Web Strategy Blog

Will there be a DRM-Free Music Future?

In a recent public announcement Steve Jobs discussed DRM (Digital Rights Management) and the fact that Apple would welcome the labels getting rid of DRM all together. Apple has been recently criticized, particularly in Europe because of the proprietary nature of their DRM technology called "Fair Play" which allows music sold on iTunes to only be played on an iPod player.

No matter what your music player preference - consumers are wanting DRM free music downloads. It was obvious to me that when attending some music industry conferences recently that the labels aren't any closer to understanding that opening up DRM might actually help increase music sales. In the heyday of the original Napster when digital music files were being freely swapped, the music industry was booming - since shutting it down, music sales have been declining.

EMI stands out as one of the forward-thinking labels - in December they experimented with selling some Nora Jones tracks DRM free on the Yahoo Music Store. EMI has been rumored in the WSJ to announce that they will sell a substantial portion of their music catalog as DRM-free music files - so the results must have been encouraging! If they do in fact start to publish all of their music DRM free, I for one will applaud and support that as a consumer with my wallet!

David vs. Goliath

In a recent discussion about brands that dominate a market, I was struck by how many examples are emerging in Web 2.0 companies similar to the David vs. Goliath story.  iTunes, YouTube, MySpace, Google all dominate - yet there are emerging competitors that threaten to put a crack in the foundation of what seems like an insurmountable advantage.

I have a belief that there are a few ways that smaller players can still have a differentiated offering and thrive:

• Focus on the user experience, make it dead-easy to use - Was iTunes the first to offer music downloads or even movie/ TV downloads for that matter? Of course not! There were a multitude of legal and P2P download sites before iTunes. The brilliance of iTunes is the sheer no-brainer ease-of-use and the way that you are able to keep purchasing downloads without even feeling like you are spending money.
• Pick a niche and serve it well - You don't need to have 80% of a viable market to have a thriving company. By choosing a focused niche within the market and going deep rather than broad - you can have an advantage over the dominant player. How will you know when you have been successful? When your brand becomes synonymous with that niche, and when you start seeing competitors imitating you. 
• Let users needs guide the direction - Craig's List that now dominates online classifieds has refused to take advertising revenues - why? According to Craigslist President and Chief Executive Jim Buckmaster "No users have been requesting that we run ads'' The now wildly successful Craigslist.com used to run head-to-head against large newspapers and by focusing on the needs of its users it is now considered a threat to the newspaper industry. 
• Make good use of your marketing $ - In order to get above-average response from your marketing investments, I have a strong belief that they need to be driven by BIG ideas. Web 2.0 companies have a clear advantage in this area where so many of the fundamentals of their business are well-suited to interesting and unique marketing initiatives that involve the user and new media. Everything from contests to recognition programs to initiatives that allow member expression - Web 2.0 companies have an opportunity to get returns and buzz with their marketing that more traditional companies envy.

Hanging at Rehearsals.com

Spent some time with my friends at Rehearsals.com yesterday getting an up-close look at their stellar operations while watching one of my favorite musicians Pete Yorn rehearse.

Rehearsals.com allows you to watch established and emerging recording artists prepare for concerts, television appearances, tours and recording sessions. It gives you that "insider view" of candid, raw footage of entertainers doing their thing. The studios have remote controlled cameras that film in high definition and the state-of-the-art broadcast center is very impressive. You really have to see the quality of their facility to appreciate what goes into the filming of one of their segments.

I see a big trend in the emergence of some really differentiated content like this that is starting to bridge the gap between what was traditionally broadcast TV content and what is now possible to view online or on devices like downloads to PSP. I get giddy thinking of the possibilities of where this company can go.

In Search of the Perfect Playlist

Like a lot of people these days, most of my digital music is stored on iTunes. I have a few custom playlists - but in general I am always in pursuit of the Perfect Playlist. I rarely have time to sit down and go through my 1,000's of files and devote the focus it takes to really think through a decent compilation.

"The making of a great compilation tape, like breaking up, is hard to do and takes ages longer than it might seem. You gotta kick off with a killer, to grab attention. Then you got to take it up a notch, but you don't wanna blow your wad, so then you got to cool it off a notch. There are a lot of rules." from the movie High Fidelity

I spent considerable time recently on Pandora, the Oakland web-based Internet Radio application that is a result of the 7 yr music genome project. Pandora's team of musician-analysts have been listening to music, one song at a time, studying and collecting literally hundreds of musical details on every song... melody, harmony, instrumentation, rhythm, vocals, lyrics - close to 400 attributes!

