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Still reeling from the recently concluded format war?

Lucky for some early adopters, the number of retailers lining up to ease your pain is growing: first Best Buy, then Wal-Mart, and now Amazon. The online retail giant is currently offering a $50 credit for every HD DVD player purchased on its site. The offer is good until April 9, 2009, for HD DVD players bought before February 23, when Toshiba said it would stop making the devices.

Amazon gives $50 credit to early HD DVD adopters.

(Credit: Toshiba)

Gizmodo has posted the e-mail sent to some Amazon customers on Tuesday. I've excerpted the best parts:

"New technologies don't always work out as planned. We at Amazon.com value our customer relationships more than anything and would like to support customers who purchased these players by offering a credit good for $50 off any products sold by Amazon.com...In addition, we'd like to share some of our top offers on Blu-ray discs, HDTVs and other high-def technology..."

This is surely a smart way to build goodwill with your existing customers when a technology becomes obsolete. And what better way to lessen the sting of money lost than by offering the cool salve of the opportunity to spend more money?

Best Buy launched a similar program last month, rewarding $50 to customers who purchased the doomed devices. Wal-Mart said Tuesday it is extending its return policy from 90 days to 6 months on HD DVD players.

All of them, it should be noted, still sell HD DVD players and/or movie titles.

Apple's iTunes helped digital music go mainstream

(Credit: Apple.com)

Some of you out there can pat yourselves on the back. You've been shouting for years on Web sites, message boards, and blogs that the music industry would one day bow to technology.

That day has most certainly arrived.

Take a second to gaze out over the music landscape. Technology reigns supreme. Not only have the four largest record companies begun killing off digital rights management and adopting unprotected MP3s, but this week they sidled up to file sharing like never before. There isn't any question that the labels have raised a white flag after being overwhelmed by the digital age and the desire of fans to share songs.

Consider that this week the EMI Group hired Douglas Merrill, Google's former Chief of Information, to run the label's digital unit. He is a self-described geek and former file sharer. He has no previous music-biz experience. "There's a set of data that shows that file sharing is actually good for artists," Merrill told me on Wednesday during a phone interview.

A year ago, you would have never heard a music exec utter such a thing.

On Thursday, MySpace Music was announced. This is the music service that the big record companies started with News Corp. to allow fans to buy downloads, listen to streaming music, and yes, by God, share music. MySpace users won't be sharing files, but they will be passing music to one another a la social networking.

And which retailer is sovereign over music sales? I'll give you a hint. It's not Tower Records or Sam Goody (both defunct). It's not Target, Amazon, or Wal-Mart. Not anymore.

The No. 1 music retailer in the land is Apple's iTunes, an online store and dealer of digital music. How do you like them apples?

But this isn't the time to gloat. The digital music revolution is in its infancy. Nobody knows what works yet.

In our an interview, Merrill said that a winning business model hasn't been found, and that's what he's after.

"I think there are going to be a lot of different models," said Merrill, who starts his job as president of EMI's digital arm on April 28. "You can imagine supporting music through relevant targeted ads, the Google model. There are a dozen other things... We should try them all. We should see what the data says and whatever it says, we should follow the data, and follow our users, and let them help guide us. We should engage in a broad conversation about art."

How this plays out is anybody's guess. In the near term, we're likely to see more job cuts and shrinking revenue in the sector as we transition into what Forrester Research analyst James McQuivey calls Music 2.0. The reality is that recorded music will probably never produce the kind of revenue it once did. Digital technology has degraded the value.

There's nothing that says the labels will be part of the final equation, but I wouldn't bet against them--especially if they continue to embrace new technologies and business models. They've got lots of money. They still know how to find and create stars.

But the record companies are going to have to morph into smaller entities that represent fewer acts and then oversee their total output: music, video, concerts, and merchandise. This is the model that Live Nation is using to attract major artists, including Madonna, U2, and Jay-Z.

I say long live Music 2.0.

Tech blog Ars Technica says they've got their hands on an internal Apple memo that shows iTunes has topped Wal-Mart Stores in total global music sales.

The data in the memo cites a report from the month of January conducted by The NPD Group, a market research firm. NPD's numbers show the iTunes Store leading overall music sales for the first month of 2008 with a 19-percent share, followed by Wal-Mart with 15 percent, Best Buy with 13 percent, and Amazon with 6 percent.

The NPD Group, which reserves certain data for paying customers--like Apple, Wal-Mart, and others--and more general results for publication in the press, isn't taking ownership, but it's not exactly denying the numbers in the report either. NPD spokesman Lee Graham told CNET News.com he "can't comment on or confirm the information because all of that was based on a leaked memo from Apple."

Wal-Mart has long been the leader in global music sales, but Apple opening up a lead isn't a huge a surprise, as it's been on a roll lately. Most recently, the iTunes Store passed Best Buy to take up the second-place spot, according to an NPD report released in February.

Doesn't that headline state the obvious? Doesn't the entire world know that Linux simply doesn't offer the kind of mass-market appeal Windows and Mac OS X do? I guess not.

