The launch of music locker services by online retailer Amazon and search engine Google opens a new round of discussion on the future of music distribution. Are cloud based music services the main business models of the future music industry or is it just a hype with a lot of hot air in the cloud?
In the following you like to answer this question.
Introduction: A Short History of Cloud-Based Music Services
However, the idea to store music on web-servers is not brand new. The online music pioneer Michael Robertson, who founded MP3.com in 1997, offered a music locker service – MyMp3 – which allowed users to upload their CDs onto the web in order to access them whereever they were. Although this service was widely accepted by music consumers, the music majors rejected MyMP3, since no licencing fees were paid for the database to synchronize the CD-data with the locker service. At the end, the majors successfully filed MP3.com for copyright infringment and in November 2000, MP3.com was sentenced to pay US$ 53.4 million to Universal Music Group in compensation and eventually was taken over by Vivendi/Universal, which later sold it to CNET.
Despite MP3.com’s failure, Michael Robertson did not give up to establish a cloud based music service and launched MP3tunes in 2006. However, history seems repeats itself. Music major EMI sued the music locker service MP3tunes as well as the online music search engine sideload.com, which links to audio files and shows where those files are on the net. The case is still pending.
In the meantime other suppliers of music lockers offer their services. In 2007, Lala was introduced to public with Warner Music’s fiancial support. Lala gave users the option of either paying USc 99 to download one song or paying USc 10 for a Web-hosted song that they can access from any Web-connected PC. Lala users could also stream any song in the catalog once for free, and kept up to 50 songs in their online collection. However, Lala Media Inc. was sold in December 2009 for US$ 85 million to Apple Inc., which shut down the service in May 2010. Since then media have speculated when Apple will start a cloud-based music service by itself. It lasted until June 2011 when speculations came to an end and Apple Inc. launched its iCloud.
However, before the giants Amazon, Google and Apple have launched their cloud based music services, a small, Palo Altobased firm, mSpot started their music locker business in June 2010. Instead of a fully licensed service these music lockers only allow to upload copies of songs the music consumers have already purchased. Then the music can be streamed to any Web-connected device. To avoid legal problems, mSpot has to store each song individually on its servers, which may cause a shortage in storage capacity. Therefore mSpot offers a scaling price scheme for storage capacity: The first 2 GB are free. Up to 10 GB will cost US$ 3 a month, US$ 5 for 20 GB, US$ 10 for 50 GB and US$ 14 a month for 100 GB. At this year’s MIDEM in Cannes, mSpot was claiming 750,000 registered accounts and 1 million uploads since the start of the service in June 2010.
The next cloud based music service was put on the map by the former P2P file sharing platform Audiogalaxy in October 2010. Audiogalaxy offers a remote streaming service, which enables the users to stream their music from all Windows and Mac computers. Therefore, an application has to be downloaded for free from the Audiogalaxy-website, which screens all music files from the users’ computer and displays them in an Audiogalaxy music list. Then the playlists can be accessed after signing in to audiogalaxy.com from other computers as well as from iOS and Android devices. This is a different approach than mSpot, since no upload of music file is necessary. However, in a narrow sense Audiogalaxy is not exactly a cloud based music service but a remote streaming offering such as Orb and subSonic, which were already in the market before.
The next wave of cloud based music services – Amazon’s Cloud Drive, Google’s Music Beta and Apple’s iCloud
As we can see, there has been already cloud based music service on the market, when Amazon, Google and Apple followed with their offerings. However, the forerunners do not offer more than a simple music locker service due to legal problems.
Amazon Cloud Drive and Amazon Cloud Player
Online retailer amazon.com launched its music cloud service – Amazon Cloud Drive – in the U.S. on March 28, 2011. Cloud Drive enables customers to upload and store digital content (music, videos, photos) on Amazon’s servers, which can be accessed by a web browser. The stored music can than be played by the ‘Amazon Cloud Player’, which supports MP3 and AAC data formats, and by Android smartphones (but not by any other smartphone such as Apple’s iPhone). However, amazon.com offers only 5 gigabytes of storage capacity, which is less space than an iPod Touch is able to provide. Therefore, you have to pay for more storage capacity, e.g. US$ 20 for 20GB (including the 5 free GB) up to US$ 1,000 per year for 1,000 GB – that means US$ 1 for 1 GB. However, if a customer buys a digital album from the Amazon music store, Amazon is offering 20 GB of free storage space for a year and songs purchased from the Amazon online music store do not count against the storage quota. The business model of Amazon’s cloud (music) service is based, thus, not only on the purchase of music – via its online music store – but also on the purchase of server capacity.
Craig Pape, music director of amazon.com, unveiled in an interview the motivation to launch a cloud-based music service: “We’re doing this in response to customer feedback. Ever since [Amazon Music] launched 3.5 years ago, generally, across all our digital businesses, customers responded well. But they express frustration at things like, ‘I don’t want to shop at work because I don’t want the files stranded on my work computer,’ or ‘I love the mobile app but the files get orphaned on my phone.’ So we really felt it was important to give customers a central place to store, and give them the right interfaces to stream that. And obviously the more people rely on digital libraries, they feel frustrated if a hard drive crashes, so having online storage backup component was a big deal.”
