#80 Newsletter Editorial - Streams & Silver Linings: Where 'The Cloud' Is Taking Us...

21 Jun 2011

The recent furore surrounding Apple’s iCloud announcement started well before the launch, as the media train rumbled along, gaining momentum, pundits speculating wildly until its final perfectly timed explosion on 7th June into vlogs, blogs and broadsheets the world over. Just like a train charging along a track, stopping or changing course takes time and for this reason it was widely reported that before, and indeed after its launch iCloud was, a state of the art ‘streaming service’. It is in fact a download and syncing service similar to Dropbox and just a stretch from arguably the first ever cloud service, Hotmail.

It’s important not to confuse cloud and streaming services as they relate to two different technologies despite sometimes overlapping. A cloud service in its more traditional form (i.e. SugarSync, Microsoft’s Mesh or iCloud) transfers files to a central database but requires the retransfer of the file onto a mobile, tablet or PC for playback.

On the other hand, the growing range of ‘cloud streaming services’ (e.g. Amazon Cloud Player, My Music Anywhere or Google’s Music Beta), play a user’s music collection directly from ‘the Cloud’ after either uploading the collection, or using ‘scan-and-match’ technology to create an imprint of the library taken from an extensive (usually licensed) database.

Straight streaming services have been in the spotlight recently with Pandora’s valuation at £1.6 billion (1.5x the value of Warners) and Spotify’s gathering of licensing deals for their much anticipated US launch and do appear to be the way of the future. Users have access to millions of tracks to explore, and the services free the currently limited hard drive of mobile devices from the quagmire of hefty media files, allowing a user to listen to a huge variety of music tracks wherever they have internet (or even limited access without in some cases) on a faster machine.,

There is also the social layer to many of the streaming services, allowing users to drag and drop favourite tracks into friends’ inboxes or recommend a track for listening… options still unavailable on more basic cloud services. So why then has Apple opted for what appears to be a step backwards?

Or could it be that Apple’s move to preserve local storage is indeed the right one? Technology is progressing at such a rate that we are now talking in ‘exabytes’, terabyte hard drives are the norm and it’s only a matter of time before entire music collections take up an insignificantly small part of our hard drives.

At the same time there have been leaps forward in file types; with formats such as iTunes LP offering album artwork and the much missed liner notes and companies like Bach Technology’s expected to launch other new formats.

Perhaps the fly in the music streaming ointment though, is data usage. Most mobile plans incorporate a monthly data transfer cap and given the constant transfer of information required for a streaming service, it could simply end up being unviable for many.

Both types of service however offer much needed revenue streams, through per-stream royalty deals or a percentage of subscriber income. This could yet prove to spur digital revenues forward in a business that is trying to grow a new digital sector whilst attempting to keep the physical sector profitable.

As BPI Chairman Tony Wadsworth made clear in his recent MusicTank report – Remake, Remodel: The Evolution of the Record Label– “Record companies have to manage two parallel businesses – each with very different dynamics. And they are doing this while managing a declining overall sales line with a resultant pressure on overheads.”

The problems associated with juggling two different parallel businesses and whether more attention should be paid to growing the digital side will be addressed at MusicTank’s Remake, Remodel conference on 14th July, where Wadsworth will lead the thinking as key questions that will shape tomorrow’s recorded business are explored.

Some analysts have asked whether iCloud and other cloud music services effectively create an amnesty for piracy, whereby ‘dirty’ tracks taken for free through file sharing are laundered. Though this will more than likely be answered in time, the depth of the issue was highlighted by Beyond Oblivion’s Adam Kidron, who recently stated that 94% of tracks in an average iTunes library are pirated. Cisco has also forecast that unlicensed sharing is expected to reach 14 exabytes a month by 2015, which unfortunately suggests that attempts to prevent it are limited in their success – and that at least these legitimate services may provide some income from unlicensed music consumption.

In discussing his report, Wadsworth has argued that value in digital will increasingly be derived via low per-unit consumption at very high volumes, and that the recordings business shouldn’t get too hung up on unit prices but rather look at total revenues. While streaming and cloud lockers certainly have the potential to become valuable income streams, labels will be paying close attention to their effect on other digital revenues as well as on the public’s attitudes to filesharing. Now, as ever, innovation is key.

Editorial by Hugo Mintz and Sam Shemtob

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