Sony Ent. Chief Tim Schaaff On How He’s Going To Beat Spotify & iTunes [INTERVIEW]

(UPDATED) This interview comes from Eliot Van Buskirk of Evolver.fm.

Anyone paying attention to digital music over the past ten years might wonder why Sony would ever bother with digital music again.

The company’s past is littered with abject failure and spectacular catastrophe – everything from MP3 players that didn’t play MP3s (like the one I reviewed in 2004) to a music store where nobody shopped to the installation of hacker-friendly rootkits on the computers of unsuspecting music fans.

Then, in January, when Sony launched its Qriocity music service, even though it represented a reversal in direction, everyone made fun of the name. Then it had to make amends after hackers broke into Qriocity and PlayStation Network and stole customers’ information.

Sony Entertainment Network president Tim Schaaff remains nonetheless optimistic that Sony’s latest music effort  – essentially Qriocity but with the more innocuous name Sony Music Unlimited – can become a popular music service, even against much-hyped competition from Spotify and others.

Evolver.fm sat down with Tim Schaaff on the sixth anniversary of the day he joined Sony, after a 14.5-year stint at Apple, to find out why he still wants to offer a digital music service after all Sony has been through.

Here are eight reasons why Tim Schaaff thinks Sony Music Unlimited stands a chance in this new, connected phase of digital music:

1. The Music Industry Is Rebounding

Granted, there’s always someone willing to say that the music industry’s darkest days are behind it, but Schaaf is correct in his observation that things are finally starting to make sense.

“Although the last ten years have been nothing but carnage, we’re in a place today where there is going to be a rebirth in the music industry,” said Schaaf. “What we definitely saw in the past year is the balance point where the digital sales account for a significant enough proportion of the overall sales that you can imagine that taking over. The mood that I see in the music industry is that digital isn’t a problem — it is a tremendous opportunity now… It’s not about stopping things anymore, it’s about starting things.”

2.Sony Music Unlimited Is Big, and Sony Is Global

Sony Music Unlimited has a global catalog approaching 15 million songs (as many as any other subscription service), according to Schaaf, up from about six million when it launched. To get there, it has to license music from competitors to Sony’s own major label, Sony Music. However, he says, independent labels and competing major labels alike have no problem licensing Sony’s music service.

Then, there’s “big” as in geography. Sony Music Unlimited is currently in ten countries, having launched a first-of-its-kind radio subscription in Germany, and Schaaf says Sony is “aggressively” pursuing local music from each country to make the service more attractive to the residents of various territories. Ultimately, he hopes to expand the service much further. PlayStation is in over 50 countries, and Schaaf thinks Sony can possibly launch this music service in all of them, even though that presents licensing complications. Which brings us to…

3. Sony Has PlayStation Network

Sony counts over 90 million PlayStation Network accounts, accumulated over the past five years. Those people can activate 180-day trials of the Sony Music Unlimited service. Everyone else gets a 30-day trial, though –and unlike with MOG or Spotify, they must supply a credit card to join to the free trial. However, those PlayStation Network users already have a billing relationship, and a longer trial window, and, again, there are 90 million of them.

Sony has yet to capitalize on one aspect of PlayStation: using a smartphone to control music playback on it. We suggested that Sony give that idea some thought, because when videogame people pick up a videogame controller, they don’t typically have music on their minds.

4. Spotify Has Challenges Too

People are talking about market-leading music subscription Spotify, but it’s losing money on those free users, because it has to pay for that music whether the user does or not. We’ve heard some scary estimates about how much Spotify pays for free music; apparently, Schaaf has too.

“We’re not Spotify — but Spotify has a lot of its own challenges,” said Schaaf, alluding to Spotify losing money “hand over fist,” as he put it to the Financial Times, by offering unlimited free music for which it must pay. “There’s a lot of different formulas.”

5. Sony (Finally) Has a Relatively Open Approach to Hardware

“Pretty much all of the categories of products that Sony makes that could play music, that are connected, are supporting the Music Unlimited service now,” explained Schaaf.

That might seem like an obvious move to an outsider, but it’s not, given the long tradition of separation between Sony’s consumer electronics, computing, and entertainment divisions.

“Beyond that, we support Android tablets — the Sony tablet and general Android tablets. And in terms of handsets, we’re doing Android handsets — but not just Sony Ericcson… and we’re working on an iOS version [of the Sony Music Unlimited app].”

His experience at Apple dealing with Steve Jobs’ resistance to a Windows version of iTunes is proving a valuable lesson during this process.

“I was at Apple when we were doing iTunes for Windows, and there was a lot of debate about that. Steve [Jobs] was against it, and eventually we did it, because the reality is: That’s a chance to talk about what you do, and what you do well, and bring new customers to the table. You’ve got to start somewhere.”

As another example, Sony’s HomeShare speakers support not only the DLNA industry standard for streaming music wirelessly to speakers, but Apple’s AirPlay as well. The former can play music from Sony Music Unlimited.

6. Sony’s Music Bogeymen, DRM and File Formats, Are Dead

Now that computers, smartphones, tablets, and soon many more televisions are connected to the internet, you can prove who you are (and that you have the right to hear something) simply by entering your username and password instead of being insulted by clumsy DRM systems. In addition, Sony has given up trying to popularize its ATRAC3 format over MP3, although frankly, in a streaming world, file formats don’t really matter.

“It’s like there is no file format,” said Schaaf. “It’s ‘how do we get the content to you in a form that works for you?’ It’s true we’ve had some tough times in the past, but that’s the past. Every great company goes through tough times, and the issue is, ‘Are you going to come out of it with a new perspective and having learned from that experience?’”

7. Apple’s Digital Music Reign Is Likely Coming to an End

We asked Schaaf point blank why Sony is bothering with a music service at all, instead of just building nice Sony hardware to run Spotify and other music apps. He drew another example from his time at Apple by way of explanation.

“When we were trying to work on Mac OS X, before Mac OS X existed, the conversation was, ‘Come on guys, Windows is already there, they’ve already won, what could you possibly bring to the table that anybody cares about? You’re a little tiny ecosystem, you’re doomed, and you have nothing to say.’ The reality is, here we are in 2011 with a very different perspective on what’s possible in the area of operating systems…

“We think there are lots of ideas that haven’t been tried [with digital music]. As successful as iTunes has been — I think you might have been talking about this in one of your stories — a lot of people are looking at their cloud activities as the cloud for the last generation. The reality is, there is change coming, and there’s always new opportunity when those things happen. We have to be a part of that.”

8. Sony’s Breadth Should Let It Do All Sorts of Wacky Stuff

Neither Spotify, MOG, Rdio, nor Rhapsody owns one of the world’s largest computing, gaming, consumer electronics, and entertainment companies. As such, we asked Schaaf whether Sony might be looking at offering interactive apps for Sony Music artists, allowing users to choose the music that plays in PlayStation videogames, and other advanced stuff that only Sony could do.

He didn’t lay out the roadmap for us, but did give us a hint:

“I’m not going to tell you about anything that’s very specific today, but we would be fools if we didn’t engage in that kind of exploratory work, because again, the future is going to be ‘What does this content mean to the consumer, and how can we increase their level of engagement?’ Social media, social networking — that’s one dimension of engagement, but there are so many things we can be doing other than chatting with our friends.

“I think it’s absolutely up to us, and that is because of that relationship between electronics, software, services, and content… If we don’t do that, then shame on Sony.”