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Unintended Consequences: The commoditization of music

One thing that I can’t help but think as I see the sudden rush to sell unprotected MP3’s is that music will become commoditized: that is to say, competition between stores can only be on price at any given quality level (given the digitally identical product offered at all).

When there’s no opportunity to differentiate a product offering, differentiation has to come from elsewhere - price being the first, easiest, and most natural source thereof.

There are some other factors - like the iTunes/iPod easy synchronization value-add - but fundamentally, a 256k/bit encoded song is a 256k/bit encoded song, wherever its downloaded from.

So - is the industry doomed to go to the retailer with the best cost structure, or the retailer willing to tolerate the lowest margins? Maybe. Expect to see some frantic “relationship building” taking place as drm-free retailers attempt to secure exclusive access to higher bitrate recordings, or specific artists or albums.

amazon, apple, drm, itunes music

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Textango - Music purchases by Cellphone - a new label-less distribution model

In a Nutshell: Textango offers music purchases and free promotions by text message. Send a code (like “bbq”) to a number (23333), and you’ll get a redemption code to enter on the site which will download music to your PC.

IMHO: There’s something here in providing a unique promotion and avoiding credit cards (for consumers) and labels (for bands), but communicating its proposition is a muddled affair due to the multistep nature of the Textango process.

Textango has identified a real need: that of record labels and indie bands to promote their music in new and attention grabbing ways, and do so in a relevant context - i.e.: at a concert venue, on campus, at a skate shop. They’ve also twigged to the credit card-less nature of the key target demographic (teens), by using cellphone text messages as a payment vehicle.

FACT: Only 13% of teenagers ranging in age from 12 to 18 have credit cards.

FACT: Over 76% of teenagers ranging in age from 12 to 18 have cell phones. Considering that the 12 to 18 age demographic makes up literally half of the music industry’s target audience, that gives you an idea of what Textango’s Affiliate programs earning potential is.

[from Textango Affiliate Program]

To that end the Textango system lets artists sign up to offer fans downloads of either tracks of albums, either free or paid through your cellular provider (via a premium SMS charge). Presumably, then an artist can poster up messages along the line of “Text MatchFinger34 to 23333 to download our single for free!” They can poster up their gig venues, blog, local record store, or wherever, and drive downloads or sales, as they see fit.

One other disruptive element: Textango lets bands bypass labels for sales and distribution. I don’t know enough about the music industry to guess at the impact it might have, but in such a crisis-prone industry, its an interesting entrant.

Caveat: I haven’t tried the service, as I’m in Canada, where it doesn’t yet reach (recv’d an error message from ai-na.com). Textango apparently works with all major US carriers other than T-Mobile.

It sounds like a great service; however, it comes with a complicated use case. Consider the steps required to purchase an album:

1. User send the initial text as described above.
2. Textango replies with payment authorization text.
3. User replies “Y” to authorize payment.
4. Textango replies with download code.
5. User, later at home, retrieves download code from phone.
6. User heads to Textango site and enters code.
7. User downloads requested music.

[See this page, for example]

Its a complicated way to complete a simple transaction, particularly for free promotional downloads. One wonders how actual conversion rates would compare (measured by download volume) between a Textango promotion and a band simply directing audiences to their website. Or how album sales would compare between selling CD’s for cash at a venue and a Textango promotion.

That being said, for paid downloads, Textango presents a way for credit-less teens to make purchases, and text message inboxes can provide a convenient means of storing download credentials for later use.

Additionally, it provides a unique vector that adds buzz to a band - a fact that hasn’t been lost on a number of bands, indie labels, and sites, found via Technorati, that are taking advantage of the service: Raining and OK, IndieHeaven (label), Negative Progression Records, Bleed the Dream, AbsolutePunk.net, John Frusciante, Bayside, Ignition, 3MS, Glassjaw Boxer, Corporate Punishment Records, Drag Citizen, The GoStation
, etc. Many more on the Textango website too.

Incidentally, that’s too many horrendously formatted MySpace blogs to look at in a lifetime, much less an afternoon.

Business Plan & Management Team

Pat Phelan has a good round up of the Textango revenue model and management team. The key points are diversified sources of revenue (commission on sales, eBay-style promotional options, keyword registration), and a team that includes some seasoned entrepreneurs.

