Farewell to MusicNow & A Look Ahead

On January 26th of 2004, I wrote a blog entry about Microsoft entering, or not entering the online music business, entitled Microsoft's Attention Deficit Disorder & The Music Industry. Those being the "golden days" of the online music business, it was a naive, more gentle time.

On January 26th of 2004, I wrote a blog entry about Microsoft entering, or not entering the online music business, entitled Microsoft's Attention Deficit Disorder & The Music Industry. Those being the "golden days" of the online music business, it was a naive, more gentle time. Wide-eyed enthusiasts from television channels to beverage makers were dipping their toes into the online music pool. But even back then...almost three years ago, I looked into my crystal ball and wrote this about Microsoft and PlaysforSure:

"Not satisfied with dominating the operating system, the web browser, cell phones, PDAs, game machines, streaming video, television, networking, and your wristwatch, they are now entering from behind the wizard’s curtain into the online music game. Their strategy to date (similar to all of their strategies) is very interesting.

Let’s look at it:

1. License the Windows Media format to almost every online music vendor (except perhaps two).
2. Wait until all those checks have cleared.
3. Open our own competing store and piss all over those vendors.
4. Get them to take it with a smile while saying things like:

“We have known for some time that they were considering this, specifically the MSN group,” said Greg Rudin, vice president of marketing for FullAudio’s MusicNow service, which is carried as a link inside Microsoft’s Windows Media Player. “We are strongly partnered with the Windows Media division, and…they have given us assurances that they will be fair and equitable with their partners.”

Heh heh…sure they will Greg, sure they will."

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Well indeed Greg, Microsoft did finally enter into the music business with not only a service, but also a device. As for equitable...ahem...the jury is still out.

 
MusicNow's Great Adventure
So how did MusicNow fare? Well after raising $30+ million in venture funding, they were later acquired by Circuit City, prompting a collective, "huh?" Later, after being reminded what business they were in, Circuit City sold MusicNow to AOL. We get this priceless quote from that time:

 

"The MusicNow transaction allows us to superserve our AOL members and expanding web audience with a truly best-in-class, full-service, digital music platform - giving us the opportunity to offer an unparalleled music service," said Mr. Fish in the press release....
"...AOL's users have been asking for these next-generation features to be a part of their music experience - and AOL Music Now will deliver them."

 

Deliver them indeed. This week they were superserved to Napster for $15 million bucks.

Now if you were paying attention above, yes that's three acquisitions in just seven years, and wheelbarrows full of cash. My advice to Napster...drop this hot potato as it carries that same curse you find in those doomed and abandoned shopping center locations. You know those storefronts that were once a failed dry cleaner, chinese buffet, and a surf shop all within two years?

Personally I can't wrap my head around the value of this acquisition. As Mr. Arrington well points out, this isn't really a short term money maker, and I personally doubt a long term one either. I guess this is viewed as growth, by adding 350,000 subscribers. Not bad for $15 million bucks. However, today's issues are the same as the issues back when I wrote my original post in 2004. This is a highly competitive market with almost no margins, meaning no room for mistakes.

And while I'm now convinced on the music subscription model as a viable technology (if not business), I'm not sure that Napster can truly compete with Apple, Microsoft, and Real. You see while it seems nearly impossible to catch Apple these days, Microsoft has all the time and money in the world, and Napster has none of the anti-trust protections afforded to Real. So while Napster has nicely consolidated some of the market for us (and they are supposedly "on the market" themselves), I'm not sure I see a winning strategy here. I'm just waiting for them to either be purchased or run out of money...whichever comes first.

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Personally I think the real winner here is Real. They now have one less competitor in the subscription space, have just done deals with Nokia and Tivo, and are sitting on a market cap that dwarfs Napster's. Regardless, it is interesting to look back three years and see how this segment has changed and think about where it may be heading.

We'll see more pruning in the industry as companies who think that offering a "music store" based only on their brand or ability to deeply discount music is compelling. These days it simply isn't enough. People are looking for seamless solutions that fit their lifestyles. So far I believe the companies delivering on this are Apple and Real. As for Microsoft...it is still too early to say. I'm not sure I understand their whole player/social/music strategy or who they are really trying to sell it to. Not two months after releasing the much touted and hyped Zune player, they had their butts handed to them by a new Apple product that likely points to the next iPod design. Not an auspicious start.

So in 2007...who amongst the online music stores will be left standing, and who will be gone?

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