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

2. Why aren’t there
entertainment retailers
who cater only to the tastes
of adults?

4. 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

5. Subscriber Growth
Subscribers
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0

6. 40%
Of all music was purchased by adults in 2001
Oct 20
eMusic Confidential
2005

7. 73%
Of all music was purchased by adults in 1H2007
Oct 20
eMusic Confidential
2005

8. N o2 Digital music retailer
in the world
Oct 20
eMusic Confidential
2005

9. 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

10. 425,000+
Subscribers
Oct 20
eMusic Confidential
2005

11. 225,000,000
Songs sold in last four years
Oct 20
eMusic Confidential
2005

12. 4,300,000
tracks
400,000
titles
35,000
labels
Oct 20
eMusic Confidential
2005

13. MP3
no DRM
Oct 20
eMusic Confidential
2005

14. Own Your Music
Don’t rent it.
Oct 20
eMusic Confidential
2005

15. 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

16. Advantages of marginal cost model
• Price flexibility unrivaled in physical world
• More consumer choice
• Add value through services
eMusic
Confidential

17. The consumer is now in control.

18. RShare ANts P2P
Gnutella
P2P
Ares
Tor
eMule
Grokster Bit Torrent
Free is everywhere.
Entropy
Kazaa Morpheus
Limewire
Freenet
Blogs eDonkey
GNUnet
Azureus

19. Their life is on-demand and
self-programmed
• TiVo
• Blogs
• Pandora
• Netflix
• iPod + iTunes
• YouTube
• Facebook
• Twitter

20. 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

21. 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