Depends on the Bands

So - all of that being said, I find Textango to be an awkward, if interesting way to get at music… but I’m way out of the target demographic. Cellphone using, indie-band consuming teens may very well glom to the concept, as the right bands can add credibility to a distribution system very quickly. To that end, Textango’s success largely depends on their ability to get bands signed on and promoting their service.

More thoughts at KOAR and Collaborative Web Services.

itunes, mobile, mp3, music textango

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Amazon to Go DRM Free… the Myth of the Information Wants to be Free Wonderland

By cosmic coincidence, while I was writing about terminally sketchy MPFree.com this AM, Amazon went and announced the forthcoming opening of their own DRM-free music store.

1. Amazon claims 12,000 labels have signed up to sell MP3’s, including EMI - interesting that APPL didn’t lock EMI to an exclusive.
2. Bezos summed up the value proposition: Amazon customers will know that their music will play anywhere without any difficulty.
3. The EMI CEO suggests that DRM-free will still be a “premium” offering - expecting slight price bump and higher quality, as per iTunes.

Analysis

Amazon lends credibility to the charge begun by Steve Jobs. The proof will be in the profits, however: regardless of how many names are behind the DRM-free agenda, the labels will need to see increased sales volume, increased margins, and increased profit to make it stick; anything less than the volume/margin/profit trinity will send them scurrying away again to try and come up with another way to make it happen.

Whether there is another way is debateable, of course, but that doesn’t matter to the industry execs - its the ability to put out shareholder-pleasing press releases about new bound-to-be-profitable technologies & business models that keep them motivated.

One unfortunate thing is that “DRM-free” has been elevated to a near-mythical ideal where gleeful customers shovel cash voluntarily at labels in a magical “information wants to be free but I respect artists” wonderland - will such a place exist? Only time will tell. The pessimist in me says no; how many people out there downloaded MP3’s from P2P services and then went to buy the CD out of respect to the artist? Zero. Respect for artists is balanced out against the ridiculuous wealth flaunted by upper echelon musicians - would the average consumer feel too bad keeping a few cents out of U2 or Madonna’s pockets? No. Do many people have artistic “respect” for Britney Spears? The “struggling-to-break-through” artists will be the most marginalized financially, but will enjoy the promotional boost of unfettered distribution….

…of course, struggling artists have other, better means of self promotion these days than signing with labels anyway.

amazon, drm, itunes, labels, music RIAA

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Quick iTunes Tip

From the Negative Margins blog, a quick but very useful tip on how-to make mp3’s remember their position like podcasts do in iTunes. I have a weird habit of skipping around between many different songs, and different parts of songs, and so this feature is great for me - particularly as the fridaylistening post is just around the corner…

apple, howto, itunes music

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Apple + EMI: DRM-free Music Implications

Is this the beginning of a sea change, or another stab in the dark for the music industry? Whatever the case, its risky as hell: if EMI doesn’t show big gains with this move, the notion of DRM-free music will be poisoned for the rest of the labels. TechCrunch seems bullish on the concept, and with good reason:

1. EMI/Apple have put together a good “bundle of values” - no DRM and superior quality for what is in absolute terms a negligible increase in price.
2. EMI’s research indicates that even if the nuances of DRM-free music escape the average consumer, the ability to move music freely between multiple devices will not.

Ok - sounds good! There’s two questions outstanding in my mind, however.

1. Confusion: Some songs will have DRM, some won’t. Some will be moveable between devices, some won’t. Quality levels will be different. For many of us, were used to these issues already as we have a mix of naked MP3’s and DRM’d files in our iTunes library, but for those less technical, your purchasing experience and library management just got an added layer of confusion. How will consumers react to a different mix of prices, quality, and portability? Say what you will about iTunes and DRM, but the previous buying experience at least had consistency between song purchases.
2. Value Recognition: Will the average, non-technical consumer recognize the value proposition of DRM-free music? As far as they know, their songs cost 99 cents before and played fine in their iPod. Now some music is more expensive - does the marginal value exceed the marginal cost for the average, non-technical user?

Fine - neither of these are killers. But with this change, EMI and Apple need to set a powerful precedent to violently push the market in a new direction. If EMI sales stagnate because consumers don’t understand or recognize the value of DRM-free music, the whole concept will be permanently poisoned.

apple, drm, emi, itunes music

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