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« Don't Beat Yourself | Main | links for 2006-10-14 »

Internet didn't kill the radio star

Scott Karp at Publishing 2.0 uses the example of the music industry to show why content needs to be controlled to be monetized and I just wanted to share something I learned a while ago.

"As for ceding control of your content, look at what happened to the
music industry. Illegal file sharing crippled music sales, and the only
saving grace has been the iTune platform, which functions by rigidly
controlling distribution."

This actually isn’t true. I thought it was for a long time, being a
college student when Napster was big, but I worked on a co-investment
in the buyout of Warner Music and studied this hard. There were two
much larger factors at play.  First, you have a supply issue.  Big box retail started killing off mom and
pop record shops and music-only stores to a much greater degree than
the web. Even the demographics that weren’t web savvy and into downloading music weren’t buying
music anymore, because people shopped at Walmart and Best Buy and they
hardly carried any of the catalogue that the music only stores did.
More focus was put on DVDs and video games which were a much higher
profit margin per inch of shelf space compared to CDs.  So, if my dad wanted to go buy the Moody Blues first album, he simply wasn't going to find it...  but he could find lots of copies of Madden Football or maybe even a DVD of a live concert.

Then, you have competition for finite entertainment dollars.  Mobile
revenues went up… $5-7 a month in text messaging and another $5-7 a
month in ring tones… that’s a CD a month when you consider the limited budget of teens.  Mobile revenues and gaming revenues skyrocketed during this time, not because music was free, but because they offered a much more compeling product.  Eight songs for $16 simply wasn't going to cut it when, for ten bucks more, you could get a movie, and for the price of three CDs, you could get a video game to play with your friends for hundreds and hundreds of hours.  Interaction.  Socializing.  Music, at that price, just didn't seem so interesting anymore.  Napster didn't tank the industry... it just proved there was demand for the CD format to get broken up and for music to be obtained over the web.  Apple is taking advantage of that, and they would take better advantage of it if they offered more pricing schemes and less DRM. 

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