Digital music and amplified announcements were fit to be featured this past week. Let's take a closer look.
Unplug the boom box -- we're going home
In a move that may signal the first casualty in the digital-music subscription sector, Microsoft (NASDAQ:MSFT) announced that it was breaking off talks with the major record labels. Giving subscribers the ability to legally stream music and transfer tracks to portable music players for as long as they are active members, companies like RealNetworks (NASDAQ:RNWK) and Napster (NASDAQ:NAPS) have become popular options this year, with music fans willing to pay as much as $15 a month for the seamless service.
In May, Yahoo! (NASDAQ:YHOO) entered the market with a budget-priced subscription plan for as little as $5 a month (if paid annually). Realizing that it had to compete on price against the Yahoo! juggernaut, Microsoft balked when it whipped out its calculator and realized that the labels wanted licensing fees that would run $6 to $8 per member, according to a report in The Wall Street Journal.
Microsoft would love to attract music fans. It's already reaching out to them with software, online sites, and the Xbox video game system. However, given the recording industry's lofty demands, Mr. Softy was stuck with either losing money on the subscription side or pricing itself out of the market.
But the story doesn't end there. Yes, Yahoo! puts out a cheap service, but that's not the only revenue stream it's paddling. If a subscriber wants to buy any given track, in order to burn it to CD or transfer it to non-compatible players, it costs just $0.79 a shot. You also can't dismiss the importance of the access itself. People willing to pay for a music service may be open to more online purchases. At the very least, hungry sponsors surely hold this group in high regard.
That's why Microsoft could be making a big mistake here. The company's flagship operating-system and productivity-software businesses live off fat margins. However, with the Xbox, it learned that it sometimes has to sell the initial product (the Xbox itself) at a loss only to make it up in the future (software, baby, software).
Maybe the major labels flinch. Maybe their licensing demands will come down. With online delivery of digital music being such a perfect alternative to pressing, shipping, and stocking CDs, it's in their best interests as well to make sure that their digital revenues are growing at every possible outlet.
Thanks to Apple Computer (NASDAQ:AAPL) legitimizing legal digital downloads, there is also an amazing opportunity for savvy players to make some serious coin and establish relevance to an audience worth mattering. Insolence from Microsoft and the record companies will cost shareholders in the long run.
On second thought, plug that boom box back in and pour me another
When Google (NASDAQ:GOOG) and Sun Microsystems (NASDAQ:SUNW) set time aside for a joint call, investors began to wonder about the possibilities. Was a merger in the works? Would the two companies partner to vanquish Microsoft with open-source software, subsidized by paid search? Were the two companies agreeing to swap share prices for a day?
The actual announcement was anticlimactic. Sun would be selling some servers to Google, which in turn would be promoting Sun's software solutions. It was easy to see why investors felt that their wildest imaginations were cheated. However, there is no reason to believe that this relationship can't blossom into a more dynamic duo, especially now that Microsoft and Google seem to keep bumping into each other on their way to expanding their empires.
Anything is possible. Well, except for that share-price swap. That would be too bizarre even for a reality television series.
The headlines behind this week's stories:
Until next week, I remain,
Longtime Fool contributor Rick Munarriz would be willing to license his music to Microsoft for far less than $6 a month. He does not own shares in any of the companies mentioned in this story. The Foo l has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
