The grapevine says some at CES are being told Microsoft will no longer develop PlaysForSure, its proprietary DRM system, a move Microsoft swore up and down it would never make when the company failed to include PlaysForSure support in the Zune line.
According to PC Pro News,"Microsoft will concentrate exclusively on its Zune platform, which is not compatible with PlaysForSure. Microsoft has neither confirmed or denied the reports, which draw on comments made by an executive for one unnamed music service and have been confirmed by others in the industry. Microsoft CEO Steve Ballmer has said that he expects PlaysForSure to continue, although he has explained that Zune was conceived because the PlaysForSure approach had failed to dent Apple's dominance of digital music."
And just when Napster was starting to show new signs of traction. It's unclear yet what all this means for the many PlaysForSure partner companies but, the end of development could put them all in a very precarious place. This could be a good thing for some, as Real Networks and Sandisk seemed to see this coming a while ago, and have created a new, competing subscription-capable DRM format.
Jupiter Research has done some prognosticatin' and come to the conclusion that digital sales are going to keep on growing. In fact, if predictions hold true, digital sales will grow at a compounded rate of 16% per year, to a total of 2.5 billion dollars, or just over 22% of total US consumer spending on music.
Glenn Coolfer astutely observes, "Before you do any math, read a blog post about the survey by Jupiter analyst David Card. He explains something the press release does not: Jupiter did not count ringtone sales as digital revenues. He wrote, "Digital music sales will total 22 percent of US consumer music spending in 2011, and ring tones another 12 percent." Combined with download spending, the adjusted digital figure is actually 34%. That leaves the CD with about 66% of the market."
Subscription services are forecast to keep growing as well, with a staggering 32% compounded growth rate in just that category alone. Napster must be salivating but, frankly I don't see it. Unless some major shift comes along and changes the subscription landscape, or the Major labels relent to an eMusic style model, I just don't see how 32% growth in subscriptions is remotely possible.
Microsoft's decision to abandon PlaysForSure by not including it in the newly minted Zune hasn't been the death nail many expected. Napster, a PlaysForSure partner who's recently been looking for a new owner, is still managing to rake in subscribers, and grow revenue.
Adding 48,000 subscribers in their fiscal third quarter, the company managed to beat analyst estimates by a bit, and frankly, shock the pants off many naysayers. According to Reuters, "Napster Chief Executive Chris Gorog said the company had significantly improved its strategic position with international expansion to Japan and mobile phone partnerships. Subscribers downloaded 500 million songs and 700 million music streams in calendar 2006, Napster said."
Napster is still courting buyers through investment banking firm UBS but, as of yet no official deal has been announced. Stronger numbers obviously help to make any Napster deal more attractive.
Rumors of Microsoft potentially making a play at becoming a part of the major label system though an aquisition of EMI are "odd and unlikely" one analyist says. This comes after some media speculation that the software giant was interested in a takeover of the music giant.
Microsoft has had a tough time with the labels lately. As the Zune nears retail, details are surfacing not only of Microsoft's agreement to pay Universal $1 per Zune sold -- an absolutely ludicris idea that amounts to Universal being paid for its existance, as near as I can tell -- but also of rocky licensing talks for Zune's subscription service. Where label reps have reportedly demanded between $6 and $8 per month in licensing fees for Microsoft to offer subscription music content on Zune, far more than rivals Yahoo! Music or Napster pay to offer a similar service.
The labels have shown time and time again that, when they smell money in someone's pockets, they pounce. Maybe it wouldn't be a crazy idea for Microsoft to become a part of the music business; They've already mastered anti-competitive practices and would only lack the knowledge required to drain the talent and lifeforce out of underperforming new artists, a skill I'm sure they could develop quickly and inexpensively.
Joining the "usual suspects" in decrying DRM is a new voice, but one you'll recognize. UK manager Peter Jenner (The Clash, Pink Floyd, Billy Bragg) is singing a song that many in the industry aren't going to like hearing. In an interview with The Register, Jenner goes on to explain how the big winners are going to be the indies. "he's [...] optimistic that for almost everyone else - indie labels, musicians, songwriters and budding entrepreneurs - as well as network providers - the future's going to be pretty bright. The Big Four know that the DRM era is nearly over - and within two or three years, he predicts, "most countries" in the world will have a blanket licensing regime where we exchange music freely, for a couple of quid a month."
Jenner is a bit of a legend and, whether what he says holds true, the fact that he's saying it is a pretty big win. He's a brash and uncharacteristic guy, but his points around where the industry is headed are on pretty solid ground. His interview should be required reading for anyone who's trying to divine where this big, lumbering digital music ship is headed thorugh the murky fog of the present.
Cingular is set to launch a non-OTA music service for its mobile phones. Details are a bit sketch but, the new Cingular service will be vastly different than that of its mobile phone market competitors. Users will be able to download from three competing web services, Napster, Yahoo! Music and eMusic and transfer those tracks to their Cingular handset of choice via cable connection to a PC (Uh, wasn't 3G supposed to make all these wires go away? Bluetooth? Wi-Fi?)
