Mike McGuire

For many months, nay years me and my ilk have wondered, “What will Google’s play be in online music?” License content and sell it through Google Checkout? Buy a small upstart music service?

Well, the answer is no and no. Really, all Google wants to do is just control the search results for music searches. And, you know, maybe help out a struggling online music service or two.

By pulling back the curtain on its new, refined music-search feature, Google also helped a number of legitimate online music services step out from the shadows of an online music ecosystem dominated by the Apple iTunes-iPod-iPhone troika or the dark net (the millions of folks using P2P and Torrent technologies to get free content).

My first take-away: Anybody who doesn’t admit that their use of P2P or Torrent technology is simply to acquire free music – and tries to rationalize it with some other reason – is really just a Philistine. Seriously.

Second take-away: if you’re iLike, Lala or Rhapsody and Napster, there’s nothing like having the world’s largest search engine ride in and help goose those site visitor numbers, am I right?

What really is important, however, are the key refinements Google’s made to searching for music online:

- Full-song streams directly within the search results.  Direct links to services such as MySpace+iLike, Lala, Rhapsody, Napster, iMeem and Pandora that, in their own way, will allow users to stream full-length versions of the songs they were looking for or make direct purchases if the service has an a la carte download store (which is all of them although Pandora’s actually provides links to iTunes or Amazon).

- Refined, filtered search results that logically arrange results by artist, band or song title

- Lyric-fragment search or partial-album-title search are resolved or enhanced due to Google’s work with Gracenote which has a comprehensive, licensed, lyric database

At a launch event held in the historic Capitol Records building in Los Angeles, and hosted by Google and EMI (represented by Marissa Mayer, Google’s head of search and consumer experience, and Syd Schwartz, SVP of global digital marketing, EMI, respectively), was really a testament to just how powerful a set of algorithms can really be in this day in age. Or more precisely, how powerful a set of refined search algorithms can potentially give a slew of legit online music services an important boost in their quest to drive revenue (to satisfy their investors).

Google noted that music-related searches are two of the top 10 search queries of all time. No surprise here as Gartner’s consumer research has shown that online music consumers usually start a search by getting a word-of-mouth recommendation and that the first thing they do is go to a search engine like Google. The most popular thing they do after they find the content they want? They want to sample it immediately. (See How U.K. Online Consumers Find Music on the Internet , How U.S. Online Consumers Find Music on the Internet, How Online Consumers in Italy Find Music on the Internet).

The primary beneficiaries of Google’s algorithmic largesse are going to be iLike (creators of popular social networking music apps which was recently purchased by MySpace) and Lala, a venture-funded start-up that started out as an online market where people could exchange used CDs has morphed into an online service where one can download a song for $.89 or pay $.10 to have permanent access to the song as a stream. Rhapsody and Napster are also likely to receive some incremental benefit from having links to their services as well.

To their credit, Lala and iLike execs, Bill Nguyen of Lala, in particular, noted that Google’s music search feature was a great step forward for consumers looking for music online, but that it was up to the services to turn that potential traffic into revenue. And Google’s RJ Pittman underscored that when he said that Google’s “…pushing the business opportunities down stream” to the services and that Google would benefit by simply providing a better search experience for their users.

And these days, the way you compete with “free” or iTunes is that you have to out “experience” them. And therein lies the challenge for iLike, Lala, iMeem, etc.

Not surprisingly, iTunes and Amazon weren’t part of the announcement and aren’t featured in the search results that a user will see. Frankly, neither of those two really need much help and the music labels are going to be more than happy to see searches which highlight iTunes competitors. So this isn’t really meant to be nor will it be an iTunes killer.

But now we know what Google’s position is going to be any current or future developments in online music (and other media): at the starting line.

So, since France’s three-strikes law has made it through its legislative hurdles and is going to be enacted. If actually works as intended, we should quickly see significant growth in sales of iTunes and other legitimate online services operating in France, correct?

I’m doubtful of that actually happening but I’ve been accused of being a cynic.  If anybody wants to make a wager on what the first-year effects of France’s crackdown, I’m all ears. You know where to reach me . . .

Oh, and from what I’ve heard in my travels, the term one uses in polite company for what France is doing is “graduated response.”

Well, this (from Billboard.com, subscription might be required) is nice news. Government regulators, online service providers and performance rights organizations coming together to “pledge” to try and resolve an important obstacle to greater consumer choice in online services: simplifying the process for legitimate online music sites to license content.

