[This was just published on GigaOm]
I’m not sure that this will fully replace the foregone revenues from
a decline in physical CD sales, but it does make a lot of sense. I’ve
been privately telling my friends at the labels that their licensing
pricing strategy has been flawed, notably that it’s skewed towards
short-term financial rewards. I’ve also been telling them that they’ve
priced out a large part of the market, which is one reason that so far
it’s made more business sense for even well-meaning startups to beg forgiveness instead of asking permission.
In other words, the labels were able to ram the penny-per-play rate
down the throats of major portals and distributors such as Clear
Channel, AOL and Yahoo. These large companies were financially able to
do the deals, and most likely looked at the licensing of the music as
an investment or a loss leader to acquire users cheaply. A
penny-per-play equals a $10 CPM. At that rate it is very hard to break
even, let alone sustain a viable business (don’t forget to factor in
other COGS like bandwidth, sales commissions, serving costs and
songwriting royalties, which I don’t think are covered by the label’s
rate). Factor in assumptions on CPMs, ad frequency and sell-through,
and it’s hard to make the curves cross.
I’m not sure what the optimal rate should be — David’s suggested
rate may well be it, but I don’t have the data. Another approach would
be for the labels to get some equity participation from companies
wishing to leverage lower rates, which would allow them to capture
greater upside for the additional “risk” they’d be taking, whilst
charging market rates to companies that can afford it.
Regardless, to use a tax metaphor, instead of having one tax rate
aimed at the super-rich — which simply encourages tax avoidance in the
lower strata — the goal should be to broaden the tax “base.” I know
that the labels are already experimenting with this but, like David
says, they need to act fast.
Good article in the NYT on Intrade, a prediction market. I’ve been fascinated by prediction markets for a few years now and have often logged into Intrade to see how the market reacts to certain news. The article points out the flaw that there is a lack of liquidity, especially in certain events that have low volume. But as people profit on this, the inefficiencies get wrung out and the market will better reflect the underlying value, in these cases the probability that the event happens. The Obama-wins-Democratic-nomination contract is currently trading at 75. Should have bought it earlier!
Lost amidst the news of MSFT’s bid for YHOO last week was the WSJ article detailing Google’s plans for a music play in China entailing a tie-up with Universal Music and other indie labels. SonyBMG and Warner are also rumored to be in. They are pioneering a model in which Chinese users will be able to get access to free MP3s from searches, to be monetized with advertising and split between the labels and Google. The joint venture partner would be top100.cn, which already sells licensed music downloads.
This is a ‘cant-beat-em-join-em’ strategy. The labels recognize that unlicensed trading and consumption is the norm in China and so they don’t have much to cannibalize by trying such a model. Yes, they risk cheapening the perceived value of their product, but come on, that train left the station a long time ago in China. For Google, as the article points out, it is a way for them to try to steal share from Baidu, which has allowed unlicensed links to MP3s.
I went to group dinners at three spots last week, two of which were to celebrate Chinese New Year.
Haozhan: This is smack dab in the middle of Gerrard Street in Chinatown. A British friend of mine of Chinese heritage says it’s the place he
takes his ‘white/British’ friends when they want to go for a meal in
Chinatown instead of the more authentic, if dingier places in the area. Haozhan aims to be somewhat more upscale and contemporary than its neighbors. They don’t serve traditional Chinese dishes — no Peking duck on this menu — but the dishes are creative and tasty. The evening was marred somewhat by interminably slow service but I can see myself going back.
Tbilisi: A Georgian restaurant on Holloway Road in Islington. I’d never had Georgian food but am glad I went. They served us some mezze/small plates – two aubergine dishes (one not unlike ratatouille), beetroot, a pureed spinach dish and cheese pastry. The description of these dishes do not do them justice – they were all tasty and surprisingly subtle. Mains included some very tender chicken in a delicate curry, and pork kebabs. All of this was quaffed down by drinkable Gerogian wine and Chacha, their version of Grappa. The service was good and they let us stay late. We had a good meal for 25 quid, making this a good place to go with a group.
Pearl Liang: This is a more traditional Chinese place in a very untraditional location: the new Sheldon Square complex just by Paddington and Little Venice. We went for a dim sum lunch (thank for organizing, Alice) and were not disappointed. All of the standards were there – bbq’d pork buns, scallion pancakes, potstickers — executed well. A hearty lunch cost just south of 20 quid a person making this another great group outing.
Okay, I’m fine seeing a few ads before a movie plus a few trailers…but I’m at an 8:50 pm showing of No Country For Old Men and it’s just now starting at 9:15. That’s ridiculous and, eventually, consumers will stay away.
(Blogged from my bberry)
My friend Bob and I were discussing gadgets the other day. Lots of cool ones out there but it is really, really hard for a consumer electronics/hardware startup to gain enough adoption to go even close to mainstream. In the past ten years, I can think of Tivo and Segway as two hardware companies that have any sort of decent traction. Both companies have had financial and traction problems but at least their brands are widely known. Others that come to mind are Danger (makers of the Sidekick), which probably has the most adoption, Sling Media (recently bought by Echostar) and, in music, a company like Sonos or Roku, but these are niche players at best. Am I missing any?
Of course we know the moral is to not do hardware or go into consumer electronics but I didn’t realize there were so few CE startups that have had any success.