SharkJumping

I spent the day playing with the new high fidelity music service from MusicGiants.com, a company in Incline Village, Nevada, close to our house in Tahoe.   There was a recent article in the local paper about them and I was interested in trying it since their primary focus, lossless WMA 800-1100K bit rate songs from all 4 major labels, was at least a different approach than banging ones head against iTunes along with everyone else.

The short answer is that the concept is interesting, but the current implementation still needs a lot of work before I'd recommend it to anyone   You must download a 30MB client to access their service, which is strange since everyone else is going to web clients - I can't imagine what the other 20 megs of that client actually do.  You then must pay an annual $50 fee to use the service, all of which is credited to you the first year in music credits at $1.29 a track. I'm actually OK with that fee concept if the quality is much higher since I think there is a small but valuable audience which will pay for higher fidelity.

However, the editorial approach to the service is simply horrible - it's essentially a long listing of artists by genre, or just alphabetically by last/first name (they list by both, which is strange).  There are no popularity charts, no timely playlists/editorial or community features, and the search algorithm is close to useless unless you spell the name exactly right.  They use AMG content for editorial, which is always good, but the sole result within the product is a long bio of the artist, with no hot links to the genres or similar artists listed within the biography.  And I received an error message every time I started up, presumably related to the screen resolution ("unsupported DPI"), which meant that there were some minor graphical issues through out the product.  The overall player interface is clean, with some decent graphics, but is pretty confusing about what is actually in your library since there is no button or link to Your Music or Your Library, which is a tough interface problem for most users.

On the catalog side, it's fairly sparse, even if you just limit it to major labels since they say that they haven't gotten to the indies yet.  For example, there is no Bruce Springsteen, only one Chicago album (#17, which means they may have done some before that), only 2 Alan Jackson out of 11 on Rhapsody, only one Britney Spears album, and only 4 recent U2 albums (out of 14), etc., to randomly choose some big name artists.  So ignore the tag line about having all 4 major labels until they can significantly increase the catalog.

On the fidelity side, the player use a clever gauge to show the fidelity/bit rate of the songs you're playing.  The player automatically imported all of my MP3's (nice, but would be good if it told me that anywhere in the service) and listed them as "low fidelity" since they're either 128K or 192K, depending on where I acquired them.  I bought a couple of songs (Angels by Robbie Williams and Who's Gonna Ride Your Wild Horses by U2) which was a reasonable process, but only after I was forced to download an additional security upgrade from Microsoft - not quite sure why that extra step was needed, especially after it failed the first time.  Each song download took about 2 minutes on a DSL connection, which isn't horrible for a file 5x the size of a standard iTunes download.   The problem I had was when I switched rapidly between the Rhapsody file and the MusicGiants file, I couldn't tell the difference, even with nice noise-cancelling headphones.  I may not be a total audiophile, but I've spent a reasonable amount of time in the sector, and these mainstream songs are not worth paying to have at full fidelity, at least not with the recordings I was consuming - maybe Classical music or other types of genres make sense, but the thrust of this company is not in that direction.

So I'm now stuck with $47 worth of credit on a conceptually cool service which simply doesn't fit the needs of the vast majority of digital consumers without a large set of improvements.  MusicGiants needs to radically improve the catalog and overall interface, as well as work closely to integrate it with connected-stereo companies such as Sonos and Olive to make it available to those users with very high end audio systems, as well as with higher end WMA-compatible portable players to help them differentiate from iPods.   And at the end of the day, the problem is that as the majors look to increase overall digital music prices, MusicGiants will have to increase their prices, and without a signficantly better product, I'm not sure how big a market exists for them.  That having been said, if they can improve the product and conclusively show that their lossless approach is the right one, they  may be able to carve out a profitable niche, but my guess is that others will soon enter that category and just having higher fidelity is not a long term advantage vs larger established players.

I started blogging in late July of 2005, primarily to understand the blogging phenomenon, especially after my wife consulted for blogging pioneer SixApart, and after I attended the Casual Games Conference in Seattle.  In that time, I have attempted to focus primarly on digital media, gaming, consumer technology, and a few other topics in hopefully related areas.  So let's do a very brief year-end summary:

