Looking Back: Tom Silverman On “The Next Physical Format”

Looking Back: Tom Silverman On “The Next Physical Format”


tom silvermanBack in 2007 when the writing was on the wall about the demise of the CD and vinyl sales were almost nonexistent, I wrote this commentary for Billboard.  Today, as CDs are down 19.6% year-to-date  and album downloads are down 14%, Vinyl is up 32.7%, it is clear that consumers want something physical that they can collect.  Please read this understanding that it was written nearly seven years ago.

The Next Physical Format

Written By: Tom Silverman
This article first published by Billboard in 2007.

The CD Is no longer is the glimmering pride of the music business. It has lost its role as the high-quality music product and is failing in both unit sales and margin, which is spurring a debate about whether we should create another physical format or enhance existing ones. Disney weighed in with their answer this week and the Warner Music Group gave us MVI in May.

Before we find ourselves in a format war, I want to take the debate away from specific technologies, more digital extras, more gigabytes of storage, an audio video sandwich like dual disc, or a stop gap measure to slow the fall of the CD. Let’s not get divided or blinded by technology as we have in the past.

Rather than starting with the product or the sales outlets, I propose we start with the consumer. Let’s look at the consumer’s desires and behavioral patterns as if there is no music business at all yet and we are starting from scratch. When Steve Jobs built iTunes, the iPod, and now the iPhone, he knew what he was doing. He built it from the ground up with a carefully researched and calculated criteria set.

What I propose is to change the value discussion from a price-only model to one of consumer value perception. If we can all agree that the industry needs a high end music product to accompany the download on the economy side, we can build a criteria set that will allow us to create one from the ground up.

I think the past burdens us and prevents us from seeing the real opportunities. The old thinking delayed and affected our action at the advent of the digital world and we should not allow it to happen again when looking at the future potential of physical formats.

Today, it is easier to acquire music than ever, whether its buying physical product at stores or online, or through downloads either ala carte, subscription services and/or file sharing services. Borrowing music from friends to copy has never been easier and burning a CD of a new album purchased costs you fewer than 30 cents and takes less than 5 minutes. Portable iPods and MP3 players are ubiquitous. Almost every car has a CD player. There is virtually no barrier today to acquiring music for most Americans.

But who is acquiring and/or buying music? A NPD survey shows that 57 million Americans (29%) don’t acquire music (even for free). Another 10% acquire but don’t pay for music. Another 30% make one music purchase a year or less.

That leaves about 30% of Americans as active music consumers who buy more than one album a year or album equivalent downloads. This is our market. Shooting for the 70% who have exhibited lethargic or non existent music purchasing patterns is a waste of time and money.

Instead, let’s look at the golden 30%. Within that 30% target they are further divided based on age and access to capital for music purchases, and by free time or lack of it as well as a whole host of other factors. They take chances on new artists. They collect music (physically or digitally) They are men and women, rich and poor, white and black, English and Latino, young and old.

But despite those differences, there really are only two kinds of consumers; the “price convenience” consumer and the “status and quality” consumer. Someone orders the $20 bottle of wine and someone orders the $100 bottle of wine. Are we going to price all our wine at $20? Every car company has a flagship high end car that makes up 10% of their sales but drives the rest of their business in more affordable cars. Some people buy hardcovers some buy paperbacks. There is Dunkin Donuts and Starbucks. Some buy at the Gap some buy at Gucci. We need a product for the high end consumer that will be aspirational for the low-end, price-convenience consumers who are the majority of shoppers.

The latter consumers, which probably account for about three-quarters of the golden 30%, embraced the iPod for its convenience and embraced digital files for price savings. Now they save money by cherry picking the songs they know or like best and maybe even obtain much of their collection by cloning friend’s collections. They don’t realize that listening to compressed lousy 128 kbps files through a 10 cent digital-to-analog converter and a 10 cent headphone preamp on fifty cent ear pods may not be the ultimate listening experience.
While many in this group will continue to be guided by price and convenience, some might migrate to the quality product if it were well marketed and differentiated from mp3 files.

Meanwhile, the status/quality consumer most likely has a fairly expensive stereo system or surround sound home theater system and/or a high end SUV or German or Japanese car with a hi-fi audio or DVD in car system or an after market car sound system. Their investment in hardware makes them candidates for the appreciation and acquisition of a high end package for music. Their concern with status and penchant for luxury goods makes them a natural for this product.

Other possible candidates are music fanatics, who are collectors (assuming we create a package that is collectable) and uber consumers or crazy fanatics for one or more bands who must experience every thing that artist creates. Because they are willing to pay a much higher price for status and quality, and because they tend to be early adopters and leaders in music trends and discovery, they may equal or exceed the revenues from the price/convenience consumer.

These are are core consumers, who still buy CDS, but also may buy digital singles or even get music illegally because they are voracious music consumers. They have the music gene. They should be our industry’s focus. What’s more important, these consumers very existence lead the price/convenience consumers who tend to be aspirational and will want to graduate to the status/quality consumer when they can afford it.

Before the CD has completely run its course, we as an industry must create a compelling package for the status/quality consumer, something we should have started to do five years ago.

Here are the criteria that we should use to develop the next physical music product.

From the perspective of the consumers, the product should have:

    1. Strong emotional connection – touch and feel components (high touch vs. high tech)
    2. High perceived value
    3. Status association – Peer pressure
    4. Best possible sound quality and audio features
    5. Great gift item
    6. Collectibility (infers resale value and possible appreciation like rare records that sold for $100)
    7. Easy and convenient
    8. Environmentally Friendly

From the music industry’s perspective, the product should have:

    1. Maximum yield per unit (high mark up)
    2. Acceptable level of product acceptance by consumers (100% not necessary, 15% might be acceptable under certain circumstances
    3. High barrier to duplication (especially by consumers but also by counterfeiters)
    4. Viral awareness mechanism built-in
    5. Highly connective so we can know our consumers directly.
    6. Must have minimum environmental impact.
    7. Flexibility for artists and designers to continue to reinvent package (like old record albums)
    8. Corporate/partnership to help fund promotion and awareness campaign for new format/configuration (Hardware Company, Packaging Companies, Other)
    9. Single standard. No format war.

If we believe that consumers will always want to buy something physical with a touch and feel component, we can create something to please them with a price point that works for us as a business.

Tom Silverman and other leaders in music, tech and more will come together June 8-10, 2014 in NYC with one general mission – to design a more successful future music industry for artists and business alike. Don’t miss Tom discuss his current thoughts going forward in the industry at this year’s New Music Seminar.

Be a part of the movement to usher in a new era of music business, register to attend NMS 2014 today!

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