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Why can't we exchange gifts?

Paper_television I used to buy CDs for people at Christmas. Now I "gift" them downloadable tracks from Apple's iTunes Store. It's great in a way because I can make mix CDs of my favorite songs from that year (see below for my 2006 list), but I'm bothered by two shortcomings that are endemic to the online music business. First, the songs are wrapped in Apple's flavor of DRM, which isn't compatible with any portable player save the iPod. That's a surmountable problem; people can burn their tracks to a CD and re-rip as MP3s, although they may have to fill in the artist and track info for each song. More significantly, someone who receives a downloadable album or tracks from the iTunes Store as a gift has no easy way to return or exchange them. If you're given a downloadable copy of an album you already own, well, too bad!

The latter failing should be simple for Apple to correct. After all, the company knows when a gift has been redeemed; as long as a customer hasn't yet downloaded the tracks, he or she ought to be able to trade 'em in for something else. I know, I know, Apple also sells gift certificates that let the recipients decide for themselves which songs to download. But where's the fun in giving one of those? Besides, making gift downloads fungible will only encourage people to buy more. So come on, Apple -- make it happen.

For what it's worth, here are my favorite tracks from 12 albums that I recommend in their entirety:

+/-, "Thrown Into the Fire," Let's Build a Fire
The Weepies, "Take It From Me," Say I Am You
Ms. John Soda, "Hands," Notes and the Like
Neko Case, "Hold On, Hold On," Fox Confessor Brings the Flood
Mogwai, "Auto Rock," Mr. Beast
Herbert, "Something Isn't Right," Scale
The Essex Green, "Don't Know Why (You Stay)," Cannibal Sea
The Pipettes, "Pull Shapes," We Are the Pipettes
TV on the Radio, "Wolf Like Me," Return to Cookie Mountain
The Blow, "Parentheses," Paper Television
Camera Obscura, "If Looks Could Kill," Let's Get Out of This Country
His Name Is Alive, "I Thought I Saw," Detrola

And here are 15 honorable mentions:

Beirut, "Postcards from Italy," Gulag Orkestar
The iOs, "Summer Camp," Resident Alien
Field Music, "Trying to Sit Out," Write Your Own History
The Twilight Singers, "I'm Ready," Powder Burns
Asobi Seksu,"Strings," Citrus
Tapes 'n Tapes, "Insistor," The Loon
Psapp, "Hi," The Only Thing I Ever Wanted
Hot Chip, "And I Was a Boy From School," The Warning
Beach House, "Tokyo Witch," Beach House
Maritime, "Tearing Up The Oxygen," We, the Vehicles
The French Kicks, "English Just Will Not Let You Recover," Two Thousand
The Ettes, "All Right," Shake The Dust
Voxtrot, "Mothers, Sisters, Daughters & Wives," Mothers, Sisters, Daughters & Wives
Yo La Tengo, "Mr. Tough," I Am Not Afraid of You ....
My Robot Friend, "Dial 0," Dial 0

iPods, iTunes and the new consumer

Itunes_7_2 Josh Bernoff of Forrester triggered quite a tempest online earlier this month with a report that said iPod buyers weren't buying many downloadable tunes from Apple, and their purchases were declining sharply. You can fault Josh for looking at sales sequentially instead of year-over-year; music sales are notoriously seasonal, after all. But I don't think you can argue with the central point about iPod owners not buying a whale of a lot of tracks from iTunes. Apple's own numbers showed that 1.5 billion tracks had been sold as of September to a world equipped with about 70 million iPods, which works out to a little more than 20 tracks per player. Even if you acknowledge that many iPod buyers have multiple players, the average at the time still amounted to only a couple of CDs' worth.

Focusing on iTunes sales, however, misses the larger point about how these devices are changing music consumption patterns. As anyone who got an iPod for Christmas (or even one of the less ballyhooed alternatives) will attest, having the ability to take a large quantity of music anywhere and everywhere alters how people feel about music. Unlike radio, an MP3 player is utterly personalized, not bounded by genre and minimally repetitive (or at least repetitive only to the degree that the user demands). So it seems inevitable that this new platform -- and as the legion of add-ons for the iPod demonstrate, these players are platforms, not just devices -- will stoke people's appetites for music.