Cingular's system breaks the mold set by other mobile operator backed services which have attempted to dive deep into your wallet while failing to mention that most handsets will happily play the Mp3's you already own. It may be a bit old school but, Cingular's service sounds like a good deal for end users, as opposed to a magic tool for removing dollars from customer's wallets.
I've been pretty anti-mp3 phone in the past, and that hasn't changed. I'm still unconvinced that you'll get anything more than a substandard version of phone, mp3 player or both when you attempt to mix the two together in one device. For certain, it's not as easy a recipe as peanut butter and chocolate. If you remove the crazy types of restrictions that most mobile providers use to hijack your wallet, a slightly sub par mp3 player/phone wouldn't be a bad alternative to say, owning a "nice" PMP and a smaller ultra portable class player.
Napster will begin offering a free (free as in cost and free as in no DRM) download each day as part of a sponsored promotional campaign in conjunction with Intel. The first track, Iron Maiden's seven and a half minute metal ballad "The Reincarnation of Benjamin Breeg" is available now.
Napster's VP of Music Services says of the new offering, "Napster's Free Download of the Day will feature the best up-and-coming bands and a few surprises from some big stars. We believe a new, free MP3 each day will be exciting for music fans and will prove to be a great way to create awareness for artists and value for marketers, who can work with Napster to associate their brands with this great music."
The EFF take a bit deeper look at the rift between the RIAA and the publishing associations on this issue. The RIAA is overwhelmingly supportive of the new structure, a point which reminds us all that the interests of the record labels are not always in balance with the interests of the music publishers.
"The RIAA argues that extending the compulsory license best serves public policy goals, regardless of the narrow interests of certain copyright holders (publishers) who might want to hold back innovation. Of course, when the shoe is on the other foot, the RIAA is not so quick to embrace compulsory licenses; like the composers who decried the player piano and the compulsory mechanical license in 1909, the major record labels recoil in horror at compulsory licensing of sound recordings for digital and Internet uses. But make no mistake: the RIAA recognizes that a little compulsory licensed "piracy" can get copyright owners and artists appropriately compensated while leaving lots of room for innovation in both new technologies and new distribution channels."
The RIAA has repeatedly rejected any sort of compulsory licensing schemes that would make legal, trackable P2P services possible.
Could it really be that the anti-DRM message is starting to bubble up to the surface? USAToday, a paper not known for sticking its neck out or producing any ground breaking journalism has a feature today on how eschewing DRM might just allow the majors to wrestle control of the digital music market back from Apple.
"Soul legends The Temptations had a 1970s hit called Ball of Confusion, and no song better describes the digital music business in the 21st century. CD sales are in freefall -down 17% since 2003; online song trading is still rampant, big hits are fewer, record stores are seriously hurting. [...] Digital is widely recognized as the future of the music business. Digital sales are up 72% so far this year, and sales are expected to climb to $9 billion by 2009, from $2.8 billion in 2006, according to researcher In-Stat. But first, digital will have to overcome its compatibility growing pains. "You don't have to buy a camera made by YouTube to show a clip online," says Bill Pence, chief technical officer for online service Napster. "The industry is dysfunctional.""
The article cites Yahoo Music Chief Dave Goldberg, who may be the highest ranking anti-DRM voice available. It also takes serious AIM at Microsoft and it's new closed DRM strategy launching with Zune. ""Microsoft is thumbing its nose to its partners and millions of consumers," says Richard Doherty, an independent analyst with the Envisioneering Group. "I can't think of anybody doing anything like this in all the years I've covered consumer electronics.""
In the end, ease of use is winning customers easier than open formats but, will that always remain the case? Thinking back on the dawn of the PC age, most consumer complaints had the same root; Interoperability. Apple, Atari and Commodore couldn't compete in a world of compatible clones but it took a very long time for the battle to play out. Relatively speaking, we're still in the very early stages of the digital music revolution. The reality is, without government assistance in the form of pro-DRM legislation, the pro-DRM forces have a much tougher battle over the next decade than I think even the most anti-DRM among us realize.
The IFPI has gotten off their duff about releasing some sales figures for the year to date. What a shocker, digital downloads are up 106% over the same period last year, and CD sales are sliding for the 6th straight year.
"The explosion in digital music services, spurred by consumer demand and a widening array of delivery channels, has seen online and mobile music sales grow from $US134 million in the first half of 2004 to US$945 million in the first half of 2006," according to an IFPI statement.
What is a little shocking is that the US actually leads worldwide in digital downloads as a percentage of total unit sales, with 18 percent of this year's US tally so far belonging to digitally delivered tracks. CD and cassette (They still make those things?) sales are off 10%.
Postal mailing rates aren't exactly sexy, and they're certainly not digital music. However, BMG-ColumbiaHouse have been bilking selling customers CDs through the mail since CDs came into existence, and were quite happily mailing tapes through the mail long before that. So, postal mail actually does have a place in this digital music menagerie.
