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Business News (more headlines) 01-28-2004

MusicDish/Mi2N Founder Tells The Mill "Music Is A Loss Leader"

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Website: http://www.gristforthemill.org/010422music_2.html

In a recent article "Music In The 00s" published by The Mill Magazine, music consultant and music magazine founder/editor Eric de Fontenay reflected on the changing business fundamentals of music as it makes the transition to a digital networked environment (http://www.gristforthemill.org/010422music_2.html).

Commenting on the 99-per-song price that has characterized most online offerings, Mr. de Fontenay noted that while royalties already account for over 80% of cost and likely to increase over time, he still thinks we could see prices come down: "The question is, to what extent are companies willing to price below cost. And that's I think where you might see a lot of innovation," Eric told The Mill Magazine's David Fine. "File-sharing has demonstrated already that music is a loss leader. But it is able to generate a lot of ancillary [consumption]. People are going to buy an iTunes song ... and maybe an iPod, or a Mac."

"The concept of a 'loss leader' is where a company is willing to sell a product at a loss in order to generate even greater sales from related complementary products - it's the old razor and blade model: you practically give away the razor for the ongoing revenue from blades sold over the razor's life. Music is increasingly the razor to sell today's blades: MP3 players, PCs and mobile phones."

"The trend has already been prevalent in the brick-&-mortar world where mega-retailers like WalMart or Best Buy price music at a loss in order to attract new customers and boost sales of higher margin goods. Apple and others are just following suit online. This unfortunately leaves online retailers trying to make money primarily off music in the same bind that Musicland and Tower face."

"This is not to say that music in any way has lost any value, well to the contrary. It's value will increae over time as more businesses turn to music to help sell their core, high-margin products, whether its electronics, games or even cars - remember the BMW web movie clips. The commercial demand for music will increase and therefore its value. Whether there will still be pure online music retailers though is questionable."

Mr. de Fontenay though noted in the article that what might be bad for independent online music retailers may turn into a blessing for musicians. "It's going to be interesting to see how the entrance of consumer electronics manufacturers Apple and Sony will influence the development of new music. For example, computer and tech companies might say they want a lot more diversity and go after all types of little niches now considered unprofitable, in an attempt to expand their customer base for gadgets."

Eric de Fontenay has been a diligent observer and outspoken voice of what has been popularly called the "digital revolution." As a telecom consultant in the early 90's, he worked on regulatory upheaval faced by a newly deregulated/liberalized industry challenged by technological revolution from fiber optics and digitization. But it was in was in the midst of his work on emerging broadband networks & markets that he decided to put his ideas and concepts to reality and founded Tag It in 1997.

Today, Tag It is a leading voice within the music industry, challenging its members to think out-of-the-box & imagine the future while empowering a host new stakeholders. Its music industry portals MusicDish (http://www.musicdish.com) & Mi2N (http://www.mi2n.com), and particularly its newsletters, have become a staple of information & analysis for a broad community that ranges from major executives to lonely musicians. Through the MusicDish Network, a collective of hundreds of music sites and webcasters, Tag It is building a media platform to enlighten, educate and bring to light new trends and sounds.

Eric has personally been a vocal participant in leading public forums and conferences ranging from the Consumer Electronic Show to Noorderslag Seminar and Harvard Law School. He has been published in business and academic journals in the US and across Europe, his most recent paper "Peer-to-Peer Networking and Policy" appearing in "Cyber Policy and Economics in an Internet Age" (Kluwer Academic Publishers).

Contact: Eric de Fontenay
mailto:editor@mi2n.com

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