However, Amazon’sCloud Driveis also not more than a simple music locker, since Amazon was not able to come to an agreement with the rights holders.
Google Music Beta
The web serch engine Google has lauched its cloud-based music service “Music Beta” on May 10, 2011 after negotiations with the major labels failed. Google director of content partnerships Zahavah Levine, who led the company’s negotiations with the major labels, blamed the labels for not coming to an agreement: “A couple of major labels were less focused on innovation and more on demanding unreasonable and unsustainable business terms.” Instead of the planned match-and-scan service, Google offers a simple music locker, which allow users to upload their music library and from which they can stream and download files from Internet connected devices. It is similar to Amazon’s Cloud Drive, with a few differences: The number of songs, which can be uploaded are limited to 20,000 and only US-users, who request an invite at music.google.com are eventually allowed to use the beta version. The service is only supported by Android smartphones (version 2.2 and above) and files can be streamed by a rate of 320kbps.
The main motif for the launch of Google’s music locker was the completion of Google’s new music player app for Android devices, which was unveiled at the same press conference. The application can be used to play any music stored on Android devices, but cannot access music from the cloud unless users are part of “Beta Music”. In addition, Google also wanted to follow Amazon as soon as possible in the cloud-based music service market also to overtake Apple with its ambitions to launch a fully licenced music cloud service.
It was Steve Jobs, who personally presented Apple’s iCloud on June 6 in San Francisco. There he unveiled Apple’s cloud strategy, in which the home PC will not be anymore the central device in the digital environment. Instead cloud-based servers will be connected with several Apple devices – iPod, iPad, iMac, iPhone etc. Content, and especially music, plays a crucial role in the iCloud strategy: Any song previously bought in the iTunes music store can be accessed from any Apple device by download. In addition all new songs purchased in iTunes will be automatically synchronized to any Apple device. Both services are free of charge. If songs were bought in other online music stores, they can be synchronized to a scan-and-match music locker, which is called “iTunes Match”. If a song is no matchable to iTunes vast music catalogue it can individually uploaded to the locker. This scan-and-match-feature costs US$ 24.99 a year. These music related features are embedded in whole range of nine iCloud services including photos, books, documents, applications, e-mail, calendar, contacts and backup software.
Thus, Apple paved the way for a new business model in music distribution and consumption. Music in such a cloud environment is permantly accessable whereever you are – if you are online. Since Apple came to a deal with the labels and music publishers, it is able to provide a cloud-based music service, which goes far beyond Google’s and Amazon’s music locker solutions. It does not require users to upload their music libraries for hours, but enables the immediate access to music with a mouse click. However, Apples iCloud is not that revolutionary as is could be. There are no recommendation features, there is no music sharing function, it is not embedded in social media. To sum it up, there is no new music experience connected with the iCloud. Notwithstanding it is the first step in a digital music environment, in which accessibilty to music is much more important than ownership of music. And it will strenghten Apples already strong position in the market for digital music.
Technological, legal and economic challenges for cloud-based music services
Figure 1: Music locker services vs. “real” cloud-based music services
The main problem is to provide a “real” cloud service and not just a music locker. What’s the difference? A simple music locker works like an external Internet-based hard drive. You have to upload your music track by track, which is a very time consuming activity. In addition the cloud service has to provide vast amounts of storage capacity. This could be a challenge, since server space has to be reserved for each individual upload of the same title by different users. Instead a “real” cloud-based solution works like a scan-and-match-service, where users’ digital music libraries are scanned and are matched with a database on a centralized service. However, this requires the support of the copyright holders, especially the labels and music publishers.
A further technological challenge is connectivity. Since the use of a locker service requires a broadband Internet access, especially for the upload of music in the cloud. And you always have to be online while streaming the music from the web server. However, the cloud service providers already experiment with adequate cache procedures.
One crucial point of cloud-based music services is the question of music licensing. According to Craig Pape, Amazon does not need licences to store its customers’ music files: “We look at it the same way as if someone bought an external hard drive and copy files on there for backup.” Representatives of record labels and music publishers foster this position. A Sony Music Entertainment’s spokeswoman raised concerns over Amazon’s unlicenced music locker service and kept all legal option open. According to Wall Street Journal Martin Bandier, chairman of Sony/ATV Music Publishing, the joint venture between Sony Corp. and the estate of Michael Jackson, was very outspoken about Amazon’s decision not to licence with the right holder: “This is just another land grab. I can’t make it any plainer than that. It’s really disrespectful, and of course we are considering all of our options.”
Intellectual-property experts mainly support Amazon’s and Google’s position that they do not need licenses from record labels to offer such a “passive” locker service. The refer to a decision in a 2007 lawsuit over a “remote DVR” system that Cablevision Systems Corp. wanted to offer. In 2009, the U.S. Supreme Court allowed Cablevision to store customers’ copies of TV shows and movies on central servers, as long as it maintained separate copies of the programs for each user.
