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The Music Industry Builds Its Own Prison – Again

May 11, 2011 , ,

Imagine for a moment you had not been paying attention for the past fifteen years.  While watching Google’s announcement yesterday about its music service (or Amazon’s last month) you might wonder why the music industry failed to learn its lesson from its experience with iTunes. 

For today’s major music labels, iTunes is the partner they love to hate.  iTunes is great because it gives people a way to pay for music online.  It turns out that, given an easy and reasonably priced way to buy music online, people are happy to do so.  Last year Apple announced that 10 billion songs had been sold through iTunes.  If you are the Beatles, you can sell 2 million individual songs in a week.  

However, for labels there is a dark side to iTunes.  Simply put, iTunes dominates the market.  Labels know that they cannot afford to cross Apple, and so Apple is in a position to dictate its own terms.   Apple can control up to 90% of the market in any given week, compared to Amazon’s 6% to 10%.  Essentially, the music industry has ceded control of the music download industry to Apple.

Of course, it did not have to be this way.  Apple was not the first company to try and sell digital music downloads online.  A major theme of the early 2000’s internet was the failure of various music-related startups.  While there was no one single reason for the failure of all of the startups, many of them failed because they were unable to come to terms with labels that would allow them to become viable businesses.  After crushing a long line of ambitious startups it took a large, established company to finally come to an agreement with labels.  Labels found a partner they were comfortable with, but managed to decimate most of the rest of the nascent industry in the process.

This pattern is essentially repeating itself in the online music locker/cloud music space.  Google and Amazon are not the first companies to try and offer consumers online storage and access to their movies.  MP3.com tried to do that in the late 1990s and was essentially sued out of existence.  More recently, services such as MP3Tunes (started by Michael Robertson, who was also behind MP3.com) have been marginalized by music industry lawsuits. 

We believe that it is clear that a service that allows you to stream your own music to your self via the internet is legal.  Cleary so do Amazon and Google. Unlike startups that would like to provide this service to the public, Amazon and Google can both afford to defend themselves in a multi-year legal battle.  That is why their announcements are a big deal.

So, we are left with iTunes part 2.  The music industry has two choices.  One is to sue Google and Amazon in order to make them prove that their service does not require additional licensing from labels.  The other is to decide that they do not want to lose a fight with an opponent that can afford to defend itself and just leave them alone, maintaining just enough legal ambiguity to scare off startups without multi-billion dollar war chests.

Then, in two or three years, once Google and Amazon have established themselves as the biggest players in the space, the labels will begin to complain.  The labels will complain that Google and Amazon (or one of the two) have too much market share.  The labels will complain that they have lost control of online music (again) and stagger about looking for a new savior of the industry, making sure to shut down any startup with an idea that cannot promise them 150% replacement of existing revenues.

Of course, there is a third option.  Labels could publicly recognize that accessing your own files online does not require additional licenses from them.  They could throw the door open to startups looking to provide this service, and foster a competitive market for music locker services that could lead to new, unanticipated revenue streams.

Hey, it could happen.