it’s 4th and 25, and it’s time to punt. And that’s what most analysts do. Their job is to answer the question…not to ask if there’s a better question to ask.
The Big Picture Perspective: What Does Wallet Share Tell Us?
Let’s put the consumer data away. Forget about it. Mobile music isn’t the market that everyone (with a few notable exceptions) thought it would be. If you follow the data trail that we built in our report The Ongoing Battle for the Digital Home (available by subscription at GigaOM Pro), you’ll see a very different story.
- U.S. Consumers spend $175 per household, per year on music.
- That’s $14 a month for a household with – on average – 2.7 members.
- Which is comparable to $6.54 for every person over the age of 6.
- Those same households spend $1,101 per year on wireless services.
- Between 2007 and 2008, the U.S. wireless industry grew by an amount equal to 50% of the entire music industry.
Big Picture Finding #1: The Music Industry Just Isn’t That Big
Which is bigger? $20 billion or $200 billion? That’s roughly the spread between music and wireless services. To those in the music industry, it’s a lot of money, and most people would be happy with a small fraction of the industry. But in comparison to the telecommunications industry, music is a rounding error. The first person to do Total Available Market (TAM) analysis — that would have been a product development team at a major wireless operator — should have noticed this one right away.
Big Picture Finding #2: Consumers Don’t Spend That Much Money on “Paid” Media, including music
Again. This is publicly available data. Consumers don’t actually spend much wallet share on so-called “paid” media — or media (music, television, movies, games, software, etc.) that they purchase or rent in a direct transaction. Getting them to shift their wallet share and to change their behaviors is an uphill battle.
Big Picture Finding #3: Consumers Are Already Spending On Services
And I almost forgot. They spend for services in spades. Telephone. Internet access. PayTV. Mobile. So why are the wireless operators getting so greedy? They’re already collecting the lion’s share of consumers’ monthly budgets. What else do they want?
The Next Big Picture Question
Now that we’re digging into our underlying assumptions. The next question is the obvious one. Since the music revenues aren’t big enough to really drive huge revenue growth, what’s the other value proposition of media? There are a number of vendors (including those interviewed for the Forrester report) that are selling the idea that media consumption is “sticky” and creates more loyal customers. Is this true?
If we can get people to consume more media on their mobile devices; including some (unknown) combination of paid, downloaded, free and side-loaded media; are those consumers more loyal to a CE vendor brand or to their wireless operator?
I’d bet that Apple has already answered this question. And I think Nokia and RIM have already come to similar conclusions. But is it true for everyone else? Is it true for the mobile operators?
It’s time for analysts to stop rationalizing the past…and time to start asking meaningful questions.