Google's bid to save the music industry, one search at a time [UPDATED]

Google's new "music search feature" -- that's the official name, although some folks have been calling it "OneBox" -- is like a relief pitcher arriving in the middle of a game with his team trailing. It can help expose millions of people to legitimate Internet music outlets, which will help those companies compete with free (and, in many cases, unauthorized) sources of music online. Whether consumers will actually spend more on music than they've been doing, however, is a whole 'nother question.

The rap against Google from label executives and online music companies has been that its search results seem indifferent to legality. For example, searching for a legitimate site often yields sponsored results for unlicensed ones; Googling an MP3 will call up dozens of free download sites and probably some unauthorized lyrics outlets, too. The new music search initiative won't scrub the unlicensed sites from the search results, but at least it tries to steer people to sites that compensate copyright holders. The hope, according to Thomas Hesse, president of Sony Music Entertainment's global digital business, is that music fans will have a significantly better experience on a MySpace or a Lala than they would on an illegitimate site.

No doubt they will. Three of the five music services that Google is working with initially -- Lala, Rhapsody and Pandora -- are far easier to use and are much more entertaining than BitTorrent or LimeWire. I'm not a huge fan of the user interfaces at the two others -- MySpace Music and imeem -- but they're far better tools for sampling music and discovering bands than the illegal downloading sites are. And it's certainly true that with the exception of iTunes, which is notably absent from this initiative, legitimate online music services have been woefully undermarketed and underexposed. So the considerable traffic Google is likely to send their way should be a tremendous boon.

Having said that, I think it's still an open question whether the new search function leads the masses to buy more music. It's likely to lead people to listen to more songs -- Google and its streaming partners will enable searchers to play any given song once, in full and for free, right from the search results page. And if they follow up a sample by diving further into MySpace Music or Lala, they'll certainly discover more artists that they like. But if they're accustomed to acquiring music for free online, it's not clear to me why they wouldn't continue to do so after sampling to their heart's content on MySpace or Lala. Alternatively, they may be happy to stick with the free ad-supported streams on MySpace or imeem, or the 10-cent "web songs" on Lala, instead of plunking down 89 cents or more for an MP3. That's fine only if there's enough volume to make up for the lower margins.

At least Google's pushing people in the right direction, or at least some of the right directions. The search sovereign needs to learn how to work more subscription-music services into the mix, too, for the sake of eMusic, Napster and Microsoft's Zune Pass. And you have to wonder how innovative new services will find a way to get a piece of the traffic that Google's search initiative will generate for its short list of partners. R.J. Pittman, who led Google's efforts to develop the new search function, said the company would consider adding partners to the list, but they'll have to be "online, Web-based, easily accessible and offer some interesting approaches to music discovery." Lots of companies fit that bill, so it will be interesting to see how Google decides who's in and who's out.

Updated at 4:43 p.m.: Now that I've played with it a bit, I see that Google still has some work to do on the new feature. The intelligence it applies to search results -- for example, guessing the right band or song name despite errors in the search -- haven't been integrated into music searches. So if, for example, if you search for "Martha Muffins," Google will guess that you were looking for Martha and the Muffins, and return a bunch of links to the band and its work. But it won't trigger a chance to stream songs from the band via MySpace or Lala. Similarly, if you go looking for "the angels want to wear my red shoes," you won't get the chance to stream the song on the search page. But you will get lots of links to the song on other sites. Searching for the song by its correct title -- "Red Shoes" -- won't help, 'cause the new feature doesn't recognize that as a search for a song. It's similarly befuddled by searches for songs covered by multiple artists, such as "Moon River."

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division. Follow him on Twitter: @jcahealey

Grooveshark and virtual music collections

Subscription music services have struggled to persuade consumers to pay for access to unlimited virtual collections of music. But what if the collections were virtual and free?

That's one of the intriguing questions raised by Grooveshark, a streaming music service that offers advertiser-supported music on demand (the ad-free version costs $3 a month). Fresh from its settlement with EMI, the company rolled out a slick new version of its site today, one designed to look and feel something like iTunes (or the much-anticipated Spotify). In addition to a cleaner user interface and more seamless playback, the upgrades include a much easier way to add songs to an online locker without uploading them from your computer -- or paying for them. It's similar to something imeem offers, but I found Grooveshark's version quite a bit easier to use.

