Music Download Dogpile

Okay, so now Microsoft is joining just about everyone else in the downloadable music business. The Wall Street Journal astonishes with a prediction that “a brutal shakeout is all but certain.” My old friend, Nick Wingfield, is a co-author of the article, but, true to my basically contrary nature, there are some reasons that this isn’t news.

First, the evolution of the distribution of popular music has been a history of consolidation punctuated by radical breaks in delivery technology. Sheet music, played in homes around the world, gave way to Victrola recordings, which gave way to 78s, to 33 rpm records, which were forced to share the market with singles distributed on 45s. Radio popularized entire genres of music that would never have been discovered and the inspiration of individual disc jockeys replaced the record collections of many consumers. The Walkman exploded the domination of radio and gave rise to CDs, which are now facing the digitally distributed behemoth.

I’ve made the point before that the playback capabilities of the survivors will have to coexist — the idea of buying two recordings and having to play them on different devices is ludicrous. And, at that point, the winners will be very similar to the Tower Records/Wherehouse/Sam Goodys of the world — whoever gets in the best position to market music from a variety of labels will dominate.

And then, the real challenge will come from non-label artists who don’t sell themselves into indentured servitude for a paltry marketing effort. But the price of a download, while it is important to the bottom line profitability of a music distributor, is not the key to surviving the consolidation. The cost of delivering music will keep falling and the prospect of many micro-payments to labels and talent will become attractive even as distributors eke out better margins because of falling costs of storage and bandwidth. In the end, a single copy of a song today sells for about $1.00 (on a typical CD album); once you take out the inventory risk of physical product, the cost of a song should fall by 45 percent, so we can reasonably expect the final retail price of a song will settle in the 55 cents-to-70 cents range.

The question is who can survive there? Apple is making headway in building the sales volumes necessary. I assume Microsoft can compete at that price, as well, possibly, can Napster and RealNetworks. Sony, because it is going to take on hardware costs to build a channel, will be dead on arrival, since it will have trouble accumulating a large enough non-Sony catalog. Wal-Mart is the wild card and, given its behemoth status at retail, I wouldn’t bet against it. Kazaa, Morpheus and the filesharing services will be the environs of the indies, but I’m not convinced they will be more than the vanity press for garage musicians who can thrive on a few thousand fans and touring the bar scene.

Any label that thinks it can win by suing its way to the top is incurring costs it will never recover.

Author: Mitch Ratcliffe

Mitch Ratcliffe is a veteran entrepreneur, journalist and business model hacker. He operates this site, which is a collection of the blogs he's published over the years, as well as an archive of his professional publishing record. As always, this is a work in progress. Such is life.