Future of digital music – is more than one solution?

I read Fred Wilson’s blog pretty regularly (it’s a great blog) and he has some very interesting insights.  He just posted about the future of digital music and it sparked a bit of hot debate on his blog.  In a nutshell, he’s saying that the future of digital music is not in pay-per-download (ie: iTunes), that model is outdated now, but that the future are Rhapsody (rental/streaming + Hardware based devices) type services.

I realize that as a VC, his job is to spot trends/companies and use VC capital/expertise to take advantage of large opportunities; through that lens, maybe his view makes some sense. Meaning, if he believes that the rental/streaming model is capital efficient, has a high margin, and is underused in the marketplace while starting to make in roads; and in 5 years will be significantly larger, then he is right (although I don’t know about the capital efficient or margin part), there is a great future for that kind of thing.

However, it bothers me whenever I hear anyone of any perspective say there is a single answer to the future of anything. And when you have a market as large and growing as digital music, it kind of seems wrong to prognosticate about a service type as the future. 

An analogy looking back: the car is the way of the future.  It will be the way people transport themselves and things they have from place to place.  Trains, planes, motorcycles, buses, trucks, bicycles and walking are out-dated. Never mind that space elevators are on the horizon. There will be only cars.  And what’s more, only sedans are the future, not coupes, SUVs, station-wagons, or hot rods.

That’s not 100% of what he is saying, but pretty close. As a VC, he would naturally want to invest in Sedans if that is what he believes. However, it might also be wise to consider some of those other vehicles (so to speak) for a value investment.

We fall in the social-networking+ UGC + pay-per-download + streaming camp (more to come on that). It saddens me that there are potential sources of capital that feel that’s outdated.

I would also counsel to do a historical survey around consumer preferences on music consumption. Purchase vs radio vs live.  That would be more telling.

Posted on January 17, 2007 in Funding, Market, Technology

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