Pakman MIT Sloan Lecture 091508

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David Pakman's lecture to Erik Brynjolfsson's "Economics of Information" Class on 9.15.08

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Pakman MIT Sloan Lecture 091508

  1. 1. Why aren’t there entertainment retailers who cater only to the tastes of adults?
  2. 2. eMusic Snapshot •  Online Entertainment “Club Model” focused on adults 25+ •  Music, Books, more •  High-margin subscription business (44% GMs) •  Recurring revenue streams (monthly/annual subs) •  425,000 paying members •  Download model focused on value and discovery •  Songs as low as 25c, audio books for $10 each Monthly Price Songs/Books Price Per $9.99 1 Book $9.99 $11.99 40 songs $0.30 $19.99 75 songs $0.27 •  …and more eMusic 20 Oct Confidential 2005
  3. 3. Subscriber Growth Subscribers 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
  4. 4. 40% Of all music was purchased by adults in 2001 Oct 20 eMusic Confidential 2005
  5. 5. 73% Of all music was purchased by adults in 1H2007 Oct 20 eMusic Confidential 2005
  6. 6. N o2 Digital music retailer in the world Oct 20 eMusic Confidential 2005
  7. 7. Strong Number Two Market Position A La Carte Download Market Share – The NPD Group Service 2007 iTunes 71% eMusic 10% Amazon 5% MSN Music 3% Real/Rhapsody 3% Napster 2% Yahoo! Music Less than 1% MTV Urge Sony Connect
  8. 8. 425,000+ Subscribers Oct 20 eMusic Confidential 2005
  9. 9. 225,000,000 Songs sold in last four years Oct 20 eMusic Confidential 2005
  10. 10. 4,300,000 tracks 400,000 titles 35,000 labels Oct 20 eMusic Confidential 2005
  11. 11. MP3 no DRM Oct 20 eMusic Confidential 2005
  12. 12. Own Your Music Don’t rent it. Oct 20 eMusic Confidential 2005
  13. 13. How is eMusic Different? •  Value •  Bundled subscription •  Lowest price in the market per track •  (But much higher per customer spend) •  Compatibility •  Works with every device •  Ownership vs rental •  Discovery •  Long-tail service truly sells non-mainstream music •  Opposite sales profile from hit services
  14. 14. Advantages of marginal cost model •  Price flexibility unrivaled in physical world •  More consumer choice •  Add value through services eMusic Confidential
  15. 15. The consumer is now in control.
  16. 16. RShare ANts P2P Gnutella P2P Ares Tor eMule Grokster Bit Torrent Free is everywhere. Entropy Kazaa Morpheus Limewire Freenet Blogs eDonkey GNUnet Azureus
  17. 17. Their life is on-demand and self-programmed •  TiVo •  Blogs •  Pandora •  Netflix •  iPod + iTunes •  YouTube •  Facebook •  Twitter
  18. 18. In music, DRM... •  Built Apple’s dominance •  Allowed iPod to be closed ecosystem •  Discouraged legit buyers from buying •  Slowed digital adoption •  Placed competitors at disadvantage •  Lotsa roadkill •  Sony Connect •  Yahoo! Music •  MTV Urge •  Musicmatch •  AOL Music •  Didn’t stop or slow piracy
  19. 19. In five years, there will be no more... •  DRM on digital media •  Release windows •  24 hour viewing requirements •  Arcane restrictions on how consumers consume •  Labels as they exist now

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