Some lessons about piped music - and a cautionary tale for the retail TV industry.
Muzak's filing for bankruptcy yesterday is no surprise. I flagged its mountain of imminently due loans several weeks ago on Twitter and socialmedian, and in the current financial meltdown it was going to be a miracle if an entertainment-based business found someone willing and able to refinance over $400m of debt. It's very sad for those who will lose their jobs, but it's also very interesting to look at the underlying reasons for the failure, especially in the light of the similar demise of DMX in 2005.
What's not working for these music pipers? Is it the nature of the service they offer, the malaise affecting the whole commercial music business, or the business model these companies have been operating? And are there any lessons to learn?
First, the nature of the service. I do have great reservations about mindless music as a global veneer. There is little independent research on whether people like it or not, so most of the numbers one sees are produced by interested parties: either Muzak and its competitors, or the music industry and its ambassadors such as the licensing agencies - in the UK that's PRS, PPL and MCPS. Those numbers are universally positive, giving the impression that music is great to have in the background everywhere, all the time. You and I both know that's not true.
There is one independent survey I know: it was carried out in the UK in 1998 by NOP for the Royal National Institute for Deaf People, and it was setting out to find out how piped music affects the deaf and hard of hearing, of whom there are 9 million in the UK - that's around one sixth of the population. The survey also interviewed the general public by way of comparison; a total of 1,002 people were interviewed, and interestingly the level of engagement and passion for the subject of the interviewees was judged to be exceptionally high. This is a hot topic with the public, and the results should make salutory reading for retailers. Let's start here:
And these are just the conscious reactions to sound. The picture gets worse when you factor in the unconscious effects of music, which are the most important part. Sound's impact is like an iceberg: most of it happens at unconscious level, below the waterline. We have become so used to suppressing noise that we are unaware of the vast majority of the sound around us - but it still affects us all the time. In shops, even for people who say they like the music, the standard fare of upbeat pop music acts as a stimulant, speeding shoppers up and causing them to leave the store faster than they otherwise would. This is losing further sales because, as every retailer knows, the longer we are in a store, the more we spend.
So most piped music is reducing sales, both by upsetting and deflecting a third (or more) of customers, and by shifting the rest out of the store too quickly.
The demographics make this even more painful for any retailer aiming at the top of the market:
At least most of us can leave the store. Staff have to put up with the music all day, and unsurprisingly, according to a survey in 2007 by the UK Noise Association, 40% of them dislike piped music and only 7% like it.
And yet most shops play music these days. Why?
There are three reasons. First, the desperate need for the music industry to create new revenue streams has led to strong sales pressure from Muzak and its competitors, backed by hyperbolic claims in one-eyed research about the effects of music on customer satsifaction. Second, the billion flies argument: everyone else is doing it, so it must be a good idea and shoppers must like it. And third, it can work. If carefully chosen by someone who really understands the function of a space, the people in it, the environmental factors (noise, quality of sound system etc) and the brand or values behind the space, music can create a delightful, appropriate and effective experience. Sadly, this is rare and most piped music is bland, mindless and ineffective - which, in my opinion is why it is so offensive to many people. We all understand music very well (though nobody knows quite how), so we find inappropriate music upsetting: somewhere deep down we know it's wrong.
Tha's why the issue raises such strong feelings. There are even organised anti-piped-music communities such as PipeDown and Mu-sick, to name but two of several. Many people, me included, mourn the devaluation of music that results from its use as a universal veneer. Society's relationship with music has been radically changed as a result of its omnipresence in public places: it used to be something we had an active, intense relationship with, but now most of the time it's the soundtrack to some other activity.
But all of this is isn't why Muzak has just gone bust. The company had tens of thousands of sites, and hundreds of major retailers as its customers. None of these retailers, as far as I know, had rumbled the fact that their music wasn't working, so the big game of the emperor's new clothes was still being played. There is no shortage of piped music in the world, most of it from Muzak, so what went wrong?
And so to possible reason number two: is this a symptom of the bigger disaster that is the commercial music industry today? Album sales are nose-diving, digital rights management (DRM) is becoming indefensible, and young people believe that music is a right, not a commodity (or product, as the old record companies used to describe it). Has Muzak gone belly-up because people won't pay for their music any more?
