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Why aren’t there
  entertainment retailers
who cater only to the tastes
        of adults?
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
Subscriber Growth
             Subscribers
450,000


400,000


350,000


300,000


250,000


200,000


150,000


100,000


 50,000


     0
40%
Of all music was purchased by adults in 2001




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




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




                            Oct 20
                                     eMusic Confidential
                            2005
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
425,000+
Subscribers


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




                                Oct 20
                                         eMusic Confidential
                                2005
4,300,000
                      tracks




400,000
           titles




35,000
      labels




                    Oct 20
                             eMusic Confidential
                    2005
MP3
no DRM

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


                 Oct 20
                          eMusic Confidential
                 2005
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
Advantages of marginal cost model

•  Price flexibility unrivaled in physical world
•  More consumer choice
•  Add value through services




                                            eMusic
                                            Confidential
The consumer is now in control.
RShare                   ANts P2P
                                                     Gnutella
            P2P
                                    Ares
                                                                     Tor
  eMule
                     Grokster                Bit Torrent


          Free is everywhere.
                                                                Entropy
                           Kazaa             Morpheus
          Limewire
                                           Freenet
                            Blogs                          eDonkey
            GNUnet
                                           Azureus
Their life is on-demand and
self-programmed
•  TiVo
•  Blogs
•  Pandora
•  Netflix
•  iPod + iTunes
•  YouTube
•  Facebook
•  Twitter
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
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
Pakman MIT Sloan Lecture 091508

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Pakman MIT Sloan Lecture 091508

  • 1.
  • 2. Why aren’t there entertainment retailers who cater only to the tastes of adults?
  • 3.
  • 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