Whether sold track by track or offered as a service, unbundled music has never generated the level of revenue or profit produced when music was only sold in bundles,
In a nutshell, the court found that any transfer of a digital file from one hard drive or storage device to another inescapably involves making a new copy of the file on the second device. Since that copy is not made under license, it is not a “lawfully made” as required by the first sale doctrine.
The Wall Street Journal has an interesting piece this morning on the long-term price wireless carriers have paid for supporting the iPhone and other smartphones to their networks. As smartphones drive up data consumption, carriers have had to increase capital spending to bolster their networks. But most of the upside from those improvements has been captured by device makers and software developers. “For the most part, it’s really been a wealth transfer from [wireless] shareholders to Apple shareholders,” in the view of Nomura Securities analyst Michael McCormick. But the carriers should not have been surprised. Apple did the exact same thing to the record labels when it persuaded them to make single tracks available through iTunes for 99 cents. Great for selling iPods, but not so great for the labels, who ended up trading high-margin CD albums for low-margin single tracks. Basically, the arrangement transferred value from the record labels to Apple. It’s what Apple does.
The licensing deals Google was able to sign with the major record labels are in their own way groundbreaking and could point to a more significant shift under way in the online music business than simply the addition of another MP3 store.
Taking a page from the old Apple PR playbook, Spotify sent out invites yesterday to a press conference on Nov. 30 where it promises to reveal “a new direction for the company” but was otherwise coy on the details. The invite says Spotify CEO Daniel Ek will be on hand, along with “special guests,” again unnamed. Any guesses? Peter Kafka at AllThingsD speculates that Spotify could be planning to announce an MP3 store to complement its streaming service, but since it already has one in Europe I’m not sure that qualifies as a “new direction.” Others speculate that the service might be adding other types of content, such as movies and e-books (we probably would have heard about rights deals being negotiated), an acquisition of some kind (with what?) or new carrier and device partnerships (maybe). Whatever it is, my guess is it will involve leveraging the recent Facebook integration, which would at least qualify as new-ish.
I’ll have more on Google’s new music store in an upcoming Weekly Update, but I wanted to flag what, to me, was the big news out of yesterday’s formal unveiling of Google Music. While Google Music may, or may not, someday pose a threat to the dominance of iTunes in online music sales it has already made a significant mark on the business. Google managed to secure licenses from three of the four major record distributors (along with many independent labels) that sanction free music sharing. Google Music users will be able to allow their friends to listen to every track or albums they buy once, for free. The deals will apparently also tolerate the continuation of Google Music Beta’s unlicensed storage in the cloud of music already on users’ hard drives, regardless of how it got there. My colleague David Card thinks that’s kind of a snooze, but they strike me as potentially significant breakthroughs in what the record companies have been willing to license up to now.
Apple has never said what it intended to do with Lala, the streaming music rental service it bought late last year. But the announcement today that Lala is no longer accepting new users and will shut down altogether on May 31 is fueling speculation that some sort of web-based version of iTunes will be announced shortly. Back in January, however, the CEO of MP3tunes.com, Michael Robertson, wrote a very interesting story suggesting that Lala would become more than simply a streamed version of iTunes but would form the foundation of a far-reaching cloud-based media strategy by Apple. Now that the media-centric iPad is a reality, Robertson’s piece is looking more prescient than ever.
It’s long past time to reinvent the music business without the typical record-label structure but better late than never. A new startup launching today, Hello Music, hopes to replace the traditional label A&R function with a do-it-yourself digital platform meant to connect aspiring bands and artists with commercial opportunities, while BACH Technology of Norway has a plan to take digital music distribution beyond the MP3 file. Oh, and Verizon says it’s not actually cutting off Internet access to users to download music illegally.