It's an attractive premise but it falls down because we are unaware of the cost of the music we are subjected to in shops. It is, of course, far from free, and we certainly do pay for it in higher prices. The music industry, through its licensed agents, is rabid about collecting fees for all public performance of music, despite the regular bad PR arising from its pursuit of corner shops or local garages with radios on for their staff. The legal landscape is complicated in established markets: in the UK, the Performing Right Society and Mechanical Copyright Protection Society (now combined as PRS for Music), and Phonographic Performance Limited, collect for different rights in any one piece of music. For big retailers the fees are huge, running into millions a year, and our experience at The Sound Agency is that the methods of calcuation are arcane, often incomprehensible and inconsistent. In less developed markets, it's like the Wild West: you can obtain cheap bootleg MP3 music from many Russian and other Eastern European websites, and there is little policing of public peformance, so vast amounts of music are bought and played illegally.
But even with effective policing, however large the fees are, and however difficult the system is to understand, the shopper is oblivious to this or to the extra cost of the musical wallpaper they suffer in stores. There is no equivalent of an organic section - a quiet room where you can buy goods without listening to or paying for the music. (Come to think of it, that's a great idea!) So this can't be the reason for Muzak's downfall either.
Which brings us to the third possibility - business model. All the piped music companies have been operating the same business model: an up-front fee (typically leased) for purchase of their players, plus monthly fees for each site served.
The players are usually adapted PCs, sold in large volumes by the pipers to leasing companies which then charge the retailer a monthly price for the staged purchase over three years. The music piper makes a 10-25% margin on the initial sale. The retailer doesn't have to find a big pile of cash for the boxes. The leasing company does what it knows best. Everyone is happy at that point.
Over the next three years (the typical life of one of these deals) the pipers charge a monthly fee per shop. This has to cover the rights to the music - typically that can amount to £20 or more a month - plus the service contract for the kit. It should also include a service fee for the piper to cover music updates, account management, administrative costs and R&D.
This is where it all goes wrong. The pipers have become so competitive in pitching against each other that they have driven the monthly fee down to the bone. It barely covers the rights and service fee - indeed in some cases it doesn't even do that. There is no margin for the piper, so all their profit is in the initial sale. They become like sharks, having to move forward with new sales all the time or die. The problem is that what was once a vast virgin market is now highly competitive and mainly sold-up and under contract.
There is a great analogy here with the mobile phone companies. Ten years ago they made all their money from selling handsets, and they could hardly make enough to satisfy the demand. Now everyone has a handset and the market is so competitive that we expect not to pay for replacements in most cases. Seeing this coming, companies like Nokia and Vodafone have successfully transitioned from a volume product sales model to a rich service model: their profit stream is shifting from handset sales to a lifelong relationship based on offering great services like navigation, music (of course!) and personal organisation.
The pipers just didn't see the wall approaching. Muzak took on massive debt to expand, but it failed to grow in the right direction - towards added value services and a profitable ongoing relationship with its clients, and away from being a box seller.
In Europe, Mood Media has taken a slightly different tack, expanding into the fast-growing digital out of home market - retail TV to you and me. This will give the company several years of rapid growth, but eventually, when every shop has screens all over the place and we are all complaining about being bombarded with video messaging at every turn, the same wall will be standing in the way.
In sum, businesses based on capability ("We're doing this because we can") have limited life-spans. Businesses based on need, value and service ("We're doing this because people want it") have long-term sustainability, as long as they listen to the market. Piped music in its current guise and with its current business model is a busted flush because it's based on technical ability and an assumption about customer need that is not grounded in reality. The DOOH market should pay attention right now: this could be you in five years.
My hope is that retailers will start to use the new tools that are available, especially in the new field of neuromarketing, to create an integrated approach to retail environments, designing them in all five senses. As far as sound is concerned, I believe that carefully crafted generative, ambient soundscapes will replace music in most retail and other public spaces, doing the same job as a good piece of design with lighting and colour - creating a space that's interesting, branded, appropriate, comfortable, functional, and pleasant to be in.
