The acquisition announced this week of Loudeye by Nokia is interesting and gives some faith to those who might have doubted if there was more to do in the digital music space. But you have to ask what Nokia think they have bought.
I was very involved with Loudeye – or Encoding.com when it was first on the scene. I helped them with their first deal with EMI to encode 30 second clips. It was that part of their business which they sold to Muze last month. I then worked quite closely with the then head of OD2 to give some thought to how they might progress before they were sold to Loudeye.
The extraordinary thing about this purchase is that it appears to be made up of the OD2 business only, since there is really precious little else left of Loudeye. The OD2 music distribution system has for a long time supplied in white label form the service for a number of european retailers – Tiscali, HMV and others. It is best known amongst insiders as being a somewhat flakey service built on Microsoft technology and centred around the windows media drm solution. It has for ever and a day been in need of a serious re-design but the exegencies of business and underinvestment never seem to have allowed that to happen.
Ed Averdieck who nows runs the operation for Europe is a good guy with solid record company background. He used to be a promotions and marketing guy at BMG UK. He understands the music and probably knows his way around the digital music scene pretty well by now.
So Nokia has bought Ed’s services (for how long?), a flakey infrastructure that will need serious overhauling, and a bunch of relationships with retailers whcih is not profitable and nothing but a headache. Finally, of course they have acquired a set of licenses and agreements with the labels. These may or may not stand the test of the acquisition – although they must know this. In my day at EMI we never allowed any of our licenses to be assignable under a change of control. Perhaps Nokia thinks they can grab the label deals and get those sorted out at relatively low cost. I wouldn’t be so sure.
The handset manufacturer is making a decisive step into a different part of the value chain though. So far it has been the mobile operators (Nokia key customers?) who have sought to operate in this space. O2 in the UK, Sprint in the US, Orange, Verizon et al have all entered the field. So what will Nokia try to do upstream? Well far better integration with the handset (music player) will be the obvious piece that they can achieve where Motorola/Apple failed.
But that fundamentally is it. For a major corporate like Nokia, $60m may seem a small price to pay for positioning and a statement of intent – but the idea that this should be a means of competing with I-Tunes – well hmmm… we’ve got some way to go still, I suspect.
And in the end of course, this continues to be simply the commoditisation of distribution. It does not yet represent a means for consumers to discover more new music or find their way to selections of their own that they would like to listen to.
Selection, introduction and taste-making remain the most open field in digital music right now….