Best Buy Buys Napster...Why?

The big news today is that Best Buy in the U.S. has purchased online music download company Napster for a reported US$121 million. Which begs the question: why?

Online music downloading has been an arguably struggling business for years, plagued by illegal, peer-to-peer (P2P) music Websites and customer's (warranted) hatred of silly things like DRM that prevent you from listening to purchased tracks on various devices, or burning them to CD. According to the Financial Times, Napster actually reported a loss of US$16.5 million in the year ending March 31.

Along with the still existent P2P activity and DRM (which is slowly melting away, but could see a resurgence thanks to the Government's Bill C-61), online digital download sites like Napster still have to fight the leader in that realm: iTunes. And with the iPhone added to the iPod family, iTunes will likely continue to be the leader of the pack, likely by an even bigger gap.

I'm trying to fathom why Best Buy would take on the task of competing with iTunes. The only thing I can come up with is that the strategy works in tandem with the retailer's recent move to ramp up its involvement in the mobile phone arena. Best Buy is opening standalone Best Buy Mobile stores that sell mobile phones. As is evidenced by devices like the iPhone, Nokia N95, and Sony Ericsson Walkman phones, music is becoming a huge part of the mobile phone experience. Could Best Buy be working out deals with carriers to link Napster downloading with their services? Or is Best Buy just looking to get back into this side of the business now that companies are offering DRM-free tunes that are more appealing to customers?

On the portable media player side, perhaps this is a way for Best Buy to make money on the sale of devices other than the iPod. Maybe a Napster subscription will be offered as an incentive to the purchase of an MP3 player. Or on the flip side, maybe "deals" on music downloading will be awarded in store on purchases. Who knows.

While there's no official comment on how the takeover might affect the Canadian market, my guess is that Best Buy is just testing the waters for now, and making sure that the company is well equipped to compete should digital music downloading take a significant upsurge in the next few years. While I'm rooting for this to take off, I'm not holding my breath either.

Online Content Distribution Issues Slowly Smoothing Out

Since the Internet has become a major means of obtaining content of all kinds, it has been rife with issues relating to unauthorized content distribution. We still have a long way to go for these issues to fully smooth themselves out: after all, it's incredibly easy to get whatever information one wants onto the Internet for literally the entire world to see! But we're definitely on the right track.

Just today, music studio Sony BMG made a deal with Yahoo with regards to the use of its music and videos in user-generated content that's uploaded to the site. Yahoo will give Sony a cut of its advertising revenue, and Sony BMG will permit its artist's material to be used in content that appears on the site. Finally a deal that makes sense and is working toward the consumer's interests, not against them.

Encouragingly, this isn't the first of such deals to come down the pike: Sony BMG has already made a similar deal with Google and its popular YouTube property; while NBC Universal and News Corp. said earlierthis year that it would create its own Internet video distribution network that would feature thousands of hours of full-length programming, movies and clips from at least a dozen networks and two major film studios.

Meanwhile, popular sites that feature user-generated content, like Yahoo and YouTube, are working vigorously to employ content filtering technologies that would weed out anything that uses unlicensed copyright material. And music downloading Websites and music studios, like iTunes and EMI, are finally beginning to embrace DRM-free content. In terms of the current Hollywood Writer's Guild strike, which is fueled by the writer's feelings that they aren't being appropriately compensated for content distributed online, rumour has it that the parties are back into negotiations. This is the kind of progress that is very encouraging: don't try to hinder technological development; work with it.

On another note, there are still naysayers that simply won't embrace the changing way we consume content. Famed record producer Jermaine Dupri is one of them, having gone on a rant in the Huffington Post about the state of the music industry. He feels that consumers should buy an entire album if they want one song: that's the way it always has been, and that's the way it should remain. I understand his point that an album is created to tell a story as a whole, and a lot of work goes into creating the "work of art", but to say that sites like iTunes are "helping customers destroy their canvas" is a bit of a stretch. I guess the "random play" option on any CD player or music system should be squashed as well, because this often leads to only a few tracks off each inserted CD playing within a set.

I digress...

NBC Universal Says No to iTunes

NBC Universal is not renewing its contract with iTunes. According to Reuters, the studio is iTunes' number-one supplier of digital videos, including popular TV shows like Heroes, 30 Rock, and The Office.