Muzak's filing for bankruptcy yesterday is no surprise. I flagged its mountain of imminently due loans several weeks ago on Twitter and socialmedian, and in the current financial meltdown it was going to be a miracle if an entertainment-based business found someone willing and able to refinance over $400m of debt. It's very sad for those who will lose their jobs, but it's also very interesting to look at the underlying reasons for the failure, especially in the light of the similar demise of DMX in 2005.
What's not working for these music pipers? Is it the nature of the service they offer, the malaise affecting the whole commercial music business, or the business model these companies have been operating? And are there any lessons to learn?
First, the nature of the service. I do have great reservations about mindless music as a global veneer. There is little independent research on whether people like it or not, so most of the numbers one sees are produced by interested parties: either Muzak and its competitors, or the music industry and its ambassadors such as the licensing agencies - in the UK that's PRS, PPL and MCPS. Those numbers are universally positive, giving the impression that music is great to have in the background everywhere, all the time. You and I both know that's not true.
There is one independent survey I know: it was carried out in the UK in 1998 by NOP for the Royal National Institute for Deaf People, and it was setting out to find out how piped music affects the deaf and hard of hearing, of whom there are 9 million in the UK - that's around one sixth of the population. The survey also interviewed the general public by way of comparison; a total of 1,002 people were interviewed, and interestingly the level of engagement and passion for the subject of the interviewees was judged to be exceptionally high. This is a hot topic with the public, and the results should make salutory reading for retailers. Let's start here:
- 34% of the general public finding piped music annoying
- 36% of the general public never notice piped music
And these are just the conscious reactions to sound. The picture gets worse when you factor in the unconscious effects of music, which are the most important part. Sound's impact is like an iceberg: most of it happens at unconscious level, below the waterline. We have become so used to suppressing noise that we are unaware of the vast majority of the sound around us - but it still affects us all the time. In shops, even for people who say they like the music, the standard fare of upbeat pop music acts as a stimulant, speeding shoppers up and causing them to leave the store faster than they otherwise would. This is losing further sales because, as every retailer knows, the longer we are in a store, the more we spend.
So most piped music is reducing sales, both by upsetting and deflecting a third (or more) of customers, and by shifting the rest out of the store too quickly.
The demographics make this even more painful for any retailer aiming at the top of the market:
- 45% of 45-54 year olds find piped music annoying
- 21% of 15-24 year olds find piped music annoying
- 51% of people in social group AB find piped music annoying
- 26% of people in social group DE find piped music annoying
- 86% of hard of hearing people find piped music annoying
At least most of us can leave the store. Staff have to put up with the music all day, and unsurprisingly, according to a survey in 2007 by the UK Noise Association, 40% of them dislike piped music and only 7% like it.
And yet most shops play music these days. Why?
There are three reasons. First, the desperate need for the music industry to create new revenue streams has led to strong sales pressure from Muzak and its competitors, backed by hyperbolic claims in one-eyed research about the effects of music on customer satsifaction. Second, the billion flies argument: everyone else is doing it, so it must be a good idea and shoppers must like it. And third, it can work. If carefully chosen by someone who really understands the function of a space, the people in it, the environmental factors (noise, quality of sound system etc) and the brand or values behind the space, music can create a delightful, appropriate and effective experience. Sadly, this is rare and most piped music is bland, mindless and ineffective - which, in my opinion is why it is so offensive to many people. We all understand music very well (though nobody knows quite how), so we find inappropriate music upsetting: somewhere deep down we know it's wrong.
Tha's why the issue raises such strong feelings. There are even organised anti-piped-music communities such as PipeDown and Mu-sick, to name but two of several. Many people, me included, mourn the devaluation of music that results from its use as a universal veneer. Society's relationship with music has been radically changed as a result of its omnipresence in public places: it used to be something we had an active, intense relationship with, but now most of the time it's the soundtrack to some other activity.
But all of this is isn't why Muzak has just gone bust. The company had tens of thousands of sites, and hundreds of major retailers as its customers. None of these retailers, as far as I know, had rumbled the fact that their music wasn't working, so the big game of the emperor's new clothes was still being played. There is no shortage of piped music in the world, most of it from Muzak, so what went wrong?
