Interviews with Digital Media Thought Leaders

Two Conflicting Music Opportunites

Podcast Audio | Posted by Phil Leigh on April 26, 2010

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Phil Leigh

The Internet presents the music industry with two potent but conflicting opportunities.

First, it can replace radio as a more effective tool for promoting music while simultaneously avoiding costly disguised forms of payola that continue to linger. This applies not only to new releases, which traditionally have been the industry’s lifeblood, but also to old tracks which often fall into minimal demand.

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One example is Apple-owned lala.com which enables Internet-connected members to play any track in their online “locker” anytime. Moreover, they may share them with other members or friends on social networks like Facebook. Similarly, users can organize playlists which may also be accessed on-demand and shared. Adding a new track to the “locker” directly from the lala catalog costs only ten-cents while adding one from the user’s CD collection is a free upload.

Given reliable Internet connections, the lala service is hard to beat. My experience leaves a hunger for an iPhone application so that lala can be used in the car. Common adapter cables enable smart-phones to connect into an automobile stereo system thereby permitting Web streams to play through preinstalled speakers. My experience with Pandora Internet radio in such a configuration has been technically acceptable. A lala application would enable me to choose whatever tracks and playlists appeal at any time. In contrast, Pandora automatically chooses the next selection. Although Pandora is programmed to be relevant to my taste, often I am not satisfied.

Presumably, there is no iPhone app because (1) the labels decline to authorize it, or (2) Apple is embedding components of lala into an unannounced service or iTunes upgrade. Significantly, prior to its December acquisition lala announced a limited iPhone app release.

Another example is Google search. Arrangements with YouTube, iLike, and lala enable consumers to get search results for song names, and even lyrics, in the form of a fully playable stream of the actual music. It’s a compelling technique for getting consumers interested in both new and old tracks.

Second, the Net’s steady bandwidth and caching improvements make it increasingly feasible for the industry to promote subscription services like MOG or Rhapsody thereby generating recurring monthly fees. Not only are the legitimate online catalogs big enough to satisfy the great majority of consumer tastes, but the technical performance is generally reliable, even over wireless connections. For example, next month MOG is expected to offer a $10 monthly plan for iPhone and Android users.

The unfortunate dilemma is that both models require full access to the nearly unlimited online catalog. The first approach, which includes the lala service and Google searches, generates little fee income. Both would be more acceptable to the music industry if they could figure-out ways to segue the consumer into an online transaction. Two examples would be the purchase of an MP3 track or an opt-in to a subscription service. But with full catalog access there’s little to motivate the consumer into an upgrade.

While the second model does create fee income it is objectionable to consumers who might otherwise use online access to discover new music and thereby be motivated to buy new tracks. As noted in earlier posts, an increasing number of media companies conclude that they need subscription income as well. Few will be successful. Many consumers already pay over $100 a month for cable and Internet access. They will not welcome incremental fees. While they may love the information highway, they’ll refuse to pay a toll every five miles.

The music industry’s horns-of-dilemma are brought into sharper focus by the proliferation iPhones and similar devices. About 60% of music listening is in automobiles. Growing popularity of the wireless Internet will ultimately compel a solution or leave further destruction in its wake.

Theoretically there are two potential revenue sources. One is advertising. A second is transactions such as subscription fees and MP3 sales. Thus, perhaps two versions of lala could be made available.

The first would be free, but advertising supported, much like radio and the Google search function. Consumers would use it as both a music discovery and on-demand access tool. Advertisers might collect a bounty for ads that successfully motivate consumers to segue into transactions. This might motivate agencies to improve ad accountability. A second version would impose no commercial interruptions in exchange for a monthly subscription fee.

The consumer makes the choice. In the first example she discovers new music and is motivated to buy it. In the second she provides a recurring monthly fee for the music industry and can discover new music without commercial interruption. But neither option limits her ability to access the entire legitimate online catalog either from the wired or wireless Internet.

This differs from the current situation in two important respects. First, lala would be entirely free as ad-supported with playback subject to commercial interruption. Second, it would be available on portable devices like the iPhone and iPad.

As noted, Apple acquired lala.com in December, but we interviewed the lala.com CEO a year earlier in December of 2008. You can listen to the interview here.