Tuesday, March 29, 2011

Amazon's New Cloud Music Locker & Streaming Service -- Will the Music Labels Attack?

Amazon's new Cloud music storage and streaming service -- Cloud Drive and Cloud Player (described here by Amazon's CTO) -- beat both Google and Apple to the punch. But, will the music labels try to punch back and knock down Cloud Drive/Player in the first round?

Much has already been written about the fundamental legal/licensing questions surrounding Amazon's move -- namely, is Amazon required to secure music label licenses (at substantial cost) in order (1) to enable consumers who have purchased their music to store that purchased music in the Cloud, and (2) to enable them to stream that purchased music from the Cloud?. Here is a nice summary piece by MG Siegler of TechCrunch (click here) -- a second helpful overview by Greg Sandoval of CNET (click here) -- and a third thorough overview by 3. I won't repeat that background.

This record label licensing issue is particularly interesting to me, because I negotiated all major and indie label streaming licensing agreements during my time as President of Musicmatch. In fact, we at Musicmatch led the way in securing those industry-first licenses -- so, in effect, every single streaming negotiation was entirely new at the time. Those negotiations were frequently painful. Those negotiations also were much closer in time to the major label lawsuits against Michael Robertson's MP3.com -- the original music storage locker service that was crippled by litigation (MP3.com was hit by a $53 million judgment in the landmark digital media case UMG v. MP3.com, and eventually purchased by Vivendi (owner of UMG) which ultimately did nothing with that service).

But, MP3.com did something very different logistically -- MP3.com itself created a locker of music that it itself ripped from purchased CDs -- and then it gave consumers the ability to access those same bits from anywhere in the world if those consumers already owned that music (whether legitimately or not). Amazon's Cloud Drive/Player service does things differently -- Amazon does not create a locker of music bits on its own. Rather, it enables consumers who purchase their music via Amazon's music service to store that music (those bits) in Cloud Drive and to stream that purchased music. But, it also does enable consumers to upload and stream much of their music from their own music collections no matter how that consumer "has" that music (the service does not permit uploading all of the user's music collection -- some that is DRM protected cannot be uploaded).

And, that may be the central hook that that labels use if they choose to litigate against Amazon; and they are already rattling their sabres in that regard. The major labels already have a pending lawsuit against Michael Robertson again -- this time related to Robertson's second storage and streaming service MP3tunes.com, which enables consumers to upload their MP3 files to, and stream them from, the Cloud (again, no matter how those consumers "have" that music). Although Amazon's service is different from MP3tunes.com, it is not altogether different.

So, will the labels go after Amazon in a desperate attempt to cling on to the last remnants of their past business models and practices? Is it really worth the fight against Amazon -- a behemoth fully prepared to fight?

One thing is for certain -- both Apple and Google will be watching very closely, because they too will soon be launching their own Cloud-based storage and streaming services.

Netflix -- Will It KO HBO As It Seeks to Emulate It?

Just the other day I wrote about Netflix -- and the incredible challenges it faces with the major studios who are wary of it -- and want to hinder its incredible growth and current online dominance as THE movie/television streaming service of choice. The studios' weapon? Asking Netflix to open its wallet wide (very wide) and say "Ahhh" if Netflix wants to get rights to any of their premium content (or simply not even consider licensing their content to Netflix -- i.e., freezing them out). My conclusion? It was time to sell, sell, sell Netflix stock.

Well, at the risk of eating crow (this would not be the first time!), not so fast! Remember that somewhat odd Netflix development last week when the company announced its first major original series by the creative team David Fincher (one of the most respected Hollywood directors) and Kevin Spacey (one of the most respected Hollywood actors). If you missed it - click on this link. What does that development mean?

Yesterday, someone helped me see the obvious light! And, it was there before me all the time. Netflix's strategy to combat the studios' combativeness over licensing their content is summed up in the old adage "If you can't beat 'em, join 'em!" Netflix's strategy is deja vu all over again -- doing to the studios what HBO previously did to them. Netflix will drive future subscriptions by enticing consumers with premium content they can only get from them! Brilliant -- and an obvious and smart strategy -- and one that Netflix, I believe, has the potential to pull off.

And -- and this is the critical part -- Netflix can out-HBO in the process because, unlike HBO, Netflix is not beholden to the cable companies who have been responsible for HBO's incredible growth over the years. Think about it. Netflix will have the unfettered right and ability to exploit its original programming across the Internet. But, HBO doesn't. How would the cable companies react if HBO suddenly tries to distribute its own original programming across the Web? I'll tell you this -- they wouldn't be happy. HBO's Internet ambitions would be a direct shot across the bow to the cable companies and satellite operators and they, understandably, would retaliate by withholding overall marketing and visibility (and ultimately subscription retention and growth).

So, while HBO is between a rock and a hard place with respect to the brave new world of Internet distribution of its content, Netflix can savor the opportunity. Original programming may be Netflix's ultimate secret weapon. Netflix, ultimately, may supplant HBO in the brave new world as being THE premium subscription service of choice.

Now, ultimately, a lot has to happen for this to become reality. But, Netflix's first move with David Fincher and Kevin Spacey is a strong start. It is also a strong signal to the world that its original programming ambitions are audacious and real ... very real.

Last week, I was all "sell, sell, sell." But, upon further reflection, I am now not so sure ...