StrategyEye Views

EMI, Apple - two steps forward but one step back in consumer confusion??

FINALLY!! BUT IS IT ALL A BIT CONFUSING ...?

This has to be one of the biggest 'Game Theory' dilemmas faced by music industry excecutives who've been dragged into a world they hoped they'd not have to address for many more years.

So one of the record labels (and the one most often criticized for being head-in-the-sand) has taken the brave and long-overdue step to drop DRM on their downloads ...

The arguments were always there that this could not happen - however, it is slightly refreshing to see that EMI has stuck a first flag in the ground on this and seemingly swallowed it's pride in the war between Apple and the record companies over DRM.

This is by no means solving the problems for the record industry and the lacklustre response from the market shows that the record labels still have a long battle. EMI shares are hardly up on the news today and at 229p are still way down from c315p last July. In contrast, Apple is trading at almost $94 from around $50  last July.

There are a few unknowns thrown up by this EMI / Apple deal which be interesting to watch closely :

 

A - More or less confusion?

 

Whilst both Apple and EMI always proclaimed (with differing merits) that they were there to support the consumer, this deal does seem to slightly fly in the face of that - at least when compared to Apple's prior positioning as the champion of ease and simplicity.

 

Sure, you can play these tracks on your Zune or Creative players which is a general plus, but there is now a premium to pay for non-DRM files under the EMI/Apple announcement - $1.29 for DRM-free and $0.99 for the normal DRM-files. Bringing in the suggestion of a difference in quality if you buy the cheaper or more expensive file (when quality difference is probably imperceptible to most people on the move with their white headphones ...) and you have scope for a lot of confusion - a shame when iTunes and iPods were all about ease of use and simple pricing up until now.

The consumer was also already confused by what on earth DRM actually meant - and when it was sort-of-buried in the background of iTunes no-one really worried as long as it downloaded and played on their iPod as if by magic. Raising DRM or Non-DRM file brings back the horrible three-letter acronym into the home domain and will no doubt scare off some people tentatively thinking about now buying online. Some good comments from Resnikoff on this.

 

B - Download price has gone up!

 

$1.29 - a 30% hike from $0.99 was not what most people envisoned when they talked about DRM-free - and seems to go against the grain of a market that was coming to terms (at least in some quarters) with paying a sub-$1 fee versus $0 on Limewire. But we should be glad we've at least broken some of the mould and got something out in the market without DRM and now have a test sample to watch ...

 

 

C - Does this blow the whole music industry - or actually spur more purchases??

 

All will be watching now is just whether the market will now be 'swamped' with free, legitimately-downloaded EMI tracks that people happily forward and consume without worrying one iota about fact that it's been ripped off.

 

Or whether (as I would like to believe) this 'leakage' acts as a marketing pull and drives more traffic back to Apple et al as people want to easily buy other songs from the band in question.

Sure, some kids will always take some pride in getting something for free, but the ease of use of iTunes relative to other services (especially Limewire or others where experience can be very patchy) surely must mean that for a large proportion of the music buying public this is easier than constantly pestering friends to forward their tracks over to you every time???

Of course, for the ubiquitous iPod playback of DRM files was no big problem anyway, but if we do start to see more Wifi-connected  etc players emerge from other manufacturers that you might want to blast your music out of this is the start of something in the right direction at least ...

Hundreds of comments on this from all angles ... amongst the more interesting we picked up included  Rafat Ali - EMI Drops DRM for New Premium Line-up.

StrategyWire comment ...

"EMI will make its entire digital catalogue available as high-quality, DRM-free downloads.  The move enables consumers to play EMI's digital music on all portable media players, mobiles and home entertainment devices without restriction.  Apple's iTunes Music store is to be the first online music store to provide EMI's music in DRM-free format.  The music will be available in high-quality non-DRM version for USD1.29 or standard quality version USD0.99 with DRM.  In addition EMI music videos will be available from iTunes Store DRM-free with no change in price.  Albums of EMI artists purchased through iTunes will automatically be sold DRM-free, high-quality for the same price as existing albums.  The DRM-free, high quality music is billed as a premium product.

EMI will make the recordings available for all music stores at the same wholesale price.  Each store will be able to choose the encoding format (AAC, WMA, MP3 etc) for the music.  EMI Music will still continue to use DRM for services such as subscription-based music, super-distribution and ad supported.  DRM has been shown to frustrate consumers when music purchased through one service does not work on the consumer's mobile device.  EMI CEO Eric Nicoli stated that EMI believes the high-quality tracks playable on any platform will boost sales.

When questioned about keeping DRM on standard quality music in the press conference for the announcement, both Apple CEO Steve Jobs and EMI CEO Eric Nicoli stated that the two versions provide consumers with choice, consumers that want higher quality, DRM-free music have one product while consumers that are not worried about DRM or quality but are price sensitive have another product.  EMI CEO Eric Nicoli sees the DRM-free music as an important commercial step in EMI's turn around.

