2007 Digital Media Losers

By Richard Menta 12/24/07

What I most noticed about this year's digital media list as I began to compile it is how many more losers than winners there are this year. 2007 appears to be the year of attrition with several paid download services folding and not-so-old business models (Snocap, MediaDefender) wavering. On the plus side are groundbreaking models for album distribution and the rise of newer P2P technologies. Overall, just another mercurial year for the digital media market with 2008 looking to be just as volatile.

1. HD Radio
Why has HD Radio failed to take off? Why does it have lackluster word of mouth? After reviewing several units we found out why.

The makers of the radio units themselves cheaped out on the tuners, which have such poor sensitivity, both a beat-up $20 Sony shower radio and a vintage 1941 Zenith kitchen radio bettered them. What good is an HD receiver when you can barely tune into either analog or HD signals? A perfect example of where $200-$600 buys you inferior quality. Here is a technology adopted by thousands of radio stations - at significant expense - only to be undermined by the radio manufacturers. HD Radio may get a reprieve as Ford offered to put it in all 2008 vehicles. Hopefully, the receivers Ford puts into its automobiles have more sensitive tuners. If they don't, HD radio risks going the way of 8-track tapes and Quadraphonic Sound records.

2. Sony Connect, Virgin Digital, MTV URGE, Google Video.
All of these services shut down this year and in the end DRM and their incompatibility with the market-leading iPod did them all in. Furthermore, as Google's retreat from the paid video market painfully illustrated, the movie and music files consumers supposedly purchased to "own" stopped functioning as soon as these services closed. As I wrote last August on the Google Video fiasco:

40 second YouTube video compares sensitivity of three HD radios against an old 1940's Zenith kitchen radio.

"As a consumer, if you purchase a digital movie file online only to have it unexpectedly repossessed you will probably think twice before ever buying any such download again. If you do consider it again it certainly will not be for the same price as before. Experience made these downloads worth far less to you. So what are feature films that can be revoked at any time worth in the market place? Content that was marketed to the consumer as something they keep, but in reality was just an extended rental with an undefined term of possession"

After a severe backlash by consumers, Google decided to issue full refunds to restore goodwill. Still, a "fool me once" attitude has extended into the pay download market, which can only hinder the chances of success for both new and existing services. There is one exception, iTunes, which right now is the only service consumers can trust will be around next year. Nielsen Soundscan announced this past summer that iTunes increased its market share to 85%, a figure which may reflect this trust issue.

3. MediaDefender - MediaDefender, for those who don't know, is a company hired by the major media conglomerates to disrupt the file sharing of copyright content on the P2P services. In September of this year a person or group calling themselves MediaDefender Defender hacked into the systems of MediaDefender, stole and then released to the public information that exposed how the company carried out its business. As Thomas Mennecke of Slyck.com detailed:

"The information leak was divulged in three components. The first and perhaps most damaging was the 6 months worth of personal and business emails, coupled with an extensive phone conversation between MediaDefender and a law enforcement official. Both provided substantial insight into the company's operation. This was followed by the MediaDefender loosing the confidentiality of its source code to its anti-piracy tools. Finally, a database containing the hash codes to fake files on the Gnutella network was leaked".

The theft of MediaDefender's information is a criminal act, but in a twist the leaked emails may be used as evidence in the Pirate Bay's suit against 10 major media companies for committing criminal hacking activities of their own against the BitTorrent tracking site.

4. The CD
As CD sales continue to plummet I offered several reasons why the CD as a technology is not obsolete. It's just the way the major record labels continue to package and price music recorded in this format that's fallen behind the times.

5. American Internet Radio
Here is something to illustrate how out-of-whack the US Copyright Royalty Board (CRB) is. The recently-passed royalty rate on satellite radio is now 6% of revenues, a sharp increase. Still it is considerable less than the fees charged upon US-based Internet Radio stations, which draw far less revenues than their satellite cousins, but are forced to bear a harder burden. This year Net radio stations owe $.0011 per track, per performance, per listener. That fee goes up 30% next month and another 30% a year after that to $.0018. In the meantime overseas companies, not obligated to follow US rates, enjoy competitive advantage and are pulling the wise investment money. The CBS network's purchase of UK-based Last.FM for $280 million illustrates this.

6. Snocap
Laid of 60% of workforce after losing CD Baby as a customer. CD Baby founder Derek Sivers offered illuminating insight to the eight-month partnership when he pointed to a paltry earning of $1,080 during the period. Snocap is now trying to re-define the direction of the company.

7. Major Record Label Public Relations
When consumers hate and distrust you, you have an issue that needs addressing.

8. AllofMP3
Shut down earlier this year by a Russian government under heavy US pressure the site took its battle to court, but several Russian court victories have not brought it back.

9. Amergence Group (formerly called SunnComm)
Rewarded for the role of MediaMax in the Sony-BMG rootkit scandal with a lawsuit from their former customer Sony-BMG.

10. The Billboard Record Charts
Billboard only recognizes major label sales, therefore their charts don't include the biggest selling records of the year, which were independent efforts by Prince (Planet Earth, 3 million sold to London paper The Mail for a reader giveaway) and Radiohead (In Rainbows, a name your price download experiment). Only a last second change in the rules got the Eagles' independent deal with Wal-Mart for Long Road Out of Eden to the top the of charts.

11. Jammie Thomas
Lost a $222,0000 judgment to the RIAA in the first file sharing case to go all the way through trial.

Other MP3 stories:
2007 Digital Media Winners

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