Slacker And The Innovator's Dilemma - Mark Mulligan via Forrester

Mulligan is right to say that innovation is being stifled in the music world by the stranglehold of the labels:

Mark Mulligan via Forrester

Music subscription services are stuck with the Innovator’s Dilemma, but an unusual flavor of it. They are a sustaining technology that is forced to improve through modest sustaining improvements because of the restrictions inherent in the agreements with rights owners. In any other fast-moving technology market, locking a product’s feature sets down five years ago and refusing to significantly change them would result in the inevitable demise of the product. Imagine if Apple had stuck with the first-generation iPod and not introduced touchscreen technology, the App Store etc… . . A disruptive challenger would have quickly usurped Apple’s market lead with a disruptive alternative. (Of course, Apple does so well in this regard because it does such a good job of being its own disruption, but that’s another story.)

Music rights owners have a monopoly of control of content, and the net effect is a closed market not subject to normal laws of free market competition. And because rights owners are inherently conservative (some less so than others), they are inclined to license to sustaining technologies rather than disruptive ones. Their priority is — totally understandably — protecting against revenue decline, rather than technology innovation. They argue that both are important, but in a world where consumer demand is shaped by disruptive (unlicensed) technology such as Rapidshare and BitTorrent, dual-prioritization is a luxury they cannot afford.

And so, what happens is that the main licensed products fail to break through to the mainstream despite the best efforts of the innovative startups doing all they can within the constraints of their licenses. They have the benefit of knowing that their competitors are chained with the same manacles, but it is cold comfort because the net result is overall market stagnation. Sure, there will be some market share achievements, but the overall market will be continually outperformed by the disruptive alternatives that aren’t shackled by rights owner conservatism: the illegal free sector.

Unless rights owners start to license to truly disruptive alternatives (e.g., subsidized $3.99 unlimited MP3), the market will continue to fail to compete effectively with free. Lots of choice of the same service isn’t choice at all. There are c.300 download stores in Europe, but they are all very minor variants of the same basic offering. Hence, the market has stalled.

It is time for dramatic music product innovation. It is time for the record labels and publishers to become their own disruption, whilst they still can.