Music Ally

2010 is shaping up as a big year for mergers and acquisitions in the digital music space, continuing the trend seen in the latter months of 2009, when the likes of Lala, Imeem and iLike were all snapped up, for varying amounts. So which services and startups might be under new ownership this time next year? Here’s some of our predictions.

eMusic

You don’t have to be a soothsayer to suggest that eMusic may be bought in the near future – the company effectively admitted it was open to offers (i.e. shopping itself to potential buyers) just after Christmas. Boss Danny Stein told the New York Post that “We’re opportunistic stewards of capital… If an offer was made that created value for our shareholders we’d listen to it.”

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Digital distributor The Orchard is looking for a new CEO, after current boss Greg Scholl announced his resignation. He’ll quit on 1st November, and is promising to announce a new position in the coming weeks, which he’ll start on 2nd November.

The Orchard’s board is now kicking off a search for Scholl’s replacement, although intriguingly its interim CEO will be Danny Stein, who besides being a director of The Orchard is also boss of music service eMusic. Scholl’s resignation was announced alongside news that The Orchard is to cut 20% of its global workforce.

“Over the past two years, The Orchard has completed two major acquisitions and invested in technology efficiencies to make our global team more productive,” said Stein in a statement. “As a result, and also considering the digital music market grew less quickly than we expected it to grow during 2009, we have eliminated positions and implemented other cost saving measures.”

There’s been plenty of speculation in recent months that digital growth is seeing a worrying slowdown, but The Orchard is one of the first companies to (publicly at least) announce job losses as a result. “Reducing staff is always a difficult decision, but in this case, the responsible one, and it better positions The Orchard for future growth and profitability,” says Scholl.

Despite all the major labels signing up to DRM-free distribution on iTunes, Amazon and other stores, they still haven’t agreed deals with eMusic. That’s about to change according to the New York Times, which says Sony Music Entertainment will announce a deal with eMusic later today.

However, the article says it will only cover tracks that are more than two years old, and that eMusic will “slightly raise prices and reduce the number of downloads for some of its monthly plans” in return. eMusic boss Danny Stein says the price hike is supported by its existing indie labels. “We have been looking for a catalyzing event to do it, and we think introducing this vast, quality catalogue from Sony is that event,” he says.

Meanwhile, Sony’s digital boss Thomas Hesse has made optimistic noises about the deal. “We think the model of buying a set amount of music each month under an MP3 allowance is an attractive subscription option for consumers. We are supportive of offerings that encourage fans to dig deep into the repertoire of our artists and discover the richness of our catalog.”

Yesterday saw Apple’s iTunes Store finally go entirely DRM-free, but that also meant the introduction of variable pricing – which in the US, means three price points for iTunes downloads: $0.69, existing price $0.99 and $1.29.

Introduced due to pressure from the major labels, variable iTunes pricing has launched at an awkward time. Only 5% of music downloads are legal according to the IFPI, and there’s a global recession, so reward that minority of digital music purchasers by… whacking 30% on the price of the most popular songs? Strange logic.

However, the labels are putting a different spin on it, with Billboard reporting that “for every one song they raise to $1.29, they will be reducing 10 songs to 69 cents”.

Which sounds great, although The Register spent a bit of time digging yesterday, and found that despite claims like this from the labels and Apple, “those bargain-basement tunes seem to be few and far between”. Even Vanilla Ice has hung onto his 99-cent track price.

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Hats off to eMusic, which is one of the first established music services to integrate the Facebook Connect technology. What this means is that users can sign into eMusic using their Facebook logins, and then publish activity back to their Facebook feed – for example album ratings, personal reviews, album and artist links.

Essentially, by adding the feature, eMusic is letting its users promote the service for it. “Back in the day of the corner music store, word of mouth was one of the best ways to find out about new music,” says eMusic’s SVP of product development Deirdre Stone.

“Facebook is the modern day equivalent and we want to empower the eMusic community to engage in this way.” There’s also a new eMusic Facebook widget that users can install on their profiles.

Chris Anderson’s Long Tail theory has been getting a bit of a kicking recently, with several studies – including one joint effort between the MCPS-PRS and mBlox that claimed that 80% of digital music inventory sold no copies at all during the period analysed.

eMusic has hit back, claiming that its sales data from 2008 supports the Long Tail theory. The company claims that around 75% of its tracks sold at least once during 2008. “eMusic is the Long Tail,” says European MD Madeleine Milne.

“Our customers buy music beyond the mainstream top 40 because we provide them with more context than any other major music retailer through Web 2.0 features, insightful editorial content, a passionate subscriber community and an easy-to-use and effective recommendation engine. And we reinforce the music discovery experience with subscription pricing that encourages experimentation.”

How to reconcile these two apparently contradictory claims? eMusic’s subscription model means users may be more willing to take a chance on new or obscure music. We’re going to ask the MCPS-PRS’ Will Page what his reaction is, and will provide an update then.

Rival digital music stores are scrambling to get their responses to the UK launch of Amazon’s MP3 Store yesterday. We’ve already covered 7digital’s reaction, but now eMusic’s European MD Madeleine Milne has come out swinging too, pointing out that eMusic was “the first MP3 retailer to launch across Europe” back in September 2006.

She also welcomes the Amazon launch, on account of it offering DRM-free MP3 files. Amazon will be stiff competition for eMusic though, on account of its deals with the major labels – something eMusic still lacks.

However, Milne says eMusic will soon have one advantage over Amazon. “eMusic will shortly launch a next generation recommendation engine that uses a combination of human analysts and computer algorithms to help music fans find new music they love, in contrast to Amazon’s very traditional collaborative filtering method.”

Intriguing stuff. Although the challenge for eMusic will be to prove that its new tech works better than Amazon’s – the ‘people who bought this, also bought that’ approach may be “very traditional”, but it’s a proven revenue generator.

eMusic has announced that it’s sold more than 250 million downloads since launching its subscription model in 2003. The 250 millionth download was from Department of Eagles’ In Ear Park album, apparently. The company also says it’s boosted its catalogue past the 4.5 million track mark with the addition of a new batch of independent record labels.

“A quarter of a billion downloads sold is an incredible benchmark for a company that was selling less than one million downloads a month when it was re-launched in 2004,” says chairman Danny Stein. “It shows that eMusic’s combination of value, discovery and compatibility attracts customers who want to purchase music.”

eMusic’s last 50 million downloads came in seven months since passing the 200 million mark in April this year – a slight increase on the eight months it took to go from 150 million to 200 million (and, indeed, the eight months before that it took to go from 100 million to 150 million.

It’s a trifle unfair to compare eMusic to iTunes, but if you’re looking for it… In the same time it took eMusic to go from 100 million to 250 million downloads, the iTunes Store went from just under 850 million to more than five billion – well, it passed five billion in June this year, so is probably nearing the six billion mark.

Still, congratulations to eMusic for its milestone. Now, about those major labels…

At Popkomm 2008 last week, 24/7’s Frank Taubert cast doubt on the viability of the so-called long tail of digital music, saying that two thirds of his firm’s catalogue had never been played. eMusic has come out swinging on that score, with European Madeleine Milne saying they’re doing pretty well out of the long tail.

“3/4 of eMusic’s entire four million track catalogue sells at least once every year, or to put it another way, we sell more than 50% of our catalogue at least once every quarter,” she says in a statement. “Music discovery on mobile devices may not be supporting long tail sales but the new digital music consumer is web savvy, and turns to social networks, blogs and the web to find out about new music.”

Click below to read her full statement.

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