All Things Digital

Guess AC/DC and Garth Brooks have something in common after all. They’re both Wal-Mart-only artists. When AC/DC’s new album, “Black Ice,” arrives at market on Oct. 20, it will be sold exclusively in the U.S. at Wal-Mart and Sam’s Club.

The deal is an interesting one, and for a number of reasons. Unlike Brooks–or The Eagles or Journey, who have similar pacts with Wal-mart–AC/DC is still under contract to Sony (SNE) BMG’s Columbia Records. By inking such a deal, Columbia almost certainly risks alienating other retailers, who can’t be happy to see AC/DC’s first album of all-new material in eight years become a Wal-Mart exclusive. Among those retailers: Apple’s (AAPL) iTunes Music Store, where AC/DC has so far refused to distribute its music.

The deal also comes at a time when Wal-Mart and other big retailers are reducing their CD shelf space. It’s been estimated that Wal-Mart, Circuit City (CC) and Target (TGT) have cut between 5 percent and 23 percent of their CD inventory in the last two years. Which means that retail exposure, which was once a given for many bands, is becoming increasingly dear. So much so that it’s a negotiating point, and–in Wal-Mart’s case–enough of one for big-name acts to justify allowing the retailer to sell their new releases on an exclusive basis.

“Shelf space has shrunk so much over the last five years that for anyone to give you shelf space and exposure is a big deal,” Terry McBride, chief executive of Nettwerk Music Group, recently told the New York Times. “Should the labels be worried? There’s been a move away from the labels for a number of years now. And it’s not necessarily their fault. The shelf space to have those records sell just isn’t there. That’s the market reality.”

Sony BMG (SNE) has signed on to Nokia’s (NOK) new “Comes With Music” program and really, who better than the pioneer of the rootkit digital-rights management scheme to endorse Nokia’s DRM-hobbled prebundled music initiative?

This morning, Sony BMG became the second record label to jump on board the Finnish phone giant’s Comes With Music offering, which–when it launches in the second half of 2008, will package mobile phones with a year of unlimited access to music. There are, however, certain caveats to that value proposition, as I pointed out last December:

Though Comes With Music does indeed permit owners of certain Nokia cellphones to download as many songs as humanly possible in one year (with no per-song data charges), transfer them to a PC and keep them at the end of that time, they must pay a per-song usage fee to burn them to CD. What’s more, the songs are wrapped in Microsoft’s (MSFT) ironically named ‘Plays for Sure’ digital-rights management scheme, which prevents them from being played on the iPod, Zune, etc. Finally, another 12 months access to the music catalog requires the purchase of a brand new phone.”

Clearly, Sony, like Universal (VIV.PA) before it, doesn’t see these issues as off-putting to consumers. “When you give consumers the key to the candy store without any limitations, there’s a lot more opportunity for discovering music that you might not have found before,” said Thomas Hesse, president of global digital business and U.S. sales for Sony BMG Music Entertainment. “We think this will energize the discovery of music.”

It might energize Sony BMG’s bottom line a bit as well. When Universal first signed up for Comes with Music, sources close to the company said that Nokia would pay the label up to $35 for every phone that offers access to its library. Nokia subsequently denied it was paying that amount, but it’s definitely paying something–to Universal, Sony and whatever other labels it manages to line up for the service.

If YouTube aims to someday host every music video ever made, as co-founder Steve Chen once claimed, it better get crackin’. Because the market’s getting crowded.

This morning PluggedIn Media launched a new service for streaming HD-quality music videos. Backed by Overbrook Entertainment–Will “Gettin’ Jiggy Wit It” Smith’s production and management company–PluggedIn will offer some 10,000 videos from EMI (EMI.L), Vivendi (VIV.PA) and Sony BMG (SNE), along with the standard music-site fare–artist bios, users playlists and whatnot. That being the case, how does PluggedIn hope to differentiate itself from the competition? “We look at all the changes shaping online entertainment and see massive opportunity for lots of companies to appreciate and forge really viable consumer connections,” said CEO Jeff Somers. “We think what will separate us from what is out there today is an unbelievable high-quality viewing experience, matched with in-depth content and community tools.”

Perhaps. But it will also create dangerous rivalries with some powerful competitors. With its social-networking features, PluggedIn will soon find itself in direct competition with MySpace Music (NWS) as well as Hulu (GE).

MySpace will soon be not just “a place for friends”, deceptively flattering photos, and seizure-inspiring Web page design, but a place for the music industry as well. This morning some major music companies struck a deal with the social network to create a music destination site. MySpace Music will be jointly operated by MySpace and Universal Music (VIV) (who’ve apparently settled their long-running copyright suit) and Sony BMG (SNE) and Warner Music Group (WMG). EMI hasn’t yet signed on, though sources involved in the negotiations tell The New York Times it will probably join soon making Myspace Music, in the words of MySpace CEO Chris DeWolfe, a mega-music experience. ‘This is really a mega-music experience that is transformative in a lot of ways,” DeWolfe enthused. “It’s the first service that offers a full catalog of music to be streamed for free, with full community features, to be shared with all of your friends.”

The venture is a noteworthy step for the music industry–whose failure to embrace digital distribution early on has cost it dearly. And it’s one that could pay off. “MySpace has the audience and environment to enable the music industry to get to the next digital level,” Forrester analyst James McQuivey told News.com. “What iTunes offers is a good buying experience but that’s not all people do with music. They they talk about it, they share it, they try things out. Remember, this is the kind of activity that (record label) Universal Music Group was suing MySpace for previously. I think the labels said to themselves,’Oh, if we enable fans to have a fully immersive experience, they might spend more on music. MySpace can offer a place where all aspects of the music experience can be expressed. Imeem was getting close to this, but MySpace, if they don’t mess it up, should take Music 2.0.”

