Coolfer has an interesting post this morning, responding to Peter Kafka's suggestion that it's getting too hard to buy music because fewer retailers are stocking CDs. I think Kafka's confusing cause and effect--if retailers were still making lots of money on Britney and Rihanna, CDs would be sold front and center. But regardless of the chicken-and-egg question, Coolfer makes the very good point that most music purchasers don't seek out music and aren't willing to sift through the racks at their local record stores, but rather pick up a CD as an impulse buy on their way to the beer aisle. So what happens to those purchasers once CDs are relegated to a small corner in the back of Wal-Mart or Borders?
I look forward to an Amoeba trip like a kid looks forward to Christmas. But most towns don't have an Amoeba, and most casual music fans wouldn't stop by anyway.
(Credit: Amoeba Records)The most likely replacement scenario, I think, will be over-the-air digital downloads: users will hear a song on the radio or in some public space and make an impulse buy from their mobile phone or other portable device. But the technology to make this process as easy as picking up a CD is still in the very early, geeks-only stages.
With an iPhone, you can make a purchase only if you've got a Wi-Fi connection, not over your service provider's cellular network. (The same holds true for the iPod Touch, since it's not a phone at all.) And identification requires a third-party app like Shazam (which just added another 2 million songs to its already impressive database). Apple could make impulse buys a lot easier if it bought Shazam, incorporated its functionality into the iTunes Wi-Fi app, and created a cellular version of the iTunes store--perhaps giving users the ability to download a very small but highly compressed version of the song over 3G, then giving them the right to "upgrade" to a better-quality file later.
The Buy From FM feature on Microsoft's Zune player is another good idea, but it only works when you're listening to the Zune's FM radio--there's no identification of audio from outside sources--and of course the Zune isn't a phone (yet), and can't connect to Wi-Fi hotspots that require a browser-based log-in. Microsoft's also making a big push for its Zune Pass, which lets you stream any song in the Zune Marketplace on demand, but like subscription services from Rhapsody, this won't appeal to impulse buyers--by definition, those folks aren't going to pay $15 a month (or whatever) for the right to listen to music.
Internet radio with click-to-buy functionality is another strong contender--think of Pandora on the iPhone. But once again, there's a disconnect between hearing, identifying, and buying (which requires a Wi-Fi connection).
Don't get me wrong--the CD still has a lot of life left in it, and specialty music stores and online retailers will continue to sell them by the tens of millions. But as smartphones become more common, somebody (probably Apple) is going to close the loop in a way that makes impulse buys of digital downloads just as easy as grabbing a CD from the rack next to the cash register. Whoever does stands to become the Tower Records--or should I say Wal-Mart music section--of the next decade.
It's just a rumor at this point, but the usual anonymous tipsters have told the Boy Genius Report that Apple is planning to sell a $99 iPhone at Wal-Mart. There's been some debate about whether this would be a good idea for Apple. One financial analyst ran the numbers and believes that Apple would double or triple sales while still maintaining very healthy margins of more than 40 percent. Other onlookers have noted that Apple does not typically play the low-cost high-volume game; it certainly made fools of any suckers who believed the $800 laptop rumor.
(Credit:
CNET Networks)
I'll throw my hat into the ring and say that a $99 iPhone would be a great idea. Why?
1. The smartphone market is new(er). Laptop computers have been around for more than a decade and have practically become a commodity, as evidenced by the recent rise of sub-$500 Netbooks. The typical way to compete in a commodity market is by ruthlessly slashing expenses and competing on price. But the better way--if you can swing it--is to break out of the commodity ghetto and position your product as a luxury exception. That's exactly what Apple has done, largely by way of design. (You can argue the merits of OS X versus Windows all you want, but there's no arguing that OS X has a simpler--not necessarily "easier"--and therefore more elegant appearance.)
But smartphones are still a relatively green market. Yes, we've seen "feature phones" capable of running simple applications like games for some time, but true smartphones--with large displays, sophisticated user interfaces, and the ability to run multiple types of computer-like applications--are still rare outside the business world. If Apple can compete aggressively on price now, it could dominate the consumer smartphone market, just as it dominates the MP3 player market today. Once that happens, all sorts of interesting long-term revenue possibilities open up--App Store revenue could become significant with 50 million iPhones out there, not to mention upgrade cycles, attached devices and services, and the "halo effect" on Apple's other products.
