Articles mention a “sale”, but more likely it will be a shuttering and quiet bankruptcy.
Snocap represents a commonplace occurrence in the music business – an unprofitable retailer which withers and eventually dies.
The sad truth is that while the music business appears glamorous – and certain parts may be – the business of selling recorded music is unprofitable for everyone. That’s right – everyone. Big box retailers move mountains of CDs but it’s typically a loss leader designed to get people into the store rather than generate a profit. Offline music only retailers such as Tower Records have largely vanished.
Filling the void are a host of online new companies with enthusiasm but no better economics. Giant Apple propelled by it itunes franchise sells more than a billion dollars of music per year and the best estimates are a break even or tiny profit margin.
They don’t mind because ipod hardware is where they generate the profits. For digital music vendors without an ancillary business to lean on selling music is a money loser.
The allure of selling digital music attracted Snocap. They courted the major labels incessantly but were never able to form any meaningful relationship. So they turned to Myspace and their big list of independent artists. But if Apple can’t make money selling music from the major labels, it is suicidal to think that Snocap could make money selling music only from indies. Nonetheless they gave MySpace a mountain of money to give it a run.
Their strategy was to sell just a ‘pair of sandals to every China man’ or in their case $100 of music for every indie band on myspace – even if only to friends and family. It sounded good on paper but didn’t work. They feared doing anything too progressive because they always held out hope that the major labels would work with them. There was no radically new pricing models. No music locker for your purchases. Just a $1 a song store with obscure music.
Selling music is like selling gravel. It’s a commodity. Music is of course more entertaining than gravel but at the end of the day everyone is selling the exact same thing. A song from AmazonMP3 and itunes and Walmart are all the same (assuming no DRM from each).
When everyone is selling the same thing the profit margins are eventually whittled down to the tiniest number – in this case zero because conglomerates are fine breaking even selling music (or even losing money) to propel another part of their business.
Snocap will undoubtedly go away but there seems to be a list of new prospects willing to overlook the economics and dead bodies of companies before them and jump into the music retailing business.
Many of the new companies are telecom related.
Nokia recently launched a store. Sony Ericsson publicly stated they are working on a music store. (In spite of the fact that Sony’s Connect music story is shuttering next month after about $50 million of invested monies – my estimate.) Sadly their music efforts will be huge money losers unless they offer something beyond the $1/song model.
But how progressive will the record labels let these new retailers be? Time will tell.
Snocap – Fanning`s Snocap: close to meltdown?, December 11, 2007
Want to help p2pnet stay online? Please click here.