NBC reportedly wants Apple to pay an inflated fee for the content, which would result in an increase in the price customers pay for downloads (supposedly US$4.99 per episode instead of US$1.99). Apple says sorry, that won't fly.

Of course none of this matters to us Canucks north of the border who can’t even get downloadable TV content through the Canadian iTunes service. Not that I'm bitter, but I'll digress, since this is a whole other topic unto itself!

Nevertheless, this decision could lead to some very interesting possible outcomes. The first, I propose, is that downloadable online video continues to appeal only to techno-geek, early adopters, and eventually dwindles away. Downloadable video is still in a growth phase. Correct me if I'm wrong, but if the most popular media download site (i.e. iTunes) starts offering fewer quality videos instead of more, aren’t we moving in the wrong direction of where we want to be?

The second possible outcome is this: imagine NBC decides to launch its own site to rival iTunes (but just offers its own content); or partners with a competing online store that accomodates the price NBC wants. Would you pay $1.99 for stuff you don't want; or $4.99 for stuff you do? NBC announced in March that it would launch an ad-supported online video distribution site in partnership with Fox that would be available through partners like AOL and MySpace. You never know: I could be way off base, but an online video download store may not be too far off the horizon!

Sure, Apple’s domination in the portable player and online download arena is really being put to the test as of late, but we can't forget the third possible scenario: NBC feels the pain of missing the exposure of its 2007-08 season through iTunes (Apple reportedly said it would pull the plug before the new season rather than wait until the end of the year); and Apple laughs all the way to the bank.

Which way will things go? We'll just have to wait and see.

Music Without Restrictions

The ball has finally begun to roll toward the availability of digital music tracks without DRM restrictions. First, Apple’s iTunes introduced DRM-free EMI songs in May, albeit for a slight premium in price ($0.30 more/track). Then, Canadian online music store Puretracks followed suit, but is offering the DRM-free tracks for the same price as copy-protected ones. Now, Universal Music has decided to run a test, offering DRM-free music through several of its online music stores, like RealNetworks, Amazon, Best Buy, and WalMart. This list, however, does not include iTunes.

This is a great move on Universal’s part. Although the company hasn’t made the decision to permanently move to a DRM-free platform, this test period, said to run until January 2008, will allow Universal to monitor how well such a platform could work over the long-term. If piracy rates remain unscathed, and consumers respond favourably, this could mean a major change in the distribution of digital music.

What's more, the fact that DRM-free versions of Universal songs will not be available through iTunes might shake up Apple’s hold in the online music business. iTunes currently leads the music download landscape, having just topped three-billion song downloads last week. But if competitors offer more tunes without copy-protection, from popular Universal artists like 50 Cent, Enrique Inglesias, and Bryan Adams, iTunes might just get a run for its money.

The reality in the music industry today is that CD sales are slipping, and will continue to slip, regardless of whether digital tracks come with DRM copy-protection or not. And it seems that the industry is finally wising up to this; and we’re one step closer to music without restrictions.

Lines Form for iPhone?

You never know what to believe, but sources on the ‘net claim that line-ups are already forming outside of the gorgeous New York City Apple store, as anxious customers await the launch of the much-anticipated iPhone. The device won’t actually hit stores until June 29 – three days from now!

I’m getting a case of déjà vu, as we saw a similar situation mere months ago when the Sony PlayStation 3 and Nintendo Wii gaming consoles hit the market. Will the hysteria turn into disappointment once consumers shell out the $500 or $600 the unit will cost? Or will people by praising Mr. Jobs for providing them with the phone/music and video player/digital camera/Internet browser that they’ve been waiting for all their lives? One thing's for sure: Jobs certainly knows how to create hype around a product!

When it comes to pricing plans, sources say that they will cost anywhere from $60 to $100/mth (on top of the actual iPhone purchase price, of course); and, in an interesting twist, customers can sign up through iTunes rather than in-store. Mac fanatics everywhere are undoubtedly clasping their hands and gritting their teeth in delight right about now.

So far, the only negative comment I’ve heard about the iPhone relates to the difficulty one might have in locating one for purchase. I’m not convinced of its leader status just yet (after all, I don't even own an iPod!), but I’m willing to keep an open mind. As for us Canucks, hold tight, because there’s still no confirmation that the device will even see the light of day north of the border.