Music Ally

We continue our look through Music Ally’s ten year archive of digital music insights with a piece from March 2001 examining the major labels’ digital music strategies.

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And continue reading after the jump to see what we thought of the majors’ digital strategies back in ‘01…

Now, Music Ally comments:

Considering that by 2004, iTunes was boasting a catalogue of over a million songs, it’s astonishing to remember that in 2001 EMI was happy to announce that it had released just 100 albums and singles for sale in the Windows Media format.

At the turn of the millennium we all expected that synergy between entertainment and technology giants would be the way forward, but looking back it seems that Warner and AOL’s partnership was underwhelming and Sony failed spectacularly to combine its skills in consumer electronics and content. If anything Sony’s entertainment divisions prevented the Sony electronics division from innovating as quickly as it might have – though Sony did later (as we predicted) perform well in mobile music thanks to its Sony Walkman phone brand.

Although Universal has had its fair share of online flops (particularly its own-brand digital music format called Bluematter), the big-gorilla digital strategy has its advantages – particularly when it came to MP3.com, which Universal ended up owning.

So far the major labels have released only a fraction of their vast catalogues for legitimate download and then priced download tracks too high. Although he was speaking on behalf of EMI, senior vice president of new media Jay Samit uttered the mantra embraced by all the major labels: “We have to make buying music easier than stealing music.”

The labels still depend on retail stores for the vast majority of their nearly $40 billion in annual sales, and online music sales will generate just $2.6 billion by 2003, according to Jupiter Research estimates.

Among notable moves: America Online in January said it would pay $135 billion for Time Warner; Sony and Universal have announced they would launch their joint subscription music service this summer; BMG and Universal added more selection to their jointly owned retail site, GetMusic, launched in 1999; and EMI’s proposed $20 billion merger with Warner collapsed in October amid objections from European antitrust regulators.

Here are the current strategies in detail:

Warner Music Group

Market share : 11.9 percent

1999 Revenue : $3.8 billion

Key online alliances : America Online, RealNetworks, Liquid Audio, MP3.com, Listen.com, various online retail sites

The company’s internet strategy begins and ends with AOL.  The thinking here is that AOL, with 24 million subscribers, has a natural customer base for Time Warner’s extensive music catalogue, as well as serious Internet expertise in house. Although MBI World Music Report lists Warner Music Group’s global market share as equal to BMG’s at 11.9 percent (tied for fourth), AOL was working to secure licensing rights from the other music titans.

Combined with Time Warner’s cable-modem Road Runner service, AOL also has control of fat pipes in the US.  The reason many people didn’t use Napster is because it is slow and expensive.  With control of broadband, subscription is that much more compelling.

Besides the AOL deal, Warners has licensed part of its collection to online music radio site ClickRadio.  Also, Warner said in October it would offer online downloads in the Liquid Audio format through sites such as SamGoody.com and TowerRecords.com.

Universal Music Group

Market share : 21.8 percent

1999 Revenue : $6.3 billion

Key online alliances : America Online, eritmo.com, RealNetworks, Liquid Audio, Listen.com, ClickRadio, Musicbank, various online retail sites

In an answer to the AOL union, French telecommunications company Vivendi in June said it would buy Universal’s parent, Seagram, and subscription television concern Canal+ for $34 billion. The merged company, christened Vivendi Universal, would give Universal access to broadband and wireless Internet platforms across Europe.

Vivendi would like to zap music snippets, entire songs, and, of course, advertising to all kinds of new mobile devices and phones, perhaps selling tunes by the track and downloading them directly to users. M ore than two-thirds of Universal’s $1.43 billion in fiscal 2000 revenue came from non – US sales and the Vodaphone / Vivendi portal Vizzavi, will be the homepage for 80 million potential mobile and interactive TV customers.  This means that Vivendi paid far less in customer acquisition than did AOL.

Besides this merger, Universal plans for the launch of a music download subscription service with Sony, and the company also owns an equal stake in GetMusic, an online CD retail stop with BMG. It has an equity stake in and a three-year licensing deal with San Francisco’s Musicbank, an online service that enables users to listen to their personal CD collections on the Internet; Farmclub.com, where would-be stars can upload tracks directly to the label and consumers can stream and download tracks from up-and-coming talent (much like MP3.com). The bookend to all this activity was Universal’s decision to have Seattle’s Loudeye encode more than 14,000 CDs and 30,000 music videos for secure download, with an emphasis on targeting consumers with high-speed connections.

Among possible “incentives” was Universal’s summer release of bluematter, yet another proprietary digital format. Running on RealPlayer, it comes with enhanced multimedia content such as biographies, photographs, lyrics, and credits. Excite@Home and RollingStone.com are supporting the format. Universal hopes that through the merger and its collection of initiatives it can produce user-friendly yet profitable online music distribution.

