The research firm NPD Group recently announced that Apple’s (NASDAQ:AAPL) iTunes service now controls two-thirds of the digital-download music marketplace. Its closest competitor is Amazon.com (NASDAQ:AMZN) which, even after an impressive year that saw its business grow by 11%, controls a mere 13.3% of the market.
iTunes is now second only to Wal-Mart (NYSE:WMT) as the leading overall music retailer in the U.S.
It is into this market that Sony (NYSE:SNE) has launched Music Unlimited, a streaming music service that is part of its larger Qrioticy streaming media business that includes video games, films, and e-books.
Unlike iTunes, Music Unlimited is a subscription-based service that allows users to access a personal library of music archived via Internet-based “cloud” technology rather than selling them individual, downloadable MP3 files.
Subscribers can access music from Sony’s stable of 6 million songs using branded devices like Bravia HDTVs, Playstation 3 video game consoles, Sony Blu-ray players, or any personal computer.
As of now, the service is only available in the U.K. and Ireland, but Sony’s plan is to make Music Unlimited available throughout the world in 2011. The service will debut in the U.S., Canada, Spain, Italy, France, Germany, New Zealand, and Australia early next year, but Sony has yet to announce Music Unlimited’s launch schedule in the company’s native Japan or throughout the rest of Asia.
Music Unlimited and the larger Qriocity brand are part of Sony’s push to better integrate its disparate businesses, especially electronics and entertainment. It was the lack of synergy between Sony’s music distribution and music player arms that, coupled with the rise of digital music sales through iTunes, caused the company to lose its once dominant position in the music industry Sony’s control of the music industry, while bolstered by its Sony Records music label, was rooted in its popular line of Discman/Walkman portable players and its co-ownership of the compact disc format.
But CD sales have declined 52% between 2000 and 2010, down to 373.9 million as of the beginning of this year, according to Nielsen SoundScan. Still, even with the proliferation of Apple’s iPod and mobile phones featuring MP3 playback have spurred digital sales, physical media still accounts for close to 80% of all album sales.
Can Music Unlimited help recapture a share of the diminished music market? Cloud-based streaming music services remain an unproven commodity in the digital music market overall. In December 2009, Apple acquired the burgeoning cloud-based music service Lala for $80 million, leading many to believe that iTunes would at least begin offering a streaming, subscription service option for iTunes in addition to digital downloads.
When Apple announced iTunes 10 and the Ping social network that lets users create a profile to share information about their music purchases, they failed to announce a cloud-based streaming option, casting doubt on the commercial viability of such a service.
Music Unlimited at least has decent reach through Sony’s machines. As of September, Playstation 3 had sold 41.6 million game consoles, a ready-made audience that’s proven receptive to subscription-based media services on the device like Netflix (NASDAQ:NFLX). Still, Sony must face the same challenge the whole music industry has over the past 10 years as overall revenue has fallen to $6.3 billion from $14.6 billion to $6.3 billion — why would a consumer pay for access to music when it can be increasingly found for free?
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.
