Rivals aim at iTunes’ grip on music downloads

FT.COM: Amazon and Google are separately in talks with music industry executives about new digital music services that could break Apple’s grip on the fast-growing market for legal downloads.

Senior executives of two of the world’s four largest music companies, who were gathered in Los Angeles for this week’s Grammy Awards, said they were keen to collaborate with both companies to create competition for Apple’s iTunes service, which claims a 70-80 per cent share of the world’s largest markets for legal digital music sales.

“I do believe Amazon and Google will do something serious,” the chief executive of one large music company told the Financial Times. “We have had active communications in the last 60 days.”

Amazon was further advanced than Google in its plans, he said, and could launch a download service as early as the second quarter of this year. Google had “very serious” discussions with the music industry late last year, he said, but these are now moving more slowly.

Last week Google said that it had “no plans at this time” to develop a music store, and has denied rumours that it could bid for Napster, the now legal online music company.

Richard Doherty, analyst at Envisioneering Group, said a digital music service from Amazon or Google would “certainly shake things up more than [Sony and Microsoft]”, whose online music stores have had limited success.

The music industry’s eagerness to collaborate in the creation of new legal digital services shows its determination to ensure it does not lose control of its pricing as digital music takes an ever-greater share of the market.

Last year’s three-fold growth in the legal market for music downloads and mobile phone ringtones to $1.1bn almost offset the decline in sales of CDs. But music industry executives have complained that Apple’s model of charging a fixed 99 cents or 79p per track is holding back the market.

The executives would like to support new services that offer flexible pricing - the ability to charge a cheaper rate for promotions or for out-of-favour tracks while charging a premium price for new hits and longer classical works. They are also hoping any new service will offer the ability to deliver music to many different devices, rather than Apple’s iPod alone.

Amazon’s interest in moving from shipping physical CDs to offering tracks and albums for digital delivery comes as it is also in discussions with film studios about launching a movie download service to counter the digital challenge to its DVD sales.

The head of one Hollywood studio told the Financial Times: “I think Amazon will do best” in the battle with Google, Yahoo and other online competitors to deliver films digitally.

Jeff Bezos, Amazon’s chairman and chief executive told analysts this week its investments in new digital services were “a longer term initiative for us.” He said he was “excited about the opportunity” in digital media and suggested Amazon could take a larger share of the digital media market than it currently has of physical media sales, given its existing online platform and brand position.

Anthony Noto, a Goldman Sachs analyst, highlighted defensive reasons for Amazon’s interest, saying he was “concerned that the shift toward digital consumption of music and home video will negatively impact Amazon unless it rolls out a more comprehensive digital media product in the near term.”

Studios have also held discussions with Wal-Mart, the world’s largest retailer, about installing kiosks in its stores from which consumers could use digital technology to download films on to portable discs.

Murdoch: iPod video is "small time"

NEWSWEEK.COM: In an interview with Newsweek, News Corp honcho Rupert Murdoch said he'll announce a $1 billion plan later this month for adding broadband satellite Internet access to his DirecTV service.

Along with that service, his MySpace investment, and other Net sites, he expects to have a "conservative" $1 billion in Internet revenues by 2010, he told the magazine.

His Fox network will be distributing shows online, but for now he says he's not impressed with Apple Computer's iTunes video store.

"How many people really want to get video on a tiny screen when they already have TiVo or a similar service from their cable company or DirecTV?" Murdoch said in the Newsweek interview. "What's been announced so far with iPod and Disney and NBC is very small-time at the moment."

Small is beautiful for Web 2.0 start-ups

NEWS.COM: Jason Fried, president of start-up 37Signals, is a bona fide software entrepreneur. But he wants nothing to do with the traditional model of starting a software company.

Rather than try to crack into the business market with a complicated, pricey product, Fried and his colleagues chose to stake out a fairly narrow sliver of the software world: hosted personal organizers and project management applications.

To Fried, the old way of doing things--where a start-up's success hinges on a few well-heeled customers willing to shell out big dollars--is history.

"I think the idea of enterprise software is dead. Enterprise software is kind of a dirty word--big bulky things that never work, were never delivered on time, and are too expensive," Fried said.
The enterprise software market is a multi-billion dollar industry that's still growing--albeit more slowly than in years past. But changing industry dynamics are making it a less attractive market to try to break into, say some investors and entrepreneurs.

Instead, the past two years has seen a proliferation of smaller companies building Web-based applications, sometimes referred to as Web 2.0, as well as open-source companies. Many of these firms can get off the ground with relatively small up-front investments, not the tens of millions of dollars that venture capitalists pumped into new software ventures in years past.

The business plan at 37Signals, for example, is to build simple hosted applications and charge a monthly subscription fee to small businesses and individuals.

In the two years since launching its first service, the self-funded company has signed on hundreds of thousands of customers and it has no debt, said Fried. It has also founded a successful open-source Web development project, Ruby on Rails.

=> Read the full report on CNet here.