That leaves only the question of how those appetites will be fed. The iTunes 99-cent-per-track model is an impossibly expensive way to load up even a 1 gigabyte iPod Shuffle, let alone a 30 or 80 gigabyte model. Most people find another way to stuff songs onto their players, whether it be legal (by ripping tracks from their CDs) or not (by downloading songs en masse from a file-sharing network). My guess is that iTunes will goose sales but won't dramatically change the amount of music people acquire, at least not in its current iteration. Remember, the average American doesn't buy much music -- 700 million CDs shipped in 2005 translates to about 4.5 per adult under 54. That's, what, 54 tracks per year? The current rate of 20 downloads per iPod may be significantly higher than the number bought by the average adult (about 4 this year and 2 last year, according to Nielsen SoundScan), but it doesn't come close to filling an MP3 player.

That's why I'm bullish on music subscription services like Napster and Rhapsody, as well as bulk MP3-buying options such as eMusic. The former have to do a better job persuading music fans to buy access to tracks instead of the tracks themselves, and they have to find a way to interoperate with iPods -- no mean feat, given Steve Jobs' refusal to do any licensing deals with iTunes competitors. The latter, meanwhile, won't be a mass-market option until they win licenses from the major labels, who have refused to sell songs as MP3s. But these approaches strike me as the ones best adapted to the new platform created by the tens of millions of iPods and iRivers in use today. Even if iTunes sales fell to zero overnight, the appetite for vastly more music will still be there.

Studio 60 on the day after next

Studio_60_on_the_sunset_strip The audience measurement firm Nielsen recently released year-end Top 10 lists in about 20 categories, including movies, albums and products placed on broadcast television shows. One of the more unusual rankings: primetime TV shows that were most likely to be time-shifted. Think of them as the shows intriguing enough for people to record on their TiVo (or, more implausibly, their VCR), but not compelling enough to watch live. Nine of the 10 were dramas or comedies, led by NBC's "Studio 60 on the Sunset Strip," a dramedy that has proven less attractive to viewers than to critics.

Now here's the interesting point. About 10% of "Studio 60" viewers have been time-shifters. The implication is that almost everyone who wanted to watch "Studio 60" and who could time-shift -- either because they had a PVR or they were adept at taping shows -- chose not to watch the show live. (That's based on the limited penetration of PVRs and the relatively low percentage of VCR owners who record shows, and it assumes -- dangerously -- that fans of "Studio 60" aren't much different from the TV audience as a whole.) Other programs with high time-shift percentages were "Heroes" (about 8%), "Gilmore Girls," "America's Next Top Model," "30 Rock" and "Friday Night Lights" (all around 7%).

If I'm an advertiser, I'm not liking these numbers. Time-shifters are notorious for skipping commercials, although Pat McDonough of Nielsen Media Research says that PVR users still watch nearly half of the commercials aired. That percentage is bound to drop over time as viewers learn how to program their TiVos to fast-forward in 30-second increments. PVRs will become ubiquitous before too long, and if buzz-drenched shows like "Studio 60" and "Heroes" are routinely time-shifted, how long will it be before advertisers desert them?

The less apocalyptic view is that by that time, advertisers, networks and PVR suppliers (particularly cable operators, who need ad revenue, too) will have found other ways to entice viewers to watch commercials. As the Super Bowl shows, people actually like commercials when they're entertaining and/or personally relevant. The former is an elusive goal, but the latter is becoming more achievable all the time.

YouTube reimagined by Hollywood

Youtubelogo_3 Reports have been swirling for a couple of weeks (thanks, PaidContent.org) that several powerhouse media conglomerates, including Viacom and News Corp., were considering a joint effort to develop an alternative to YouTube. Such direct-to-consumer efforts haven't exactly burned rubber in the past under media-company leadership -- think Duet/Pressplay, MusicNet and Movielink -- but this time there's an intriguing difference. The media companies involved in the talks don't seem to be doing this to control the flow of their works online. Instead, they're just trying to make money off of the phenomenon. That's a fresh breath of reality-based thinking.