Downloads of EMI's individual tracks will have a price differential between high quality. DRM-free and standard quality, no such differential exists for the albums.  This should been seen in the context of digital music selling relatively few albums compared to individual tracks.  The lack of price differential is seen as a method to boost album sales along with Apple's recently announced top-up measure. Apple is not the only music service that is going to benefit from the removal of DRM. Currently, eMusic is limited to independent labels willing to provide their music DRM-free.  EMI's move will allow eMusic to significantly grow their music catalogue by allowing them to offer a major label's music and consequently attract a wider audience of consumers to their service.

The multi-format availability of the music is likely to see music stores progress to a format that is playable on the greatest number of devices, eliminating the chance for consumers to pick the wrong format for their device.  MP3 and AAC remain the leading candidates as both are supported by a wide range of portable media players, home entertainment devices and mobiles, far more than other encoding formats such as WMA (Windows Media Audio) or ATARC (Sony's audio encoding format).  The move could also see a shift to the mainstream of open source, royalty-free audio encoding formats, such as Ogg Vorbis and FLAC."

EA and Nettwerk One partnering to create new music company, Artwerk

StrategyWire view - EA and Nettwerk One partnering to create new music company, Artwerk

Continuining the blurring of lines between content genres as youthful consumers start consuming in all sorts of digital channels, games developer and publisher, Electronic Arts, is joining record label Nettwerk One Music in the creation of Artwerk, a new music company. No deal terms were disclosed.

The two companies say the new label will sign and develop new and established artists for publishing, master recording and sync deals as well as distribution both physical and digital. Artwerk has signed producer artist, Junkie XL, which has tracks on EA's 'Madden NFL 07' and 'Need for Speed Carbon', and it is negotiating with other artists who will have their works featured in future EA titles, as well as on film and TV distribution channels.

Video Sharing site Dailymotion gets 1bn page views

StrategyWire view and links - Video Sharing site Dailymotion gets 1bn page views

French video sharing site Dailymotion has been listed in the top 100 most visited pages of Alexa's web analytics platform. Last July, the portal was positioned in the top million most visited websites and has this year reached a peak of 1bn page views in February, positioning itself in 80th position. Dailymotion is a video sharing site that competes with YouTube, enabling users to share personal videos with family, friends and other Dailymotion users with video taken with devices such as  video cameras mobile phones or web cams. The site incorporates web 2.0 features including video widgets for embedding in blogs, podcasting, RSS feeds and multilingual social tagging.  All of Dailymotions features are multilingual in formant with Dailymotion offering 11 languages since launch. A Recent feature addition to the video sharing site include a feature called MotionMaker, enabling content creators such as musicians, film producers and other artists to post local language specific content. Producers of original high quality content are awarded with advertising revenue cuts.

Similarly to other video sharing sits such as YouTube, Dailymotion has been negotiating deals with media companies and content owners. The latest 9 Mar deal, between Dailymtion and Universal Music, enables the broadcast of Universal Music's music videos on the portal in exchange for advertising revenue. Earlier this year a similar deal was signed with Warner Music. The recent growth of the video sharing site has instigated local media companies to move closer to Dailymotion in an attempt to diversify their broadcasting portfolio and move to an increasingly interactive approach. As such local broadcasters, including France 24, have been using the portal to enable viewers to upload videos of themselves, which are then broadcasted on TV shows, allowing the public to ask questions or raise issues concerning the theme of the show.

This increase in popularity has prompted analysts to believe that many VC firms are now missing out on what could potentially turn into a serious YouTube contender. It appears as though Partech International and Atlas Venture's USD9.56m funding has served well, considering that Dailymotion offers numerous web pages (French and Italian with a plan to open websites for the US and Germany) and its popularity is extending overseas reaching Japan. Partech International general partner Philippe Collombel explained that such growth has turned Dailymotion into an acquisition target "[but] with such strong growth, we are not in any hurry to sell".

News Corp and NBCU confirm launch of "YouTube killer"

StrategyWire view and 18+ links to online opinion

News Corp and NBCU have confirmed they are launching an online video site to rival YouTube, following months of speculation and rumours that big traditional media players were collaborating on such a venture. Each company will invest "significant" funds to market and promote the venture, but financial details were not disclosed. 

MySpace, Yahoo!, MSN and AOL are signed up as distribution partners that will launch separate, branded portals.  Content will include full-length, ad-supported TV shows and movies with personalised playlists and mashups.  Current releases and popular series such as 'Borat', 'Little Miss Sunshine', 'Heroes' and '24' will be available and the site aims to attract and license content from other high-profile media owners such as Time Warner, Sony and CBS. The sites will incorporate advertising, alongside more than 1,000 hours of free content. Initial advertisers are claimed to include Cadbury Schweppes, Intel and General Motors. Sites affiliated with the founders, including iVillage and IGN, will also have the opportunity to become distribution partners once the site is established.

