creative deconstruction

Mother of All Music Tech Recaps – October Edition

Posted on 02. Nov, 2009 by refe in TECHNOLOGY

This is a guest post by Gabriel Nijmeh, a business analyst and music technology enthusiast.

What a month of news and announcements coming from the digital music and tech world. The big Internet guns (Google, MySpace, Facebook) and a pack of known and new startups were battling for the top digital music business headlines. Funding, new music services, the ongoing debate about ad-supported vs. subscription business models, music ownership vs. access and new mobile apps, the debate and discussions continues.

Show Us the Money

Starting off with funding, the past few months has shown an apparent thaw in venture capital flow as as quite a number of music startups have attracted investor’s money. After a bleak period in the financial markets, the stocks markets have rebounded but overall economic recovery tells another story. There are no shortage of analysts, market pundits and economists who have declared the recession is over but the rebound will have to prove itself. Some are saying that the tech sector will lead us out of the “great recession” as evidenced by strong results at Apple, Google, Amazon, Intel and IBM. Techcrunch is reporting that Q3 venture financing Is Up 17.5%.With all the latest announcements, there is no shortage of confidence or eagerness to plant some stakes in the online digital music business. Amie St, Deezer, Shazam, GlobalGrind, Ecast, Free All Media, Band Metrics, Conduit Labs, MOG all announced financing deals over the past couple of months.

Duncan Freeman at Indie Music Tech is keeping tally of all 2009 music tech related investments and should have Q4 update for us before year’s end.

Access vs. Ownership, Downloads vs. Streaming and the Battle of Business Models.

Is this really a “versus issue” or can access, ownership, bundling, downloads and streaming all co-exist? The digital music business is like a pinata and many companies are lining up to take a few whacks believing inside is a pot of gold.

Google, MySpace, Facebook make music moves — It was only a matter of time before Google and Facebook made a direct move into music. Too little too late? A good thing for consumers, artists, labels? The general response seems to be “ho-hum”. The Google music announcement is at least five years too late, and doesn’t offer anything new or compelling to either artists or consumers. It just formalizes and attempts to monetize Google music searches. Dave Kusek has posted a piece entitled: Google Music and the New Payola – Some Things Never Change and lays out who the winners are. More analysis here and here.

Dell and Universal Team Up to Offer Pre-Loaded Music Bundles — Dell and Universal have teamed up to give consumers a chance to purchase pre-bundled DRM-free MP3s when buying a new computer.  Dell is also partnering with Napster to offer a year of Napster Unlimited on selected laptops.

Daniel Ek of Spotify expands on the idea of packaging music and getting it into people’s existing billing habits and he is walking the talk but announcing that Spotify and 3 UK are hooking up to bundle Spotify premium with the HTC Hero phone. Will this be the future of music purchasing?

MOG’s $5 Monthly Music Service Highlights Spotify Obstacle – Earlier in the summer MOG secured new funding and come US Thanksgiving, MOG will be the newest music streaming service. It was clearly noted by MOG’s CEO David Hyman that a free, ad-supported service is not possible due to the high cost of licensing on-demand music for the United States. This raises questions about Spotify’s US offering in early 2010. Will they offer an ad-supported service or go directly subscription-based?

Lala App Turns iPhone Into Dime Jukebox — Pending Apple approval, Lala has an iPhone app ready to go that will let users stream music for only 10 cents a track on their computer and iPhone/iPod touch. As for the business model, LaLa claims they earn on average of $67 per user which is 300 percent more than what iTunes reels in. Sandy Pearlman has been espousing 5 cent downloads for more than four years and Lala is the closest to realizing the idea.

Free All Music to offer free MP3s, new ad model — In the “it’s be done before BUT…” category. Free All Music which just recently raised $1m in seed funding and is set to launch, will be offering free MP3 downloads in exchange for selecting and viewing a 15-20
second ad. For people with time and a no money, it’s not a bad deal. For those with no time and with money, this isn’t a big deal given the effort and song download limits. Will this ever prove to be a sustainable business model? Digital Music News provides a good analysis.

Opinions, Insights and Analysis

With all these announcements, new services, new business models comes the obligatory opinions, insights,   and analysis.  Here are a few over the past few month:

Digital music – who’s making money? – For years, people have been using sites like Pirate Bay and P2P to download music and now that there so many legal online music services then ever before, will music fans open up their wallets to these services? This is a massive bet on the behavior of the modern music fan.

Is Streaming The Future Of Music? Don’t Be So Sure — “Streaming makes technological sense. But it doesn’t make financial sense. Which means we’re confronted, once again, with the single, glaring, ineradicable fact of the internet age: what’s exciting and welcome for consumers is almost always catastrophic for the poor bastards who produce the content.”

Will the music industry ever extract real value from digital? — A thoughtful piece about tempering expectations that services like Spotify are the next big thing. As CD sales will continue to erode, the future of the music market will be a fragmentation into a number of niches.

Q&A: A front-row seat for media’s meltdown – An insightful interview with Eric Garland, CEO and co-founder of Big Champagne where he talks about the impact digital technology has had on the music and movie industries.

