Mike McGuire

Rumors being what they are, much of what Steve Jobs announced at the iPad launch event didn’t come as a surprise to the overload crowd at the Yerba Buena Center insane Francisco. The iPad is a “tweener” that fits nicely between an iPhone/iTouch and netbook computer. With a 9.7-inch screen weighing in at 1.5 pounds, sporting battery life claims of 10 hours, the iPad could be ideal as a prototypical interactive content consumption device…but a few unanswered questions challenge its viability for media companies.

For book publishers, some of whom were waiting for signs of wide-scale acceptance of the universal e-publishing standard, ePub, the iPad came through…sort of. Although the device supports ePub, Apple is believed to be planning to implement its own DRM (Fairplay) to secure the ePub files, which could presumably then be distributed only through iTunes (that is, iBooks). If that is the case, Apple’s book efforts puts it in the came category as Amazon which utilizes a proprietary DRM that ties Kindle books Amazon.com. Hence any e-book purchased from Barnes & Noble, Sony or any of the countless e-book retailers will not work on the iPad. In addition, e-books from libraries, which are powered by Overdrive who uses Adobe’s DRM, also would not work on the iPad.

For both newspapers and magazines, the iPad remains a mystery. The demo of The New York Times, which was created in a compressed timeframe, is not much indication of what potential newspapers have on the iPad. Those are questions that can only be answered by developers who are busily downloading the new SDK and attempting to devise compelling paid or ad-supported content applications. The initial focus is on paid applications (and again, there is no evidence that consumers will pay for digital newspaper content) as there was no mention of advertising support from Apple, which many were expecting following Apple’s recent acquisition of Quattro, a mobile ad network. The same goes for magazine publishers who now have the color device they have asked for but will need to experiment with varied content applications and business models, while scrambling to source enough video to do justice to consumer expectations raised in demos.

The iPad launch will create ripples throughout the publishing industry: supply chain providers who digitize and format content as well as develop applications will thrive; standalone e-reader device manufacturers will have to re-price their devices now knowing that the WiFi-only 16G iPad can function as a high-end e-reader. Plastic Logic’s Que, the Alex and Entourage Edge may be forced to revisit their announced retail prices.

For video content such as TV and movies, a similar catch was apparent. While the iPad can clearly render beautiful hi-def full screen video, its lack of support for Flash was evident in the tiny blue cubes that appeared on web pages during the demos. This means that TV-friendly web distribution platforms like Hulu are unlikely to work on the iPad. (A Hulu app for the iPhone/Touch has been rumored for some time but has yet to materialize.) Here, too, Apple appears to have reserved the distribution of TV and movies for its device for iTunes, although YouTube remains a wildcard if it should release a sound model for content owners to monetize through rentals or sell-through. Also unexplored was the possible connection between the iPad and Apple TV, which have clearly enticing possibilities.

Then there’s the mysterious absence of any mention or demonstration of the device’s advertising potential, or Apple’s apparent newfound interest in participating in the business. With iTunes emerging as the sole channel for monetizing content of any kind on the iPad, advertising remains a critical source of revenue to publishers and video providers alike, and one on which Apple’s chief emerging rival, Google, is laser-focused with innovations like Google Goggles and QR barcodes readable by Android devices, and distributed to 100,000 businesses. Of course, these ideas require a camera, which the iPad lacks.

Still, Apple did not fail to push the envelope and generate enthusiasm for its latest creation. Now, with Apple setting the standard for content consumption devices, other manufacturers—most notably PC OEMs, will begin to launch their tablets and will look to Android and possibly Windows as device platform. In particular, Android will thrive with Google deploying its Google Editions and YouTube strategies to offer cloud-based delivery of all content to the universe of Android devices, with a well-proven advertising component.

And let’s not leave communications service providers out of the mix. Whether Apple’s choice of AT&T is one consumers find popular, it leaves Verizon and Sprint as ready partners for HP, Dell, and others whose tablets are in queue.