Imagine that,  a plan to make a plan to make it simpler for online content entrepreneurs to actually create monetized content transactions?

If I sound sarcastic, I honestly don’t mean to. If the story’s elements are accurate and the various stakeholders’ press quotes prove to be an accurate reflection of their commitment, it’s quite possible that at some point – there doesn’t really appear to be any deadlines for anything – we could see what amounts to a set of non-exclusive registries of licensed content. Were that to come to pass, such registries would be an enormous step forward for the music industry and, I believe, a roadmap for other media sectors as well. 

More important to me is that if we see this kind of movement in the EU and it spreads to other parts of the world, there is going to be a significant premium paid for solutions that help rightsholders and media companies rapidly license, track and account for the usage/consumption of their content.

If I’m in the rights-in/rights-out platform business, I’m smelling an opportunity.

With one minor turn of iPhone App Store policy dial, Apple is enabling all those developers who built “free” iPhone/iPod Touch applications to try and extract a fee for their work. For smaller publishers, or bands or independent labels or video producers, this would seem like a good thing, yes?

Can you say “fremium” app, media companies? I knew you could.

With today’s introduction, MOG’s All Access service, at $5/month for full interactive-stream access (pick any song, any artist in the catalog and stream the songs without playback restrictions), establishes a new price point for subscription services. While the service won’t actually be available until sometime in November 2009, it will have more than five million tracks from all four major labels and the top independent labels.  The company is also planning to develop mobile phone apps to extend the service into a hot category established by the iPhone applications of (kind of) competitors Slacker and Pandora.

Discussions with MOG’s David Hyman, and some demos of the service,  leave me thinking that one thing Hyman and crew have to be recognized for is their willingness, or perverse stubbornness, to engage in extended negotiations with the labels (and publishers)  to obtain favorable license terms. These terms translated into the fully interactive streaming and playlist creation capabilities – functionality many consumers associate with more expensive Rhapsody and Napster services.

As we’ve noted in multiple notes and presentations, licensing content (by services from rightsholders) is a bigger challenge than any particular technology issue, and Hyman did nothing to dispute in that in our discussions. Hyman is no newbie when it comes to dealing with the labels given his time at Gracenote and SonicNet. That said, All Access is going to hit the market at roughly the same time Rhapsody and Napster (owned by BestBuy) will still be plugging away  but their subscriber numbers have either hit a plateau or dropped. But they continue to invest as apster just announced a deal with Dell to preload the Napster software on select Dell PCs and provide a year’s worth of free streaming and 60 free MP3 downloads, and Rhapsody has announced an iPhone application that lets existing subscribers extend their access to the iPhone. All Access will hear the footsteps of Europe’s favorite music service, Spotify, which is supposed to launch in the U.S. sometime in 2010.

What MOG’s going to be able to leverage is the nine-plus-million monthly visitors (counted in October, according to Quantcast) to MOG’s blogging network, started in 2006. Much of the MOG blogging network’s appeal is the nearly constant flow of reviews, thoughts and observations about music – the sort of information one would expect to see on a site devoted to music geeks who treat the interest with the kind of enthusiasm one typically sees with (some) sports fans.  If All Access can use the MOG network as a customer acquisition tool (without harming its inherent appeal to the bloggers and readers), one can imagine that incumbent music subscription services will be scrambling to survive.

What’s really likely to happen, though, is the favorable terms MOG was able to obtain will quickly be replicated by others. At that point, it will all be about the type of experience MOG can deliver that will differentiate it from the competition. But until I can get my hands on a demo account for All Access, we’ll have to wait and see.

There are currently 100 million active credit cards on account with iTunes. And according to Apple, iTunes is the number one music retailer in the world. Not “number one in online downloads,” but number one. Of all channels.

That, my friends, is the most important news to come out of Apple Inc.’s 09/09/09 announcement, whether you’re a content company, a game or software developer, a technology vendor looking to develop online content stores or services, of if you’re a competitor.

Oh, and Steve Jobs is apparently back, because he was on the stage for a bit more than hour during Wednesday’s announcement. 

During the keynote, Jobs and a cadre of lieutenants and guests took the stage to announce: upgraded Nanos, iPod Classics, Shuffles and iPod Touch models. (My colleague Van Baker is blogging about the hardware on his blog space within the Gartner Blogging Network http://blogs.gartner.com/van_baker).

