Like a game of chess, success in business is often characterized by a few sacrifices that (hopefully) pave the way toward solid cash flow. Few things illustrate that analogy better than streaming digital music, an industry segment dotted with big acquisitions but little financial return to show for it.
Rivals in this rapidly consolidating world have spent the majority of 2009 acquiring, maneuvering, and, in some cases, scratching their heads over the $64,000 question that plagues them: how to make a buck off streaming music?
Two heavy hitters hope to find an answer in 2010, albeit through drastically different models. On one end of the battlefield stands MySpace, which recently announced its intention to purchase on-demand streaming music service imeem. On the other end stands Apple, having recently acquired online music start-up Lala. Both acquisitions represent a desire to monetize streaming music, a promise that has yet to be fully realized.
MySpace’s deal with imeem emphasizes ad-supported music streaming. Lala, on the other hand, offers no advertising or subscriptions, instead favoring purchasing over repeat streaming.
Contraction has inevitably led the sector to a question of methodology, evidenced by these latest acquisitions. Do you continue streaming music for free and hope the advertising industry makes a comeback? Or do you bank on people paying for what they can essentially get for free anyway?
The question is much more complex, of course, as each competitor brings a slew of interesting features to the table. The imeem deal would make MySpace the only significant vehicle for on-demand, ad-supported streaming music in the US, a potential boon to advertisers. Imeem also brings links to ticket sales and a team of iPhone app developers, among other bonuses. And with parent News Corp.‘s spacious pockets, MySpace can afford to take its time integrating imeem even if its return on investment is not immediately seen.
On the minus side, imeem and iLike (acquired by MySpace earlier this year) have yet to create a solid revenue stream. Meanwhile, the Apple-Lala deal eschews an ad-supported model for something altogether different. Lala boasts a number of features that fit well with Apple’s products. Much like iTunes, Lala sells MP3s and helps users organize their digital music collections, even through their mobile phones. And Lala boasts key partnerships with Google and Facebook that could give Apple a competitive edge.
Both models offer plenty of potential, considering that CD revenues continue to tank. Account for the fact that 95 percent of digital music is obtained illegally, however, and the potential seems to wain a bit. Regardless of who comes out winning, 2010 will be an interesting — and possibly make-or-break — year in digital music.
All I have to say is: Comes With Music.
It beats all the others hands down.