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.

Aw, keep trying little buckaroo! C|Net reports that the Zune hasn't cracked the top ten portable music players, although it has captured a "decent slice" of the hard drive based player market in big box retail stores.

The overall top ten is overwhelmingly Apple, with 8 of the top ten slots occupied by fruit etched media devices, Sandisk's Sansa models round out the rest of the ten. For what it's worth, Santa (also known as a stand-up comic and brit-pop trivia nutjob) recently delivered a Sansa to my doorstep, and I couldn't be happier.

Analysts are saying that Microsoft is "doing well for a newcomer" and reminding us that the Zune is a "multiyear haul" but, what is it going to take to wedge Apple out of the driver's seat and substitute a Microsoft product in its place? The Zune's marketing, though really pretty, is incredibly conceptual and artsy and, frankly, the American consumer isn't exactly known for their ability to "get" high-brow concepts. Coupled with the closed eco-system of Zune's "Marketplace", and the relative complexity of the whole Zune experience, MS has a very long way to go to win this little war they've started.

If you weigh the anecdotal evidence, Microsoft's Zune didn't have a very merry Christmas. Failing to make Amazon's top sellers list at any point during the holiday season, the Zune trailed far behind Apple's iPod, several models of which held top spots at various points.

According to TechWeb "During the holiday season, Zune was seldom seen among the top 10 consumer electronics on Amazon. Microsoft, however, says sales have met its internal forecasts, and it expects sales to pick up over time as the company increases marketing and introduces technology enhancements."

Meanwhile the iPod was holding steady at nearly 73% of DAP retail revenue and a solid 63% of unit sales during the same period. As much as Microsoft would like to pretend that the Zune is everything they'd hoped it would be, you have to imagine that somewhere in Redmond a few execs are sitting around a white-board re-evaluating the Zune strategy.

This totally cute new Zune ad does an admirable job of explaining the concept behind sharing music. Ok, so, the cookie doesn't lock itself from use after 3 days or 3 plays but, the idea presented is pretty noble.

The commercial features music from M Ward and was created by ad agency 72andsunny. Microsoft has commissioned a host of other neat-o Zune ads, chock full of innovative and little-known artists.. we just wish the Zune as a product was actually as fab as all the marketing hype behind it.

When UMG forced Microsoft's hand and extorted gained a deal to get $1 per Zune sold as compensation for what UMG CEO Doug Morris calls "a repository for stolen music", it became a widely held belief that UMG beat Microsoft at the negotiating table. Microsoft, just days away from the Zune's launch _needed_ UMG's extensive catalog -- which includes labels and imprints such as Def Jam, Geffen, Interscope and Verve -- for the Zune Marketplace.

ZDNet's Jason O'Grady offers a different idea, "Why in the world would Microsoft agree to such a dangerous precedent? The obvious reason is that MS needed to get access to the Universal catalog. My favorite (and more dastardly) reason comes from Macalope who claims that Microsoft did it "to try to screw up Apple's business model.""

We're watching the beginning of a slippery slope. UMG won't be the last label to demand a royalty on hardware, and now that the precident has been set, Apple may be UMG's next target. Graver still, O'Grady posits that the movie studio's will be next, and offers evidence that they are already warming up to demand tighter DRM restrictions on movies bought from the iTunes store. How far will UMG go and, what that means for device manufacturers is still up in the air but, recent statements by UMG's CEO show that he's ripe and ready for battle.

[via ZDNet]

The always insightful and often controversial David Chartier has been doing some thinking lately, "about the more significant aspects of the Zune, such as what it means (and could mean) to the market and the culture of the industry."

What Chartier has come up with is a six-point plan to fix Zune for its second roll-out. I'll let you read his detailed explanations at our sister blog TUAW but, his points make total sense:

• Share music, sans the bombing (Can't cliques of users share music for keeps?)
  