According to the company, Wal-Mart has pulled all Linux-equipped computers off its shelves because it "didn't attract as much customer attention as Windows machines."

"This really wasn't what our customers were looking for," said Wal-Mart Stores spokeswoman Melissa O'Brien.

Gee, really? To see if its customers wanted Linux, the company stocked the $199 Green gPC in about 600 stores to see if people really wanted to try out a new, far more advanced, operating system. And although the company won't announce sales figures, it looks like its decision to sell Linux-based machines was doomed from the start--in stores.

Ironically, the gPC has performed much better online and Wal-Mart will continue to sell it on its e-commerce page.

Hey techies, don't bother putting money down on whether the Celtics are the future NBA champions. Not when you can place a bet on Steve Jobs.

A gaming company called Bodog is taking wagers on when Apple's iTunes Store will surpass Wal-Mart as the top U.S. music retailer.

CNET News.com reported on Tuesday that research firm NPD Group is predicting that Apple will emerge as the largest U.S. music retailer sometime in 2008. NPD also reported that Apple has recently leapfrogged over Best Buy and Target in music sales.

It should be noted that neither CNET nor I promote gambling--but what's the Bodog line, you ask? Well, for the sake of disseminating information to the gamblers out there who would actually understand:

Yes -240 (5/12) and No +165 (18-11).

Not surprisingly, Bodog is based in Antigua, and executives were reluctant to do phone interviews. Take that however you will.

According to the Bodoglife site, the company also operates a record label (Bodog Music). It has a TV production division that produces reality TV series such as Bodog Fight.

Rules for wagering are as follows: "If it is not officially announced by December 31, 2008, that iTunes has surpassed Wal-Mart as the No. 1 U.S. music retailer," according to the wagering board on Bodog's Web site, "all 'No' wagers will be graded the winner. Max. $50."

Apple's iTunes will likely whip past Wal-Mart Stores to become the largest U.S. music retailer sometime this year.

The NPD Group issued a report Tuesday that said Apple had outpaced Best Buy and Target to become the No. 2 U.S. music retailer. Unless the downward trend in CD sales suddenly reverses, Apple will be No. 1, said Russ Crupnick, the NPD Group's president of Music.

"Digital sales were up close to 50 percent and CD sales were down 20 percent last year," Crupnick said. "Even at half that growth rate in digital sales, Apple will in all likelihood catch Wal-Mart this year."

Anybody in their teens or early 20s is going to ask, "So what else is new?" To them, digital downloads has been part of their lives for years. It's only natural that a download store emerge as the top seller.

But anybody older is going to remember that it wasn't too long ago when music buying meant flipping through CD racks at the former retail powerhouses, Sam Goody and Tower Records.

Tower no longer operates retail stores, and Sam Goody's owner is renaming whatever locations it hasn't closed. "Yeah, it's astonishing--just in the post-Napster era--to see what's happened to the retail-sales environment," Crupnick said.

Apparently, the transition from offline to digital sales is occurring faster than most people expected. (Remember how record executives used to whip out statements like: "Discs are still how most people listen to music."

They may have been right then, but perhaps that won't be the case much longer.

Consider that the music industry is seeing pressure on CD sales from multiple fronts. In the offline world, there is a sort of death spiral going on, Crupnick said. As CD sales continue to slide, retailers like Wal-Mart, Best Buy, and Target devote less and less floor space to discs--which of course serves to erode sales even further.

Amazon.com, the e-tailer that used to be synonymous with ordering CDs off the Internet, has opened a music-download store to challenge iTunes.

Then there is the teen market that is abandoning CDs in droves. According to the report issued by NPD on Tuesday, nearly half of all U.S. teens (48 percent) did not purchase a CD last year. That is up from 2006, when about 38 percent of teens made no CD purchases.

Older music fans are transitioning at a slower rate but it's happening there too. In total, NPD Group said that the music industry waved bye-bye to about 1 million CD buyers last year.

Music remains popular, according to report, which found the amount of music acquired by consumers went up 6 percent. The trouble is that less of it is being paid for. Spending among Internet users fell from about $44 per capita to $40.

It must also be said that not all of Apple's success is due to the growing digital demand. Apple has flat out done a better job of retailing than competitors, Crupnick said.

For example, the music industry should follow Apple's lead and direct their attention to teenagers, Crupnick said.

Teens lack credit cards and this often prevents them from buying at almost everywhere but iTunes, Crupnick said. Apple avoids credit cards by pushing the gift cards, which teens can pay for at retail locations and then use them to purchase songs online by keying in a code. No credit cards needed.

"That's the question that the music industry has to answer soon," Crupnick said. "How do we get young people to start paying for music again? They've got to make it easier for teens to buy online. Apple CEO Steve Jobs has done a wonderful job of this. Teens have a way to do commerce with iTunes."

Apple continues to tighten its grip on music sales as iTunes has become the second largest U.S. music retailer.

A report released by tracking company NPD Group, showed that Apple now has more than 50 million customers and sold more than 4 billion songs last year.

Apple's digital music store jumped past Best Buy to capture the No.2 spot behind Wal-Mart stores. Apple is on a roll. It was only last June that the company overtook Amazon as the nation's third-largest retailer.

