Parks Associates Blog

Wednesday, December 06, 2006

Yahoo Experiments with MP3 Format, Again

The Wall Street Journal reported Wednesday that Yahoo! Music is experimenting for the third time this year with the new music strategy: releasing Norah Jone’s single “Thinking About You” in the DRM-free MP3 format. The previous experiments were also associated with big-name artists like Jessica Simpson and Jesse McCartney.

In the digital music industry where Apple’s clout becomes increasingly threatening to other music distributors’ long-term viability, Yahoo’s move is widely regarded as an unconventional strategy to battle for an outbreak from Apple’s siege. Can MP3, used to be the equivalent term for music piracy, become the solution to the music industry’s current dilemma? I doubt it.

Unlike a few years ago when the music industry only has to worry about Napster-like file sharing pirates, it now has a more thorny issue: to deal with an uncooperative friend/partner Apple. How to treat a friend who helps you enormously but also stubbornly insists on doing things in his own way? The music industry is still struggling to find the best approach. Now the idea of using the universal MP3 format is being floated by Yahoo as a means to counter Apple’s influence. But this approach is hardly novel or effective. One reason: consumers are far more concerned about content and cost than format. Different formats, like different content protection schemes, are restrictions applied to the content and consumers ought not to care about them.

Yahoo points to eMusic as a success story to justify its theory and practice. I don’t think MP3 is the secret source for eMusic’s success. iTunes, like eMusic, has a large collection of tracks from independent labels. If Yahoo argues that iPod owners go to eMusic because its catalog tracks can be played on the iPod, then there is no reason for them not to look for them on iTunes in the first place. My theory reasonably argues that only when they cannot find the music they want on iTunes will they turn to other sources, or for other more practical reasons, like…hem… cheaper price?

In other words, iPod owners are indifferent to MP3 format, but more drawn to unique content and better deals than they get from iTunes. I don’t know how much catalog overlap there is between eMusic’s and iTunes’, but I know under eMusic’s current pricing model (basic service costs $10 for 30 tracks per month or less than 34 cents per track), consumers definitely get a better deal than iTunes’ 99 cents universal pricing.

So if Yahoo Music cannot compete with iTunes on content uniqueness and price, MP3 format will not do any good for it to counter against Apple’s influence in the music distribution business. And don’t blame DRM for restricting consumers’ choice and unsuccessful business venture. In my opinion mobile service providers’ “walled-garden” approach, and printer manufacturers’ printer + proprietary ink cartridge model are much more restrictive that current music DRM terms, but I didn’t hear any far-cry about them. The content industry is working on interoperability technology, like Coral’s solution. They are far ahead than the other two industries for being considerate to consumers’ needs.

My departing words are for the music labels. Yahoo and other “non-Apple” distributors’ woes are partly attributed to their fixation on old business models benchmarked against CD sales, pricing and distribution terms. While Norah Jones is singing “Thinking about You,” music labels need to think really hard about themselves for a much needed change.

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