digitalphono2

downloadable promotion fever

It is remarkable watching so many of the mostly failed digital online stores jump on the Apple/Pepsi bandwagon before the later produces any results.

Other companies are joining online music sellers in marketing deals — although on smaller scales. RealNetworks is hooking up with Heineken. Roxio's Napster is linking with Miller Brewing. BuyMusic.com. is associating with South Beach Beverage, maker of SoBe. Sony's Connect service this summer will work with United Airlines to use frequent-flier miles for free songs.

Many have been predicting such events (I have a talk, given in 1997 to several music majors, that suggest ed music as a promotion might be viable ... it certainly wasn't a unique idea at the time). It will be interesting to see if it becomes important and if that means recorded music has become marginalized.

This type of promotion seems to make sense at this time for Apple or the other players. A 99 cent track generally sees about 70 cents going to the music company (or even musician in the case of indies who have signed with iTunes). Presumably the online store is selling the promotion at a discount (the buzz is that Pepsi is paying around 90 cents a track) ... The stores see a jump in their volume, perhaps there is some brand loyalty created for the music store and the promotion parter and the largest single cost (apart from the licensing of the music) ... the credit card transaction ... goes away. At 90 cents a track this would be profitable for Apple where as a 99 cent track purchased normally is probably close to break-even.

It should be noted that the cost of buying single tracks by credit cards is very high ... Apple's gift cards and allowances are mechanisms to get the money upfront and limit the number of credit card transactions. One would expect to see much more of this -- perhaps discounts on bundles. (selling 10 tracks at 90 cents each with one credit card transaction may net more profit for a music store than 10 tracks at 99 cents each one at a time).

wal-mart thoughts

The initial reviews of Wal-Mart's online music service aren't exactly positive.

What Wal-Mart brings to the table is a huge customer base and the ability to squeeze suppliers to the point where they can no longer bleed (which is one of the reasons more than a few jobs in the US have gone overseas, but that is a different topic for a different blog)

No one is making money at 99 cents a track - much of that is due to weak demand (unless you are Apple) and about 70% of the charge going to the record company. Wal-Mart has a reputation of bullying the major record companies. It seems safe to assume that the majors are getting less than 70 cents from Wal-Mart.

This could be done in many ways. On the average, Wal-Mart appeals to a somewhat downscale group (a surprisingly large percentage of Wal-Mart customers don't have credit cards or Internet connections). The majors may be able to bulk up music that predominantly appeals to Wal-Mart customers. It is possible that a mutual agreement could actually produce more business for both parties. Of course both are somewhat evil, so it is an interesting game.

It does sound like Wal-Mart (actually their online partner -- Liquid) doesn't have the bugs worked out -- if these are features, rather than bugs, the service is dead before it leaves beta.

So will we end up with Wal-Mart and all of the other Windows Media Player services in a price war going after the high volume lower end customer with a bloody set of consolidations along the way? At the same time Apple is higher priced, but offers more interesting content, navigation, players, etc? It wouldn't be the first time something like that has happened...