The first half of 2005 was characterized by a large percentage increase in paid music download purchases. Specifically, paid download levels in the US increased by 170 percent when compared to the first half of 2004. But will that be enough to sustain an industry? Analysts at Fulcrum Global Partners LLC recently raised some concerns. "Despite the improvement in digital, the RIAA data indicates that the dollar value of manufacturer shipments (physical and digital units combined) declined about 3 percent," the analysts noted, pointing to a sagging pre-recorded CD sector. "We expect physical music sales to continue to decline as retailers – particularly big box retailers such as Best Buy and Circuit City – scale back floor space devoted to music and/or begin to pressure wholesale pricing, particularly as they are capturing less and less market share from music specialty stores."

Clearly CD sales are in trouble, though the larger question is whether digital revenues can eventually replace a declining physical market. The Fulcrum analysts remained bearish on the prospects. "While we are intrigued that consumers who felt music was too expensive or too hard to find are coming back into the music buying population, we are increasingly concerned that the ability to buy individual songs (vs. albums) combined with the ease of theft…will result in digital sales not offsetting physical declines."

Meanwhile, the analysis also pointed to softer-than-expected digital sales in the third quarter. The group noted that paid downloads for the most recent quarter are only 12 percent above Q1 sales, and 3 percent above Q2 returns. "We are surprised that weekly digital downloads have not increased rapidly throughout 2005, given how early the industry is within its digital migration," the report states. Currently, physical sales account for 94 percent of overall industry revenues, while rapidly expanding digital sales now account for 6 percent of the pie.

From Digital Music News

See also iTunes Scam

Sdram_chipThe recording industry has always been driven by new formats throughout its history.  From wax cylinders to vinyl records, from cassette and 8-track tape to CD and more recently MP3 files. The music industry has always moved forward by introducing successful new formats and migrating people to a better product.  The CD has been around for nearly 23 years and is a tired format.  The major labels refused to license unprotected MP3 files and this decision is one of the reasons that they are in trouble today.

The future of music lies in embracing and developing new formats that give people increasing value and convenience – and makes music more attractive and makes it sound better. 

In our book, ‘The Future of Music’, and in recent industry presentations we proposed new formats for music, such as those to be delivered on flash memory cards and in jewelry.

Now, the vision begins to come to life.

SanDisk has announced plans to deliver music content via its microSD, flash based memory cards. The company will offer the new Rolling Stones album, ‘A Bigger Bang’, on the format starting in November. The price point will be $39.95, and the cards will be available through a large number of retailers. The Rolling Stones deal is only the beginning with the cards eventually including other forms of media. The company also announced that its Gruvi cards will be compatible with the Yahoo Music Unlimited service, allowing consumers to listen to subscription-based content across the same range of devices. To achieve this, the Gruvi cards will be compatible with the Yahoo Music Engine software client, which lets listeners manage music, create playlists, and purchase downloads.

Read more here.

Shortly after the CD was first introduced to the marketplace in 1983, the  music industry decided that the “jewel case” in which the CD was packaged was too hard to merchandise and too easy to steal. So, they invented the ‘long box’, a cardboard sleeve that housed the jewel case and disc. Two of the long boxes fit neatly side-by-side in the existing LP racks. They figured it would also be a good deterrent for shoplifting, since it was too long to shove into a pocket to steal. However, the impact that this abundantly wasteful idea had on the industry, and the backlash felt by insulted consumers and ecologically minded artists, has been well documented. Suffice to say that the long box was eventually abandoned.

There has never been any DRM that has not been cracked by diligent hackers one way or another, whether commercially exploited or not. This is true for DRM used in computer software, video games, cable television, cellular phone transmissions, DVDs, and for many other forms of encryption. Leading computer software makers like Microsoft and Intuit pulled the plug on overly restrictive copyprotection schemes long ago, after consumers became increasingly disgruntled with legally purchased programs that still would not install or run properly. If the software business can live with 57 percent piracy, how can the music industry claim that less than 20 percent is killing them?