• Respect everyone's intellectual property (Fix the 3x3 implementation for CC licensed works)
  
• Fess up and open your store's doors (Quit freezing out the PlaysForSure partners)
  
• Stop treating store customers like idiots (The credit system is asinine)
  
• Hire a marketing team that doesn't suck (Squirting? Marketing to 18-25 exclusively? Why?)
  
• Go big or go home (You can't beat Apple without rock solid usability)

It's good advice for anyone trying to take over an existing market, and Microsoft would do well to heed Chartier's words for next time around.

Universal's CEO Doug Morris gave an interview to Reuters about UMG's strong-arm strategies in which he explains to the press how he understands piracy, and was once on the wrong end of the law himself. "When I was at college I used to jimmy the phones and make a long distance call. All my friends would do the same thing so, I get it", Morris quips.

I don't know -- and can't find information about -- Doug Morris' age, but I'm going to guess he's in his mid to late 50's. That means when Doug was in college and stealing long distance, it was from a monopolistic industry who were charging exorbitant amounts for their product. Then technology changed, the law changed and, AT&T was no longer able to extort $2 a minute for a call from New York to LA. We're seeing a similar shift now in Morris' industry. As technology has changed the distribution, production, packaging and sale of a record has dropped dramatically, opening the playing field to upstarts much as long distance became open to Sprint and MCI. The majors are no longer able to extort $17 per CD sold, as they once were.

So maybe Doug really does understand, he just understands on a level beyond what one might imagine. Morris may not have intended to parallel his industry to the fate of pre-divestiture AT&T, but by doing so he shows us a roadmap to the future of music. Lower costs to consumers, wider competition and a broadened, democratized playing field. That, not piracy, is the bigger threat to Universal and the future of major labels.

I, for one, say let the market work. If the shifting tide of the music business means the majors shrink in size to 75% of what they currently are, so be it. What we cannot allow are bullies like Morris to shove the future of the music business in a direction that maintains their oligarchal style control of an industry that is finally, after nearly a full century of struggle, managing to wiggle out from beneath the boot heels of the major label system.

The Register has a great op-ed piece by Steve Gordon on what, if anything, artists can expect to see in their pockets as a result of Microsoft's payment of $1 per Zune as a sort of piracy tax to Universal Records and its evil henchman CEO Doug Morris. It's one thing when the non-music business public is up in arms about some boneheaded move by the record labels, it's quite another when that voice comes from an entertainment lawyer, author of The Future of The Music Business and the former Director of Business Affairs at Sony TV and Video.

Gordon is skeptical that musicians will ever see a dime of money from Microsoft's "royalty" payment. He writes, "Although this pattern of not paying artists for digital music sales is dreadful, the chances of artists seeing anything from the royalty placed on Zune is even worse. There is nothing in the standard recording agreement that says the labels must share income derived from licensing digital devices. Labels are only responsible for paying for exploitation of music, not licensing electronic devices. So why would the labels share anything with the artists when they already disregard clauses in the recording agreements that would benefit the artists?"

His op-ed also complains of and informs about things I've ranted about before, such as how artists are almost always in a perpetual state of "recoupment" with the label, how labels cheat artists by charing them for packaging costs on digital downloads (which, last I checked didn't come in a jewel case) and how artist contracts just arent' very fair to artists in general.

DVD Jon Johansen is getting lots of attention (again) these days. After successfully taking on and taking down the encryption used to "protect" DVD content from the prying eyes and inventive uses of the DVD consumer, Jon has set his sights on Apple's FairPlay DRM. Jon's new company DoubleTwist is preparing to offer software to allow other content providers to encrypt their content in the same way that content from the iTunes Store is encrypted, opening up a world of possibilities for alternate content providers and, opening up a giant Pandora's box of potential lawsuits.

So, take it as you will that DVD Jon is taking down the Zune FUD (Fear, Uncertainty, Doubt) a notch and dismantling some media dings of Microsoft's new platform. Jon writes, "The Zune definitely has its drawbacks: software installation takes way too long, hard drive access [is] not enabled by default, misleading points system for purchasing songs, lack of MacOS X and Linux support, etc. However, when a reviewer fails to say anything good about the Zune, such as noting the sync files back to computer feature, it's obvious that the reviewer has been exposed to the Reality Distortion Field for way too long."

