Wharton Tech Blog

The Wall Street Journal reports today that Yahoo agreed to buy MusicMatch for $160MM in cash. This purchase, to be completed in the next quarter, effectively puts Yahoo in the downloadable music business. Let’s take a quick look at this rapidly growing market:

iTunes — 1 million songs, AAC format, 100MM downloads, 70% share of market, iPod
MSN Music — over 1 million songs, in beta now, WMA, brand new service, over 70 devices
MusicMatch — over 700,000 songs, WMA
Napster – over 700,000 songs, WMA
RealPlayer Music Store — over 600,000 songs, AAC format
WalMart — over 400,000 songs, WMA
BuyMusic — over 500,000 songs, WMA

This puts the legal online music selection to anywhere between 1MM songs and 5MM songs.

Prices per song start at $.49 and go up to $.99.

Even at 99c from the dominant iTunes, each song is sold at a loss. For Apple this strategy is about selling iPods (reverse Gillette shaver model) which is now over $200MM business. For Microsoft, this is about platform and format adoption of WMA. I’m not sure what this means for all the others. Maybe a subscription service could bring better margins since it’s a prepaid model. Or these services are hoping the music industry will pick-up the tab when the market shows greater promise as if this isn’t enough.

Which brings me to the music industry and their preoccupation: piracy and CD sales. Have these online services brought a turnaround in the decline of CD sales? One would think not because this is a cannibalization process in the early stages. Given the prevalence of DRM (digital rights management) in these online sales, the music industry should be happy and encourage, even subsidize, these stores because they push DRM-ed content and its acceptance into the mainstream. I’m not the biggest fan of DRM for commercial sales simply because we haven’t gone through an equipment upgrade cycle to work out the potential problems. But so far consumer don’t seem to mind it at the right price.

Now if sales of CD are increasing especially for the same songs available legally online, then this is a curious phenomenon which suggests users accept DRM content and would gladly pay a premium for the ability to controll and own their purchases through the CD vehicle. This doesn’t bode well for reducing piracy but better music download services with greater selection clearly work to raise the bar on piracy.

If the music industry is learnining the lessons quickly they should teach some of these tricks to the movie industry so they avoid the Napster effect from 1999. The movie industry is in for a rude awakening if they continue to resist online sales and only tepidly accept half-baked solutions like MovieLink and CinemaNow before the torrent networks have their way.

I’d very interested to hear comments on these topics.

This entry was posted on Tuesday, September 14th, 2004 at 4:08 pm and is filed under Consumer Tech/Digital Media. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.