Today the industry blames the pirates and the evil file-sharers for its woes, but it can certainly be argued that the industry brought this upon itself by releasing the Red Book–audio CD format, not realizing that in just a few years, advances in home computer technology would make it possible for people to replicate an infinite number of perfect digital copies of every song ever released on CD. The billions of files that are traded on Kazaa, Morpheus, Grokster, iMesh, Limewire, and other P2P networks are the direct result of the record companies’ decision to go with the CD format.

For all the music that has already been released on CD, the genie is already out of the bottle. There is no turning back to a time when the music could have been “mechanically” protected. Therefore, for all the music available on existing CDs, there is no possibility for DRM to ever be effective, retroactively. This is also true for the thousands of new CD releases being introduced into the marketplace every month by the record industry. All attempts at post-natal abortion will prove to be fruitless.  The simple fact is that if you can see or hear it on your computer, then you can copy it, one way or the other.

Read what the EFF has to say about the current ‘authorized’ digital music services and their use of DRM.  The Customer is Always Wrong.

A scheme that would shift the cost of digital music from users to Internet service providers is gaining international support.

"William “Terry” Fisher, a Harvard law professor and director of the Berkman Center for Internet and Society in Cambridge, Massachusetts, is a key advocate of revising the process by which copyright holders get paid. His group is working on a project called the Digital Media Exchange, to be built next year. The Exchange would compensate artists by dividing customers’ subscription fees based on how many times a work is played.

Mr. Fisher said his preference would be for governments to impose a tax on ISPs to collect revenue and make all works available to consumers. He says that China, some countries in Eastern Europe, and Brazil seem as if they might be open to this possibility."

Read the Red Herring Article Here.

155489Sony has announced a new series of flash-based digital music players designed to give the iPod Shuffle a run for the money.  The new Walkman Beans sport a built-in FM tuner and are available in 512 MB and 1 GB versions.  The units play both MP3 and ATRAC3 music files, in addition to supporting WMA and WAV formats. They are compatible with Sony Connect but not the iTunes music store (uurgh).  The players have a pop-up USB jack that connects directly to a PC for charging and transferring music.   Available in October  512 MB for about $130 and 1 GB for about $180. 

Sony NW-E507 colors

In the past, Sony with it’s Walkman brand, dominated the personal electronics market for music.  Today it is Apple and it’s iPod that dominates the market.

Wall Street analysis publicly stated that they didn’t feel Apple could
sustain its growth in the iPod market, but last weeks quarterly results
demonstrated that Apple’s high-water mark may have not been reached.
Apple sold 6.2 million iPods last quarter. Six million! Their revenue hit $3.52 billion up from $2.01 billion the year before, exceeding
predictions and buoying the stock.

 Sony still has serious work to do to consolidate its battling divisions, and integrate its hardware players with
Sony’s Connect Music Service
. With the 50 year old culture of internal one-upmanship instead of teamwork, this is not going to be an overnight affair.

Read the whole story here.

"Already millions of people are subscribing to these podcasts," said Steve Jobs, predicting that an iTunes upgrade would "send it into orbit." Jobs made these comments at D: All Things Digital, hosted by Walt Mossberg from WSJ. The iTunes upgrade, expected to be released in the next few months, will feature a listing of top podcasts. "We can highlight the 20 most popular podcasts and we can highlight the ones that are really great," Jobs added.  Support of podcasting directly by Apple could catapult the nacent audio publishing format into the mainstream.

How will fans purchase music in the future? Will people keep buying tracks for their personal libraries on iTunes or will the subscription model proposed by Napster, Real and others be the ultimate channel of consumption? Should music become a utility? How should the rest of us best position ourselves for the continuing rapid evolution of the distribution models of content?  These are the questions we address in this edition of IRIS Research.