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Tuesday, February 2, 2010

The Digital Music Industry isn't music to anyone's ears

I just finished reading an interesting article about web-based models (Daily Deal). Thought I'd post the most important points here and my personal views:

- The global music industry has gone from $31Bn to $18Bn
- Apple sells 25 percent of all US music, Walmart sells 14 percent
- It costs a penny to play a song (you can start your own co today) so the more successful you are, the more cash you burn (remember Netzero!)
- There are 350 digital music cos (good grief!) And $1 billion has been invested
- Pandora, which raised $50MM is profitable with $40 million in revenues but very few paying subscribers
- Spotify (Europe) also raised $50MM
- There have been 2 exits. MySpace acquired Imeem with 16 million listeners for $1 million; CBS paid $250MM for but its reportedly not doing well
- Interesting models: Ecast (digiral jukeboxes for clubs and bars), Jamendo (selling rights-cleared music to businesses) and Rhapsody (first-mover streaming subscriber but only has 700,000 subscribers)
- 95 percent of digital music is still illegal.
- Getting label approval is a laborious process; nothing is standardized
- Venture units of both Sony Music and Universal Music have been dismantled

My predictions for the next 3 years

- First the obvious ones. Most of these cos will dissapear and most VCs won't make a dime
- Old musicians may be found bagging groceries as their retirement rapidly dries up. There will be many more tours, videos with product placements and merchandising so bands can milk the few good years (anyone remember Britney) - and more recent bands will play at Yahoo and Google !
- Labels will standardize distribution, even adopting common platforms (e g an Amazon equivalent for distributing all major labels might emerge and anyone will be able to contract from them and stream the music)
- Local radio advertising prices will drop off a cliff
- Cool hardware will have unpredictable success, but there will be a resurgence of cool radios in the home with retro designs but till the big consumer cos like Bose step in, these will be niche businesses with unpredictable sound quality
- Cable will go outside the box. They will l sell hardware that will pick up the Internet based stations from the set-top box and and give us more control. The radio on cable will finally get significantly better with more controls to users (though TV sounds won't hence the need for a wireless-enabled radio)
- The more lawyers a label hires and the longer it takes to strike deals with these 350 startups, the slower will they be to get online, and the less likely they are to survive
- and finally, Pandora's hardware will do well and create profitable revenues for the company

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