• Infinium Labs - home of the aptly named Phantom console - blogged about them here and here.  In the last 6 months, the stock has dropped essentially to $.02, they've replaced the CEO, and it's clear it's going to Zero...
• - blogged about them here and here - my personal favorite, whose PR hack repeatedly emailed me asking "if I was part of the conspiracy against them".  Stock has dropped to 2.5 from 10 since my October post .  It's going to Zero...
• Loudeye - a good group of employees in a bad business.   Stock has dropped to $.41 from $.80 since I blogged about them in August - will be sold for less than that at the end of the day - a victim of bad sector economics and a horrible Overpeer acquisition which they shut down last month.
• Digital Music Market and Competitors - Apple continues to utterly dominate the category, with Real, Napster and others bringing up the rear.  Good news is that 75% market share brings incredible economies of scale to Apple in the player hardware business - Bad news is that the music labels still own the download category, and utterly control the economics.  RealNetworks and Napster will fight it out in the subscription business until Apple enters it in 2006, and all competitors will focus on the new web/ad-supported sector.
• Ringtones/Dwango, etc. - An amazing global $5B+ business which outlasts the perpetual naysayers, and which delivers returns increasingly to music labels and to carriers vs the earlier outsized returns to aggregators such as Infospace, Moderati and Zingy, all of whose business models are starting to resemble the market dynamics of Sysco (that's the largest US food distributor, not the router company)
• Casual Games - an unsung, but quickly growing entertainment category which is about to be hit by standard consolidation economics, with many current players being bought or going away, with the others being relegated to "lifestyle" businesses.  However, I believe the growth opportunities of this sector make it the most promising one of the entertainment category.  The reason I invested into Puzzle Pirates is because I believe they are a key break-out player in the category.
• Next Gen Consoles - XBox 360 looks like a good box with a potentially phenomenal online business, but not a great software business since the initial games are weak.  PS3 won't ship until Q4 2006, but will have great games and mediocre online support.  Who knows what Nintendo Revolution will do, but their amazing success in Japan with non-standard games for the DS is a potential indicator.
• Consumer Bubble 2.0 - yes, it's arriving, meaning valutions are increasing for these companies, but it doesn't mean they're all over-valued, just that there is too much investment cash in the category - these new entertainment firms will redefine what is currently a traditional linear media company.  E.g. if you're a newspaper company, what are you doing now as your current business inevitably declines?
• Donnerwood Media - we will launch a kick-ass new entertainment category in Q1 2006

Thanks for reading Sharkjumping this year - 2006 is looking like a very fun year....

Sean

Had to republish to correct misspelling in the title...

 

NY State Attorney General Spitzer is 2 for 2 in the last few years going after the music labels for various legal offenses which everyone knew were occurring, but which no political or legal entity seemed to want to address.  The labels/retailers settled retail CD (funny plastic disks sold in retail stores for high prices) price fixing charges in 2001 stemming from an FTC investigation, and then settled payola (paying traditional radio stations to play music) charges earlier this year, refusing to admit guilt, but paying fines to make the charges go away.  So now it's back to what Spitzer must call the easy win trough with the latest subpoenas to the labels about price fixing in the digital music business.

Having lived through 3 years of these negotiations, ending about 15 months ago when I left Real, I strongly believe the labels all know what the other labels are charging for various digital media licenses - in fact, at Listen.com, we pursued a private anti-trust case against the major labels for a year over some of these issues, particularly their refusal not to favor their own entities vs others, and their seeming inability to stop trading information between themselves.   However, I'm not sure (I'm not an Anti-Trust attorney, but my mother was one, so I get to pretend) that they are necessarily colluding to set prices since, as has been discussed in various articles, the download prices are somewhat different from contract to contract, as are some of the business terms, and I believe it's generally due to different strategies favored by each label rather than a far reaching conspiracy.

So what's going on here?  Various news articles have stated that this round of subpoenas stems from Apple's issues with label statements that they will raise digital download prices, as I discussed here.  I would say that Warner and UMG are certainly signaling (MBA geek-speak for actions which indicate something to competitors) wildly that they will do so in 2006, both to see what the reaction is, and to make it clear to others that it's coming.  I'm not sure I would focus on that issue as a Conspiracy one since it's difficult to prove unless Spitzer just wants a settlement rather than actually go to court on something for once. 

To me, the more relevant issue in a music label deal is the "Most Favored Nations" (MFN) clause, which is almost unheard of in normal business practices not inhabited by what I term serial monopolies.  This clause is fought tooth and nail by every licensee, but is rarely changed by labels - it states that the label can not receive terms worse than any similarly situated supplier (e.g. other label).  I used to refer to it as the "Lazy Business Development clause" since it effectively saves labels from actually negotiating the terms  - they just claim MFN and do an audit once a year if they think a competitor is getting better terms.   That's a bigger anti-trust issue than spending time worrying if the actual cost of a download is within $.05 of another supplier since it really doesn't matter if there is an MFN clause since terms will naturally become similar in that situation, and there isn't really a need to collude on pricing.

