As SanDisk takes a leap deep into the music industry, the portable media company is betting that consumers will choose easy and intuitive over free and illegal. And, this time, big players in the recording industry are buying in from the get-go.
Technology can often disrupt and re-shape an industry. Take, for example, the 18-year-old who decimated the profitability of a $40-billion (U.S.) a year recording industry. Sean Fanning, with the release of Napster, changed music distribution forever, costing the industry $5-billion a year.
More recently, it's been Apple Inc. that has reinvented music distribution – not any one of the four major record labels. Entrenched players have traditionally had little interest in shaking up the business ecosystem they have optimized over past decades. But, if SanDisk has its way, two innovations could put the music industry on the road for another – perhaps more friendly – revolution.
In 2008, of the more than one billion mobile phones that were sold worldwide, 750 million had microSD card slots. That convinced SanDisk, one of the creators of the Security Digital (SD) card format, to develop SD micro cards as a music format.
Adding weight to this gambit, hip-hop artist Akon in December, 2008, released his album Freedom on CD and slotMusic format on the same day – the first artist ever to do so. People acquire music in their youth – and cellphone penetration in the youth market is the highest of any demographic – making Akon the most played artist on cellphones in North America in 2008.
The SlotMusic album comes on a 1 gigabyte microSD card and has no digital rights management (DRM) restrictions. So not only can you play the music on your mobile – you can, using the USB adapter that comes with it, load the songs onto your computer.
Apple v. Music Retailers
Apple is prospering – having sold more than 6 billion songs on iTunes – while music retailers are struggling to survive. Physical music sales are in freefall. Album sales plummeted 20 per cent to 362.6 million units in 2008 in North America from 450.5 million in 2007.
Music stores are the part of the music industry ecosystem that is having the most trouble surviving. With this in mind, SanDisk's initiative didn't have much trouble getting buy in from the four major labels, as the overwhelming majority of the music industry's profit come from physical sales.
Digital music was disruptive to the record labels' business model. Consumers were forced most of the time to buy a whole album for $15 – whereas with iTunes consumers can buy just their favourite track for only 99 cents. Analog dollars have turned to digital pennies.
While SlotMusic follows the general business model of the traditional album, SanDisk also attempts to add value beyond the CD with the hope of enticing music lovers to return to buying whole albums. Akon's SlotMusic album, for instance, includes a 15-minute video about Akon's history and a five minute music video along with photos of the star. The card also has 463MB of free space, which users can load up with additional music. And since a 1GB microSD card all on its own costs about $10, buying the same card with a DRM-free album for $12.99 looks like a pretty good deal.
Format Adoption
The main reason that new formats don't take off quickly is there's no installed base of players. For instance, before audio cassettes could take off, people had to buy cassette players. Even with digital music you have to buy an MP3 player – whether it's made by Apple or some other brand – before you can enjoy portable digital music. And it can take years for the adoption of the players to achieve a critical mass.
