Letter from America: Taking Content Delivery’s Temperature

The way in which people gather, collect, store, manage and eventually listen to content has a significant impact on the products, systems and services we provide even as we never sell a disc or download a song ourselves.

Thus, it is important to take a high level view of what people are using to be certain that they get the right gear from the start and get the right upgrades along the way. With 2015 now in the books, that gives us a chance to take the temperature of various media forms and the related kit that surrounds them.

What is clearly hot is the consumption of digital streams. Combined global sales for 2015, as compiled by the IFPI will not be available until later this month, so we only have 2014 numbers as a guide. Looking at retail sales value, their global split between digital and physical sales might surprise some, as it was dead even at 46%/46% with the remaining 8% of revenue coming from performance and synchronization sales. Moral there, even given the age of the data, it is not always correct to say that “digital rules”. In countries such as France, Austria and Switzerland the split was as much as 65%/22% in favour of physical media sales. Thus, in those countries, or when selling to natives of those countries anywhere, don’t ignore the CD player or turntable and phono preamp.

The split changes in 2015, particularly at a more granular country-by-country level. In the UK the BPI reported 2015 sales of digital streams as being up 82% over 2014. Yes, that seems “red hot”, but a closer look tells you that single track download sales were down almost 15% and digital albums were down 13.5%.  The results for subscription stream sales means that for UK customers you should always have the products and ability to provision servers and similar for those who want them, but are you offering all the possible access points needed for the client’s favourite service?

Here in the US, the RIAA’s 2015 year-end report shows a similar trend. In $USD sales, “digital album” sales were down 5%, “digital single” sales were down almost 13% and “music video” sales were down 52% (with the caveat that YouTube is not part of the data collection.) On the flip side, paid and free/ad-supported streaming subscription dollars grew a total of 22% with the split between the two business models close to 50/50. Looking year-over-year, however, the dollar growth in paid subscriptions was much greater than that for free services that were a bit more lukewarm.

The takeaway? Make certain that your systems collate the right services and that you are ready to assist in the needed authentication for all relevant devices. At the same time, the continued use of and demand for downloads means that products such as servers and management systems (for both audio and video) are far from end-of life.

General wisdom might be that physical media sales are now as cold as sales of audiocassette or VHS, but there is one aspect of content delivery that has defied expectations. Sales of LP and single vinyl have gone up globally—32% in the US, over 64% in the UK and presumably the same throughout the world. From one perspective, that kind of increase, with sales higher than they have been for a dozen or more years, is hot enough to melt the very vinyl we’re talking about. However, the total dollar volume is only about 1% of digitally delivered music sales. Yes, press reports are abuzz with the “vinyl comeback”, but that newly found enthusiasm for 12” black vinyl discs can not mask the fact that this remains a niche market. For the vast majority of consumers, vinyl is an antique. On the other hand, for those who are rediscovering a record collection or otherwise drawn to it for whatever reason, there is much opportunity.

Think about it: Turntables are available, but fewer and fewer AVRs or surround sound processors have phono preamps. Do you have a few suppliers for them are a range of prices? Even better, the need for something to plug that turntable into might be extended to show the place of a “true music” system with a stereo receiver, full-range speakers, higher quality cables, and as a concession to digitally delivered content and services, the ability to access streaming services or digital storage products.

Heiss_LfA_Content Delivery_Technics TT

To be sure, vinyl isn’t going to rise up and do to digital what CD did to vinyl and cassettes.  On the other hand, it is far from obsolete and could be a very hot profit opportunity.

Yes, we’ve finally mentioned CDs, which bridge the divide between digital and physical media. Yes, CD sales have dropped globally—about 4% by units in the UK and just shy of 14% in the US—but when you consider the “serious listening room” mentioned above, CDs still plays a vital part.

In addition, while the incredible growth of streaming services has broadened to range of content they offer, it is likely that many, if not most clients will have a music category or interest not often served well the digital sources. Is the new prospect a show tunes fan? Do they favour a deep library of classical music? Does the client have an interest in world or ethnic/religious music? Are they a jazz fan or someone who liked spoken-word recordings? There, CDs are preferred—if not the only option—for music as DVDs are for off the beaten path movies and video content. Play that up, literally.

While low-end CD players have gone the way of all flesh, mid- to high-end models remain. Even better, the typically selective distribution for pure CD players or higher-line Blu-ray players means that they are not dragged into the profitless morass of mass-market players. Yes, the CD playback from a good digital optical player can meet the requirements of an audiophile, presuming that the output DACs are good, either in the player, preamp, stereo receiver, AVR or processor.

Heiss_CD Player

Also as a reminder, optical players are still viable as they are part of both of the leading game consoles. Using an Xbox One or PlayStation 4 for DVD or Blu-ray playback is an option used by many. In addition, Xbox One also continues to offer CD playback, though PS4 does not. To see how hot CD playback is going forward, and to see if the new UltraHD Blu-ray format gets hot or stays lukewarm, we’ll have to wait a few months until June. At the annual E3 show here in Los Angeles we will find out if the rumored “PS 4.5”, an updated Xbox One and the expected new Nintendo NX console add more playback options and HDMI 2.0a/HDCP 2.2.

Lastly, your audiophile clients should be well aware of the need to pay for products with higher spec internal DACs, or the price to include a dedicated, external DAC for playback from streaming sources, servers or optical players. This requires you to explain the possible need for additional connection cabling, inputs and control capabilities. DACs can be a key way to boost your equipment sales. Explain what they do and demonstrate the difference they can make and you’ll be pleasantly surprised at the results.

When looking at the various ways to deliver media, particularly music this month, the sales figures you and your customer base see in the popular or business press may tell the story about as well as using a broken thermometer to see if you need to wear a sweater, coat or shorts. By all means, look at the sales figures, but be careful how you categorize the temperature. Do it correctly and what will be “hot” is your bottom line!

Michael Heiss is a technology consultant and journalist, CEDIA Fellow, CEDIA ESC 2 Certified, and US correspondent for HiddenWires magazine. You can contact Michael via the HiddenWires LinkedIn Group, follow him on Twitter @captnvid, or comment on his article, below.

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