I'm curious to see how it all plays out since Spitzer has more balls than the Federal Anti-Trust appointees we dealt with in our private case, but my assumption is that the best case result is yet another fine which gets chalked up to the cost of doing business in the music sector.  As I have said many times, the digital music business does not allow licensees any leverage since they need all 4 (soon to be 3) labels to launch a service, and the resulting financial terms are painful for those companies, Spitzer lawsuit or not.

In a mad rush to match the Christian right wing's Family Values approach, Democratic Senators (all mysteriously Presidential hopefuls) Clinton, Lieberman and Bayh today introduced the , attempting to make the Federal government responsible for regulating the sale of violent or sexually explicit video games to minors.  I realize that yesterday I blogged about the parental issues regarding video games - however not once did I suggest that this is a Federal issue since it's NOT - it's a parental issue, and maybe, a state or local issue.  I completely agree that AO & M games should not be sold to minors, but I fail to see why this is any different than other products which are regulated primarily below the Federal level.

I looked for the entire text of the bill, but could just find the on Senator Clinton's site.  Even in 5 minutes of thought, it looks like it will ignore the following issues:

• these legislative attempts are routinely overturned by various court systems as unconstitutational.
• there is no Federal law surrounding movie ratings (it's voluntary), which one might logically think is a similar issue, but which apparently doesn't require the focus of these 3 senators
• liquor and cigarette sales to minors are regulated primarily by states, but I guess the societal impact of video games is a much larger issue, so the Feds should regulate it
• that the Federal government might actually have better things to do with its time, such as spying on its own citizens

I realize the jockeying for 2008 is beginning - I just foolishly hoped that we would focus on more substantial issues such as the War in Iraq, Off-shoring, our Education System, etc.  I suppose the only good news is that this focus shows the increasing impact of video games on the country - it's now truly become the 4th leg of Entertainment, along with Music, TV and Movies, and it now requires that video game producers become as big a political donors as the RIAA and MPAA if they wish to receive equal rights.

My wife was saying the other night that some of our friends are surprised that we, especially I, rarely allow our sons (age 6, 4, and 2) to play video games, and on those rare occasions, we limit the time to less than 30 minutes and we limit the possible games to a few (educational ones and Backyard Sports ones) that we have chosen.  Given that the majority of my oldest son's friends have some type of portable game console, or easy access to a gaming PC/console, I occasionally wonder if we're being too conservative about it.

Now there is no perfect way to raise children, and we certainly won't win any parenting awards, but as an avid gamer (currently alternating between Call of Duty 2 on XBox 360 and Animal Crossing on DS), I have been struggling a bit to explain why I don't think it's a great idea for children to play video games without coming across as a Jack Thompson-like lunatic, especially given that I work and personally invest in the sector.  Then today I read a letter to the Editor of the gaming blog Kotaku which explained it more eloquently than I could ever say - the direct link is here, as is a long list of comments, and it's worth reading if you have children interested in video games, as they all seem to be. 

At the end of the day, my personal feeling is that video games are an amazing form of entertainment, but that they have about the same value as television, and should be treated in a similar vein, not held up as some type of wonderfully creative activity whose value far exceeds activities such as reading or personal social interaction.

Google Music search launched today, and it reminds me a lot of the original Listen.com MP3 directory.  It's a sub-set of Google's general search available at http://www.google.com/musicsearch or just by typing any artist name into Google and then clicking on the "More Music Results for xxx".  The overall experience is a clever repackaging of the standard Google filters (site, images, news, groups), but also starts to add in the commerce part (Froogle) by offering direct links to both digital and physical retailers.  Google has similar sub sets of search available for movies and for financial stocks, so this continues a trend for them.

So what's interesting about this?  First is that it handicaps Apple's iTunes a bit since it does not have any web-only way to get to music content - you must download iTunes to access any music information.  Other more web-centric digital retailers should be able to take advantage of this, although the RealNetworks links, for some unknown reason, do not link to the web version of Rhapsody, but instead link to a decent artist information page at real.com which then forces you into a registration and download process.

Second interesting debate going on is whether Google is taking a referral fee from any of the retailers, and how they are deciding which retailers to list first, since one would assume there is much value in being listed higher, a la the Overture bidding system.  I've seen speculation on both sides today, but it looks to me like it's just taking a Froogle spider crawl and repurposing it for this service, so I assume the answer is no, and that it's not related to any type of business arrangement.  The only one I can't figure out is the RealRhapsody link, which looks technically to me like a feed was given to them, but I'm probably wrong and should stop pretending to be an engineer.

