Music industry watch

Incumbent music industry stifles innovation

Just as I open my mouth to say that nothing new is brewing in the music industry, I'm instantly proven wrong. A new CD trading site aims to allow users to trade CDs while setting aside money for artists:

A new Web site that aims to transform music industry economics is set to go live on Thursday, giving musicians a major cut of the proceeds while largely freezing out record labels and other intermediaries.

Lala.com, which allows fans to trade music discs for just $1, plus shipping, pledges to give a fifth of its sales to all the musicians, including lesser known session studio players, involved in the making of CDs exchanged on its site.

Whether or not this model will work, or if the artists actually do get any money remains to be seen.

What's interesting about lala.com is that they make an explicit statement of avoiding the music industry and focusing on fans and artists. Like Magnatune, lala.com could become an important step towards revitalizing the music industry and creating a new, enlightened industry that embraces the net rather than shunning it. This may be the first positive sign I've seen in a while.

Earlier this year I witnessed a Sillicon Valley VC survey the scene of music high tech start-ups and open opportunities in that space. Then, after a few short weeks they pulled out with the assessment that there are no wise investments to be made in the music space. Ouch!

Two things are apparent to me: First, there is a glut of music recommendation companies. Last.fm, MusicIP and Pandora are the strong contenders with a dozen smaller companies trying to get into the same space. At ETech I talked to two more groups interested in the same space, so the space is chock full already.

Second, I think the main reason is that iTunes has the dominant market share for online music sales and a bunch of companies are vying for the table scraps that iTunes leaves behind. That coupled with the fact that iTunes and most every online music vendor is a closed box hampers interoperability to the max. Its hard to bring new tech to the masses when it only works with one vendor and the vendors themselves have locked up all the content in their own systems. Outsiders are not welcome.

So, services like Last.fm and Pandora are taking off because they provide the music streams. They don't require users to shoehorn their music into the service/player and thus don't face the cross platform integration issues that plagues other companies. I think the next winning business model to shake the foundations of the music industry will enable users to bridge the gaps between these services. But, bridging the gaps will inevitably run into some copyright issues and thus be subject to litigation by the RIAA/Apple.

Do we really need to re-invent the music industry in order to start innovating again? If so, its going to be a long, stale road ahead.

Technorati Tags: apple, itunes, music industry, p2p, riaa

Posted by Mayhem at June 7, 2006 06:43 PM