Last Music Domino Falls: Sony Drops DRM

Sony BMG has been the last of the major music labels to insist on the use of Digital Rights Management for sales of its music in digital form. Apparently even Sony now has thrown in the towel, according to Business Week.

Sony is expected to start offering some portions of its catalog in a no-DRM format sometime in the first quarter, probably using Amazon.com's download store. Oddly enough, though music labels earlier insisted on DRM as a way of deterring piracy, DRM arguably accounts for Apple iTune's dominance of the download business, as DRM means songs can be downloaded only to specific devices.

Presumably, the announcement will helpl boost sales of downloaded music, as this projection by Enders Analysis suggests.

What Does Music Model Imply for Communications?

There are all kinds of music business models developing these days, including donations, music as loss leader, music as a "free razor," live performance, pay service, merchandising and so forth. People still consume in the old ways as well. Some people listen to radio, buy CDs or singles. People still go to live performances. But lots of people simply download single songs they like for 99 cents, or do so illegally.

The point is that the music ecosystem is developing lots of business models. My kids insist that 99 cents is the right price for a song, based on what a CD costs, and the number of songs on it. But they don't generally buy many CDs, unless an artist manages to pack so many songs on a collection that the incremental cost of buying the CD is quite low. But the business model behind 99-cent songs is the sale of hardware called iPods.

For Target or Wal-Mart, selective deep-discount sales of audio and video are loss leaders for the business model called "retail." Some acts have tried a donations model, with results being that 15 percent or fewer people actually donate.

Madonna, though, illustrates the shift as well as anybody. She last year signed a historically unusual recording and touring contract with concert promoter Live Nation. No record label: a concert promoter.

Traditionally, companies like Warner Music Group have focused on recorded music, while other firms have arranged tours, managed artists and sold merchandise. But shrinking CD sales have led artists and entertainment companies to consider wide-ranging deals that bring all activities under one roof, helping cross-promotion and boosting profit margins.

She is the first major star to choose an all-in-one agreement with a tour company over a traditional record deal. The point is that all albums, tours, merchandise, websites, DVDs, sponsorship, TV shows and films now are seen as parts of the business model.


"The paradigm in the music business has shifted," she is reported by BBC to have said.

In the old days, a musician would go on tour to promote a new album. The new model is more likely to take the form of albums being released for free or very low cost, to promote higher-priced tickets for live performances and other forms of monetization. In the past, promotions such as concerts were intended to sell records. In the future, records might be merchandising to build a reputation to sell concert tickets, create TV shows and sell merchandise.


It isn't immediately clear how changes in the music business might one day filter over into the video business, or how the basic principles might be applied to the communications business. But there's something to be learned here.


Among the insights is that the value users place on something change over time. What is the value of a car radio for someone who does not commute 60 minutes to two hours a day? What is the value of a car radio for somebody who can use an MP3 or CD player in the vehicle? The point is that the value of different types of music listening, as well as the cost, vary from mode to mode.


The "cost" of listening to the radio is virtually free (the radio came with the car), but maybe unsatisfying and rare. The cost of listening to MP3s is the cost of the content purchased and the player (unless the player came with the car), and might cost a bit more, but get used more, both inside and outside the vehicle.


In other cases the cost of music might be a satellite radio subscription and the cost of the receiving hardware (again, unless the hardware was built into the vehicle), but used only inside the car.

Also, the value of the ecosystem surrounding a product can produce more revenue than the actual tangible product. Let's say you buy a $250 phone (subsidized by the carrier to the tune of $200) and purchase a $5 a month insurance policy on the device, on a $55 recurring monthly plan. Say you never actually lose or break your phone, and you use it for three years.

Say a carrier's gross margin on services is about 30 percent (after paying employees, operating and marketing expenses, but before taxes, depreciation or debt service). Before subtracting the handset subsidy, the gross profit would be $16.50 a month on the service, or $198 a year and $594 over three years. Back out the $200 handset subsidy and one derives $394 as the gross profit on service.

Assume the insurance policy has a 90-percent gross margin, equating to $4.50 a month, $54 a year or $162 over three years. In that case, the $5 insurance revenue stream produces 29 percent of the gross profit, compared to the $55 revenue stream for service.

New business models for music are evolving. The issue is whether new business models for communication also might evolve.

