SNOCAP Melts Down

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There has been a dearth of big news about SNOCAP, but there's news today. The company has laid off about half its staff, and it's looking for a buyer. The layoffs were intended to make it look more attractive to potential buyers.

SNOCAP was created by Shawn Fanning, the brainchild behind Napster (Nasdaq: NAPS), which was the file-sharing, pirate-ridden bane of all music companies until it finally went legit. Since Napster was originally part of a movement that, for good or bad, has been radically changing the face of the music industry, you'd have thought SNOCAP would have accomplished more revolutionizing than it has to date.

Its biggest business deal ever was to help News Corp.'s (NYSE: NWS) MySpace set up a digital music store. There was some dabbling with indie labels, which certainly was nice, and other smaller deals, yet it never quite seemed to match the MySpace buzz.

SNOCAP was created to sell digital music while adhering to copyright, and it extended the dream of allowing unsigned musicians to connect with fans through Web sites. And with recent announcements of major bands deciding to offer their music directly to fans, the timing seems odd. SNOCAP, how'd you miss out?  

Of course, SNOCAP's not alone; CNET's coverage offered a list of digital music upstarts that haven't gotten far, and some of them are even big names, like Yahoo! (Nasdaq: YHOO) and RealNetwork's (Nasdaq: RNWK) Rhapsody. There are many options for digital music distribution, but Apple's (Nasdaq: AAPL) iTunes reigns supreme.

Meanwhile, musicians can certainly set up accounts with eBay's (Nasdaq: EBAY) PayPal or even Amazon.com's (Nasdaq: AMZN) new electronic payment service that permits commerce via the Web. And of course, consumers are frustrated with DRM, which undermines part of SNOCAP's proposition even more. Maybe the fatal flaw was always trying to create a product that would make the music industry happy when it's so reluctant to innovate in the first place.

CNET quoted SNOCAP CEO Rusty Rueff as saying, "When you're trying to be a pioneer, you have to remember that pioneers take arrows." That's true -- when massive change yields opportunity, start-ups rush in but not all make it out. The music industry must evolve, and there will be winners and losers; there always are when disruptive change grips an industry.

For related Foolishness, see the following articles:

• Radiohead delivered a sonic boom recently, and Nine Inch Nails furthered the downward spiral.
• SNOCAP was trying for a snowball effect this time last year.
• Other digital music start-ups are Lala.com and Pandora.