Universal is reckoned to be one of the toughest negotiators for use of its catalogue following its refusal to accept the same settlement offered by MP3.com for its My.MP3.com to the other majors – holding out to receive almost twice as much.

UMG’s album market share in the US succeeded in reaching the dizzy heights of 37.5% one week last November – the largest ever market share for any company in the US.

BMG Entertainment

Market share : 11.9 percent

2000 Revenue : $4.7 billion

Key online alliances : Napster, Getmusic, Lycos, Fanglobe.com, Click2Music, MusicBank, RealNetworks, PlanetOut, Listen.com, various online retail sites

Up until October 31, BMG’s most significant Internet-related achievement was its “network of strategic marketing agreements” with several dozen Websites worldwide.

But BMG shocked observers on Halloween when it announced it would drop its lawsuit against Napster once the site established a successful membership-based service.

Besides Napster the label has stuck to a pedestrian course through much of the year – cutting marketing deals with established sites such as Yahoo! and Lycos and investing in Web destinations such as ARTISTdirect and Riffage.com.

Three other BMG developments have potential. The first is an agreement with imix.com (formerly CustomDisc.com), which allows users to create personalized compilation CDs and minidiscs for about a dollar a track.  Then there’s BMG’s relatively ambitious plan to, “develop an open distribution infrastructure,” a system to ferry and fulfill orders for secure downloads. BMG has set up central ecommerce hosting services that, among other things, let online retailers offer one-stop check-out to handle payments for digital downloads and CD orders. The company has enlisted the likes of IBM, Microsoft and Liquid Audio to help it achieve its B-to-B goal.   Then there’s its recent acquisition of a controlling stake in the RTL group – the biggest commercial broadcasting organisation outside of the US.  Again infrastructure and delivery are the key to expansion.

BMG is rumoured to be interested in buying a major stake in EMI and also in buying Liquid Audio. It is believed that discussions on the merger with EMI have had to go on hold regardless of any internal merger considerations as lawyers have had to prepare papers for both the EC and the OFT inquiries.

Sony Music Entertainment

Market share : 19 percent

2000 Revenue : $6 billion

Key online alliances : Entertainment Boulevard, Loudeye, 360HipHop.com, Redband Broadcasting, RealNetworks, Listen.com, various online retail sites

With 19 percent global market share, second only to Universal, and a sister business division making consumer electronic products, Sony has what Wall Street calls “synergy.” Sony’s counterparts acknowledge that the online music market won’t go supernova until portable digital players blanket the earth. So Sony has a vested interest in advancing the market, which gives the label a dark-horse chance of besting Warner and Universal.  

Sony hopes to extend the type of prosperity it has enjoyed by selling CDs, videos, and DVDs as well as the players for those formats. The major restraints on this potentially lucrative tandem are copyright issues – the device group versus IP holders.

But Sony is thinking long term. The company formed 550 Digital Media Ventures this year to create, incubate, operate, and acquire digital media companies. The roster includes AOL’s Spinner.com, retail kiosk operator Digital On-Demand, and personal digital assistant pioneer Palm. The venture, which boasts a portfolio of more than 35 companies, gives Sony access to a range of technological expertise. Also intriguing is Sony’s bet in the wireless realm. It has invested in PacketVideo, which delivers real-time video over existing wireless phone networks. It’s not difficult to imagine Sony slipping music into the mobile stream as well.

Sony also plans to form an online music subscription service with Universal, the first of its kind from the major labels. Sony and Universal spent the autumn negotiating licensing rights from the other majors. The two, which together possess more than 40 percent of global market share, admit the initiative is moving slowly–but by design.

EMI Recorded Music

Market share : 12.9 percent

2000 Revenue : $3.7 billion

Key online partners : Digital On-Demand, uRocket, Discovermusic, On-Line Entertainment Network, Sanity.com, Liquid Audio, Listen.com, various online retail sites

The company has missed out on other opportunities while it was pursuing the Time Warner deal.

It took a slightly less than 50 percent equity stake in Musicmaker.com, a destination that lets users create custom CDs; it has invested in Liquid Audio, which digitizes EMI’s catalogue; and inked a deal with Digital On-Demand to deliver tracks online to retail kiosks.

And EMI banged the pots this summer when it unleashed more than 100 albums and singles for download in the Windows Media Format–in what seemed more a marketing coup for Microsoft than an evolutionary advance for digital music.

One development was EMI’s August deal with Nokia, providing the Finnish phone giant with rights to use EMI tunes for custom downloadable ring tones.

Tags: archives, bmg, Digital music history, digital music timeline, digital strategy, EMI, major label digital strategies, online music history, online music timeline, Sony, universal, Warner

This entry was posted on Tuesday, December 22nd, 2009 at 1:30 pm and is filed under Digital music history. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.