European import 7digital takes on iTunes in the U.S.
7digital, an online music retailer formed five years ago in Europe, launched its U.S. outlet today -- the latest MP3 store to challenge Apple's iTunes juggernaut. The most obvious difference between the two stores, at least from a consumer's perspective, is 7digital's prices: single tracks for 77 cents, albums for $7.77. That's more than 20% less than Apple typically charges. The songs also are MP3s, unlike Apple's more idiosyncratic AAC format, and are encoded at 320 Kbps -- a higher rate than used by other MP3 stores, presumably delivering better sound quality. (I say "presumably" because the bit rate isn't the only factor influencing how a compressed music file sounds.)
But higher bit rates and lower prices haven't helped other stores break Apple's stranglehold over the market, and they're not likely to be the key to 7digital's success, either. Instead, the company is counting on partnerships with the likes of LastFM and Spotify, Songbird and WinAmp. Its store is also available as an application for certain BlackBerry smartphones, as well as supporting downloadable freebies for non-music brands (e.g., a promotion that Nestle has been doing in England that enables consumers to download one track for every bar of Kit Kat they buy). CEO Ben Drury says 7digital makes it easy for online music companies and software developers to integrate 7digital's store, giving users a click-to-buy option that doesn't shuttle them off to a different website. That's in sharp contrast ...
Being the e-commerce partner of choice for other digital music companies is a way for 7digital to build an audience without spending heavily on a marketing campaign. "By piggybacking on their reach, we can grab some meaningful market share," Drury said. Of course, the risk in partnering with a streaming service is that users won't be interested in opening their wallets -- they'll slake their thirst for music by listening to free streams. But Drury says the company's experience with Spotify and LastFM in Europe shows that even users of free music-on-demand services will still buy a fair amount of music.
"The price per unit is definitely plummeting," he added. "People will definitely spend less money on a track-by-track basis.... But the volume of consumption will go up."
Seventy-seven cents is an aggressive price, one that wouldn't have covered the labels' royalties in the early days of downloadable music sales. The labels have lowered their wholesale rates somewhat since then, and Drury predicts that there are many more changes to come in the pricing structures of both the labels and the music publishers. Neither of those groups has struck the right balance yet between the royalties for downloadable tracks and the ones for streams, Drury said. Nor are the labels as interested as they used to be in charging a premium for new releases. Instead, he said, they've put more energy into boosting sales at the lower end of the price range, with some offering steep discounts on albums and other bundles of tracks.
7digital is privately held, with the largest share held by HMV Group, Britain's top music retailer. Selling downloadable tracks throughout Western Europe and Scandanavia, it became the first online music store in Europe to offer DRM-free tracks from all four major record labels.
-- Jon Healey