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Amazon Gets Sony BMG Tunes. EMI Sets Their Agenda

amazon sonybmgSomething was missing. When Sony BMG revealed Platinum Music Pass, their first step into DRM-Free waters, it didn’t make sense.  It wasn’t the Amazon partnership expected.  It was a weird retail experiment.  Logic seemed lost.  There had to be more.  Fortunately, there is. 

Amazon announced Thursday that the Sony BMG catalog will, in fact, soon be available at the Amazon MP3 store without digital copyright protection.  There hasn’t been confirmation whether the entire catalog will be included or if it will be a more limited “experiment.”  However they proceed, the news is a significant win for Amazon, and for music fans.

Amazon owes significant thanks to EMI.  Though the smallest of the Big 4, the move to drop digital encryption began in earnest last year when EMI decided to change their approach.  After EMI dropped DRM encryption, the other labels followed.  First Universal, the world’s largest, then Warner Music and now Sony BMG (Sony BMG is half owned by Sony and half by Bertelsmann AG).

Courtesy of the new deal with Sony BMG, for the first time, consumers will be able to go to a single destination and buy digital music from all of the world’s four largest labels (Universal, Warner Music, Sony BMG and EMI) without burdensome encryption.  Without DRM copyright protection embedded in the downloads, for the first time, customer’s will be able to buy digital music that will play on any device of their choosing.

The same will not be possible at Apple’s leading iTunes store. The major labels have been frustrated with the power Apple has amassed as a result of the iPod (and iTunes) success. (As of June, Apple was the third largest retailer of music in the US.)  For now, all but EMI have chosen to license their DRM-Free offerings only to iTunes competitor, Amazon, apparently, in an effort to rebalance the scales of power. (EMI offers its music to both stores).

Over the coming months, it will be fascinating to see if the DRM-free library will help Amazon gain significant market share.  With no digital footprint, Amazon was already the fourth largest music retailer in the US last June (via NPD Group).

Equally intriguing will be to see if the baby of the bigs, EMI, continues to guide its larger (and more financially sound) peers away from their mistakes and into the digital era.  If so, with DRM-Free music now largely a thing of the past, EMI as a leader, can move on to other causes.  

EMI’s Campaign Agenda?
One of the first items on EMI’s short list for overhaul are the trade groups:  
The Big 4 labels contribute at least  $130m a year to the Recording Industry Association of America (RIAA) and the International Federation of the Phonographic Industry (IFPI).  (By some accounts the donations are even larger.)  EMI believes that money can be better spent; that they can yield a better return on investment. They’ve vocally called for change.   Some are calling the RIAA’s days numbered as a result.

Second, on EMI’s agenda seems to be a strategic overhaul:
Yesterday, an internal email from Guy Hands to EMI executives leaked to the press.  In it, Hands, the CEO of Terra Firma, a private equity firm that recently acquired EMI, emphasized what comes next.  He said there was a need to tackle “digital challenges.” He tasked the team with “understand[ing] the needs of the consumer” and he implored them, in the process, to remember to “keep artists at the heart of what [EMI does]”

Next week, Hands and his staff are set to go over this strategy in detail with EMI’s management team.  The email was an outline of their direction. 

Commenting on the message, the UK Times wrote: “Mr Hands is keen to provide greater incentives for artists than those traditionally offered by the music  majors, because the rise of digital downloading has changed the needs of the consumer making artists less dependent on remaining with a large label.”

If accurate, that commentary suggests EMI might employ a strategy similar to that being promoted by concert promoter Live Nation: to create a vertically integrated full service music business.   It would be a shop with label services, concert promotions, fan vending, endorsement services and even possibly ticketing, all within the same umbrella organization.

(Live Nation is approaching that goal from their core strengths as a concert promoter. They’ve recently added label and recording services, and will add concert ticketing soon.  EMI, if, in fact, going a similar route, would approach the same goals from the opposite end.  They’d emphasize their core strengths in artist discovery, recording and album marketing.  Who knows, maybe they could even meet in the middle with a merger).

EMI to the Rescue?
The question has been posed before: will EMI save the record labels from themselves? Time will tell. EMI’s in plenty of trouble on their own . Their strategies may be sound, but borne of desperation, they may also be too little too late.

There is new leadership (Tony Wadsworth, Chairman and CEO of EMI UK/Ireland announced his departure earlier this week and deeper management cuts are expected as Terra Firma takes over ). There is also a greater willingness to take risks.  Both are positives and, so far, with DRM as an example, the other labels are following.   Slow coming that it’s been… it’s progress. Will it be enough? We’ll see.


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