All that said, content companies of all kinds need to examine the iPad and the new version of the iPhone OS with a few things in mind. First, Steve Jobs is without peer in his ability to provide a vision of the future through the medium of the product he happens to be introducing at the time. In the case of the iPad, he described the magic of having the “…Internet in your hand.” True that, but for a lot of us, that came with the iPhone, the Touch and the AppStore. And as revolutionary as those products have proven themselves to be, the real magic has come from the integration of all those elements into a set of compelling content experiences.  Second, the iPad extends by one the form factors those kinds of experiences can be delivered through. Third, and this is really important, we’re still talking about the “Internet” as defined by Apple. The potential for game-changing killer apps to come for the iPad is not in question.  And the potential power of content experiences Apple can enable is not in question.  But the handle on that potential is being controlled by one entity.

In that regard, we remain puzzled at the continued estrangement between the iPhone OS-based product line – iPhone, Touch and now iPad – and Adobe Flash. Do the power-management issues cited by Apple as reasons for the iPhone’s persistent lack of Flash support? We think lack of Flash support still causes many, many media and content companies, and their developers, a great deal of strategic angst.  

The iPad is not the iPod for publishing. Music was a ready and waiting asset that needed little “post-production” work to be suited for a portable device, and, when the iPod arrived, the industry had already been badly disrupted. Hence the iTunes store was quickly filled with both quantity and quality. But other forms of content are not so enthusiastic to commit to a closed channel platform that controls both device and distribution, and the next 60 days will be crucial as Apple hopes to load its electronic storefront with a selection of content that will encourage consumers beyond the “fanboy” crowd to be iPad lovers.

(This post was co-authored by Allen Weiner and Andrew Frank)

Right off the bat, I have to admit, I have not been invited to the Free All Music beta test.

But it would appear this CNET blogger was invited. He states he found the experience of watching ads – of selecting ads and then watching them – before getting the downloads was “…surprisingly painless.”  Now that’s a ringing endorsement, right up there with my personal favorite, “I didn’t hate it nearly as much as I thought I would.”

Yet the author describes a process in which the user really only gets 30-second samples of songs before being forced to pick an advertising sponsor, having to sit through a 15-second advertisement and then getting the download.

I warn you, reader, what follows is a mean-spirited, judgmental and completely uninformed review of Free All Music’s beta offering (remember, I didn’t get an invite): ridiculous.

How is this better or worse than Spiral Frog’s attempt? It’s not, it’s the same flawed idea. Get a consumer to watch ads in exchange for a “free” song download. What’s the first thing wrong with that idea? You can’t make sure the consumer saw the ad and didn’t just minimize the Free All Music window (a behavior that the CNET blogger cheekily noted he’d never endorse, of course). Second, what do you think the value of an impression is when the media being exchanged with the consumer can be readily acquired for free or a small amount on many services? In other words, Free All Music channel isn’t the only place to get it.

But what interested me about the story was a comment from a reader who said he/she hoped the model worked because it’s “…perfect for those of us with a low to moderate appetite for music.”

So consumers with a “…low to moderate appetite for music”  – meaning they aren’t passionate about it, they aren’t into music – are willing to deal with ads to get free versions of something they are kind of interested in?

Please, somebody tell me how this is going to be a real business. Tell me how this is going to be an important revenue stream for the music industry. 

A couple of items crossed the mailbox today during that slow run-up to Xmas.

My esteemed colleague Andrew Frank pointed me at this story which noted that with iMeem’s sale to MySpace, MySpace did not agree to also purchase the debts to artists who were owed money for sales conducted via iMeem’s SNOCAP-based storefronts would not be getting paid. Unfortunately, this probably sounds familiar to a number of artists.

Certain record label executives should take note of the situation as well because this would seem to be an unfortunate but useful development to illustrate how a label, of some sort, might be better able to insulate a band or artist from an all-to-real phenomenon: web-based businesses that all of a sudden aggregate large audiences then seem unable to monetize those audiences.

Item #2: TopSpin Media is helping market and distribute a new album by Pixies guitarist, Joey Santiago, and drummer Mike Lovering, called “The Everybody.”

Topspin’s tech team apparently leverage the iTunes “LP” format specifications Apple’s made available which are essentially a bunch of HTML code. The result: The Everybody can be purchased in multiple formats: $10 for the album in 320kbps MP3 with bonus tracks, or for $40 you get the 320kbps encoded MP3s, Apple loss-less or FLAC formats, and a collection guitar, bass, drum and other instrument stems that a user can remix and sell. Yes, sell, royalty free. (The stems are covered by a Creative Commons license.)

