As Clayton Christensen recognized in The Innovator’s Dilemma, there are two varieties of innovation: sustaining innovation and disruptive innovation. Sustaining innovation is what corporations do to boost current enterprise fashions, whereas disruptive innovation is often pushed by new entrants – insurgents trying to make markets by turning established ones the wrong way up. Of course, if they’re profitable, ultimately they swap to sustaining innovation, too. Streaming is now on the ‘you were the future once too’ stage. In the West no less than, the main target is now firmly on optimisation. This is all very smart and completely the secure factor to do. However, music innovation should transcend merely fine-tuning current fashions. As it stands, streaming is completely poised for disruptors to return alongside and switch it the wrong way up.
Sustaining innovation is how extra progress shall be extracted from streaming. Subscriber progress is slowing within the West. Because that is the place majors have most market share (MIDiA’s “State of the independent music economy” report discovered that majors’ market share in ‘Rest of World’ is simply 31%) and most income, it’s the place they’re focusing their optimisation efforts. Thus far, this innovation has taken the type of streaming value will increase, two tier licensing, and the forthcoming superfan tier (per TechCrunch). Of course, you possibly can make a case {that a} superfan tier is disruptive innovation, however that can depend on whether or not it actually pushes the boundaries of what streaming is. Otherwise, it could solely be as ‘disruptive’ as cell carriers having premium plans for increased spending customers.
Type of innovation however, these sustaining improvements all give music rightsholders (larger ones particularly) a path to extra income per person. This is optimisation. However, in a streaming worth chain the place a finite pot of cash will get divided amongst constituents competing for share, optimisation can go each methods.
Take a take a look at issues from Spotify’s perspective. Perennially beneath strain from shareholders to enhance margin, Spotify has neatly carried out 4, margin enhancing, sustaining improvements:
- Discovery mode which can give Spotify round 15% extra share (per Billboard)
- Fraud fines issued to labels and distributors successfully means Spotify retains extra income
- Spotify’s “modernised” two-tier licensing means an enormous chunk of songs won’t be paid royalties.If Spotify retains only a small portion of that, it’s extra margin. Even if Spotify will get to maintain $0.00, two-tier licensing and anti-fraud measures will disincentivise the longtail, which is able to imply a slowdown within the variety of low-revenue bearing tracks. This in flip will sluggish the rocketing of internet hosting charges, which suggests easing margin strain
- The notorious audio books bundle sees much less share going to music rightsholders, which in flip may (relying on ebook rightsholder funds) additionally imply extra share to Spotify (per Variety)
On prime of all this, Spotify has two mid-to-long time period accelerators:
1. Spotify is rising its userbase in Global South markets, that means it doesn’t face the identical progress slowdown considerations as its Western rightsholder companions
2. By constructing creator networks in non-music codecs, it has a path to increased margin content material
Herein lies the issue with sustaining innovation: when it means optimising on the expense of different members of the worth chain, one particular person’s optimisation may be one other’s de-optimisation.
Appetite for disruption
Sustaining innovation is so interesting as a result of it brings the promise of low-risk progress. However, little new is ever constructed with out threat. Streaming was dangerous as soon as, too. In truth, again in 2010 it severely regarded like Spotify might need to launch within the US with out the most important labels (per The Guardian).
There are some ways through which the streaming mannequin may be severely innovated however up to now, warning has held that again. China’s streaming providers present simply how radically the person expertise may be modified, however somewhat than innovating upwards, Western DSPs have needed to innovate sideways, into new audio codecs (Amazon Music Unlimited’s Audible integration is the newest working example).
Sometimes you could disrupt your self earlier than another person does. Facebook is the textbook instance. In 2012 it was nonetheless the dominant world social community, however a small photograph sharing app named Instagram was starting to achieve momentum. Facebook purchased it for, what on the time regarded like a staggering $1 billion (per The New York Times). Swiftly including WhatsApp and Messenger, Facebook pivoted in the direction of cell photograph and video sharing. Nowadays, that is what we perceive social media to be. Back then it regarded like a distinct planet in comparison with the desktop world Facebook occupied. When you do it proper, turning disruptive innovation in on your self pays dividends.
Party prefer it’s 1999 – a little bit warning from historical past
In the late Nineteen Nineties the CD reigned supreme. Annual progress was not as stellar because it had been earlier within the decade, but it surely was nonetheless holding its personal, primarily as a result of the report labels had stumble on a brand new progress technique: value will increase. There was no clear new format. The CD was each in the present day’s format and tomorrow’s. The outlook was regular with unremarkable progress underpinned by value will increase. Sound acquainted?
But that’s not all, take a look at the spookily related progress tendencies within the ‘growth through pricing’ phases of the CD and streaming:
To be clear, there’s as a lot correlation as there’s causality right here. 2024 will virtually definitely be a constructive progress 12 months, however the similarities are nonetheless essential. In the late ‘90s, repeated price increases created the fertile breeding ground for peer-to-peer (P2P) piracy. It took a decade and a half for the music industry to really start to monetise the digital lane P2P had opened. Social music is at least somewhat monetised now, but still dramatically less so than streaming. The danger of optimisation pushing more consumers and creators to social is a real and present one. As MIDiA’s “Bifurcation theory” posits: social won’t kill off streaming like P2P did the CD, as an alternative it would coexist, however solely so long as – you guessed it – streaming innovates.
Also, this time round, the labels are a lot better ready for managing change. Label short-sightedness gave piracy a serving to hand, as The Guardian’s Dorian Lynskey places it: “‘90s executives were too busy worrying about the next quarter to consider the next decade”. Nowadays, labels spend a lot of time, resource and energy thinking about long-term strategy, as recently evidenced by UMG’s Capital Markets Day.
However, ready or not, the streaming aspect of the music enterprise must suppose exhausting about whether or not sustaining innovation is sufficient. To be blunt, if streaming doesn’t disrupt itself, social will.