For my money (and my coverage area) the real news was not just the number of credit cards iTunes (the store) has amassed, but also the subtle changes/enhancements Apple made to the iTunes software and, by extension, the iTunes store. 

First off, what was referred to as “Cocktail” in the rumor-mill run-up to Wednesday’s event is formally known as the “iTunes LP” and is the iTunes version of what some refer to as an “interactive” album or digital album. In addition to the songs that comprise an “album,” Apple works with labels and artists to include lyrics, bonus tracks, liner notes, promotional art such as pictures, as well as video content.  As of Wednesday’s event, there are eight “LPs” on the iTunes store including the Grateful Dead (“American Beauty”), the Dave Matthews Band ( “Big Whiskey and the GrooGrux King), Bob Dylan (“Highway 61 Revisited”), and Norah Jones (“Come Away with Me”). Will lyrics, memorabilia, rare photos or videos be enough to get consumers to give the notion of “bundled” content?

Conceptually, “LP” is not new, because the labels would love to be able to get back to the time where consumers want to buy a complete bundle of songs. Makes sense since the selling price goes from $.99 to, maybe something more than $.99. However, Apple is pulling this off at the time of rumors in the press that the major labels are working on their own format that they have called CMX.   Honestly, I don’t think this is going to be much of a conflict. The thought that the labels decide to create a format or file that’s incompatible with iTunes or with iPods or iPhones seems too illogical. And, here again, I’m fairly certain there is no other legitimate online music/media service/store that has 100 million credit cards on account.

Second, Apple extended its “Genius” recommendation technology beyond simply generating playlists and recommendations for additional purchase at the iTunes store in two important ways.

First, the “Genius” recommendations will now be extended to the AppStore for iPhone and iPod Touch applications. So an iPhone or Touch user will get recommendations based on the applications they’ve already purchased, as well as other inputs such as what types of applications a user has searched for, as well as collaborative-filtering approaches.

The second extension of “Genius” is to create what are called a “Genius Mix.” In the initial version, a “Genius” playlist was a fixed number – 25, 50, 75 or 100 songs. A “Genius Mix” extends that to a playlist that is really only limited by the user’s existing library. More important the “Genius Mix” is updated as new content is added to the user’s library. So, supposing a user creates a “Genius Mix” based on John Coltrane, instead of a fixed number of songs, a stream of jazz, jazz- or Coltrane-related songs will play. Here again, how long a “mix” plays depends on the extent of the customer’s library.

Apple is refining the user-experience for iTunes users by delivering a pick-and-stream usage model similar to Pandora, Spotify or Slacker. Unlike those Internet-stream/cloud models, however, the Genius Mix’ extensibility is limited by the user’s existing library.  This makes a lot of sense if you’re Apple because the emphasis is helping the customer “rediscover” music they already own.

There were no tablets, no new iPhones and no announcements about the Beatles catalog showing up on iTunes. On the other hand, if you’re a company with 100 million credit cards on account, day-the-earth-stood-still product announcements aren’t necessarily easy to pull off. More important, they’re not as important as showing steady continual improvements to the products that got those first 100 million folks to plop down those credit cards in the first place.

OK, maybe Apple would have kept Eric Schmidt, Google’s CEO, on Apple’s board if Google’s tech-hegemony had stopped with Android. Maybe, maybe even the Chrome browser might have been acceptable.

But a streaming rental movie business?

AppleTV might only be a “hobby” Apple continues to invest in (as Tim Cook, Apple president/COO, said during a recent earnings call) but it’s a really important “hobby” with significant long-term potential.

If the Cisco-Warner Music Group deal to have Warner use Cisco’s Eos platform for developing and hosting its artists websites is any indication of the future of the music labels, it’s about using websites as a way to establish and maintain market relevance, relevance that labels maintained by the control they used to wield by when they controlled the creation and distribution of physical objects.

Now, it’s about establishing and maintaining the relationships with their artists by being able to help the band find and maintain an audience. Which, when you think about it, was, and maybe still is one of the central roles the music labels played in the distribution of pre-recorded music. (Only back then we called them “record labels.” Anybody reading this who is under 25, go ask your mom and dad.)

A by-product of the music industry’s transition, and the realignment of roles for the labels, has been the emergence of the so-called 360-degree deal in which the label not only gets a cut of CD and online, but now also seeks to get a cut of revenue streams – like ticket revenue from touring, merchandise sales – that were typically not part of most deals. Those streams used to be owned mostly by the bands/artists and their management teams.