So, is Jon really a Zune apologist or, is he simply taking an opportunity to put a chink in Steve Jobs armor?

A little more than a week into Zune the launch hype is wearing off and the reality hangover is starting to set in. When Zune was in pre-release and being shopped around to bloggers, Glenn Coolfer got a sneak peak. What the sneak peak bloggers didn't get was a preview of the Zune points system and, now that Zune is in full swing, the fans of Zune points are few and far between.

Coolfer explains his issues with points as currency, "[they] are unfamiliar and unnatural for those of us who are not gamers. XBox players will be familiar with the Points system and the procedures involved (buy Points then redeem at the store). Digital music consumers are familiar with paying with dollars and cents. Songs cost 79 points apiece. Album prices vary according to the wholesale prices charged by the label, which means there's a range of album prices at the Zune marketplace."

79 points per song makes you think you might be getting a deal but, once you do the math, it ain't all it's cracked up to be. Medialoper explains, "Individual songs can be purchased from the Zune Marketplace for 79 Microsoft Points. That might sound like a deal when compared to iTunes 99 cent song pricing - until you realize that 79 Microsoft points is around 99 cents."

In my opinion, Zune points are a terrible strategy that puts just one more barrier to purchase in front of a willing customer. I've said many times that Apple's success has much to do with flat pricing and simple decisions (one song, one buck.. plain as that), Zune Marketplace may just be the bext experiment going to prove me right or wrong.

Microsoft's new device has really taken it on the chin all week long. It's a tough little trooper though, with a thick (ruberized) skin and a hearty sense of humor. Don't believe me? Check out this Zune Marketplace installer error. Who the heck chose this photo? (Thanks to Flickr user -FLX- for the CC licensed screenshot)


So, if your Zune install goes belly up and you're left in the lurch, at least you can laugh about it. If that's not tripping your laugh switch, check out these Zune advertisement spoofs via Boing Boing (Totally Not Work Safe).

The pundits, bloggers and press can dis the Zune all they (we) like but when Ethan Kaplan -- Senior Director of Technology for Warner Records -- says Zune has a consumer experience problem it merits some attention. Kaplan writes, "I've said it before, I'll say it again: The best Apple commercial is someone trying to make a Microsoft product work. "

His points are pretty valid. A failed install from Firefox (inconvenient but, not a huge surprise), a 15 minute install plus a required reboot (a required reboot from a Microsoft product? You must be joking) but, the worst of it all Kaplan argues -- and I'd have to agree -- is that the Zune Store requires registration before you can browse.

I've talked before about how iTunes works so well due to the very low barrier to entry. The flat pricing creates a very simple yes or no decision for each song you purchase (with no "How much is this?" internal monologue), plus it's a snappy and stylish interface and, you can do a surprising amount within the iTunes store before giving away your personal details or plunking down a credit card. It's a "Soft Sell" as pro salesmen would say.

The Zune Store, in stark contrast, requires you to buy packages of "points", register up front, and essentially make the decision to become a customer before you've made the decision to actually buy anything. Now, if you equate that to a brick and mortar retail world, it's the equivalent of asking you to buy a pre-paid gift card at the front door, before being allowed to look around. As Kaplan put it, "We spent the whole time smacking our foreheads wondering, WHY?"

[Black Rim Glasses via Hypebot]

A couple of clips are circulating containing morning show coverage of Zune's Tuesday launch. The first, from NBC (which has long-standing strategic partnerships with Microsoft relating to MSNBC) where the Zune was held up several times next to an older, non-video enabled and grey-scale screened iPod and still drew a bit of disdain from the cheerful Al Roker. Roker called the Zune Store, "a little more unwieldy than the iTunes Store" and said that wireless sharing wasn't for him. In disbelief? Watch the video below.



