Commentary: Music Industry Lessons Don’t Apply to Video

Another difference is the monetization model. Music is a retail model. Each music album or single sold generates one-time revenue. The music industry’s folly was not so much avoidance of the Internet as it was their misguided determination to lock consumers into buying complete albums as opposed to singles. The Internet hit at this very central premise of their business.

The discussion for the case of online media is only a couple of steps removed from a discussion of piracy. Piracy to the music industry is like spinal meningitis, whereas to the video industry is like a bad sunburn. One can be terminal quickly if not treated, while the other, over time, can cause melanoma if not prevented and treated. The music industry had other problems long before P2P networks like Napster started nipping at its heels. Digital downloads not only exposed their disregard for consumers’ needs (selling single titles versus albums), but more importantly accentuated other inherent problems brewing in the industry.

Video, on the other hand, has less reliance on retail. Video is mostly a per-view license, whether that be in the form of a movie ticket, television broadcasts, or rentals. A large part of the economic model in video is advertising. As long as advertising can be applied to video programming, the video business is more adaptable to the Internet than music was. In fact, video advertising CPM on the Internet is generally at par with television today. What is currently lacking are technologies to integrate ads into programming in a more seamless and appealing way (to the extent that ads can be appealing), thereby bringing the number of ad units to parity with television. It took the video industry decades to get advertising to where it is, so Internet video will get there in terms of technology advancements, and advertisers and agency collaboration. The important thing is that the Internet is not turning the video industry’s business model on its head overnight.

Another difference between music and video is how we consume them. Most consumers believe they own music. It’s very reasonable for someone to say "I own the Dark Side of the Moon album," even though it is partly inaccurate given onerous and somewhat arcane copyright laws. Nevertheless, most consumers have a sense of ownership of their music—for the most part, we buy music to "own." Most video is however consumed without "owning," whether via movie theaters, broadcast or cable television, or DVD rentals. This makes "owning" pirated content less of a draw for the average user.

While music piracy therefore hit mainstream very quickly, movie piracy is rampant—it has been for some time—but it is not in every dorm room the way Napster was.

Streaming vs. Downloading
This difference in consumption behavior also lends itself to another ongoing discussion of streaming versus downloading. Music streaming has been marginally successful compared to downloads. It is reasonable to attribute some of the success of downloads to Apple’s marketing prowess with iTunes and iPods. Nevertheless, even extremely good music streaming services such as RealNetworks’ Rhapsody did not break the mold of how consumers relate to music. Online video, on the other hand, has established itself as streaming media. Converse to music, video downloads appears less desirable than streaming, at least judging by the relative (lack of) success of such services. This is despite video download services preceding streaming services.

One cannot draw too fine a point on this because one can argue that success of such services is predicated on the content. The thesis is however, worth considering. I for one believe it is a fundamental difference between the two and will have significant bearing on how these two forms of entertainment play out as online businesses. This is also confirmed by a recent report published by Ipsos MediaCT’s MOTION study of U.S. consumers. According to the study "more than 1 in 6 (57%) of U.S. internet users have streamed online video within the past 30 days versus only 22% that have downloaded a video in the same timeframe. Additionally, YOY, streaming has shown an increase of 50% while downloading has increased less than 20%."

The video industry also caters to a much wider demographic and psychographic audience than does music. Music has notoriously catered primarily to teens and younger audiences for driving revenue growth (barring the occasional "box set" releases of megastars of yesteryears to provide the occasional boost). This makes music organically more susceptible to new trends, while video maintains a more diversified audience. Much of the older audience for video is the late majority, giving the video industry some cushion when rolling out new technologies. The slow adoption and relatively low penetration of DVRs is evidence of this, despite DVRs requiring little change in behavior and no significant learning curve.

Last, but not the least, let’s not forget that the video industry has constantly weathered change. The VCR was predicted to end theatergoing. Instead we have multiplexes. The film industry and broadcast and cable networks have intertwined, complex relationships that have evolved as a result of constantly increasing ways for us to access video. Video consumption has only increased as a result of increasing choices and content, contrary to Bruce Springsteen’s complaint of "57 Channels and Nothin On." The music industry on the other hand had been stagnating for a long time before the Internet hit—both in terms of its ability to create compelling new content as well as its business models. What we are seeing is the video industry adapting to yet another new distribution medium with proactive, well-considered steps.