05 December, 2006

DRM and How Music Makes Money

Rich has a good music post over at Securosis

The infrastructure that was necessary for distribution of music is essentially gone now. There was the typical flopping associated with the realization of the demise but in the long run the music companies can only hold off reality for so long.

There are great ways for them to make money still though. Apple has proven this with the Ipod though I would say it is at a hybrid stage. In order for it to fully mature they need to realize that people should be able to choose their hardware. This is a similar mistake to the one they made with the Mac long ago.

The other thing to remember is that smart marketing still works. As a matter of fact it works better now than ever. A good marketing campaign could drive a premium on the cost of songs even in a relatively free environment.

Here is a model (certainly not the model though)

Company XYZ offers songs for sale via MP3 or other. Even DRM could be OK if someone could figure out an easy way to make it portable.

Three price points. (let the prices float some to meet the market optimise for profit)

$.25 for older songs, Recovered songs (get to this in a bit), and lesser know artists.

$1.00 for standard run and first purchase songs.

$3+ for premium content.

Find similar balances with some discounts for entire albums (or ensembles since you are not limited to songs)

Company XYZ tracks everything the customer purchases (OK a bit big brother but the customer does have a choice and this will be a service)

If the customer wants to make additional purchases of the same songs (because he lost his player, or forgot to backup, or just wants duplicates, or whatever else) he gets the lower price.

The key here is easy. People will ask why anyone would ever choose to repurchase. My guess is that everyone reading this has lost dozens perhaps thousands of files (music or otherwise) over the years. The question is would you pay pennies on the dollar to recover all of them (or most of them) with one click. If it is cheaper and easier to recover with a service like this why bother taking the time to manually back-up. This would probably happen more than once a year for many (non tech savvy) people.

It is an additional revenue stream.

Marketing pushes the premium content.

Anyone who has seen my weekend posts knows I like watching yahoo videos (which are pretty close to free you just have to sit through the adds) .

My nerdy post is one of my most hit posts. (Not sure what this says about me or my readers. Sorry guys)

This and the cheap music IPod are two relative successes. The vendors need to let go of some of their inherent prejudices and learn from the items that have made these a success.

From Rich
"Today it takes bands with an “installed base”, like BNL, to start cutting the cord. But MySpace and other sites show that our reliance on traditional sources for new music could easily decline."

This is absolutely true. Not only can it decline but it will and is already. If the big music companies don't wise up they will end up in an irreversible downward spiral.

People want a cheap, legal, easy and convenient way to get their entertainment. The big companies that leverage their marketing, existing content and talent to give people the easiest legal solution will make a fortune even if they charge next to nothing (especially if they charge next to nothing). The others will just go out of business.

1 comment:

darmik said...

Any music site/model that as a choice forces drm standards that are not open and that do not allow interoperability between existing mobile music players (ipod) are doomed to a quick failure.

All of the major media players support mp3. None of the major music players support the proprietary drm of any of the other players.

Today drm is not about protecting the rights of the artist; it is about selling hardware and software, as well preventing the disintermediation of old world distribution channels .

If any of the major software and hardware makers decided to release their drm formats to one another there would be no drm issues. If this scenario were played out it would not matter what format you choose or which player you purchased.

A unified drm solution puts the artist and the consumer in control of the distribution channel. If an artist has to go to a major media company to have there content distributed in the predominant drm format for the most popular player; who is in control of distribution. Certainly not the artist, and certainly not the consumer.

At this point choosing a drm format that cannot be played with the player with the highest market penetration rate would be a choice that would render your content un playable by most of the current market for music downloads.

One thing to understand is that even if an artist chooses to use any of the current drm standards, this will not prevent anyone from recording the music or from finding a way to crack the drm. Any protection that the artist perceives that they have is an illusion.

It is only a matter of time before there is an open, unified and real digital rights management system that allows all music to be played regardless of player (And this may mean that a new one needs to be created) or software. Once this point is reached artist and consumers will become the distribution channel.