Of course, it remains to be seen whether a) the deal actually happens, and b) whether the parties involved balk when someone tries to post a clip they don't want to promote (say, a clip of Ashlee Simpson's botched lip-synching on "Saturday Night Live"). Unless the site has everything that Internet users are buzzing about, it won't have credibility. I also wonder what would happen if someone tried to post a prize chunk o' content from a studio not part of the deal, such as Disney. Will other copyright holders be satisfied by what promises to be, at least initially, a negligible amount of advertising revenue?

The site would obviously want to avoid the legal troubles YouTube is experiencing, including an infringement lawsuit by a Los Angeles news service . In fact, the owners of the new site might want to use real or threatened lawsuits to force YouTube and its ilk to remove all their copyrighted material, making the new site the exclusive source for, say, "24" highlights and "Colbert Report" segments. That might seem appealing from a business standpoint, but it's a legal minefield: any agreement between the new site's owners not to cut licensing deals with competitors would probably violate antitrust laws.

To me, though, the main reason for media companies not to try to replicate YouTube or any other online video distributor is that they've been poorer judges of the market than many tech upstarts have been. Collectively, they've been reluctant to back new business models that embrace what people are doing online, insisting instead on approaches with the least potential to disrupt their offline revenue streams. That's rational, given the relative amounts of money involved (starting from scratch online vs. multi-billion-dollars businesses offline), but it has also conceded the field to outsiders -- particularly file-sharing networks. If three or four media conglomerates joined forces on a user-generated video site, imagine how many corporate lawyers would have to be consulted on a regular basis. Now imagine trying to get them all to agree. Does that sound like a better formula than cutting a deal with YouTube and hoping it comes up with a better way to monetize its audience?

Norah Jones, unlocked

Norah_jones_come_away_with_me This is a watershed moment? The Wall Street Journal ran a story on B1 Wednesday about EMI releasing a song in the MP3 format. Not one collection, one LP, one EP -- one track. Granted, it's by Norah Jones, a big seller for EMI's Blue Note label. But the experiment in DRM-free distribution won't tell EMI (or any of its competitors) anything about the relationship between MP3 and piracy.

Since the original Napster turned MP3 into an obscenity for the major record companies, their executives have clung to the belief that people who buy music in the MP3 format will pass it freely to all their friends, eviscerating sales. This is an act of faith, not something that's prone to verification. The only difference between and MP3 and a song on a CD, in terms of sharing, is that it's ready to be e-mailed. A CD has to be ripped first. But then, a download bought from iTunes or Rhapsody just has to be burned and re-ripped, which doesn't seem like much of a hurdle.

That's why I don't think EMI can really judge the impact of dropping DRM from the Jones single. Sure, the song will quickly find its way to file-sharing networks, but then, every song does regardless of DRM. And if it's popular, it will be downloaded massively for free, just like any other popular song. Remember, the tracks in highest demand on file-sharing networks are also the ones with the biggest sales. You can speculate about how much more a song would have sold if there had been no file-sharing, but that's just speculation.

A better question -- and one more easily tested -- is whether the MP3 format might increase sales by eliminating the annoyance of DRM (in particular, the mutually incompatible DRMs used by Apple, Microsoft, RealNetworks and Sony that raise their ugly heads when consumers switch brands of MP3 player, buy a new computer, or try to move music through a home network). I say "more easily tested" because actual sales are measurable, while lost sales (due to sharing) are always hypothetical. Today, the major record companies sell downloads for about the same price as songs on a CD, but the downloads are less valuable because they're wrapped in DRM and CDs aren't. Sure, several of the labels have tried to close that gap by adding copy protection to CDs, but the Sony BMG rootkit fiasco appears to have turned the public against such discs. So for the time being, at least, the CD remains unencrypted.

As many a tech company has argued over the years, DRM works best when it's enabling consumers to do new things, not trying to stop them from doing something. That's why the major labels would be better off using DRM to enable all-you-can-eat subscription services like Rhapsody, Yahoo! Music Unlimited and Napster, rather than slapping limits on 99 cent downloads. I still think that music fans will gravitate toward subscriptions once Wi-Fi is ubiquitous and portable devices are always connected to the Net. That's when DRM will become a route to a better value proposition, not something consumers resent because it's forced on them.