Notwithstanding Capitol/EMI sued MP3tunes for copyright infringement in 2008. Inthe complaint – the case is still pending –, the plaintiffs describe MP3tunes as “(…) integrated music service through which they [the music consumers] can listen to music on their computers, obtain permanent copies of music stored in online ‘lockers’ provided by MP3tunes, transfer music from their MP3tunes lockers to their computers or other portable devices, and further distribute that music to others.”
The complaint highlights the main concern of the labels and publishers, which want to prevent users to share their music in the cloud like in P2P filesharing systems. Therefore, the labels want the users loading their music only from one computer, either from the laptop or from the desktop or from the office PC, but not from all three devices. The labels also demand to restrict downloading to one (emergency) copy only. The users of cloud music services would only be able to download their music files a single time if they claimed they were lost. All future downloads would be forbidden.
The labels are also afraid that users would open several music accounts in “their” cloud in order to distribute or even sell the extra accounts. To prevent this there is the demand for a central cloud service authority, which would administer all assignments or at least identities should be uniquely tied to a valid credit card or some other such verified identity.
However, legal concerns of the labels and publishers are much more far reaching. Users should be prevented to upload pirated songs into the cloud in order to become legitimate. Therefore, the labels demand that online music retailers embed personal purchase information in each song sold – a kind of digital receipt. All music tracks without a proof of purchase would be assumed to be unauthorized and not accepted into the cloud service. According to MP3tunes founder Michael Robertson “iTunes has been inserting email addresses into every song while other retailers like Napster are using a unique receipt number.”
However, the bottom line is not a legal, but an economic question. The music majors have suffered from declining CD sales for years and the revenue from music downloads is flattening. If cloud-based music services are the future of the music industry, labels and music publishers have to find a way to monetize these services. If Amazon, Apple and Google offer cloud music services without any features that the labels can charge licenses for, revenues from digital music sales will not play any crucial role especially for the major companies.
Sources, which were involved in the negotiations between Google and the labels/publishers, are cited in the media that Google was willing to pay copyright holders a 70% share of all revenues derived from its cloud-based music service – 58% for the mechanical right holders and 12% for the for the publishers for performance, mechanical and ephemeral licenses. Although EMI and Warner agreed to the proposed deal, Universal Music Group and Sony Music Entertainment demanded a percent higher share of 60% (instead of 58%). In addition, Google initially offered the indie record label sector a 53% slice of the revenue cake, which was declined by the indies.
Advances also played a crucial role in the negotiations. Google was willing to pay US$ 100 million to US$ 150 million to rights holders, which would be divided up by market share. It seems to be that Universal probably declined this offer, since its current U.S.-market share is the first time lower than of Sony Music Entertainment’s share.
In addition, Universal Music Group reportedly demanded from Google to eliminate all pirate music sites from all search results and to remove YouTube user-generated content when a copyrighted song is not accompanied by a user-generated video, but by copyrighted materials.
Since Google – as well as Amazon – wants to build a full-service music platform that includes a radio function as well as a download store and a scan-and-matching cloud-database solution, the negotiations are still going on, depite the launch of Google’s Music Beta in March 2011, which is more or less a simple music locker service.
At the moment two scenarios seem to be realistic:
(1) The right holders (labels and publisher) come to a deal with all the relevant cloud-based music providers, in which the former will receive upfront advances and a considerable share (up to 70%) in the revenues generated by these services – revenues from renting server space, from premium subscription and from advertising. For the latter, this opens the possibility to operate less costly and fully licensed scan-and-match-database solutions.
(2) Both sides come to no deal. Then cloud music services will by shaped by simple music locker services. In this scenario the copyright holders will not receive anything and they might sue the cloud music providers for copyright infringment, since they will offer their music services without licenses. Without licenses, a music storage service requires a user to upload each song individually, which requires costly storage capacities.
Since Apple Inc. came to an agreement with the labels and music publishers, it seems very likely that the other relevant players will already follow soon.
However, if we consider the labels’ and publishers’ demands, it seems economically difficult to operate a sophisticated cloud-based service, which would need to be licenced by the copyright holders, at a profitable basis. In addition, the question how the creatives – musicians, composers, authors etc. – would profit from cloud-based music services remains unanswered. For simple music locker services, however, they will not receive any revenue. In the case of fully licensed cloud services, it depends on the contractual arrangements with the publishers and label, what eventually comes out for them.
Now not only the future rules for cloud-based music services are written, but the negotiations will also determine if an how cloud-based music service would be user friendly and can be operated on a financially sustainable basis. Hence, MP3tunes founder Michael Robertson is sceptical on that: “With the record labels wide reaching demands it’s difficult to see how Amazon, or any company, could arrive at a workable license for personal cloud music.” It seem to be, however, that Apple has proven that black is white – in the cloud.