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August 14, 2005

Digital Music Downloads - The Problems of a Next to Zero Margin Business

SharkJumping: Sean Ryan, the founder former CEO of Listen.com/Rhapsody (which he sold to RealNetworks and has now struck on his own in the casual gaming market), combs through Loudeye's latest 10-Q, and writes about the decreasing margins and the difficulty in developing a business around digital music alone.
"The digital music download business is, in particular, NOT a place for service providers, or in my opinion, for investors. The margins are simply terrible, one has no leverage over your primary suppliers, there are legions of competitors, your business customers want to go directly to the labels, and there is a massive piracy issue."

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As a brief correction, Rob Reid was the founder of Listen.com. I was the CEO in later years.

Posted by: Sean Ryan | Aug 15, 2005 12:56:21 AM

I think there are no profits to be made if you're trying to be everything to everyone. With all of the new digital music stores launching selling the same damn thing, how would a company expect to prosper? Whats the difference in purchasing a Black Eye Peas track from Napster and one from Yahoo? Nothing! There is nothing different about them at all except for design. The problem is even worse with more stores launching with Loudeye providing the backend. It's all the same damn music.

I think investors are crazy if they're backing some of the major services with the intent of making money but I think there is money in specialized sites. eMusic has proven that as it is the number two download store behind itunes.

Posted by: Cartel | Aug 15, 2005 9:42:42 AM

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