The original Listen.com MP3 directory was very similar to this vision, as is today's GoFish commerce service  We had an editorially reviewed and categorized directory of all of the legally available digital music, and we did deals with the leading search engines of that era to integrate the results, and then we shared the resulting commerce or ad revenue.  Unfortunately, there was almost no major label content legally available in those days, P2P Napster was dominant, and then the advertising business collapsed across the Internet, so we were forced to change the company to create Rhapsody.  In this case, times have changed enough that both the amount of digital content and the cost effectiveness of advertising and commerce links are coming together to make this type of experience a much better one. 

The key unknown is whether Google's immense reach begins to drive customer acquisition in the sector, which would push the sector even harder towards a web-centric approach, and does that affect Apple at some point?

As was first reported yesterday in Private Equity Week, and referenced in PaidContent.org, we closed a $4.3M B round of financing last month.  Our lead investor is the Bay Area office of venture capital firm Battery Ventures and we're very pleased to have their support.

Now it's time to get a service out the door, so it will be a busy Holiday season

There was a question on the IGDA casual game mailing list today about casual game pricing - essentially, is $20 the correct price point for a casual game?  As a reference point, XBox 360 games are $60, most current gen console, handheld and PC titles are $40-$50, Game Boy Advance games are $30, and mobile games are $5-$8.  RealArcade is generally given credit for commercially launching this Try Before You Buy $20 category, and pricing has remained pretty consistent at $20 (just checked the top games at top sites).  On the other hand, iWin has made the point that their Family Feud game has sold well at $29.95 (currently top download at iWin) while Microsoft has just introduced a set of casual games on XBox 360 Arcade with prices between $5 and $10 - so who's right?

Similar to the ongoing debate about music download pricing, this is a price elasticity debate - if we increase prices, will the resulting revenue be high enough to offset what we assume would be fewer purchases?  If we lower prices, will the resulting increase in purchases make up for the lower revenue per purchase?  And does it even make sense to focus on this model rather than on subscriptions (Real and Shockwave) or on advertising supported games?  And should pricing generally relate to the cost of the game production, or is it solely related to the perceived value?

I'm personally surprised that there has been so little experimentation in this arena - the pricing strategy for casual games has been effectively frozen for the past few years while the overall market has significantly expanded, and while most production budgets have doubled or tripled.  Distributors have run limited tests of lowered pricing, but then have moved back up to $20, primarily because the developers prefer it at that level and because none of the distributors seem to have the data or market clout to justify changing the prices.  I would have expected a more multi-tiered pricing strategy by this point, as you see in more mature markets such as retail (CDs, DVD's, etc.), with new release front-line titles giving way to mid-price titles 6 months later, followed by a move to budget line after that period.  But this is one of those sectors where popular games such as or Zuma continue to sell for months or even years, so there is less incentive to lower the prices to stimulate demand.

So the answer is that the larger players seem to keep pricing at $20, so you would assume it's the correct price in a rational market - merely lowering a few games to $10 or $15 may not be enough to create a sub-category that attracts enough attention, so no one does it, and few players feel strong enough to price higher than $20, unless they have a well known brand - the familiarity of a $20 price and a 10MB size seems to hold the market in place.  Where you see discounting is in the subscription plans which attract heavier users of multiple games, or you see the really large sites use ad-supported web games that are free to users.  Given all of these factors, I'd say we'll see $20 pricing remain the norm until we see the effects of XBox 360 Live Arcade pricing, or until we see a strong entrant hit the market with much lower prices - but if prices are going to go anywhere across the board, I believe we'll see them go down due to a slow-down in the marketplace growth and an potential over-supply of similar content.

4 years after Listen.com launched the original award-winning Rhapsody client, RealNetworks today launched a web version of it and it's a really nice effort, allowing users to access most of the Rhapsody feature set with just a 500K plug-in component.  Combined with the Rhapsody 25 free sampling service, this is a very easy way to try out the service, and it follows the general Web 2.0 trend of making services easily linkable and shareable across the Internet.   

Some of the advantages of this approach are that it exposes the differentiated Rhapsody editorial features to a wider audience, Real can now attract Mac and Linux users, and that it should open up additional advertising opportunities due to the removal of the required client download.  As one would expect, there are limits to the service to encourage heavy users to upgrade to the full subscription service, such as no skipping in the radio stations, and no ability to move tracks to portable players, but it's otherwise a rich web music experience.  The only issues I'm running into right now are intermittent skipping, but that could be a beta issue since there is no real reason for that to occur.

Given the Apple iTunes juggernaut, "Websody" is a much smarter way to approach the digital music market rather than just pounding away on client software and on downloads.  I'd say that RealNetworks just raised the bar for competitors Napster, Yahoo Music, Pandora, etc  with this innovative approach.