So when you add these changes to the marketplace and the actual music labels, it becomes clear how important finding and nurturing talent might is an important role for labels to fill. Succeeding on that challenge means keeping a steady flow of new talent signing on – and in the music industry of 2009, succeeding in that means leveraging the tools of the Internet and social media to promote an artist. While digital sales at outlets like iTunes have been growing, the industry will have to find new ways to monetize both the content and the artists who create it.

To me, the Cisco-WMG deal is about a label putting the infrastructure together to deliver on the promises they have to make in order to get bands signed to the 360-degree deals, also referred to as “expanded rights” deals. WMG CEO Edgar Bronfman underscored this when he, in a recent earnings call, noted that more than half of WMG’s deals with band were of the “expanded rights” variety.

For WMG, Eos is a platform that gives them the flexibility to experiment with multiple engagement and monetization tactics. There are no established practices or music-label playbooks for this new frontier, so rapid experimentation with the ability to generate solid analytics to measure the experiments is required. This seems to be what WMG got from Cisco as they noted that Eos enables WMG to get an artist’s site up and running five times faster than the previous tools they were using.

Will other labels follow suit and sign on to Eos? Will bands and artists who grew up with the punk and post-punk DIY attitude? I think it’s going to be a tough sell, especially with artists who have already left (or were pushed out of) the big-label ecosystem.

More important to the long-term health of the music industry, however, is the sorts of strategies being embraced by labels such as WMG are the kinds of strategies that make them more appealing to artists who are just starting out?

You’ve probably seen the stories (like this one) about a rumored “new” format for packaging prerecorded online music into the new digital or interactive album.

If true, the promise of some new type of content bundle could be an interesting new opportunity for music labels to redefine their roles. Or they could totally screw up this one last chance they have to find a profitable slot in the music industry.  One thing is for sure, the concept is coming into a marketplace for pre-recorded music which has been completely reshaped by consumers exerting complete control over the configuration of the music they will purchase.

Unimaginative attempt to drive an average selling price-per-unit from $.99 to something more or is it a compelling new mix of content types that justifies any price above $.99? Not clear to me which way it will swing, but until somebody does something, we can speculate.

Among the ideas for what might be layered in include lyrics, “extra” or “special” songs, perhaps a video or two, maybe a coupon or code so the buyer can maybe get pre-order concert tickets for the band or artist’s tour. (The pre-order-for-concert-code might actually be more important for the live-performance market than the pre-recorded market, given the ups and downs of that sector not to threatened congressional hearings into the merger of Ticketmaster and Live Nation, the two largest concert promoters.)

It certainly has potential as a concept.  Anybody can think of interesting possible bundles. Off the top of my head:

• Curated bundle: the band’s mix of songs, lyric sheets, animation, video, schedule of additional songs (new or live)  etc. More adventurous bands can consider things like providing stems to be used by consumers to create mash-ups or remixes using tools such as Mixmatchmusic.
• Loose bundle: basic set of songs, cover art, lyrics, future releases e.g. live cuts or new singles.

But with anything “new” in the online music industry, it would appear that this new concept has created yet more tension between Apple and the major music labels – and probably some of the independent labels, too. According to the News.Com story, Apple is taking an idea for interactive albums first proposed by the labels a few years ago.  One can only hope that they figure out a single, compatible solution.  Actually, what I’d hope for is that if there are going to be two formats for the interactive album, that they’re not incompatible e.g. I need a “special” digital or interactive album to play on an iPod, or iPhone vs a Windows PC or mobile device. 

But that just won’t happen, will it? I mean surely . . . Nobody would seriously believe that would  be a good thing. Right?

Tis’ the season for contrition, or so it seems.  First Pirate Bay’s buyers last month claimed that they planned to leave their pirate ways behind and offer a legit online music service. Now, it appears that Altnet, parent company of Kazaa – one of the post-Napster file-trading protocols that hit the market soon after Napster – is “talking” to independent labels and even movie studios about getting content licensed in order to launch a legit subscription service.

According to this report, for $20 a month, Australian consumers would get DRM-wrapped content and a catalog far smaller than those offered by existing online services.

To which I can say, the Internet is truly a wonderful thing. Anybody, with any idea, can use it to live out their dreams.