You might wonder what's the point in having a personal collection on a site that lets you play any song you wish on demand. For starters, a virtual collection helps manage the huge amount of material available online. Grooveshark relies on users to supply many of the tracks in its library, so it may have multiple versions of a song. Virtual collections also simplify the process of creating playlists. And the fact that it costs nothing to save tracks in an online library encourages people to save tracks they're curious about but not committed to. Sort of like dating. And that's what Grooveshark really is about -- enabling people to sample and discover new artists, then share their discoveries with friends. One shortcoming, though, is that Grooveshark (like imeem) doesn't make it easy to save an entire album to a personal collection. And if you want to save a lot of tracks, you have to upgrade to the paid version.

Still, it's easy to see where these things lead. Throw in a mobile application and you've got a comprehensive service -- one that starts to look like a substitute for a conventional music collection. Why assemble (and pay for) your own stash when you can rely on thousands of other people to share theirs with you? Granted, it's no match today for Napster or Rhapsody, which are more comprehensive (especially when it comes to new releases) and offer an editorial layer (descriptions, bios and the like) that's missing from Grooveshark. And it may never be -- those services keep improving too. Nor does Grooveshark, whose automatic playlisting function is a great alternative to radio, provide much help in the car. But it's free, and that price is hard to beat.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division. Follow his intermittent Twitter stream: @jcahealey.

Apple shares surge more than 7% after 'most profitable quarter ever'

Sales of the iPhone jumped 7% in the fourth quarter. Credit: Paul Sakuma / Associated Press

Apple, barely noticing the effects of the sour economy, this afternoon posted a 17% jump in sales and an 46% surge in profit for its fourth quarter.

The Cupertino, Calif., company recorded net income of $1.67 billion, or $1.82 a share, on sales of $9.87 billion during the quarter that ended Sept. 26. A year earlier, Apple had $7.9 billion in sales and net income of $1.14 billion, or $1.26 a share.

The results roundly beat Wall Street's already lofty expectations of $1.3 billion in profit on $9.14 billion in sales, according to a survey of analysts by Thomson Reuters.

Apple characterized the results as its "most profitable quarter ever."

Investors, who had earlier pumped up Apple's stock $1.81 to close at $189.86, rewarded the company further in after-hours trading following the earnings release, driving its shares up by more than $14, or 7%.

Not everything Apple touches has turned to gold, however. Although the company sold 7% more iPhones and 17% more Mac laptops and desktops in the quarter compared with a year earlier, iPod sales fell 8%. For the quarter, Apple sold 3.05 million Macs, 10.2 million iPods and 7.4 million iPhones.

We'll have more after Apple's 2 p.m. conference call with investors.

-- Alex Pham

Follow my random thoughts on games, gear and technology on Twitter @AlexPham.

The music industry outlook: still grim

How low can the music industry go? Analysts speaking at Digital Music Forum West in Hollywood this afternoon suggested that there's more pain ahead for the industry -- much more. On the other hand, they said it's not necessarily a bad time for artists, and things couldn't be better for fans.

Here are a few of the data points thrown out by NPD Group's Russ Crupnick, BigChampagne's Eric Garland and Topspin's James Lamberti:

Fewer consumers are buying music, and the ones who do buy are spending less per year, Crupnick said. The number of buyers fell from about 153 million in 2006 to about 132 million in 2008, with per capita spending dropping from $44 a year to $35. And despite the rapid growth of digital downlads, almost two-thirds of music consumers purchase CDs only. About a quarter buy both CDs and downloads, and 10% are download only, Crupnick said.

He then offered an even gloomier statistic. Although the number of people buying downloadable music is growing, the amount they're spending on average is flattening. And the amount spent each year by repeat buyers dropped from $50 in 2007 to $46 in 2009. Why? One factor is the proliferation of free, advertiser-supported music services, which Crupnick said are cannibalizing digital sales.

Garland said that the optimistic assumption underlying the industry's digital strategies proved not to be true -- as buyers have shifted from full albums to singles, the lower prices per unit haven't prompted them to spend more on music. As a result, total U.S. music revenues have fallen over the last decade from more than $14 billion to just above $8 billion, the lowest level since 1991.

Like Crupnick, Garland noted how much more popular free streams are than paid downloads. Chart-topping songs sell a few hundred thousand downloads weekly, which is less than 10% of the number of times those songs are streamed -- and that's just on legal services. And the industry isn't having much success converting those free listeners into paying customers, Garland added.

Lamberti's outlook was more optimistic, but not necessarily about music sales. Topspin is a music marketing firm that specializes in helping artists promote and sell their products online. The Internet presents a tremendous opportunity for artists and labels to identify and serve a band's biggest fans, offering bundles of goods and premium-priced packages with high profit margins. Topspin artists are seeing average revenue of $18 per transaction, he said -- significantly higher than what a digital download or even a full album would command.

But Lamberti also said that it's important for artists to give music away. Not all of it, necessarily, but real MP3s, not 30-second samples or free streams. Those who do have significantly more success converting listeners into paying customers, he said. The right course is to spend time investing in the relationship between artists and fans, so that relationship can be monetized later.

Another essential, Lamberti said, is to cut costs. In dozens of tests, Topspin found that the money spent on marketing had a negative return on the investment. In other words, it was dollars wasted.

Oddly enough, the panelists' comments didn't deflate the mood in the room. Rather, the underlying message was that there are promising paths for artists and labels to take. They just can't rely on the masses to spend a lot of money building their music collections.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

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 ...

Multimedia messages come to the iPhone

AT&T has finally enabled multimedia messaging for the Apple iPhone 3G and 3GS. Credit: Chris Ratcliffe / Bloomberg.

IPhone users, rejoice. Or stop griping, at least: AT&T Inc. has finally enabled multimedia messaging, or MMS, on devices in the U.S. Now you can send photos and videos along with your text messages.

The feature was announced when Apple Inc. unveiled its new operating system for the iPhone 3G and 3GS in June, but AT&T wasn't able to make it immediately available in the U.S. The iPhone's popularity has been a boon for AT&T, which is the exclusive carrier of iPhones, as well as a burden because of all the smartphone users taxing AT&T's network.

The feature can be activated with a simple process outlined on Apple's website. Just update the carrier settings while syncing with iTunes, then restart the phone. The feature does not work on original iPhones, only the 3G and 3GS models.

Commenters on the MacRumors blog celebrated -- but were quick to add their complaints as well. And high on the list is the next service that Apple has enabled on iPhones, but which AT&T has not yet offered: tethering, the ability to use the iPhone's Internet access to get your laptop online.

-- Dan Fost

Albums aren't dead yet, at least on EMusic

Not long after Napster's song-swapping software arrived in 1999, CD sales started what now appears to be an inexorable slide toward zero. It's not just the fact that Napster helped people copy songs free from other Internet users; it freed consumers from having to buy whole albums in order to get the one or two tracks they really wanted. The iTunes Store did the same thing for music buyers.

But is the album dead (for more than just Radiohead, that is)? Today, EMusic -- a subscription service that offers bulk discounts on MP3s -- announced that full-album downloads made up 72% of its sales over the last year. That's up from 69% since 2006. The music industry as a whole is headed the other way, with digital track sales climbing and albums dwindling. Twice as many singles were sold in 2008 than CDs and digital albums (although if you assume the average album had 12 songs, albums still accounted for about 80% of all tracks sold, according to Nielsen SoundScan's numbers). Meanwhile, Apple says the split on iTunes is about 50-50, with half the tracks sold as individual downloads and the other half in albums. So EMusic is clearly doing something better when it comes to moving albums than Apple, despite the absence of liner notes or special packaging.

EMusic suggests, and Billboard's Glenn Peoples agrees, that the site's album-centric layout and editorial content make the difference:

EMusic encourages complete album purchases with editorial features that place albums in context, including career surveys of leading artist's catalogues ("Icons”), examining an artist's peers and influencers ("Six Degrees”), and overviews of genres, labels and favorites ("eMusic Dozens”). Additionally, eMusic's album and artist pages include related artist information from YouTube, Flickr and Wikipedia.

More important, I think, are two other factors. First, EMusic subscribers are avid music fans. They commit to spending $12 or more a month to buy MP3s that, until July, came exclusively from independent labels and artists. (The company added older Sony releases in July, around the same time it announced the latest price hike for new subscribers.) Fans are less likely than casual listeners to be satisfied with one or two tracks from an album -- they want to hear the whole mix. And second, the significant discounts provided at EMusic encourage people to spend more freely. An album on EMusic costs the equivalent of $4 to $5, depending on the user's subscription plan, and that price isn't much of a leap from two 99-cent downloads on iTunes.

I wonder, though, if EMusic's last few price increases will eventually make people much more particular about their downloads. The company is eliminating the generous annual plans that allowed music fiends such as myself to download 65 songs for about $14 a month. Instead, the plans will have lower monthly rations, and per-track prices will average 40 to 50 cents. When you only have 24 tracks, you're much less likely to download a full LP on a whim. EMusic tried to soften the blow of the lower monthly allotments by announcing that some albums would be offered as bundles, enabling people to, for example, use only 12 credits to download all 16 tracks of Sloan's excellent "A sides win" LP. And full-album downloads have actually increased since then as a percentage of EMusic's sales, to 75%. Unfortunately, some labels (cough cough Sony cough cough) are using the bundling tool to charge more for full LPs than they would have been able to without it. For example, six of the nine tracks of Michael Jackson's "Thriller" are available only with a full album download, which costs 12 credits. You can probably guess the six tracks.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Rhapsody and the iPhone meet without drama

So much for the Apple-as-monopolist meme: Rhapsody, the music-subscription service co-owned by RealNetworks and Viacom, is now available on the iPhone, where it can compete with the iTunes store for a share of music fans' wallets. Last month Real announced that it had submitted the Rhapsody app to Apple for approval, and some observers darkly warned that Apple would give it the Google Voice treatment rather than facing the competition. But it zipped through the approval process, winding up in the iPhone App store last night. According to PaidContent.org's Staci Kramer, who gave it a quick test Wedneaday, the new app integrates seamlessly with the Rhapsody mothership. It's so good, Kramer says, she'll probably hang on to her Rhapsody subscription for a while longer.

As Kramer's comments suggest, my guess is that this app will have more value to Real as a customer-retention tool than as a recruiter of new subscribers. It was silly to think that Apple would be frightened of Rhapsody, despite the high quality of Rhapsody's library, its online jukebox and the tools it offers to help users find and play unfamiliar tracks and artists. That's because Rhapsody is an audio entertainment service, not a music-collection-building tool like iTunes. The $15 monthly fee buys users access to a fantastic set of titles, but it doesn't let them keep any. And Steve Jobs has repeatedly argued that music fans want to own, not just listen. (The numbers seem to bear him out; except for Naxos' classical music offering on college campuses, it's hard to discern much growth in the total number of customers for music subscription services past the few million they've had for several years.) Apple is so comfortable with that assessment, it previously approved two music-listening apps at least as powerful as Rhapsody: Sirius XM, which offers scores of radio channels, and Spotify, a free, advertiser-supported music-on-demand service available in England and Europe. 

In fact, if Jobs is right about music fans, Rhapsody will help Apple by introducing users to more songs that they'll want to buy. And unlike the PC version, the click-to-buy button on Rhapsody's iPhone app leads directly to ... the iTunes store. (That's probably why Apple finally included FM tuners on its iPods -- it developed a song-tagging feature that makes it easy for people to buy songs they hear on the radio.)

iPhone 3GS image courtesy of Apple

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Apple iPhone vs. Palm Pre: The battle over iTunes

The battle over the Palm Pre phone and Apple's iTunes has the two companies bickering like a couple going through a custody battle.

Palm Pre phone. Credit: Associated Press

The high-stakes soap opera began June 6 when Palm began selling its well-reviewed Pre phone, which was obviously designed to take on the current king of cool in the cellphone world, Apple's iPhone. One of the Pre's claims to bragging rights was that it could make use of Apple's hugely popular iTunes program to sync and organize music.

But Apple struck back last week, updating iTunes and shutting out Pre's access.

Then yesterday it was Palm's turn -- the company said it updated the Pre's software in a way that again allowed it to sync with iTunes when hooked up to a computer's USB port.

Apple's iPhone 3GS. Credit: Getty Images

And now an obscure industry standards group, the USB Implementers Forum, might be getting into the act. Palm said it has notified the forum of the steps it has taken to allow the phone to work with iTunes, according to the Associated Press. This was probably done to try to legitimize its access to the Apple product.

Think of it this way: There is no doubt Apple originated iTunes, but Palm is demanding visiting rights.

Stay tuned.

-- David Colker

Zookz: A license to infringe?

Companies that offer downloadable movies and music online without licenses from the copyright holders typically wind up answering lawsuits from the Hollywood studios and the major labels. So it was odd to see a news release announcing the impending launch of Zookz, a site that offers unlimited music or movie downloads for about $10 a month, or both for $18. That's a bit like waving a red cape in front of a couple of bulls, isn't it? But Zookz believes it's in the clear, legally, thanks to the World Trade Organization. It's a far-fetched argument, but you've got to give Zookz credit for nerve.

The main differences between Zookz and most online outlets for bootlegged goods are that it's not a file-sharing network and that the content isn't free. Instead, it's just insanely cheap. The company's impossibly low prices reflect the fact that it doesn't pay for most of its inventory or share revenues with copyright holders. All the proceeds go to Zookz, its 10-person staff in St. Johns, Antigua, and (through taxes) the Antiguan government.

How can it get away with this, you ask? I'm not sure it can, but here's its argument....