I tuned into Thursday's conversation between Microsoft's Robbie Bach and financial analysts at CES. Bach is the president of the company's Entertainment and Devices division, which includes Xbox, Windows Mobile, retail channel relationships, and most of the other fun stuff. It also includes the Zune, which, given its lack of financial impact on the company, didn't merit much of his time.
Toward the end however, one analyst (not identified on the recording) suggested that the company's foray into MP3 players had been a waste of time. Today, Microsoft talks about providing software and services on "three screens"--the PC, the TV, and mobile devices. So why did Microsoft make a foray into hardware, which alienated its device-maker partners (remember PlaysForSure?), and probably cost the company tens or hundreds of millions so far.
Bach insisted that music was a required component of the "three screen" experience, and that Microsoft had to be a leader rather than a mere technology provider in this space. If Microsoft hadn't built the Zune, it wouldn't have been able to create the Zune software and Marketplace, which have become pretty solid after a couple false starts. But he admitted that if the company were to enter the space again with perfect hindsight, it would do things differently.
How, exactly? He didn't say. But he did say that regardless of whether Microsoft had built its own MP3 player, it would have changed its relationship with every OEM and "caused just as much disruption." In other words, the Windows Media strategy wasn't working. Consumers didn't want a confusing array of devices and stores and formats and DRM schemes that didn't always work together. They didn't want to think about this stuff at all! They just wanted to rip their CDs, maybe buy a few tracks online, and take all this stuff with them.
My guess: PlaysForSure would have been just as dead. Microsoft would have created a new music brand, a new logo program, new hardware specs for the devices, new client software to replace the Media Player for syncing and library organization (like the Zune client), and a new store that could only be used with this new software and these new devices (like the Zune Marketplace). In other words, there still would have been a clean break between old and new. The only difference is that Microsoft wouldn't have manufactured and marketed the actual Zune devices, and consumers might have had a greater choice of hardware from the get-go. This might have led to quicker innovation--for instance, some forward-thinking OEM probably would have created a touch-screen "Zune" by now.
The only question: after the PlaysForSure debacle, who would have gone along? Which is probably why Microsoft built the Zune hardware in the first place.
One of the first things Microsoft did when launching the new Zune was kill the 2-year-old MSN Music download service.
The business reasons were plain: MSN Music was a PlaysForSure service, but the Zune wasn't PlaysForSure-compatible, and it came with its own music download service, integrated into the Zune software.
Sure, there's still something with the brand name MSN Music, but it's basically a shell--a few music videos, some promotional tie-ins with Zune (through a program called Ignition), and a radio station powered by Pandora.
If Microsoft's smart, it'll keep LaunchCast around.
(Credit: Yahoo)So what might that mean for Yahoo Music, if Microsoft's proposed acquisition of Yahoo clears? Probably not much, at first.
Microsoft's Kevin Johnson, who leads the group responsible for online services and Windows, mentioned in a conference call that the company would get the quickest benefits from combining their advertising platforms, particularly paid search: "scale economics can kick in fairly rapidly when you just look at the simple step of just combining the search-related ad inventory on a single ad platform."
Translation: as soon as the acquisition closes, Yahoo Search would be folded into Microsoft's Live Search, and Panama would be folded into AdCenter.
Eventually, though, Microsoft would go through all the other Yahoo divisions, looking for overlap or strategic misfits. Here's where Yahoo Music could feel the heat. Selling PlaysForSure-protected files does nothing for the Zune, and even if Yahoo goes with DRM-free MP3 files, it would seem to be redundant with the Zune Marketplace.
Now, if Microsoft were smart, it would recognize the popularity of the combined Yahoo Music and LaunchCast (see Aribtron's online-radio ratings). But often, decisions in acquisitions are driven by politics and emotion rather than actual business logic.
Editors' note: Yahoo on Monday announced that it is discontinuing its Yahoo Music Unlimited subscription service, transferring its customers to RealNetworks' Rhapsody service.
PlaysForSure was a Microsoft logo program, launched in 2004, that identified devices (portable and networked) that were compatible with online music and video stores.
Essentially, the logo identified a store as using the latest version of Microsoft's Windows Media DRM scheme and ensured that a device could play content with that same DRM scheme. While the program was an improvement over the previous situation of no system at all, it wasn't as simple as Microsoft implied. For instance, there was one logo for subscription content, another for per-download content, and cross-compatibility wasn't guaranteed.
When Microsoft announced Zune in mid-2006, a lot of onlookers (including me) suggested it spelled doom for the company's PlaysForSure partners--the Zune team made no guarantee that the devices would be able to play PlaysForSure content, and material from the Zune Marketplace definitely does not play on PlaysForSure devices. Most of the company's former partners found alternatives--Samsung building its own music store, MTV teaming up with longtime Microsoft rival RealNetworks--even as Microsoft publicly insisted that the initiative was not dead, just pining for the fjords.
Today, one of my colleagues pointed out that Microsoft's no longer maintaining the facade: PlaysForSure has officially been rolled into another logo program, Certified for Windows Vista. The old compatibility guidelines and tests for device partners are still in place, but the brand will quietly disappear into the annals of market failures.
Yesterday, Nokia announced a new initiative, Comes With Music, that will offer "free" music to purchasers of certain cellphones. It's the first outgrowth of Nokia's Ovi brand, which the company announced earlier this year. It also seems to be the first implementation of Universal's Total Music plan, in which device makers bundle a music subscription on new devices and add the cost to the price of the device, rather than forcing consumers to pay the monthly fee.
(Credit:
Nokia)
As with all such services, the devil's in the details. According to Ars Technica, there's an awful lot of deviltry going on.
