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Why do so many digital music services fail? Merlin’s Caldas says he has the answer‏

By Charles Caldas, Merlin
From Gigaom:

In the pre-digital music market, people had a wide array of options of where, and how, to purchase music. Both tiny specialty stores and big chains succeeded by serving particular demographics. But when it comes to digital music, only a handful of outlets can truly be classed as successful.

As the CEO of Merlin, an organization that represents independent music rights, I’ve watched the growth of the digital music market with great interest. The current process of supply and licensing should make it simpler and more efficient than ever to create a compelling music destination. So why do many services fail, and so few succeed?

The growth of the legitimate digital market, and in particular the recent growth of subscription services such as Spotify, Muve Music and Rdio (all of whom are partners with Merlin), strongly suggests that, when given the opportunity, consumers are happy to pay for an easy-to-use, cost-effective service that provides them with all the music they need. Yet on the other hand, we have seen services such as Nokia Comes with Music, iMeem, the first iteration of Myspace Music (and, if we are to believe recent speculation, Mog) fail to capture the attention of consumers and ultimately fail as attractive commercial propositions.

From Merlin’s perspective, we believe that there are a couple of key factors that contribute to this state of affairs. First off, some new services seem to fundamentally misunderstand where the actual value in the digital music market lies. The second factor, related to the first, is the behavior of the largest players in the market. These companies seem more concerned with protecting and recreating the long-lost market advantages they once enjoyed in the physical market place, rather than offering consumers a broad, attractive set of digital music services.

With its limited shop windows, its pricy shelf space and its tightly controlled marketing channels, the major labels had much more control over the shape of the physical market than they do in the online world. By its very nature, the Web can offer music fans a vast array of opportunities to discover new music. (A survey conducted by Merlin of its members’ digital business last year bears this out, showing that independents perform better in the digital sphere than they did in physical markets). However, new digital services often construct their services based on physical market shares. Major labels, who are actively trying to reconstruct their old-world advantage in a new digital economy, are undoubtedly influencing these startups. So instead of providing what listeners want to hear, music services end up building their consumer offering around what the majors force upon them as a cost of getting to market.

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