The trend has been clear for a while: Digital music is the future of the industry. Now we have the data to prove it. Apple’s iTunes music store has surpassed Wal-Mart to become the number 1 retailer of music in the United States.
Okay, so a digital store is the top seller of music in the United States, now what? War.
As was reported yesterday, MySpace is entering the fray with MySpace Music (our coverage). Amazon, already a strong competitor in traditional music sales, also has a solid digital offering with AmazonMP3. These three behemoths should shape the landscape for years to come.
Apple continues to dominate the space currently, but it might have a few chinks in its armor. Of the four major music labels, only EMI is currently allowing iTunes to sell DRM-free versions of its catalog. Steve Jobs himself has said this will be the future of the industry, yet iTunes is failing to deliver on this promise (our coverage). AmazonMP3 has all of the major labels providing DRM-free tracks, while MySpace Music already has three of the four on board (interestingly, with only EMI holding out).
This lack of DRM-free music is hardly Apple’s fault — it’s clear the record labels want a legitimate contender to iTunes to lessen Jobs’ stranglehold on their industry. DRM-free music is the leverage they have at the moment, and they are using it.
However, the unwillingness to provide DRM-free tracks while still offering up the protected versions on iTunes is also assuring that Apple will keep selling iPods. The truth is that most people still do not care about DRM-free or even necessarily understand what it means. They want a fast and simple way to buy music online — and no one does that better than Apple. By purchasing all of those protected tracks on iTunes, they must also keep buying iPods to play them.
Buying iPods, in turn, will keep them using iTunes. Round and round we go. This is a cycle the other services will need to negate to compete. While Amazon is playing the DRM-free card, MySpace Music can hope its huge social network can make for a more compelling musical experience than iTunes.
There has been talk that Apple could switch things up and move to a subscription-based version of iTunes (our coverage). While it may seem odd that Apple would switch from a strategy that has led to its dominance (selling individual protected tracks), Apple may also see the writing on the wall with these two strong competitors coming for them.
So what about the other big names in music sales?
Wal-Mart dominated the music purchasing landscape for a long time thanks to its brick and mortar stores. The company has a digital download service, but it is foolishly restricted to users who are running Windows XP, 2000 or Vista, use Internet Explorer as their browser and Windows Media Player as their digital music player. Those kind of limitations are not going to win over many iTunes users.
Another retail power, Best Buy, also has a digital music store, but it is laughably complex. First of all they have a system where you have to purchase digital download cards (yes, actual physical cards) or buy a group of songs online. They also have a streaming service via a partnership with Rhapsody , but once again, access is very restrictive to select operating systems and browsers.
This looks to be a three horse race for now between iTunes, AmazonMP3 and MySpace Music — at least until Facebook gets involved.
Tags: co:amazon, co:Apple, co:best buy, co:MySpace, co:Wal-Mart9 Comments
-
Marc Fawzi said:
I love the dramatic title and the corresponding image.
There will be books written about Steve Jobs long after his death.
-
MG Siegler said:
@marc - thanks. how do you feel about the new myspace music entry? any thoughts?
-
Patrick said:
You’re completely right to point out that customers don’t care about DRM. The history of recorded music confirms the concept that convenience is king. DRM is a barrier to convenience but only when it affects the customer experience. In the case of the iTunes Store, the DRM on iTunes tracks is essentially negligible because the iPod dominates the music player market. If tomorrow a new player came on the market that could not play iTunes tracks yet still captured everyone’s attention and caused the entire market to shift, you’d see a dramatic drop in iTunes sales.
Back to the triumvirate. The iTunes Store is convenient for iPod users. The Amazon store is convenient for customers that do a lot of shopping on Amazon. And the MySpace store will be convenient for MySpace users who browse for music in the social network. Each music store has carved out its portion of the market. And I don’t think we’re going to see a clear winner among them because the customer will be the winner. Assuming the pricing is similar among all these vendors, potential customers will likely just buy from whichever domain they’re browsing. I can easily see a young customer browsing MySpace, buying a track or two there, then doing some CD shopping at Amazon, buying a track or two there, and then after loading up iTunes to sync the newly-purchased music with their iPod, buying a track or two via the iTunes Store. If the price is the same and the shopping experience is comfortable, I highly doubt customers to be as loyal to certain vendors as we might expect.
-
MG Siegler said:
@patrick - thanks for the comments. i would say that under your scenario itunes would probably keep dominating then, however not all prices are equal since amazon does offer 89 cent tracks and albums that are usually a dollars cheaper (along with all being DRM-free and HIGHER quality) - i know that pricing difference is probably negligible, but still a difference.
Not sure what MySpace pricing for downloads will be yet, but I’m sure it will be similar to the others as you suggest. One wild card with them is the ad-supported free streaming though. That could help their usage and perhaps eventual sales.
-
Marc Fawzi said:
MySpace has been very successful with musicians who want to be discoveref and fans who want to find new bands. Its a lot of fun and many poular artists have been discocred through MySpace.
The new store can only expand on that success, asiming they will let musicians sell their music directly through the store without having to go through an aggregator.
Else, they qull miss on leveraging on the good will they’ve built with musicians who are what makes MySpace different than iTunes or Amazon.
It would be a shame if they were to force them to go thru an aggregator.
-
Marc Fawzi said:
Thanks to my Blackberry I can’t even read half of what I wrote!
Switching to 3G iPhone for sure!
-
sikantis said:
Great post! Thanks.
-
John said:
Actually, I think you’re wrong on 2 points:
1) While I am definitely not a fan-boy, I don’t believe Apple is to blame for not selling more non-DRM files on iTunes. The blame for that rest clearly on the labels. While it certainly is not hurting Apple because of the lock-in to the iPod that you describe, I believe the licensing from the labels is the issue. And the labels believe that this is a negotiating tactic that they can use to (a) break iTunes stranglehold on the digital music sales market and (b) negotiate a better price / percentage from Apple for iTunes sales.
2) You can purchase MP3’s from Walmarts music store with devices other than Windows computers (I use Linux) and listem to them on any MP3 player. I have done it with my Ubuntu system.
-
MG Siegler said:
@marc - good plan (the 3G iPhone), think I got the main points of what you were saying though.
@silkantis - thanks!
@john - for the first point, I did say this:
“This lack of DRM-free music is hardly Apple’s fault — it’s clear the record labels want a legitimate contender to iTunes to lessen Jobs’ stranglehold on their industry. DRM-free music is the leverage they have at the moment, and they are using it.”
As for the 2nd, I was just basing it off of what the alert box and FAQ told me when I tried to access the site to check it out. Perhaps you are right though, but then Wal-Mart really need to update their own documents on it!
2 Trackbacks
9:59 am
How William Morris and other Hollywood agencies are getting into tech startups and investing » VentureBeat said:
[...] of Hollywood businesses are looking at how they can make themselves profitable online. The future isn’t clear for stalwarts like the larger music labels and movie studios. But there are other power players in the media who are making moves. In [...]
12:21 am
SellaBand makes money for musicians, raises $5 million from Prime Technology Ventures » VentureBeat said:
[...] not just record labels, are facing major issues. Small-time acts may be able to find audiences through MySpace and other music sites, but they [...]