Trouble Ahead As Download Services Fail To Gain Traction

With the exception of iTunes and perhaps eMusic the paid download sector is in trouble.

Inside Napster’s latest earnings report was the admission that music subscription levels had dropped 7% due in part to failed college subscription programs and a new emphasis on their free music site. Quarterly losses were down….to a mere $10 million.

Microsoft and MTV’s much touted URGE has not released any glowing numbers despite the backing of both a music and and a technology giant.  In fact, Microsoft is already planning it’s phase 2 (or is it  phase 3) product ZUNE.

Yahoo!Music is showing few signs of life in recent months despite a few creative stabs like the Jessica Simpson mp3. Real seems to be holding it’s own, but its Rhapsody division is not making any noise. Tower launched but has since been silent.

Only eMusic’s mp3 based product is showing real signs of growth despite (or perhaps because of) a focus on indie label product.

The lessons? 

• People hate DRM.  Or more precisely they hate that they can’t easily move a song they’ve paid for across the many devices and platforms they might want to enjoy it via.  They might accept some copy protection if it did not effect they personal use, but having to become a technical contortionist to hear your music is a non-starter. eMusic has exploited that consumer annoyance extremely effectively.
• None of these services will grow to compete with iTunes until somebody comes up with a systems and devices that work as seamlessly together as iTunes and the iPod do.  ZUNE may be on to something by producing their won device and store as Apple has, but it appears that it’s platforms will leave anybody but Microsoft out in the cold.

They next few months will be tumultuous and two years from now most of today’s download players will either have morphed beyond recognition or be gone.