Google Enhances Presentations

I have to admit that I have not tried to use Google Presentations, though I do use Google Docs & Spreadsheets. The reason simply has been that normally, if I am creating a presentation, it is for use at a speaking engagement of some sort, and that means I want to ensure that it runs on the projection system and PC that will be on the dais, and that it can be copied and viewed by attendees later, in a format I think they will use. Microsoft PowerPoint, in other words.

But Google coders have enhanced the Presentation application in ways that immediately made sense to me. Presentations now can be saved in a file format that allows them to be embedded directly into Web sites. Now that is something one cannot really do with a Microsoft Powerpoint.

In fact, there is now a new use case. If I want to create content in that format for Web distribution only, I don't have "native application" issues. I can simply embed the presentation directly onto a blog or other site. Cool.

Has Blu-Ray Won the Format War?

The format war between Blu-ray and HD DVD might be over. Warner Bros. Entertainment had decided to back the Blu-ray standard exclusively, beginning June 1. That means roughly 70 percent of available content will be in that format.

Backdoor Sony music MP3s

Sony's music download service uses the Windows Media Audio (WMA) format, not MP3. So it is interesting to find this bit of advice on the download site about how to take the copy-protected Sony music and transfer it to an iPod, an operation that is the equivalent, after a bit of work on the users' part, to supporting an MP3 format free of digital rights management.

"Attention iPod users:

Our download service provides files in the WMA music format or the WMV video format, which is not supported by Apple Macintosh computers. To use your music with an iPod, simply follow the steps below:

1. Save each downloaded song to your PC
2. Burn a music CD (in CDA file format)
3. Import the music from the CD into iTunes
4. Update your iPod"

If this forecast by Strategy Analytics is correct, most of the action in the music download business, exclusive of phone-specific ringtones, will not be generated by mobile service providers.

SlingPlayer for BlackBerry

And you thought BlackBerry was an enteprise email device! Sling Media has announced that SlingPlayer Mobile software will run on RIM BlackBerry smart phones. Sling Media will release SlingPlayer Mobile for BlackBerry later this year.

SlingPlayer Mobile will be available for a one-time charge of $29.99. If you're thinking about doing this, make sure you have a device with Wi-Fi, such as the Curve. Sure, you might be able to watch using your carrier's data plan. But depending on where you are, and who your carrier is, the results might not be worth bothering with. Even Wi-Fi connections are going to be difficult in hotel and other settings.

If you are tempted to do this in the office, remember that IT is going to figure out pretty quickly that network congestion has gone way up, and why.

Some Progress on Music Front, Unless You are Apple

Warner Music has decided to offer its complete catalog, free of digital rights management, through Amazon's new MP3 store. EMI, Universal, and Warner now offer their catalogs in DRM-free digital formats, leaving Sony BMG the lone major music giant still clinging to the DRM approach. Amazon now claims to offer for than 2.9 million songs in MP3 format from over 33,000 unique labels.

Now, with the move to MP3, the labels that have chosen to open their music have a way to encourage multiple download services to flourish, keeping labels safe from being dominated by any single digital distributor, namely iTunes.

HDTV Slingbox: More Stress on Upstream Bandwidth

Sling Media has announced a new version of its Slingbox Pro set-top box that has its own HD TV tuner and can send out a 1080i HD picture over the network. The Slingbox Pro-HD will be initially aimed at the U.S. market.

So forget about what P2P is doing to the backbone and access networks. Now users will be streaming HDTV from their homes, stressing the entire network at its biggest chokepoint: the upstream. Ouch!

Opera Upgrade

Opera Software has released Opera 9.5 software developer kit for Devices. The release will include a new beta visual effects layer that will give users an emotionally heightened Web experience with fluid transitions, panning, zooming and interactivity.

Opera 9.5 SDK will also include an improved evaluation kit that allow device manufacturers to quickly experience the potential of a product aimed to deliver the latest end-user experiences for Internet browsing, Web applications and Web-based user interfaces.

Vertical Search Salvation?

It appears lots of online publishers think vertical search is one way to survive the Google assault and prop up their walled gardens. It's too early to tell. It won't hurt. Not so clear to me that it helps much.

The ARPU Gap is the Issue

One might quibble with the precise Yankee Group numbers indicated here for voice and data average revenue per user. What remains incontestable is that there is a revenue gap between voice and data services, on either the wired or wireless business segments. So as broadband starts to become the foundation service upon which other applications and revenue streams are built, there is immense work to be done. I suppose everybody knows this, by now.

iTunes Dominates Downloads

Much as Google dominates search and search revenue, Apple's iTunes dominates legal music downloading. Aside from ringtones, it isn't so clear to me how well mobile service providers will do with their own music-selling efforts. Every little bit helps, I suppose. But music doesn not look anything like a "killer app" for mobile service providers.