First, the good points: unlimited downloads, yours to keep and play forever, playable on both a computer and your cellphone.
However...the downloads are protected with DRM. (Ars Technica reports that it's Microsoft's PlaysForSure system, but this doesn't sound right to me: Microsoft has a phone-specific DRM system, PlayReady, and Nokia was the first customer for that system, so it would seem odd for Nokia to use a three-year-old DRM system designed for portable and in-home devices instead.) Regardless of which system it's based on, the DRM will reportedly not allow users to burn tracks to CD unless you buy the download again--this closes the analog hole by which users could download a million tracks, burn them, re-rip them to MP3, and post and share wildly. Also, any track protected with a Microsoft DRM system almost certainly won't be transferable to Apple's iPod, and might not be transferable to other types of MP3 players either.
But here's the oddest part: after your year's up, the subscription expires. You get to keep whatever music you've downloaded, but if you want to continue downloading new releases, you'll apparently have to buy a new phone. And Nokia's not yet saying how much extra these Comes With Music phones will cost.
As Saul Hansell points out in the New York Times, Comes With Music/Total Music is at least a good stab at an alternative business model. The current model's certainly not working for the industry. But these "free" tracks have to compete against millions of MP3 files that are already out there, and are actually free in every sense of the word--no cost (free like beer) and no usage restrictions (free like freedom).
Here's an alternate suggestion. Remove the DRM restrictions, but put a monthly limit on downloads so users can't download every song ever recorded then cancel their subscription and keep the music. Maybe 500 songs or 50 albums--that's a very generous amount for even the heaviest music fan. When a certain time period's up--say, a year--start charging for the subscription. A plan like this would still offer significant advantages over file-trading networks--over-the-air downloads, no legal risk, sound quality assurances, no false file names--while being "free" enough in both senses of the word to keep users around.
Among last week's digital music news was the item that seminal hard rock band AC/DC has taken a tentative step on the information highway (as opposed to that other highway). AC/DC's deal with Verizon was notable because the band chose to bypass industry leader iTunes, and because the band is selling only complete albums (for $12 apiece--higher than the current price of their CDs on Amazon!) rather than individual singles. Another oddity: most of AC/DC's catalog will be not be downloadable over-the-air to Verizon phones; instead, users will have to download the albums to their PC first, then transfer them. (The sole exception is the song "You Shook Me All Night Long," which is probably the one track that most non-AC/DC fans have heard and might be willing to download.)
Something about this story sounded familiar, so I did some digging. Sure enough, AC/DC helped Microsoft launch its MSN Music download service by offering a similar exclusive nearly three years ago. That deal was also for albums only. But the MSN Music download service was a casualty of the company's Zune initiative. Instead of making Zune compatible with the PlaysForSure program, which allowed multiple online stores to work with multiple devices, Microsoft followed Apple's model of tying the Zune to a dedicated store, the Zune Marketplace. Microsoft didn't want the cost and complexity of licensing music for two stores, so MSN Music got the axe. Apparently, the AC/DC exclusive went with it.
More exciting was the still-unconfirmed report that Led Zeppelin will be offering a new greatest hits collection, Mothership via iTunes. The Zep has never approved its music for digital download, although you could always find it via unapproved sites like MP3Sparks (the replacement for AllofMP3.com, which was shut down by the Russian government earlier this year).
Even more interesting, however, was the revelation of a new official band site, LedZeppelin.com. (The old familiar Led-Zeppelin.com is still up.) There's nothing there today except for the four logos from the band's fourth album, the release date of Mothership...and a link to sign up for updates. What sort of updates could they possibly deem important enough to create an e-mail list? Most fans already ahve all their albums or one of their earlier hits collections, and if we (yes, I'm a fan) really want this one, we know when it's coming out. Could the band be planning that long-rumored reunion tour with their original drummer's son? I can just imagine their reaction to the recent Police tour: "Those guys got $225 a ticket?"
When Microsoft released its Zune player-store-software combination, it effectively drove a stake into the heart of PlaysForSure, the company's logo program that identifies Windows Media-based online stores and the players that work with those stores. Sure, Microsoft still claims that it's equally committed to both initiatives, but PlaysForSure partners have a right to be concerned that their technology partner is competing directly against them.
Samsung was one of Microsoft's most steadfast digital media partners: it released one of the earliest Portable Media Centers (portable audio-video devices based on Windows Mobile software, which beat the video iPod to market by a year) and was one of the charter PlaysForSure partners. But the company also was one of the first to see the writing on the wall: in September, right after the Zune rumors began, Samsung announced plans to contract with MusicNet, a back-end provider of music stores, to provide a subscription-based online store in Europe. (Yes, this is the same MusicNet that was originally founded by a couple of the big record labels and provided expensive and heavily restricted downloads to end users, but its ownership and business model have changed.) The store is integrated with the new Samsung Media Studio software that ships with Samsung portable players. In other words, Samsung is following in Microsoft's footsteps--and of course, both are following Apple--and releasing an integrated set of devices, stores and PC client software.
Apparently, the store launched today in the U.K., France and Germany. This probably won't affect too many people--April 2007 NPD stats listed Samsung as the No. 5 music player manufacturer, behind Apple, SanDisk, Creative Technology and Microsoft. Nonetheless, the creation of new music stores could be good for the record companies, who are seeking any leverage they can get against Apple.
Speaking of, Universal Music apparently confirmed to MacWorld that it has signed an "at-will" contract with iTunes. This means it could offer some of its artists' songs to other music stores as exclusives, or it could pull songs from iTunes if Apple refuses to budge on its univeral pricing policy of $0.99 per song.
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