In the final paragraph of his February 2007 essay, “Thoughts On Music,” Apple CEO Steve Jobs said that should the top four music labels allow their music to be sold online without DRM (digital rights management) technology, it would “create a truly interoperable music marketplace”–one that Apple would embrace “wholeheartedly.”

Well, it’s taken nearly a year, but the marketplace to which Jobs referred is nearly here. Only it’s not at Apple’s iTunes store. It’s at Amazon.

Yesterday afternoon Sony BMG said it will begin selling DRM-free music through Amazon.com MP3 at the end of this month. That makes it the last of the “Big Four” music labels to abandon DRM and begin distributing its catalog through Amazon. “This is such an exciting day for us and our customers,” Bill Carr, vice president for digital music at Amazon, told the New York Times. “All four major labels will be part of our service. It means our customers will really have access to all the biggest artists in the world.”

Which is obviously great news for Amazon’s fledgling music service and for the major music companies as well. What better way to rein in Apple’s dominant iTunes store than by empowering its worthiest adversary–if only for a moment. Because chances are, Apple was planning on taking iTunes totally DRM-free at Macworld next week anyway. Which may make this a bit of a non-announcement, at least as far as Apple is concerned. Said Pali Capital analyst Richard Greenfield: “My guess is that Apple doesn’t care. The reality is, everyone will now start downloading their songs more cheaply someplace else and using them on their iPods.”

Doug’s a very special guy. He’s the last of the great music executives who came up through A&R. He’s old school. I like him a lot.”

–Apple CEO Steve Jobs on Universal Music Group CEO Doug Morris

The per-device royalties Universal Music Group receives for every Zune player sold were apparently substantial enough to buy CEO Doug Morris a bigger set of balls, because he’s out drumming up support for an industry-owned subscription service with which he hopes to loosen Apple’s grip on the digital music market.

The endeavor is called “Total Music,” and Morris has already approached Sony BMG Music Entertainment and Warner Music Group about participating. His proposition: a subscription-based music service for the hardware industry, one whose cost could be baked into the hardware that supports it. Under the Total Music model, hardware makers subsidize the cost of music, which consumers are then given for “free” when they buy a new digital media player. That’s more money up front for hardware makers, but it’s a wise investment because, as Morris reckons, they’ll make that money back and then some by selling many more devices.

Interesting business model. “If the object is to wrest control of the market from Steve Jobs,” said Gartner analyst Mike McGuire, “this is a credible way to try it.”

Sadly for Morris, it’s also one inevitably complicated by recent turmoil in the music industry. With Radiohead releasing its latest album as a pay-what-you-will digital download, Nine Inch Nails declaring itself a free agent, and Madonna about to dump Warner Music Group for a concert promoter, we’re clearly seeing a sea change in music discovery, distribution and consumption, one perhaps lost on an industry so hardened by years of CD price fixing. So while the music industry struggles so to wrest control of the digital music market from Apple, some of today’s biggest popular artists are crafting an entirely new business model.

Few industries have greater allegiance to dying media formats
than the record labels. To wit, Sony BMG’s latest attempt to keep sales of CDs afloat, the “ringle.”

What is a ringle, you ask? Well, it’s a new product that conveniently packages a hit song and a digital ringtone in the near end-of-life CD single. For $5.98 or $6.98.

Or, to put it more simply, it’s the stupid person’s idea of a clever person’s new media format.

“Each ringle is expected to contain three songs–one hit and maybe one remix and an older track–and one ringtone, on a CD with a slip-sleeve cover,” Billboard explains. “The idea is that if consumers in the digital age can download any tracks they want individually, why not let them buy singles in the store as well?”

Wow. If that’s the best the industry can come up with, Apple has nothing to worry about.

(Image courtesy the Megatron Don)

Still smarting over the flogging it suffered back in 2005 for encoding some of its music CDs with a harebrained rootkit copy-protection software, Sony BMG lashed out against the company that developed it last week, slapping it with a lawsuit. Sony accuses Amergence Group, formerly SunnComm International, of “negligence, unfair business practices and breaching the terms of its license agreement by delivering software that ‘did not perform as warranted.’ ” It seeks $12 million in damages–about twice what Sony BMG paid out last fall to settle the various lawsuits brought against it.

Interesting that Sony would accuse Amergence of failure to meet its specifications now. After all, you’d think that’s an issue it would have taken up with the company two years ago, after its own engineers presumably reviewed the software and, if not then, perhaps on Oct. 4, 2005–the day Finnish security outfit F-Secure warned it that the software posed a serious security risk. “If [Sony] had woken up and smelled the coffee when we told them there was a problem, they could have avoided this trouble,” Mikko Hypponen, F-Secure’s director of antivirus research, told BusinessWeek at the time.

“We told them it was a major security risk,” added Santeri Kangas, F-Secure’s director of research. “They thought we were silly. They wanted to keep the problem quiet.”

That’s certainly what it looked like at the time. What with Thomas Hesse, president of Sony BMG’s global digital business division, telling NPR that “most people don’t even know what a rootkit is, so why should they care about it?” ‘Course you tend to forget about those things when you’re busy redistributing blame, right?