Digital Piracy or Just Bad Business Models?

Pandora iPhone App
Image via Wikipedia deserves the blame for its failure

Glenn Peoples, writing for, published an interesting piece about the demise of Interesting because it raises a fundamental issue about the business of digital music distribution and commercialization.

Citing a CNET article written by Greg Sandoval, the piece points out the service’s atrocious financial condition – $2.2 million in assets and a debt to the four major record companies of $25 million – resulting in the company’s recent Chapter 11 bankruptcy filing.

As one would imagine, the author believes that “the usual suspects (the majors)” will be blamed for this. However, Peoples takes issue with this, stating that “the company chose its fate.” Peoples points to its business model, positing that an ad-supported music service simply isn’t viable. “It should have been clear to the company that major labels would not show great support for an ad-supported music service that did not first acquire licenses from the content owners. “

So, what can the music industry and entertainment entrepreneurs take away from this? First, an ad-supported service doesn’t generate the customer loyalty/retention that provide financial security. Content providers and purveyors are wise to “discourage ad-supported models and play-first-pay-later tactics.” Second, the better strategy is licensing content to paid services that create added value through features and innovation. Good examples of this are seen in Pandora and YouTube as the standards of free services.

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