I have a column on latimes.com today discussing a couple of different business models that companies such as Grooveshark, Qtrax and Mashboxx (remember them?) are trying to bring to file-sharing. They're divided into two basic camps: one tries to persuade p2p users to pay for songs, and the other tries to persuade advertisers to pay for access to a law-abiding p2p audience. The latter is obviously the bigger departure from the status quo ante Napster. After all, the major record companies once fretted that low-cost online approaches would devalue music and crater sales. Now they're signing licensing deals with ventures like Qtrax that let people play songs on demand for free.
On a related note, Business Week's Ronald Grover and Peter Burrows had a nice scoop last Friday about Universal Music Group trying to rally other labels and consumer-electronics companies around the idea of a subscription service whose cost would be buried in the price of new portable music players and other gadgets. In exchange for about $5 a month, the record companies would let subscribers download an unlimited number of tracks. The twist is that the monthly fee would be paid up front by device manufacturers and built into the price, to the tune of about $90 in added cost.
Ars Technica's Nate Anderson, Jupiter Research's Mark Mulligan and Coolfer's Glenn Peoples are among those offering nice analyses of the report, and all of them see at least a kernal of tasty goodness in the idea of bundling music and devices. The LAT's editorial board may weigh in on this issue soon, too, even if Universal's Total Music initiative is more of an idea than a plan at this point. Among the things I wonder:
- Demand for music is at an all-time high -- witness the volume of songs being shared online -- but the amount of money spent buying recordings has dropped like a stone over the past seven years. The trick for the music industry, it seems, is finding a way to generate revenue out of the massive amount of unauthorized consumption on the Net. That's why advertiser-supported models are appealing: they don't require fundamental changes in the p2p crowd's behavior. Why would those consumers want to pay extra for a player that's bundled with music when they're already getting the songs free?
- I recognize that the point of the initiative may be to shut out Apple, which hasn't been receptive to many of the major labels' demands (in particular, the ability to collect significantly higher wholesale prices for new releases by big-name artists). But with so many iPods already in homes, won't consumers steer clear of Total Music if they can't move tracks from a new Zune to an older iPod?
- How do you enable people to consume music when and where they want to do it? Will they have to buy new devices for their car, their living and their bedroom? It seems like Apple is way ahead of Universal on that front, given the expanding universe of stereos, boomboxes and alarm clocks built to work with iPods.
- Mulligan contends that the labels' skill set doesn't include providing services directly to consumers. With a track record comprising Bluematter, Farmclub.com, GetMusic.com and Pressplay, UMG doesn't have a lot to brag about. Why should we expect a different result with Total Music?
- Anderson urges the labels to drop DRM and sell Total Music subscriptions for $5 a month to people who don't want to buy more gadgets. The point is to persuade people who aren't buying music today to start paying for it. I'll concede that $5 a month is a heck of a lot better than nothing, but how do the labels provide such a service without reducing spending by the avid CD buyers who sustain the business today? In other words, how do you segment the market?
Any and all suggestions are welcome. Come on, debating business models for the music industry has to be more fun than pounding me for complaining about Radiohead's 160 Kbps encoding rate....