Analysis of IT news

Tuesday, May 20, 2008

Napster launches all-MP3 download store

News item: after Apple iTunes and Amazon, Napster now offers unprotected music download (and starts with a 6 million songs catalog) while keeping its all-you-can-play, subscription-based DRM-based offer.

Analysis: several people have seen this as the beginning of a trend towards free music, their rationale being that more competition will drive prices down to incremental costs, which are virtually null on the Internet. I see the exact opposite happening.

More vendors means greater competition. But the question is: competition over what? Sure, prices might decrease slightly in the short term. Apple started with $0.99 a song, Amazon then sold some of its songs at $.089. So if for example Amazon starts to take a lead, Napster might slash its prices to stay competitive.

But there is only so much online music store can cut prices for a simple reason: music majors still make a significant part of the price tag, and they're unlikely to accept a price cut of their piece of the pie (did you ever see them cut the price of CDs?).

On the contrary, now that the music majors have several online sales channel they can now play one against each other (no pun intended). One of the business models they've always wanted to see online is to price accordingly to the "hotness" of a song. Still sell regular songs at $1, but charge more for hot songs. So far, Steve Jobs has "convinced" them not to follow this path (strong-armed them most likely). But now they can say "Justin Timberlake's new hit song shall now be sold for $5. Don't want to sell it at that price? Fine, we'll sell it through your competitors then!" If you haven't noticed, Apple iTunes cannot sell as many unprotected songs as its competitors because several music majors won't let them. Think as payback for not singing to the music major's tune (still no pun intended).

This practice may trigger a backlash among consumers (but then again, maybe not). But make no mistakes, music majors will try. And this time they can apply the good old "divide and conquer" strategy.


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