Tuesday, November 1, 2011

iCloud: A Music Industry Game Changing Product

iCloud: A Music Industry Game-Changing Product

Apple’s new iCloud product marries the two disparate ideas of consumer convenience and the monetization of pirated music, providing what could be the “missing links” between consumers, artists, labels, music publishers and the emerging digital music industry. With its launch, the odometer on the music industry is about to reset itself (again).

For a simple flat monthly fee, just about any song in any user’s multiple iTunes libraries (iPhone, iPad, computer, iTouch) will automatically appear in a “virtual hard drive in the sky .“ No upload of the song is needed. Each song will be available to be grouped into playlists, streamed and re-downloaded. In the event the song is not already in the iTunes system, the user can upload it.

It’s important to note that in 2000, Michael Robertson first introduced the iCloud concept via his company MP3.com. Soon thereafter, the RIAA sued for copyright infringement, and in April 2008, the courts ordered the service to shut down.

To get this seemingly very simple and consumer-centric concept launched, Apple had to negotiate byzantine labyrinth-esque deals with labels and publishers (we are still waiting to learn if a stream or download via the iCloud service is legally considered a “public performance,” thereby requiring the songwriter to be paid as well). Over the past decade many have tried to reach this goal, most recently Google, yet only Apple was able to reach the end.

And the results, I believe, will be stunning.

iCloud is first and foremost a product for the consumer, and Apple never forgot that. iCloud provides a convenient, quick and easy way to manage and access all of your digital music as you choose.

The iCloud service differs markedly from the recent Amazon and Google music storage lockers–with these services you must actually upload your songs to be stored (except for Amazon, where, if you buy it at AmazonMP3, it auto-populates into the customer’s music locker). In addition, users are not able to re-download the tracks they uploaded. The re-download feature in iCloud provides the feeling of owning what you are streaming.

But the truly innovative and radical part of the iCloud service is its ability to allow copyright holders–the labels, artists, publishers and, possibly the songwriter–to make money off of music not bought the first time around. The iCloud service places all music from a subscriber, not just the music bought from iTunes, into the subscriber’s iCloud account, making it available for stream or re-download. This includes music:

- Ripped from a CD

- Downloaded from a peer to peer service

- Received in an email

- Downloaded via IM

- Ripped from your friends’ CDs

- Received free from the band

- Downloaded via a drop card

- Taken from a public “share” folder

- Captured as a stream and converted to an MP3

- Bought at AmazonMP3

- Etc

Each time a subscriber streams or re-downloads a song via the iCloud service, the label and publisher (and possibly the songwriter for the public performance) get paid. The iCloud business model has created a way for copyright holders to make money off of pirated music without making consumers feel like they are paying for the music.

The key to all of this is meeting the needs of consumers first (not the labels) as consumers drive the market (and not the other way around). And unlike many other digital music services, due to Apple’s market share, vast music library and 225 million + customer accounts (each with a credit card on file), Apple is uniquely positioned to provide the scale, and therefore possible revenue, for copyright holders to reach the proverbial “pot of gold” at the end of the digital music rainbow.

The end result is a product about convenience, elegance and simplicity, not a “subscription based streaming music service.” Yet it’s the money that people are paying for this convenience and simplicity that will be used to pay artists, record labels and publishers. And if the consumer did buy the song, Apple has provided a new model allowing the artist, label and publisher to get paid a second time for the same recording and song.

In effect, for labels and artists, iCloud is a new stand alone “store.” A decision could be made to give away a song that is in the iTunes music store for free (or at a dramatically lowered price), and each time it gets played via an iCloud account, the rights holder gets paid.

In the meantime, all of the songs in the iCloud service will be downloadable in the AAC format, meaning that they will only play on an Apple device, driving more dependence of Apple’s products. As an example, if you bought a song on AmazonMP3, and play it in your iTunes software, when it gets digitally fingerprinted by Apple, it will be available for you to re-download as an AAC file, only compatible with an Apple hardware device.

And finally, and perhaps more importantly, just as the original Napster trained people to download music and listen to it on their computers, Apple, due to its vast hardware proliferation (iPhones in particular) is in a position to shift consumer behavior yet again–this time from downloading music to listening to it via streams.

And with this consumer shift, the music industry will reset itself once again until the next revolution…

No comments: