The Changing Digital Music Landscape

Loudeye just renewed its relationship with MSN Music stores in 13 European countries, and Europe appears to be the next big music battleground. While Napster has a global market share of only 4.4 percent compared to Apple’s 68 percent, Napster’s market share in countries such as the UK is almost double its global market share. In the UK, Loudeye’s OD2 services account for 14 percent of total music downloads, with MSN Music making up almost half of those downloads.

To help bolster its European presence, Loudeye recently announced it was selling off its U.S. music business. Loudeye had purchased OD2 in 2004 for $40.5 million and, as noted above, has been able to generate music delivery revenues north of $6 million per quarter. Loudeye sold its U.S. operations to Muze on April 30 for $11 million in cash, with Muze assuming Loudeye’s web and mobile digital commerce services, in addition to Loudeye’s encoding services for EMI Music and others.

Loudeye’s move away from encoding to European digital media delivery service completes another step in its February 2006 plan to "focus on its key revenue generating customers, while substantially reducing Loudeye’s cost structure." More than that, though, jettisoning the encoding services repositions Loudeye as a completely different company than envisioned by its founder, Martin Tobias.

"Moving forward, Loudeye remains committed to offering leading digital web and mobile services through our successful OD2 platform," says Loudeye CEO and president Mike Brochu. "We look forward to further expanding our services with existing partners as well as with ventures in new markets worldwide."

For its part, according to its press release noting the acquistion, Muze now possesses the "world’s largest label-sanctioned catalog in the world, augmented by the deepest, most comprehensive, and most accurate music database available today." Muze intends to use the database/catalog combination to allow its customers to expand their download or subscription business models.

"As entertainment transitions from physical to digital media, this database becomes more critical than ever before in enhancing the consumer experience," said Muze CEO Bill Stensrud. "It's always been our intent to leverage Muze’s unique asset as a foundation on which to build a world-class digital commerce organization."

These musical movements are particularly timely, given the May 17 beta launch of MTV’s Urge music service. The service, focused on the U.S. market and set to use new Windows Media Player technology, will launch with a catalog of 2 million songs, approximately two-thirds the size of Apple’s iTunes catalog but over twice the size of the catalog iTunes started off with.

Users will be able to choose between downloading individual music tracks for 99 cents each or sign up for an unlimited subscription service that will cost $9.95 a month or $14.95 if subscribers want to load the music onto compatible portable players.

MTV is undeterred by the fact that Apple, despite not offering a subscription service, has been able to sell over 1 billion songs since its launch. Van Toffler, president of MTV Networks, notes that the service is targeting those potential customers that don’t already own an iPod, adding that new adopters will be able to take advantage of Urge’s complete music ecosystem in a way that they would not be able to do with an iPod.

For Loudeye, the MTV Urge launch is of particular interest, as OD2 has in the past worked with both MTV and Virgin in Europe. Should MTV’s move into the U.S. market successfully reignite the download vs. subscription debate, the European market—with its numerous Loudeye-driven private label sites and fragmented music delivery landscape—may be MTV’s next target.