In the last few days I have been reading some great articles over at RWW on the music industry, where it is headed and how Apple could potentially lose its dominance. These articles have fueled great debates on the RWW site and here is my take on the whole music industry.
Having the Complete Package
Josh wrote a great article at RWW that basically talked about Apple and how they are slowly coming under fire from Amazon and Zune. I think the situation is very straight forward until someone really tries to shake up the market!
Apple currently has 70% of the portable music player market and approx 85% of the music download market. Apple additionally has a very strong brand awareness and loyalty. Apple are very smart at what they do and for companies who only offer part of their package, it will be very difficult for them to compete and actually grab any market presence. Im sure we will see companies like Amazon attempt to attack parts of the music market but if they succeed in any particular area (such as cut pricing of downloads and DRM free downloads), then Apple will just calculate the right times to cover the advances and offer equal services. At the end of the day Apple knows that they have brand loyalty like no other and services such as Amazon Mp3 in the long run will only help them sell more iPods or Macs, because these people who download have to put their music somewhere.
In terms of Zune they have been receiving some good reviews for their new product, however this is Microsoft we are talking about. Microsoft has long been serial monopolists and Zune is not going to change that fact. Apple have of course AAC files that can only be played on iPods and Microsoft have exactly the same with the Zune.
At present no one can challenge Apples dominance and I dont think anyone will challenge them for at least another 5 years. Microsoft with Zune have just launched a product and service exactly the same as Apple did years ago with the iPod and iTunes, there is no difference to me. Amazon however, have launched a service that was need, a service that offers DRM free music not via subscription and via a cut price. Amazon hit a small gap in the market that was needed, but does this mean they will get any where near iTunes? No chance in hell!!
Future of DRM
I predict that 2008 will be the year that all the big 4 (Sony BMG, Universal, Warner and EMI) start selling DRM free music more openly. Amazon has Warner on the books and iTunes has EMI already signed up with Warner to come on board very soon.
In 2007 there have been lots of experiments with the music business model, such as Radiohead and also Amie Street, but have they proved anything? Yes I think they have. The Amie Street business model of offering music low and then prices increase when the track becomes popular has proved so successful that Amazon has bought into the company. Radiohead proved that selling digitally on a website can be just as popular as selling on the huge iTunes.
Conclusions. Overall, I really think customers are willing to pay for good quality music, especially DRM free music that can be transported to any portable music player, but only at the right price! Im still not too sure if we have found the right price yet. This is mainly due to the big 4 wanting to make a good margin on their sales on iTunes, thus prices are currently high. I cant wait to see a service that skips all of the hassels and just offers a simple service that sells good quality mp3s DRM free at a price such as $0.50 per download.
What Needs to Happen to Break the Music Industry
Currently, I am CEO of a company which is entering the music space but focusing on music licensing and distribution. Hypothetically, if I had the resources and money to launch a product in the music industry that would compete with iTunes and Apple, I would do the following.
- Digital music downloads need to have a copyright system in place that actually tracks who the music is sold to and if the music is transported between computers or players it just needs to be unlocked via a password or something similar.
- Offer a DRM free music store in which the music can be transfered to any portable music player
- Offer a reasonable price and optimize the transaction fee the third party takes.
- Then offer other vertical services such as videos, games, ebooks and more.
- Finally, move into horizontal integration, such as a revolutionary portable music player, online and satellite radio stations and many more ideas.
This is the only way I can see someone breaking the Apple dominance and taking at least some share of the music market. If you are a VC and would like to fund my idea, please get in touch with me! haha. I love a challenge!