Music Services and Mobile Apps

Activity in the mobile music front keeps bubbling as more developers come to the table with new music based apps for the iPhone/iPod touch in particular . The biggest iPhone/iPod touch music app released this month was Rock Band. It comes with 20 tracks and the option to purchase more music in-app. Tap Tap Revenge 3 was also released this month and works on a very similar premise where using Apple’s in-app service users can purchase music bundles.  Not surprisingly, both apps are in the Top 10 Paid Apps list.

In a related note, which some might call short-sighted, a market analyst is claiming that the iPhone/iPod touch is the biggest threat ever to games publishers. I’m confident games publishers won’t follow the same path as the music industry and have started to embrace “digital distribution” across platforms, game portals, consoles and mobile. But is everything coming up roses? A couple of recent reports indicate that sales and revenues are down in the music games category.

Music Ally has put together a slide deck covering 10 Trends in Music Games that is worth taking a look at. And Kukapp is a great site to keep tabs on the hottest and best selling iPhone apps.

Other interesting music apps released or planned for release include:

Cadence App — An iPhone app for workouts that automatically creates a playlists beats per minute (BPM). No more fumbling around for that right set of songs to get you through a workout!

ZooZbeat — A feature-rich mobile application for creative music creation on the go. Allows users to download and recreate tracks from major label artists. Fans want to interact and be part of the creative process. I would highly recommend you check out Suzanne Lainson’s blog and catch her on Twitter because she hits upon this topic quite often.

MocoSpace teams with Nellymoser for mobile music app — Mobile social network MocoSpace announced an agreement with turnkey content and services solutions provider Nellymoser to launch MocoSpace Music, a new application enabling consumers to discover new releases and featured acts, view artist photo slideshows and video interviews, search for nearby live shows and purchase ringtones.

We are the Panel — A group of “tastemakers” are asked to pick two albums each week that they review and offer a full music stream delivered to an iPhone app. ($2.99). Will apps like this be part of the future of music journalism?

A few other interesting tidbits this month:

Playdar Can Save Music Services Cash, Enable P2P Streaming — A small piece of open-source software has flown under the radar but looks to be very interesting and possibly contentious if this gains traction and impacts music license revenue streams. Playdar can detect when someone is streaming a song they have on their computer or home network and play it from anywhere. This would reduce license fees owed to the labels. What if this can be done across the network and different listeners? Are we closer to realizing the Celestial Jukebox which has been talked about for almost ten years?

Midem Net Labs will be showcasing 15 new music startups to be judged by some of the digital music biggest trailblazers and innovators at Midem in January 2010.  They have already announced the first five startups: GoMix, Radionomy, Kickstarter, Thesixtyone and Pops Worldwide. Want to participate? You have until November 6th to apply. Looking forward to see who the remaining startups will be and what innovative products/services they have up their sleeves.

PiracyPayback — Anyone who has pirated copyrighted material and feeling any remorse can now “donate” to help ease the guilt. They don’t name who is running the site and claim the money goes to “to beneficiaries who work with or represent artists and other professionals impacted by digital media piracy.”

New Business Models and how musicians, labels and songwriters are compensated – The Future of Music Coalition has posted a great set of presentations/spreadsheets aimed directly at musicians.

Reality will not match unreasonable expectations

Let me tie-up this month’s recap with a few thoughts of my own. Looking at the number of companies already in service, and those coming on stream shortly, consumers face confusing and conflicting choices. They will be faced with the difficult decision of choosing the right service and in the face of unprecedented choice, may not make any choice at all.

In a fragmented online music world where niches have started to develop, how many people will want to pay for any music if they can snack for “free” from each of the various online music sites to satisfy their music consumption? Building the technology is the easy part. There also appears to be more of a willingness to negotiate more reasonable license deals between start-ups and labels but the biggest challenge will be changing behaviors and mindset. Will consumer step-up and open their wallets because they find these services compelling and offer value that can’t be found elsewhere?

Having said that, we are experiencing a period of experimentation as the music industry and music startups try to work through new revenue and service models that may one day be viable and sustainable. We are all witnessing and experiencing a massive and tumultuous shift from pre-web music economics to web-native music economics.The important consideration is acknowledging that expectations have to be tempered. It is easy to be dismissive (I’ll be first to accuse myself of that) but now that the gates have opened, problems are being solved, innovative ideas are being worked in a collaborative fashion outside the walls of a closed garden.  As companies scramble to find a set of valuable products and services that will hopefully benefit all participants (labels, artists, technologists, fans), let’s look at all this disruptive change from a positive perspective. Entering this business is not for the faint of heart. The digital music highway is littered with causalities.  Innovators need to be encouraged and rewarded. Music as culture needs to be celebrated.

Looking forward to seeing what next month’s digital music business brings our way!

Gabriel Nijmeh is a software business analyst, passionate music lover and guitar player. He currently advises a couple of music startups, including Mediazoic, a real-time social DJ platform and co-founded the Toronto edition of OpenMusicMedia which brings people together to openly discuss the intersection of digital music, media and culture.

Tags: Facebook, google, music, Spotify, streaming, TECHNOLOGY, venture capital