2. The competition is behind. As today's Gartner report on smartphones makes clear, the competition is in disarray. Nokia/Symbian's market share showed an annual decline for the first time ever in the third quarter because of a lack of competitive touch-screen devices. Windows Mobile fell behind the iPhone in North America. And while Research In Motion is also growing, its entrant in the touch-screen race, the new Storm, has been met with a decided "meh" or worse.
None of these competitors is standing still. Nokia's got its Ovi Internet services online and is unveiling touch-screen devices left and right; Microsoft's busy at work on Windows Mobile 7, which will almost certainly incorporate music functionality from the Zune and design and other features from Danger. And the Storm won't be RIM's last effort at a touch-screen phone.
3. The economy. Times are hard. Apple's got a backlog of 2 million iPhones in the channel, according to that Gartner report. RIM just downgraded expectations for its third quarter. What better way to dominate than by being the low-price leader and creating the product with the most mainstream appeal? It sure seems to be working well for Nintendo.
By striking now, the iPhone could become "everybody's" first smartphone. Five years from now, it could be as synonymous with smartphone as iPod is with MP3 player.
Correction: AC/DC's 1981 album For Those About to Rock We Salute You peaked at #1 on the U.S. charts, which means Wal-Mart's press release is wrong.
American retail giant Wal-Mart relaunched its online MP3 store Tuesday, and it's a worthy competitor to Amazon in the DRM-free MP3 sweepstakes. (To remind you: unlike many songs from Apple's iTunes, or Microsoft's Zune Marketplace, or Nokia's music store, every song sold on Amazon and Wal-Mart can be played an unlimited number of times on just about any portable device and in any software application out there.)
The new Wal-Mart store includes top hits at only 74 a cents per song, with standard pricing at 94 cents (a nickel cheaper than most), plus a free download of the week (hopefully it won't always be kids' music), plus one free MP3 download for every full physical album that you buy either in the store or on the Web site starting in November.
Highlights of Wal-Mart's relaunched MP3 store include exclusives, a free song of the week, and selected downloads for only $0.74
(Credit: Screenshot)But no AC/DC. If you're of a certain age and musical predeliction, you probably already know that AC/DC's new album, Black Ice, is available only at Wal-Mart--but not as a download. You might have checked out the new single, "Rock and Roll Train," for its first minute or two. But you probably would never have guessed that Black Ice has just become AC/DC's second album to top the U.S. charts, showing that big old rock bands don't need none of that digital computer stuff anyhow. At least they have a sense of humor about it.
A rather sprawling article in Billboard today suggests that the MP3 format, which has been around since the 1990s, is finally reaching a tipping point among major labels, supplanting DRM-protected formats that the labels have favored.
The article focuses mostly on a planned Pepsi promotion that will offer MP3 downloads via the Amazon MP3 store. However, two other points stuck out to me as spelling imminent doom for DRM in music.
First, Sony is reportedly considering offering its catalog as MP3s, joining EMI and Universal Music Group. That would make Warner Music the last holdout among the Big Four. I'm not sure how long Warner could hold out if it saw its competitors selling more digital files thanks to the universality of the MP3 format.
Second, retail giant Wal-Mart may be moving to an all-MP3 format on its online store as soon as December, and has reportedly threatened to pull all WMA-formatted files from labels who aren't willing to offer those same files as MP3s. Wal-Mart's a pipsqueak in the digital world, but accounts for a whopping 22 percent of all physical CD sales in the U.S. So, the speculation runs, if the labels don't accede to Wal-Mart's digital demands, they may find Wal-Mart underpromoting their physical wares. I'm not sure this argument makes sense--I can't imagine Wal-Mart burying a popular artist like Britney Spears (it pained me to write that) simply because her label doesn't want to sell MP3s--but the company has legendary clout with its suppliers, so perhaps there's an element of truth there.
And speaking of Wal-Mart, the retailer apparently agreed to buy 3 million copies of the Eagles' new album, Long Road Out of Eden, up front. (That detail's revealed toward the end of a 60 Minutes online interview.) That's the exact opposite of the way a major label deal usually works, in which the label withholds all proceeds from the band until costs (including recording and promotion) are recovered.
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