News Corp CEO and Rupert Murdoch's right hand man, Peter Chernin, will sit on the new company's board alongside NBCU head Jeff Zucker. Chernin argues that, "this is a game-changer for internet video," but external onlookers are not so sure. Techcrunch believes that announcements to date about the new venture "doesn't suggest this thing will be a winner" and appears to agree with Google's internal nickname for the as-yet unnamed company, "Clown Co". Many critics believe that this new venture will do little to detract from the popularity of YouTube. Analysts suggest that the appeal of the user generated site is focused at a different target audience from News Corp's venture.

This alliance has been months in the making, born from frustration that YouTube has been stealing revenues and audiences. The reaction to YouTube since its market entry is diverse. Some companies have actively sought to undermine it, while others have aligned themselves with the video-sharing site. Now, with News Corp and NBCU entering into the arena, users and companies will have a choice. All the companies involved with the new announcement have been very keen to stress its belief in copyright, a nod to the troubles dogging YouTube, which is being sued by Viacom for USD1bn over such issues. The strategic partnership comes at a time when the internet is being used for video more than ever. In Jan 123m unique users accessed video content.

The only missing player in this new occurrence is Viacom. The company was in talks with News Corp and NBCU until last Dec when it decided conflicts of interest would be an issue. It will be interesting to see how Viacom reacts to the new venture.

Couple of views out in the blog and news ether:

NBCU and News Corp Detail New Online Video Site (TVOvernet)

NBC, News Corp Pull Together To Challenge YouTube (LA Times)

News Corp and NBCU still set to launch YouTube rival - Rumour

Rumours have resurfaced online regarding a potential News Corp and NBC Universal joint venture to create a rival to YouTube. One report on paidcontent.org suggests that "potential equity partners are talking to potential distribution partners including Yahoo! and MSN." The LA Times suggests that News Corp and NBC could announce a new online video site, which will launch this summer, this week. The difference between these current rumours and the ones that circulated in the past is that the involvement of other major media groups, such as Viacom and CBS, are not mentioned. This may suggest that News Corp and NBC are looking to create a rival without the involvement of other direct competitors. Viacom is believed to have withdrawn from such discussions last Dec. Separate agendas of would-be partners may be a factor.  Viacom's MTV, for example, competes directly with News Corp's MySpace. Sony, however, is mentioned as being involved in the latest discussions.

The reactions that YouTube has caused since it entered the market are diverse. Some companies have actively sought to undermine it, while others are aligning themselves with the video-sharing site. While Viacom is suing YouTube for USD1bn over copyright issues, in recent months YouTube has partnered with CBS, Vodafone and the BBC.

"The media companies don't want to be forced to only work with one distribution entity, in Google," the LA Times quotes UBS Warburg media analyst Aryeh Bourkoff as saying. He doesn't believe it's "too late" for them to enter this space. Deciding whether there is more sense and more sustainable revenues through partnering or competing with YouTube is a key decision facing all content owners and traditional media players.

YouTube is in a strong position as it is currently the default location for users to go to upload their video content, while following its acquisition by Google, YouTube has a very strong infrastructure basis that is not easy to replicate. On the other hand copyright issues continue to dog YouTube and the Viacom court case could prove a watershed. That is if it doesn't merely prove a high-pressure negotiating tactic designed to result in better royalties for Viacom.

Rafat adds his comments at paidcontent - Its Back: Talk Of FOX-NBC Video JV Heats Up Again

StrategyWire view - News Corp and NBCU still set to launch YouTube rival - Rumour

Alcatel / Samsung hook up.

Nick, MarketClusters CEO, was asked this morning to comment on the recent deal between Alcatel and Samsung. Below is an extract of the piece he wrote.

“The Alcatel and Samsung partnership comes at an interesting time for the mobile TV sector as the two key questions still haven’t been answered - Will consumer actually want to watch broadcast video content on their mobile? How will they consume this video, ie on-demand or live broadcasts?

The Samsung / Alcatel deal is based the availabilty of S-Band which is particularly relevant at present in the mobile-hungry Asian markets. Samsung / Alcatel are likely to see this as a strong opportunity to leverage existing satellite infrastructure and pre-empt the mobile TV market with a one-to-many broadcast approach - ie. seeding the market ahead of cell-based broadcast approaches, such as those pursued by Nokia and Qualcomm which are more capital intensive.

The Alcatel and Samsung partnership is just one step from many in this sector as it forms - the mobile TV and video market is being eagerly courted by the content companies who clearly can’t risk not being part of the game if it takes off. They are tying up with both handset vendors and network operators directly to test the market.

Similarly, underlining the momentum we expect to see over the next 5 years, today we have also seen two satellite operators, SES Global and Eutelsat, announce a USD165m JV investment to commercialise the S-Band capabilities of a satellite to be launched in 2009 - specifically aiming the JV at commercialising the mobile TV opportunity.

Our analysis shows that we will also likely see M&A activity as mobile TV-enabled handsets move towards mass penetration. The News Corp acquisition of Jamba in mid-September was in part to gain some exposure to mobile content delivery services - almost the only area in the digital media landscape that it was not present in; it's not a wild leap to assume that media conglomerates will also look at delivery infrastructure deals to help position their film and tv production assets and content licencing agreements for the mobile tv market in some shape or form.”