Carphone Warehouse in Play?

Shares of Carphone Warehouse Group, Europe's largest mobile handset retailer, rose the most in more than five years in London trading on speculation the company may receive a takeover offer, says the Bloomberg news service.

"Rumors about bid interest from Vodafone and Best Buy have been doing the rounds for some time," says Jimmy Yates, a London-based trader at CMC Markets.

What is interesting is the strategy context driving some of the rumored suitors. Best Buy has a small stake in Carphone Warehouse, which operates 2,400 stores across Europe. Best Buy also is collaborating with the U.K. chain to boost sales of mobile products in the U.S. Best Buy stores.

So you might argue that Carphone is simply a way for Best Buy to expand its footprint in its current business.

But keep in mind that Carphone also has 2.5 million Digital Subscriber Line customers. It also has a backbone network. Consider that Best Buy's Geek Squad is in the technology services business.

And recall that Best Buy owns Speakeasy, a provider of business-class broadband access and voice services in the U.S. market. Sure, Best Buy can grow its retail footprint. But by acquiring Carphone Warehouse, Best Buy makes an even bigger bet to become a more-significant provider of broadband access, business voice and mobile services.

For Best Buy, its core business is more than acting as a retail distribution channel. It is a service provider. Owning Carphone Warehouse would only deepen that commitment.

Now consider the possibility that Vodafone might acquire Carphone Warehouse. The idea there is not so much that Vodafone wants to become a mass market electronics retailer. Vodafone, long a dominant wireless service provider, now must also become a multiple-services provider, and broadband-based services provided over wireline networks are part of the vision.

Carphone Warehouse would give Vodafone much more heft, in that area. It might not strike you as significant that wireless and wireline services are converging. It might be a bit more surprising that retailers are moving from simple channel partners into the service provider business.

Google Can Index Test in Images and Video

A patent application lodged by Google in July 2007 but recently made public seeks to patent a method where by robots (computers) can read and understand text in images and video, notes Duncan Riley at TechCrunch. That would be a big step forward in indexing visual media, since there would be no need to manually attach tags to such visual media.

Basically, the patent covers a method whereby any visible text in an image--a street sign, for example--can be automatically indexed. Obviously, as with any of the developing Web-based technologies, there are privacy issues. As someone who has to work with lots of images, and spends lots of time wading through images that a search suggests are appropriate, and aren't, this is really helpful.

Does Music Industry "Get It"?

as someone who arrogantly and wrongly has accused whole industries of "not getting it" at points in the past, I never like to presume I understand executive thinking better than they themselves do.

What sometimes appears as "cluelessness" often has more to do with deliberate timing. and rational calculations about how long to let one revenue model atrophy before heating up a replacement revenue model that will cannibalize the older model.

So let me be charitable. Perhaps U.S. music executives do have a plan for changing their business model and packaging. Perhaps they are executing on that plan even now.

Album sales declined 9.5 percent last year, while digital song sales grew 45 percent, according to Nielsen SoundScan. Physical product sales were down 15 percent, including sales of "singles."

So maybe the issue is simply figuring out better ways to handle digital rights that aren't unfriendly to consumers who have paid for their music, nor damaging to copyright holders. It's a tough problem, to be sure.

And the problems extend far beyond copyright issues. As someone who has made a transition to iPod as my primary music playback system, and as someone whose PC-embedded hard drives need to be replaced once a year or so, the issue of storing and managing the music collection is a serious problem.

The reason, of course, is that each iPod syncs with just one hard drive. Lose that hard drive and one has two options: completely erase the contents of the iPod, or never change the data already on the iPod.

So now I have to take two paths to make sure the music isn't lost: store the copies on an external hard drive that hopefully "never" dies; and then keep the compact disk as well, since the external hard drive will ultimately fail, forcing me to restore or simply forget about the music stored on it.

As a simple music customer, this is a problem. Unless I have physical media backup, the music always is at risk of loss, for mechanical reasons. But keeping those CDs is not ideal, either. And the process of restoring lost music is time-consuming. So music storage "in the cloud" seems promising, at least to me.