According to the PostalNewsBlog (there really is a blog about everything), "BMG Columbia House VP Clifton B. Knight Jr. says that the proposed new Postal rates and regulations "will make it impossible for us to remain in the business of selling music and video products by mail". Knight asserts that his company will face increases of "62% to 115%" in its product shipments. And if the company is "constrained to stop using the mail for product shipment", it will "inevitably reduce, if not entirely eliminate" its "use of mail for marketing and promotional purposes"."
Is this just a heavy postal mail using company pleading its case for special rates? Maybe. The fact remains that if you're looking for who's got the advantage going forward, the answer is digital delivery. With fuel costs rising, the obvious winners are the digital distributors who have no need for the USPS.
I've not seen many press write-ups of the Defective By Design Day of DRM but, the photosets on Flickr are great. Here's the Day of DRM highlight reel, but remember, you can fight DRM every day by sticking to the DRM free indie distributors and staying away from DRM crippled media. You may not get to listen to the new Christina Agulera, but at least you'll have your dignity.
Napster opens its digital doors to the Japanese domestic market this week, in a move that puts it in the 4 largest music markets in the world.
The online store is a joint venture between Napster and Tower Records Japan a partnership which, pardon my snarkyness, seems to join the medeocre with the ailing (although I'm not sure who's who).
The service resembles the US Napster offering, with multiple tiers of access, a subscription service that grants access to a large library of tunes and the ability to buy individual tunes protected lightly dusted with Microsoft's PlaysForSure
Update:Thanks Glenn Coolfer and SubFuze for writing to tell me that Tower Japan isn't part of Tower Records, and is actually a strong and vital brand, holding the #1 position among Japanese record retailers.
Glenn Coolfer points to a great article in New York Newsday about Looney Tunes, a "mom and pop" run record store. How has Looney Tunes survived as others around them have failed? Focus and effort.
"When [the owner] first saw signs of people getting their music elsewhere, he joined in 1999 the Coalition of Independent Music Stores, a Birmingham, Ala.-based trade association of 28 independent record stores from around the country that have banded together to compete with bigger competitors. As a member, Looney Tunes gets more advertising packages, promotions, giveaways and exclusive products, such as band concert CDs."
The store promotes local artists, holds in store events and concerts, and generally does all the things you'd expect from a thriving local indie store. The article gives some fantastic ideas for competing with the majors, and frankly, a ton of advice that Tower Records could have taken to heart any time in the last 5 years and exponentially increased it's life expectancy.
Brick and mortar record stores aren't dead. It's not an easy task to keep one alive, but it's obviously more than possible given the right combination of management and creativity.
It should come as little surprise to digital music fanboys that Napster, long rumored to be looking for the door, has hired investment banking firm UBS to "assist in evaluation of strategic alternatives".
My pocket "finance-to-english" dictionary says that means they're sticking a for sale sign in the yard and slapping a new coat of paint on the living room. According to the press release Nand Gangwani, Napster's CFO, said, "Napster has a strong balance sheet with a healthy cash position of $97 million as of the close of the first quarter and we are currently generating annual revenues in excess of $100 million. For the second half of our fiscal year, we project a strong up-tick in subscription growth from a base of more than half a million subscribers and a significant expansion of our mobile business, including the addition of new tier one wireless partners. "
"Strong balance sheet" may be an overstatement, with Napster still losing 9.8 million dollars as a result of operations for the second quarter of 2006.
The grapevine says some at CES are being told Microsoft will no longer develop PlaysForSure, its proprietary DRM system, a move Microsoft swore up and down it would never make when the company failed to include PlaysForSure support in the Zune line. 
Jupiter Research has done some 
Microsoft's decision to abandon PlaysForSure by not including it in the newly minted Zune hasn't been the death nail many expected. Napster, a PlaysForSure partner who's recently been looking for a new owner, is still managing to rake in subscribers, and grow revenue. 
Rumors of Microsoft potentially making a play at becoming a part of the major label system though an aquisition of EMI are "odd and unlikely" 
Joining the "usual suspects" in decrying DRM is a new voice, but one you'll recognize. UK manager 
Cingular is 
Napster will begin offering a free (free as in cost and free as in no DRM) download each day as part of a sponsored promotional campaign in conjunction with Intel. The first track, Iron Maiden's seven and a half minute metal ballad "
I wrote last week about the 
Could it really be that the anti-DRM message is starting to bubble up to the surface? USAToday, a paper not known for sticking its neck out or producing any ground breaking journalism has a feature today on how eschewing DRM might just allow the majors to wrestle control of the digital music market back from Apple. 
The IFPI has gotten off their duff about releasing some sales figures for the year to date. What a shocker, digital downloads are up 106% over the same period last year, and CD sales are sliding for the 6th straight year. 
Napster opens its digital doors to the Japanese domestic market this week, in a move that puts it in the 4 largest music markets in the world. 
