The market of music and video contents has been characterised, since the invention of recording supports, by the direct connection between contents and physical media Music used to be widely distributed through vinyl discs and tapes until the middle of the 80s, when DAT, CD and MiniDiscs started to come to the market and the panorama of music distribution discovered digital technologies. While this was happening with music, a similar path was being followed by video technologies. Vhs and BetaMax lived a parallel life in the 80s but the last decade of the past century have been characterised by the progressive introduction of DVDs and a slow introduction of new, powerful and better codecs for compression of digital video.
Right now the newest technologies for musical and video distribution are following a completely new path. While in the past content and physical medium were living in the same place, thanks to the internet and the spread of fast connections, music, video and services are being brought to the users through cables or wireless connections. Distribution through the internet differs from traditional distributors for many aspects. From a purely economical point of view, we assiste to a very low -tending to zero- incremental costs of each delivery of product. Storing and delivering content can have relatively high fixed costs (servers, storage...) but each copy delivered creates almost no additional costs. Even bandwidth costs have been drastically cut by some companies by implementing technologies such as Peer to Peer. Such technology, are nowadays integrated into a wide variety of internet products and is able to drastically cut server costs. (Joost, a startup closely related with Skype offers a video service that uses peer to peer technology)
One of the very interesting aspects of distribution of contents through internet is the amount of virtually accessible users. By being able to reach a vast amount of people, providers can offer a wider variety of products, even niche products that before could hardly be distributed everywhere. This opportunity, together with the changes in our society that brought to a bigger differentiation of social groups and the creation of the so-called-tribes, created a phenomena that Chris Anderson, director of Wired, described in his famous article as "the long tail". In there, he explained the reasons why internet can represent the success of the variety.
According to Anderson, products that have a small demand or small volumes of selling can collectively substitute blockbusters of few bestsellers; he uses Amazon.com as an example of how its success came from their ability to take advantage of the long tail.
Itunes
iTunes, the media platform for delivering contents of Apple, can be considered at the present moment, the biggest music store in the world. iTunes gained a great popularity as platform for distribution of contents since the introduction of the iPod and since then it has been adding a enormous selection of music and many additional services such as film, TV shows (in selected countries) software and, more recently, ebooks.
Although iTunes started existing a fundamental instrument to keep iPods users locked in to Apple, it can be considered a great success even considering the very low margin that the company was applying on selling the music. Its popularity grew so much that Apple is constantly looking for new way to differentiate its users and keep them in their store.
It's recent the news that Apple acquired Lula, a company dedicated to streaming of online music. Many questions are rising: is Apple going towards a different business model that implies streaming? As many companies start offering streaming services, how will they cope with the offline modes? and especially, video quality on 3g networks?
Spotify
Some other companies are trying to offer music and video with a completely different business model. As iTunes offers music and videos for download, services as Spotify or Voddler (for films), offer music or video in streaming and with ad supported free-accounts.
Spotify offers a software similar to iTunes, where the users that have a free account, can search and listen to a wide variety of music if accepting to see and hear advertisement every few songs. This is possible because labels already offer contracts to distributors of music that allow such "flat usage". Music industry seems to be moving towards profit from different sides such as concerts or royalties.
Spotify is still a rather new service and there is no clear sign that this business model will be profitable, but it's a truth that the number of its users is constantly growing.
Chris Anderson "The long Tail" http://www.wired.com/wired/archive/12.10/tail.html
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