SanDisk Can't Save the Music Industry

In a lame effort to breathe new life into the physical distribution of music, SanDisk (Nasdaq: SNDK  ) is introducing slotMusic next month. As small microSD flash memory cards, pre-loaded with an album's worth of music and other extras, the gigabyte cards may sound promising on the surface.

  • The songs will come in true MP3 format, without any copy-protecting shackles.
  • At 320 kilobytes per second, the playback quality will be better than conventional digital downloads offered through sites like Amazon.com (Nasdaq: AMZN  ) and Apple (Nasdaq: AAPL  ) .
  • The extra storage space can be used by innovative artists to include liner notes, snapshots, and even videos.
  • All four of the major labels -- from Universal to Warner Music Group (NYSE: WMG  ) -- are onboard. That's big.
  • The country's two largest CD sellers -- Wal-Mart (NYSE: WMT  ) and Best Buy (NYSE: BBY  ) -- are onboard. That's even bigger.

Unfortunately, all of that won't be enough to offset the platform's obvious shortcomings.

The day the slotMusic died
Shortcomings? It's a long list.

For starters, it's not a fair replacement for the CD. Depending on who you trust, the pricing will either be aggressive or unrealistic. The Wall Street Journal has the price at $15 each, a 50% premium to the price of a conventional CD. That won't fly beyond the novelty purchase. The New York Times has an unnamed label exec offering up a more ambitious price of $7 to $10 apiece. That would make it a great deal for the consumer, but can the industry profit at that price point? We're talking about microSD cards that -- according to The New York Times' Saul Hansell -- can simply be copied over once you move or erase its contents.

It's easy to imagine the format dying and consumers flocking to the closeout bin, snapping up the cobwebbed slotMusic cards as dirt cheap storage solutions. It will be adding insult to SanDisk's injury, since those distressed sales will come at the expense of the company's more conventional data storage products.

Another reason why slotMusic may as well be called notMusic is that it's hard to fathom the microSD format resonating with diehard music buffs. They don't play on CD players. They won't play on most portable music players. The mobile phone market is the target audience for microSD cards, but do cell phone users really want to be fumbling through a handful of tiny cards to find what they want to play next?

The saving grace to slotMusic is that the cards will come with USB sleeves. This will make them playable on Macs and PCs with USB ports. However, those users will likely simply copy the contents onto their computers -- the same way they would rip a freshly unwrapped CD -- and then dismiss the cards to the potential future data storage heap.

The dark, Trojan horse   
The one thing going for SanDisk is that it is creating its own luck here. Its newest line of Sansa Fuze portable media players come with a slot for microSD cards. SanDisk would have no problem approaching slotMusic as a loss leader if it helps its Sansa players gain market share on market-leading Apple.

Unfortunately, SanDisk is a distant second here, at a time when Microsoft (Nasdaq: MSFT  ) isn't giving up on its fledgling Zune. SanDisk has the idea. Microsoft has the money. Apple has them all beat, though: It has ubiquity.

There may seem to be plenty at stake here. If slotMusic succeeds, SanDisk's prestige as a digital music brand will skyrocket. The rub? Even the labels are skeptical. Sure, they're all onboard, but only 29 titles will be available at the launch. This is the kind of chunky capacity format that would seem to work well with artist anthologies or multi-artist compilations, yet the industry is only giving it a go with current stand-alone CD titles.

Can anyone fathom buying more than just one of these slotMusic offerings?

Even the marketing pitch from the slotMusic.org site appears to be unaware of its barriers:

slotMusic cards enable consumers to instantly and easily enjoy music from their favorite artists without being dependent on a PC or Internet connection. Users simply insert the slotMusic card into their microSD-enabled mobile phone or MP3 player to hear the music – without passwords, downloading or digital-rights-management interfering with their personal use.

Aren't we living in a world of growing connectivity? Isn't that why the latest Zune and iPod players offer Wi-Fi connectivity? I think it would be easier to find a hotspot than it would be to find a retailer stocking slotMusic, buy the thing, find a way to crack open the packaging, and then hope I can copy it quickly so it has the same functionality as a digital purchase.

SanDisk knows flash memory better than anyone, but this time the cards -- pun intended -- are stacked against it.

Wal-Mart Stores, Microsoft, and Best Buy are Motley Fool Inside Value picks. Best Buy, Amazon.com, and Apple are Motley Fool Stock Advisor picks. The Fool owns shares of Best Buy. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz has been a music fan since birth. His band was once signed to Sony's Columbia Records label many moons ago. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On September 30, 2008, at 2:09 AM, We7Hannah wrote:

    It is always good to see tech companies using their expertise to tempt music consumers, but SanDisk seems to be missing the fact that the reason CD sales have fallen is because people are already getting their music elsewhere and for free, not because the product is the wrong shape. Consumers are clearly telling companies how they want their music - digitally and many do not want to pay - so online, ad-funded and easy is the clear message - viable alternatives to the piracy sites they are already using.

    Steve Purdham

    CEO - We7

    www.we7.com

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