Wednesday, May 11, 2005

Yahoo Introduces Online Music Service

OK, so Yahoo introduces an online music subscription service, and Apple stock tanks by nearly 10% before recovering some (as I write this, it's only down about 3.5%). A couple observations of mine:

  • The reason Apple's stock went down is concern that the subscription approach will cut into iTunes music store sales. Is there any evidence for this? Do movie rentals cut into DVD sales? The linked AP story also says, "Many record label executives prefer the subscription approach, Leigh said, because consumers are more likely to sample songs from relatively unknown artists, a phenomenon that helps the industry create more moneymaking stars." I believe the part about the record companies preferring subscriptions, but not for the reason they give. They prefer it because it generates an ongoing revenue stream, while music sales require continuous generation of new, desirable content.
  • Part of this announcement is the new platform war. Many software vendors produce Windows-only, because they feel the Mac's (or Linux's) market share doesn't justify the expense of an additional version. Here, however, you have Yahoo (like the other subscription services) targetting Microsoft-DRM-only players. In other words, they are building a business model that ignores the dominant portable digital music platform, the iPod. The only rationale behind this would be the expectation that the iPod's market share will drop significantly, and fairly soon. Note that there's no technical reason, other than choice of DRM system, for excluding the iPod -- Yahoo's software could deposit downloads into the iTunes software's library (like podcast software does), and the interaction with the iPod would be pretty seamless. Since people who prefer to buy and own, rather than rent, music will have no incentive to go with Yahoo, I see Yahoo splitting the non-iPod subscription market, rather than taking market share from Apple.

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