Then over to CNN where O'Brien and O'Brien (that's Miles and Soledad, no relation) where Andrew Ross Sorkin of The New York Times made it clear that those PlaysForSure tracks you picked up from Napster won't play for sure on your Zune. Sorkin explains that neither your iTunes tracks or PlaysForSure tracks will work on your new Zune and that's when Soledad chimes in and does her dead level best to sell you an iPod. She shows off her 2nd gen iPod, and asks, "Why would I want that?". Miles backs her up a bit and then lays in with the most pointed comment of all, "Why don't they get some decent design people to make things look better?"



It's interesting to note that every Zune on TV yesterday seemed to be of the Brown flavor, which has been ultra polarizing. TV shots of the Zune really seemed to show how "klunky" (hey, Miles O'Brien's word, not mine..) the form factor is. I'm starting to believe that some too-zealous love for that brown case has really cost them some PR points.

[via iLounge]

Doubtless, Microsoft wasn't expecting to take over the portable media player market in just one day and one massive product launch but, you'd have to think they hoped for better than this. According to media reports, there was no giant rush, no out of stock stores and no line-ups waiting to take home a bouncing baby Zune.

From the AFP wire, "Two boxed Zune players sat ignored on the top shelf of a Plexiglas showcase packed with iPod accessories in a Virgin Megastore near Union Square in San Francisco's popular shopping district. "I didn't even know they were there until a customer pointed them out," said sales clerk Jake Brooks. "I'm sure we have more in a closet in the back somewhere.""

It's just one example, but it's a bit telling. Union Square in SF should be a prime location for selling Zunes, and the AFP goes on to say that the Apple store, just blocks away, showed and sold several iPods during the same period.

It's the beginning of an uphill battle for MS. With all the ribbing and scrutiny I've given the Zune in the lead up to its official release, I'd like to say, "Welcome". Welcome, Microsoft, to the fickle world of portable media devices and even more fickle world of portable media consumers. We're a tough lot to satisfy, and as you've seen from your recent arm-wrestling match with UMG, so are the record labels. Good luck.

[via AFP]

I've been holding my tongue a bit on the subject of UMG's demand that Microsoft cough up more than a buck per Zune sold, and Microsoft's acquiescence to what amounts to a tax on portable media devices. When coupled with Cary Sherman's recent slash and burn attack on fair use rights, and UMG chairman and CEO Doug Morris calling you a thief in Billboard Magazine, it's pretty clear that the RIAA and its member companies are beginning to circle the wagons for an all out attack on the way you pay for music.

Sean Ryan quips in Forbes, "The next question is whether they will demand a $1 royalty for each of my children, since they have ears, which can hear music, and a brain, which can store it. Or would that be $2 since they each have two ears?" But, does he put forward a proposition that is all that far fetched, or that much different than what UMG has demanded? Assuming most children the age of Sean Ryan's will own a portable media device (at least one) in their lives and, assuming that Universal Music Group gets a buck for each player sold (as they wish to do, and are doing in the case of Zune) then, the tax has already been passed. You didn't get a vote, you don't get a say and, unless you're willing to go totally old school and listen to your vinyl records in the dark ages, you'll be forced to pay up.

As much as Morris, Sherman, and a host of other industry wet blankets would like for it to be illegal for you to trans-code that CD you own into a format compatible with your Zune or your iPod, the laws of the United States beg to differ with them. Fair use is still fair use, and you still have every right to rip that CD you paid for, and listen to it anywhere you wish. You had that right with cassette tapes, the vinyl records that came before them and, aside from the DMCA making it illegal for you to crack the DRM on a bought and paid for digital download, you still have the right to listen to the music contained within that file in any way (and in any place, or any format) that you see fit.

What UMG has done is lay the first piece of framework for putting the kibosh on the democratization of the music industry. The RIAA labels have owned distribution in the United States (and made it difficult if not impossible for many small labels to get distribution) for decades and, just as a market for distribution sprang up that existed outside of their domination, they've managed to secure a loophole that will again put small independent labels on the sidelines.