I come across wannabe entrepreneurs - very accomplished in general, wanting to start online ventures in entertainment/ intermediary business - while the fundamental reasoning seems acceptable - new media, large population, no geographical boundary, ever growing market - the digital intermediary business may seem a lot more tough and it looks to me that only bigger business may benefit to play this role while they may be servicing the needs of the long tail.
Sean Ryan points out, at the end of the day there are only a "serial monopoly" of 4 suppliers (labels), making it more difficult to get reasonable music rights than it is negotiating with an oligopoly like OPEC since Eminem and Norah Jones are not substitutable, while crude oil from Mexico and Saudi Arabia is relatively substitutable. Any start up needs to have rights from all of the major labels (EMI, Sony/BMG, Universal, Warner) and most of the smaller ones in order to compete in the sector, and the lack of those rights generally cripples the business - therefore, there is essentially no negotiating leverage, which makes for very low margins. To top it off, you need to pair those low margins/lack of leverage with an intensely competitive marketplace, with RealNetworks, Napster, Apple, Sony, Yahoo, Wal-Mart, MSN, and a host of others all marketing like wild, discounting the product (MSN's buy 1, get 5 free), and trying to cut exclusive content deals. Only Apple has truly managed to show profits in the business, primarily through sales of related hardware, and finally, through an 80% market share of the download market, but it's must just be brutal for the others. While it is clear that digital music will eventually be extremely profitable for the content providers, including publishers, there is a lack of profitable business model for the middle man which requires broad label rights. While the internet technology may allow creators to have a direct relationship with end customers - these do not seem to be providing critical mass and unlikely to become a part of mainstream distribution channel. As Rasgupta points out channels like Napster are also a losing phenomenon. Chris Anderson shares his perspective on the emerging opportunities - these look like tough models to sustain till these grow and gain momentum. Larger digital intermediaries dealing with a broader base of products( like Amazon) may see some success , but it is pretty much “NO” to wannabe digital disintermediaries.
Categories: digital disintermediaries