The Beat Goes On: Apple, Roxio, & Centerspan

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THE BEAT GOES ON: APPLE, ROXIO, & CENTERSPAN
By
May 21, 2003

Entertainment synergy has been touted for two decades now. The alignment of Apple-iTunes and Roxio-Napster-Pressplay is an old theme. It hasn't worked in the past because it's a marginal strategy.

Synergy requires the benefits of vertical integration to outweight the costs of added and different organizations. But it doesn't work on a large scale. On the costs side ...

• DIFFERENT BUSINESSES & CULTURE. There's no overlap in products, sales, and distribution. Entertainment is an oligopoly supplier industry with product but no pricing innovation. Large media companies are driven primarily by assets and distribution, In contrast technology companies are more competitive and fully innovative across their business. This creates diverse organizations that make it difficult to even create savings in admin and support departments. Vertical integration does not reduce costs.

As to benefits ...

• OPEN TECHNOLOGY. Consumers demand open technology that extends to hardware, software, and file formats. Witness the success of P2P, founded on the MP3 format. It's difficult to reap synergistic benefits on such a level playing field.

So how do recent developments make sense in this framework?

• APPLE does not play to the mass market but is a niche. Still, Apple is a case study in how to make vertical integration work for a market segment.

• ROXIO has mass market potential with over 100 million users. But Pressplay synergy through media creation software is not as compelling a product tie-in as Apple's hardware media player. Roxio's motivation is sheer opportunity. The Pressplay deal was a few million in actual cash (the bulk is stock). The buy was a steal, compared to the already sunk investment in Pressplay of $60M+. Roxio can use the iTunes model to achieve limited success in the Win mass market

What's next.

• The Apple and Roxio developments are welcome news that show market innovation. But it's weak synergy. Much stronger plays are yet to be developed. ... Picture Maxtor selling a $100 80GB hard drive with entire music catalogs that the user can preview and unlock with a credit card. Or Microsoft giving away such drives in exchange for a one year broadband and music subscription.

Other lessons in the news:

• YOU CAN'T TEACH AN OLD DOG NEW TRICKS. Napster and Scour were old models and old tech worth zip. Napster has been reduced to a brand name.
• SECURE P2P NETWORK BIZ ISN'T. These developers had a slim chance before the court decision. How many secure networks and DRM developers could be supported even if RIAA had won? But now they're dinosaurs.
• RECORD COMPANIES GO BACK TO BUSINESS. They need to figure out how to survive. Retail isn't the answer.

ROXIO BUYS PRESSPLAY FOR $39M (HAD BOUGHT NAPSTER)
http://biz.yahoo.com
http://news.com.com
http://www.nytimes.com

CENTERSPAN SUSPENDS OPERATIONS (HAD BOUGHT SCOUR)
http://biz.yahoo.com

Copyright 2003, Marc Freedman

Copyright 2003-4 Marc Freedman. All Rights Reserved.