And so to possible reason number two: is this a symptom of the bigger disaster that is the commercial music industry today? Album sales are nose-diving, digital rights management (DRM) is becoming indefensible, and young people believe that music is a right, not a commodity (or product, as the old record companies used to describe it). Has Muzak gone belly-up because people won't pay for their music any more?
It's an attractive premise but it falls down because we are unaware of the cost of the music we are subjected to in shops. It is, of course, far from free, and we certainly do pay for it in higher prices. The music industry, through its licensed agents, is rabid about collecting fees for all public performance of music, despite the regular bad PR arising from its pursuit of corner shops or local garages with radios on for their staff. The legal landscape is complicated in established markets: in the UK, the Performing Right Society and Mechanical Copyright Protection Society (now combined as PRS for Music), and Phonographic Performance Limited, collect for different rights in any one piece of music. For big retailers the fees are huge, running into millions a year, and our experience at The Sound Agency is that the methods of calcuation are arcane, often incomprehensible and inconsistent. In less developed markets, it's like the Wild West: you can obtain cheap bootleg MP3 music from many Russian and other Eastern European websites, and there is little policing of public peformance, so vast amounts of music are bought and played illegally.
But even with effective policing, however large the fees are, and however difficult the system is to understand, the shopper is oblivious to this or to the extra cost of the musical wallpaper they suffer in stores. There is no equivalent of an organic section - a quiet room where you can buy goods without listening to or paying for the music. (Come to think of it, that's a great idea!) So this can't be the reason for Muzak's downfall either.
Which brings us to the third possibility - business model. All the piped music companies have been operating the same business model: an up-front fee (typically leased) for purchase of their players, plus monthly fees for each site served.
The players are usually adapted PCs, sold in large volumes by the pipers to leasing companies which then charge the retailer a monthly price for the staged purchase over three years. The music piper makes a 10-25% margin on the initial sale. The retailer doesn't have to find a big pile of cash for the boxes. The leasing company does what it knows best. Everyone is happy at that point.
Over the next three years (the typical life of one of these deals) the pipers charge a monthly fee per shop. This has to cover the rights to the music - typically that can amount to £20 or more a month - plus the service contract for the kit. It should also include a service fee for the piper to cover music updates, account management, administrative costs and R&D.
This is where it all goes wrong. The pipers have become so competitive in pitching against each other that they have driven the monthly fee down to the bone. It barely covers the rights and service fee - indeed in some cases it doesn't even do that. There is no margin for the piper, so all their profit is in the initial sale. They become like sharks, having to move forward with new sales all the time or die. The problem is that what was once a vast virgin market is now highly competitive and mainly sold-up and under contract.
There is a great analogy here with the mobile phone companies. Ten years ago they made all their money from selling handsets, and they could hardly make enough to satisfy the demand. Now everyone has a handset and the market is so competitive that we expect not to pay for replacements in most cases. Seeing this coming, companies like Nokia and Vodafone have successfully transitioned from a volume product sales model to a rich service model: their profit stream is shifting from handset sales to a lifelong relationship based on offering great services like navigation, music (of course!) and personal organisation.
The pipers just didn't see the wall approaching. Muzak took on massive debt to expand, but it failed to grow in the right direction - towards added value services and a profitable ongoing relationship with its clients, and away from being a box seller.
In Europe, Mood Media has taken a slightly different tack, expanding into the fast-growing digital out of home market - retail TV to you and me. This will give the company several years of rapid growth, but eventually, when every shop has screens all over the place and we are all complaining about being bombarded with video messaging at every turn, the same wall will be standing in the way.
In sum, businesses based on capability ("We're doing this because we can") have limited life-spans. Businesses based on need, value and service ("We're doing this because people want it") have long-term sustainability, as long as they listen to the market. Piped music in its current guise and with its current business model is a busted flush because it's based on technical ability and an assumption about customer need that is not grounded in reality. The DOOH market should pay attention right now: this could be you in five years.
My hope is that retailers will start to use the new tools that are available, especially in the new field of neuromarketing, to create an integrated approach to retail environments, designing them in all five senses. As far as sound is concerned, I believe that carefully crafted generative, ambient soundscapes will replace music in most retail and other public spaces, doing the same job as a good piece of design with lighting and colour - creating a space that's interesting, branded, appropriate, comfortable, functional, and pleasant to be in.
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