How long before the company can surpass Wal-Mart to become top dog in music sales?

The good news for the overall music industry is that the amount of music being acquired rose 6 percent, according to NPD.

The bad news is that spending rates dropped by 10 percent due to falling CD sales. Spending among Internet users fell from about $44 per capita to $40. And nearly half of all U.S. teens (48 percent) did not purchase a CD last year, NPD said. That is up from 2006, when about 38 percent of teens made no CD purchases.

NPD estimated that the music industry lost about 1 million CD-buying customers last year.

Behind the scenes, Wal-Mart and Target use radio-frequency identification tracking systems to help them keep their shelves stocked, but that method could face new complications if an ongoing patent lawsuit doesn't go their way.

The suit, filed back in August 2006, accuses the megaretailers and Gillette of infringing on a U.S. patent covering an "inventory control system" that employs radio-frequency identification (RFID) technology to track the presence or absence of items and keep them from colliding. The patent belongs to a Houston man named Ronald Bormaster, who assigned it to Houston-based RFID World, which does not appear to be using the system commercially, just before the suit was filed in 2006, according to court papers.

Many months later, the case is still wending its way through a U.S. court in a Texas district with a reputation for sympathy to patent holders. A preliminary court order issued last week appears to bode well for RFID World, but the final outcome of the case isn't so clear. The targets of the lawsuit have asked for the case to be thrown out, arguing they didn't violate the patent and that the patent isn't valid in the first place.

A legal setback for the retailers could be significant. Embedding RFID tags in palettes of merchandise or on individual products has become an increasingly popular way for large retailers to keep track of their wares more efficiently. If that method is interrupted by patent warring, customers may experience visible inconveniences in their big-box shopping runs. A 2005 University of Arkansas study found, for instance, that Wal-Mart stores replenished out-of-stock items bearing RFID labels three times more quickly than those with standard bar codes.

It wouldn't be the first time that a flap over RFID patents has potentially snarled widespread use of the technology. Back in 2004, some adopters of the technology feared a newly approved RFID standard would incorporate patented techniques from RFID equipment maker Intermac, which would have required companies that used such wireless tracking systems to pay new royalty fees. Much to the relief of big RFID users like Texas Instruments and Philips Semiconductor, the new standard ultimately didn't produce that result.

The latest court order in the RFID World suit relates to a key part of any patent lawsuit: the "claim construction" stage, in which the judge mediating the dispute hears each side's interpretations of certain terms used in the language of the patent and then reconciles those often-competing definitions. The judge's conclusions are then used to guide a jury in deciding the all-important question of whether the patent was infringed.

In a February 11 order, U.S. District Judge Leonard Davis sided with RFID World's definitions of many of the key terms in the patent claims and declined to refine other term definitions as the retailers had requested. That could be a bad sign for Wal-Mart, Target, and Gillette going forward.

On the other hand, the minutiae of the patent claim wording could ultimately matter little. After all, some portions of RFID World's complaint have already been resolved outside of court. The complaint originally targeted Michelin North America, Home Depot, and Pfizer as well, but those companies and RFID World resolved their disputes and requested that the claims be dropped, although few details are available on why.

Wal-Mart, Target, and Gillette continue to deny the infringement accusations and argue that RFID World's patent should be declared invalid because it is obvious, not novel, and obtained through improper procedures. They're currently awaiting a ruling on a request earlier this year to dismiss the entire case. Barring all else, a final pretrial conference has tentatively been set for August.

Things have gone from bad to worse for HD DVD in the space of one week.

Wal-Mart Stores announced on Friday morning that it, too, has chosen a side in the battle for high-definition video supremacy: by June, it will stock only Blu-ray Disc players.

(Credit: Crave UK)

A buyer in Wal-Mart's video division wrote this morning on her Wal-Mart Checkout blog that the retail giant had made the decision following Netflix and Best Buy's high-profile announcements that they will exclusively stock Blu-ray products.

Wrote Susan Chronister of Wal-Mart: "By June, Wal-Mart will only be carrying Blu-ray movies and hardware machines and, of course, standard-def movies, DVD players, and up-convert players."

"So," she continues, not mincing words, "if you bought the HD (DVD) player like me, I'd retire it to the bedroom, kid's playroom, or give it to your parents to play their John Wayne standard-def movies, and make space for a (Blu-Ray Disc) player."

That might be the best option at this point, as the dominoes keep falling in Blu-ray's favor. While Netflix and Best Buy were pretty damning evidence that the end was near, now it's glaringly obvious: it's over for HD DVD.

Now, that doesn't necessarily mean that consumers will automatically start buying Blu-ray players. As mentioned many times before here, prices will have to continue to fall on both Blu-ray players and packaged media for there to be any sort of mainstream adoption of the format.

There are rumors that Toshiba might soon be declaring defeat: The Hollywood Reporter has sources telling it that Toshiba, the main backer of HD DVD, might drop its allegiance with the format in the next few weeks.

Toshiba denies it, but stay tuned. There's likely much more to come in this drama.