The future of digital music distribution and the Microsoft factor

In this post, I’d like to explore what I see in the near-future (30-50 years) regarding digital music distribution, and taking into account where I see Microsoft falling into this.

The big four record companies (Sony BMG, Universal Music Group, EMI, and Warner Music Group) control about 75% of the market. They know that people, given the knowledge, can easily pirate music if they want to. Unless they can get tougher laws regarding websites or users, or force ISPs to report on piracy to them, it doesn’t look like piracy will change much. Of course, within reason, people will pay for music if they think it’s worth paying for. Here are the best models (with enhancements) that I think will benefit both the record labels and consumers for the near future:

  • Free streaming subscription with ads – Everyone loves the idea of free, even with constraints. Users to a music service can stream music via the web for free, and as long as you’re connected, you’re good. That’s about it. Access to a library where you search and hope you find it. However, you probably won’t have access to the full library (maybe not the latest songs for a month or two, premiums, or classics), no free downloads, there will be audio ads every so often you can’t disable, and probably limits on the quantity of playlists and content inside them, and other stuff. (best examples: Pandora Radio, Slacker).
  • Paid subscriptionUnlimited library access for how long the subscription lasts. Ability to download for offline use with special DRM that takes expiration into account. Algorithm-created playlists or recommendations based on you or a specific piece on the fly. Ability to keep at least a certain amount of tracks DRM-free, high bit-rate, any audio format after the subscription ends. No downsides, except when the subscription expires, you lose access to the complete store library. Reasonable monthly price range should range from $5-$15, and less per month if on a longer contract. Possibility of music extras like those mentioned in ‘a la carte’ bullet. (Best examples: Zune Marketplace, Rhapsody, Napster, Spotify, MOG, Rdio)
  • A la carteHigh quality bit-rate, DRM-free, any audio format of any track or album you’d like to keep. Complimentary extras like lyrics, music videos, liner notes, performance videos, exclusive clips, and more are included for free. Pricing would ideally be 99 cents a song, though no more than $2 if wanting to charge extra for high quality downloads or very recent music. The only downside is cost if you can’t afford it, which does rack up if you’re a big music listener. Producing music isn’t free though, so I don’t really consider it a downside. (best examples: iTunes Store, Zune Marketplace)
  • FreemiumFree DRM-free tracks to download. Idea behind this is that most money for record labels is made on merchandising, concert events, and other stuff, while music purchases are not usually as much. So why not make free, or at least some of it, and available to all so everyone can share your work and give you publicity? Downside of course is likely limited availability. (Free Music Archive, Clearbits, MadeLoud)

Paid subscriptions fit with the Open Music Model that MIT tried to push. However, due to the record companies, royalties and whatnot, I don’t think there are any large size systems that fit the open file format and open file sharing benchmarks. It’s also worth mentioning that some services offer both a basic free streaming with ads model, and a paid subscription model.

AM and FM radio stations will continue to be popular. Though you don’t get the same person fine-tuning, and there are still ads, people still love it. They can get live traffic feeds on the go, get notified of anything major around the area, and of course the usual giveaways and shout outs. Satellite radio will also still be popular with it’s high sound quality, professionally-produced content, and access anywhere are the key differentiators.

Do retail stores still figure into the equation? In my opinion, yes. Why? Even as access to tech is trickling down, not everyone will have personal access to a computer or more likely, high speed internet. Also, people generally love the retail experience where you can peruse through stuff physically. So I think some digital kiosks selling media to download straight to a device or update a subscription can still be cool. I posted a bit more down below where I’d like to see Microsoft figure into this.

So how would I like to see Microsoft going about digital music in the near future? Here’s what I think:

  • Adopt all the models – If Microsoft could manage to have a slice of every vertical, they could really grow a large user base. They’re already firmly implanted in the ‘a la carte’ and paid subscription models, but I’d like to see if they could also do free ad streaming and freemium as well.
  • Strengthen Zune brand mindshare – The tech world knows Zune offers great stuff, yet the masses haven’t followed. Microsoft needs to increase mindshare by getting music artists to try it out and promote their product, sponsor concerts and other big music events, more giveaways so more people can see it on the streets, etc.
  • Fix up Zune Social – Zune Social is neat, but they really need to strengthen this concept. I’d like to see music videos count as music plays, closer integration with Windows Live identity, Last.fm integration, ability to make groups/forums, and more. Maybe an optional Facebook integration with users favorites artists, songs, etc.? Also more detail bios, pictures, websites, twitter, etc. on artists pages.
  • Expand internationally faster – Apple has led the way in accessing global markets and signing deals with many record companies. Microsoft needs to work on this. Developing markets are also a prime target, because usually the first ones there tend to stay in that position. I’m sure users in Africa, Asia, and Latin America wouldn’t mind a legit music/media store that does stuff right.
  • Get better label agreements – Zune pretty much has all the major stuff, but often depending on special artists, not everything is available on Zune Pass. Some won’t allow you to use a song credit to keep their song, and others won’t even let you stream the full song. It’s mostly rare, but still disconcerting. Internationally, only 4 other markets have a Zune Pass, and though they cost just about the same, they don’t get the free 10 songs at the end of the subscription. Obviously, better label deals would be appreciated.

Possible interesting ideas Microsoft could also try, not necessarily major:

  • Maybe allow Zune experience on non-MS platforms? – Zune is a very competitive service, and many would like it on other platforms. However, this could hurt Microsoft’s competitive edge in promoting their own products. With a Zune Pass, you can access music on Zune.net through a web browser, but it’s not the same as a native app. So it’ll be interesting whether or not MS will go this route.
  • Selling media in a physical store? – As I mentioned above, not everyone will always have a computer or high-speed internet, and others like a retail experience, so selling digital in a physical store format isn’t too crazy. I think it’d be neat if Microsoft could sell Surface 2.0 tables to independent music stores or even big retail stores (Best Buy, Target, etc.) to sell Zune Marketplace media directly to devices or USB sticks, and renew Zune Pass subscriptions on. Retailers of course get a cut on the items sold, but it might be worth it for all parties.

Overall, I hope to see record labels truly embracing the digital world, rather than going against it. I don’t really have to mention it, but the RIAA hasn’t generally had such a good history to it as far as most people would care. As a Microsoft fan, I think Microsoft could truly deliver a wonderful music experience if they keep working on it.

It’ll be interesting to see if music distribution will be any more different than these enhanced tried-and-true models, and if piracy will keep going unfettered.

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