Podcast Audio | Posted by Phil Leigh on September 2, 2009
If you would like to learn one way the record labels might reinvigorate their business, this audio is for you.
Everybody recognizes that the Internet radically transformed the recorded music business. Apple’s iTunes online store sells more music than any retailer having displaced Wal-Mart and Target. As a consequence pre-recorded CD sales are down over 50% from ten years ago when Shawn Fanning’s Napster was set-loose, even though it was later jailed.
Less well recognized is that the iPhone has similarly impacted Digital Music. For example, consider its affect on Internet Radio. A leading Internet Radio service called Pandora introduced an application for the iPhone a year ago. Within a single month it doubled the number of new users registering daily from 20,000 to 40,000.
No doubt the numbers are even higher now. The iPhone makes Internet Radio portable. Many Pandora users jack-in the iPhone to their car stereo system as they commute to-and-from work, or anywhere they might drive.
Typically Internet Radio permits users to personalize “stations” based upon individual tastes. For example, a listener who likes Bruce Springsteen can set-up a “Bruce Springsteen Station”. Pandora then steams that user music tracks from Springsteen and similar artists. Moreover, users can “train” stations to even better suit individual tastes by clicking on a thumbs-up or thumbs-down icon for each track. With repeated interaction the station’s repertoire gets increasingly personalized thereby providing a way to discover compatible new music.
Unfortunately, if its public statements are to be believed Pandora is not making money. They’ve tried non-disruptive advertising, but few users click on the ads partly because they don’t see them since the service is primarily auditory. The company also captures a commission for sales of MP3s when users click through to buy tracks on iTunes but the resulting fees are small. So, Pandora started charging $5 monthly to listeners exceeding 40 hours a month. Unfortunately, the great majority of consumers will not pay that much for Internet Radio per se.
However, if Pandora were permitted to offer an on-demand subscription service along with its customary Internet Radio, the value increases significantly. Rhapsody, prepared just such an application for the iPhone and is awaiting approval. To be sure, Rhapsody has not yet been an important success. One reason is that it competes with lower-priced subscription services. But at least equally important is that it has never been available on a popular portable device.
The record labels have long been fans of on-demand services. They like the recurring income the monthly fees provide. If iPhone-enabled successful Internet Radio stations like Pandora are permitted to augment their offerings to include on-demand access to a large catalog of recorded music, consumers may well respond favorably. The labels, Apple, and the stations would each capture a portion of subscriber fees.
Confessedly, Steve Jobs has been hostile to the very concept of an on-demand music service. However, now that Apple is their largest retailer, the labels argue that Apple must do something to help improve the industry’s prospects. They feel they’ve been in the penalty box long enough. Accordingly, there are unconfirmed reports that Apple may have something to say about this next week. Whatever Apple might do, the labels would help themselves if they provided reasonable licensing terms for successful Internet Radio stations like Pandora to augment their offerings with an on-demand service.