Another Musical Sellout

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There's something kind of poignant in the news that SNOCAP will be acquired by music-centric social networking site imeem; it comes on the heels of news that Apple's (Nasdaq: AAPL) iTunes has overtaken Wal-Mart (NYSE: WMT) as the largest music retailer.

It's hard not to wonder how SNOCAP managed to miss out. But while today's music industry is incredibly vibrant, it's also presenting massive challenges to the companies that are trying to make money in the music biz while pleasing consumers.

SNOCAP, a digital licensing and copyright management service, was created by Shawn Fanning. He's the guy who started Napster (Nasdaq: NAPS), which in its heyday functioned as a major industry disruptor, helping pave the way to the digital future (and instill a much more pronounced fear of pirates in the music industry).

Fanning's newest musical brainchild seemed to hold a lot of promise at the get-go. As of last October, however, it looked like things weren't going particularly well for SNOCAP, since it had laid off half its staff and said it was looking for a buyer. Unfortunately, its high-profile deal to provide technology for selling music through News Corp.'s (NYSE: NWS) MySpace didn't seem to launch it as much as one might have thought.

Meanwhile, MySpace has been making new noise about its music store. Even though its site has offered music for quite some time, it's now making deals with the major labels. This is significant given the fact that the majors have often expressed displeasure with Apple's hold on the digital music industry through iTunes.   

Back in October, SNOCAP CEO Rusty Rueff said, "When you're trying to be a pioneer, you have to remember that pioneers take arrows." Through the acquisition, SNOCAP may live to fight another day, but maybe its rescue from the competitive challenges of an industry that continues to evolve simply illustrates that the battles aren't over, and the long-term winners are still by no means certain.

As this chapter closes, the music industry's changes give investors plenty of lessons about disruptive changes for an industry where there are no "sure things." Whether a company's large or small, there's no room to grow complacent as competitive influences continue to change the landscape at a rapid pace.

Tune into some related Foolishness:

• Last month, it was arguable that the music industry got nailed again as Nine Inch Nails decided to go it alone.
• Radiohead also caused a sonic boom in October.
• Social networking sites find money hard to come by.