For anyone who has never tried this amazing tool, you create your own "stations" based upon the kind of music you like. You begin by typing in a song or two that you like and Pandora begins to serve you up music that it thinks you will like. Your ongoing feedback will perfect your station - and I must admit that in a relatively short amount of time it was giving me what I would consider to be a near-perfect playlist. What I like best about it is that it exposes me to music that I have never heard before, unlike my iTunes collection, which of course is based solely upon my existing music. I even purchased a few tracks.

I love the fact that Pandora is traveling around the US and having town hall meetings with Pandora users, gathering feedback and ideas. Not surprisingly, many people are wanting more integration between Pandora and their iTunes collection. Hmmm - maybe a strategic alliance or acquisition is on the horizon? Pandora already allows you to purchase from iTunes via their player.

AOL Adopts Napster for Digital Music

In the midst of the changing music subscription market - AOL decide to dump its own MusicNow service and replace it with Napster. This is a clear acknowledgment that their music service wasn't working or they wouldn't be looking outside. AOL will now migrate its roughly 350,000 paying subscribers to Napster's service. AOL also plans to promote Napster with links to its service throughout its free music site, AOL Music.

In a recent report from the by the Digital Media Association - about half of online consumers now spend over $200 per year on music, while nearly 30% spend over $300--significantly more than the average $100 yearly spend before the broad adoption of digital services. So much for the argument that no one is spending on digital music - in the CD market a consumer who purchases 6 CD's a year (valued at approx $100) is considered a significant music consumer.

Other highlights:

• Nearly 60 percent of consumers report that they are listening to more music since they started using an online service.
• The vast majority of online musc service users report that enjoying music over the Internet has expanded their musical tatstes, allowing them to discover new artists and explore new music genres.
• According to the survey, online music listening has increased music fans' overall music discussion with friends and co-workers, with more than 35 percent now talking about music more. And, more than 75 percent of online music consumers report that they have reccomended a particular service to a friend or co-worker.
• The survey also found that listening to and purchasing music over the Internet increases concert attendance. A full 15 percent of online music fans now say they attend more concerts.
• Subscription services have had a difficult time due to DRM issues that annoy consumers. The number two digital music subscription is eMusic - popular in part due to the fact that you can play its downloads on any device. By contrast, Apple's iTunes downloads can only be played on iTunes.

The DRM Battle in Digital Music

In Businessweek - iTunes has been accused of behaving like a monopoly by preventing iTunes songs from running on other media players. It was a huge frustration for consumers when some of the labels released CD's that couldn't be played or copied on a computer. More and more consumers are upset by DRM restrictions and the lack of interoperability with digital music and devices. In a recent digital music conference that I attended I was surprised to see that many of the industry players were still not seeking any solutions for this issue, which puts a strong focus on how out of touch they are with consumer needs.

The solution? Alternative models need to be explored - including the potential of getting rid of DRM altogether and creating associated models for the artists, labels and etailers to earn revenue will be key. eMusic is the #2 player in online music behind iTunes and they challenge the need for DRM, their files are unrestricted. It reminds me of the early days of open source (vs. closed) software. Today the labels have an opportunity to shape the direction of where DRM goes, eventually the consumer will vote with their wallet and that window will start to close.

What's happening in online music?

I've been saying that working in web feels like 1999 again, and that was true when I recently attended the Digital Music Conference in Los Angles. Overall, I was surprised that the vibe was still about "consumers are stealing our music" and "how can we enforce DRM?" and hadn't evolved more into forward thinking around revenue models. I'll go out on a limb here and say that there haven’t been many great recent progressions in online music with the exception of iTunes... and if we're honest - who doesn't miss the old Napster? Napster was brilliant in its sheer ease of use and depth/ breadth of selection.

There are a few lights on the horizon:

Spiral Frog which launches in December promises to be a free source of over 1 million legal music downloads. So far two large labels have signed on and they will take a cut of the advertising revenues. It promises to be a whole new paradigm on music downloads - if its successful I predict it will also influence video and other media downloads.

Rehearsals.com has fabulous "live" music content from established and emerging artists. They have state of the art rehearsal space in LA where they film musicians rehearsing and then stream it over the web. Powerful because this is exactly the kind of real, unedited music content that fans want to see! For the musicphiles, Rehearsals.com facilities are impressively high quality - with HD filming and unbelievable audio quality. This is definitely a company to watch!