While the Everybody’s new release is very exciting to the true fan and the hardcore remixer, clearly it’s not intended to target casual music listeners or even casual Pixies fans. But what is important is that Santiago and Lovering et al are using the technology to reach the fans and musicians who do know them and are eager to interact with the music beyond simply listening. This model isn’t going to be for every musician or artist but it sure does provide an excellent example of what is possible in terms of content bundling and making/maintaining direct links to fans using the Internet.

Apple confirmed on 4 December 2009 that it was purchasing Lala, developer of an online streaming music service that lets consumers sign-in and stream music on-demand with the ability to pay $.10/song to build online libraries of albums and playlists of songs. (Songs are also available to download for $.79 each.)

This has all the signs of Apple hedging on the long-term strength of the a la carte download model, given the recent surge in popularity for cloud-based music experiences such as Pandora, Spotify, or even Napster or Rhapsody. Not coincidentally, each of those services received significant bumps in attention, if not users when they delivered or announced plans to build iPhone applications. I think that Lala’s recently submitted iPhone application might have had something to do with the purchase.

While the terms of the deal were not disclosed, my guess is Apple got Lala on the cheap. Lala’s evolution from used-CD-swapping hub (users would mail CDs to each other via trades arranged through Lala’s site) to freemium-based streaming service required the raising of more than $20 million. A fire-sale price would seem to be another example of how limited the opportunities are for paid online music services.

To me, this deal underscores one of the few constants in life: Apple’s historic preference for a device-based value-proposition for consumers. A content service that underscores the value of Apple’s hardware – without breaking the bank – is what Apple’s always had in iTunes and what it will always want to maintain. If significant numbers of consumers shift to cloud-based services, Apple’s got an app for that, it appears.

Can “music as a service” really work? While Rhapsody and Napster, and to a lesser degree Nokia’s Comes with Music offering, have built audiences, to be sure, in terms of revenue generated and user accounts, they’ve lived in the shadow of the Apple’s iTunes store.

Now comes MOG, purveyors of an active music-blogging platform reaching about 10 million visitors a month, launched its MOG All Access online music subscription service earlier this week. For $5 a month, users can log into MOG and start streaming immediately any of 6-plus-million tracks. The service provides fully interactive streams (an important licensing achievement for All Access), meaning consumers can repeat or skip at will. Playlist creation and publishing to the All Access community is straightforward and provides a decent environment for encouraging social browsing and discovery, and there are also links to Amazon’s MP3 store are available for most songs. All Access also contains lyrics for most of the content they have.

The “cool” feature on MOG? The recommendation slider-bar on MOG Radio. Most slider bars on web media players increase/decrease the volume. On MOG, it increases the breadth of different artists that will be included in the playlist the user first selected. You might start with the Mars Volta, but slide the bar to the right and you’ll get Pink Floyd, a little further and The Fall of Troy shows up on the list.  Move it back to the left, all Mars Volta all the time. That’s a neat UI feature.  And it’s one that definitely adds to the lean-forward usage model of the dedicated music explorer.

One item MOG does have to get running sooner rather than later and that’s a client for mobile phones such as iPhones, Android and Blackberry devices.  (The company says they’re looking to have a mobile version – which platform is not known at this time – by early next year.) Pandora’s proven that if you have a very good online streaming service, a fair number of folks are going to want to use that on a consumer smartphone.

Can consumption of music be turned into a service? Will $5/month be the magic price point for consumers given the alternatives out there? I think for fair number of online consumers, streaming is increasingly the favored method of consuming music, especially if there’s a mobile extension of the service. But subscription services – even at $5/month – always face the same challenge: delivering perceivable value to the consumer, month in and month out. And there is plenty of competition or the online subscription dollar from the previously mentioned Rhapsody and Napster, as well as iLike (now owned by MySpace Music) and Lala (as of Friday rumored to be acquired by Apple) and Pandora. 

As with any online content business — a la carte sales, subscriptions and hybrids – it comes down to the consumer experience. It will be interesting to see whether MOG’s mix of discovery tools and licensing deals can be translated into a sustainable advantage.

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.