In the meantime, the major labels should stop dipping toes into the water and do some tests of real magnitude. For starters, why not take up the longstanding invitation from David Pakman at eMusic and let him offer hundreds of niche titles through his MP3-based bulk-buying service? Make the same tracks available through iTunes and other online stores -- some with DRM, some without -- and see what happens. If the titles aren't selling today, what's the harm? (Personal request: EMI, dig the Fingerprintz catalog out of the vaults, starting with Beat Noir.) Such a move wouldn't be a watershed moment, either, but it would be closer to the real thing.

Superdistribution: Zune vs. eListeningPost

Sharing I'm  writing this from a jury assembly room in Los Angeles, listening to a Microsoft Zune - the only one in the room, I'm fairly sure. Why? Because Zunes are social creatures that look for each other automatically, and my Zune could not detect any other Zune turned on nearby. If you were in a jury assembly room with an MP3 player, believe me, you'd have it on.
Anyway, before coming to this hellhole do my civic duty, I went by my colleague Dawn Chmielewski's desk and did the Zune Wireless Sharing Thing. I zapped her two individual tracks and an entire playlist (16 songs) in the space of a couple of minutes; in exchange, she beamed me a copy of "Hot and Nasty" by Black Oak Arkansas. Schweeet! She does NOT know how to negotiate. Anyway, it was swift and brainlessly easy (which was key because neither of us read the owner's manual, as a matter of principle). But there are many other things that MSFT didn't get right with the Zune, from the loading process (it takes hours, and there's no obvious way to set priorities short of doing it all manually--an issue only if you have more than 30 GB worth of music, pictures and videos on your PC, but who doesn't?) to the Zune Marketplace (which neither of us could make work properly). So many shortcomings, in fact, that I was sorely disappointed in the thing.
Many of the foibles will certainly get fixed in version 2. A top priority for MSFT, though, should be fixing two mystifying things wrong with the sharing process, because that's the difference maker for this device in the near term. First, when someone beams you a song, you can't pass it on to anyone else unless you buy it. That means the viral distribution chain probably breaks after one pass. And second, every song that's beamed from one user to another gets locked down after three plays (in whole or in part) or three days. That's too draconian, and it should be eliminated altogether for anyone who subscribes to Zune's unlimited music service ($15 a month to load as many songs onto your PC and your Zune as you can stand). If a song is in the Zune catalog, subscribers should be able to play it as many times as they like, no matter how they receive it.
The folks at eListeningPost have a more interesting approach to sharing. Their Beta site launched today with more of a whimper than a bang, offering songs from only 20 (count 'em, twenty) unsigned artists. Still, that's enough to demonstrate the technology, which enables bands and labels to send full, temporary copies of songs to fans. After up to five plays, the recipient can either abandon the track or buy it directly from the label (or indie artist) -- no need to go to an online store and download it again. The user can also pass on copies of the song to their friends, who'll get the same deal: sharable tracks that can be played up to five times for free, then bought with a couple of clicks. And in a very nice touch, the friends don't have to register with anyone or download special software to play the tracks (assuming they have a PC with Windows Media Player or RealPlayer).
One of the possibilities touted by the company is letting consumers sign up for artist- or genre-based mailing lists, then sending samples to their In boxes every week. Fan clubs or labels could power a narrowly targeted service (pre-release tracks? rarities? music videos?), or aggregators could emerge to blast a full lineup of samples to people based on their tastes. The proceeds from the sales would go entirely to the label or artist, with eListeningPost making its money off of modest monthly fees that the act pays. Another possibility would be to ship ads with the songs and split the proceeds between the act and eListeningPost.
The company won't succeed without a lot more content, and so far the only major label on board is the smallest, EMI, which is still deciding which artists and tracks to make available. Still, the public's need to try before buying has been amply demonstrated, and the offer from eListeningPost (which was founded by a former general manager of Motown and a former RealNetworks executive) fits the bill pretty well. The main shortcoming is that the sample tracks can't move off of the computer that received them. No portability, in other words.
The folks at Techcrunch don't like the fact that eListeningPost's samples are wrapped in DRM. Personally, I think DRM is a fair trade-off for free music. One of its uses here, in fact, is kind of interesting: the DRM forces people to rate the tracks they receive after two listens in order to get three additional free plays. That feedback could be used to fine-tune the selection of songs that person receives.

The illustration is the cover art from Kristin Lems' book-and-tape combo "Sharing," courtesy of her website.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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