The Channel Wire

September 22, 2008

With CD sales continuing to plunge, SanDisk has decided to start selling music on microSD cards on a USB sled, hoping that consumers still want a physical representation of the music they are listening to on MP3 players. SanDisk's gambit, called "slotMuisc," has already been endorsed by four major music labels: EMI Music, Sony BMG, Universal Music Group and Warner Music Group. Best Buy and Wal-Mart two major US music retailers, have also given SanDisk their blessing.

Conspicuously absent from the group backing slotMusic are music retailers that offer products through downloads, such as Apple and Amazon.com. Apple's iTunes, it is worth noting, has over 4 billion music downloads since 2003.

SanDisk is counting on the fact that most portable music players and phones are equipped with USB slots that customers will be able to use to upload music onto their portable device. Laptops and desktops likewise have had USB ports built into them for some time now, allowing the music buying masses to upload and store tunes onto whichever device they feel most comfortable. The files are also digital rights management (DRM) free.

Apple's iPod has already sold over 150 million units and does not include a USB port.

Still, Daniel Schreiber, a senior vice president at SanDisk, isn't deterred by missing out on Apple's customers.

"Most non-iPod MP3 players already have card slots in them ... and music-capable phones with card slots are selling at a rate of 750 million a year," said Schreiber.

While mobile phones that play music and non-iPod MP3 players do continue to sell, SanDisk refuses to acknowledge that having a physical representation of an album or song just isn't that important to consumers any more. Instead, the convenience of downloading through a service like iTunes or through bit torrent has become the distribution method of choice. Sales of CDs have dropped consistently over the past few years and music labels are still trying to figure out how to cope.

"The CD is dying, but rumors of its death are perhaps somewhat premature," Schreiber said. "People are spending more money on CDs than any other format. There are hundreds of millions of music CDs shipping every year."

Customers may indeed be spending more money on CDs than on any other physical music format ever year. But that's probably only because 8 track players aren't equipped in cars anymore and vinyl is for collectors these days.

Stubbornly refusing to acknowledge that CDs are on their way out is like betting that the new fangled color TV will never over take the black and white monstrosity in your grandmother's living room.

Introducing a DRM free, USB loaded with songs that can be sold through retailers still just won't compete, although it is easy to see why music labels like Sony BMG have giving Wal-Mart and Best Buy encouragement: it doesn't cost the label anything to put music on a USB and they can still slice out a nice percentage for themselves.

But assume for a second customers do decide to move their feet and go to a Best Buy on a Tuesday to pick up the latest USB chalk full of their favorite bands latest album. With a USB and a CD hanging side by side in the aisle, is it really more compelling to buy the USB drive? It can't be plugged into a car stereo yet. But a consumer can rip the disk to their hard drive and load it onto an MP3 player.

Danielle Levitas, an analyst at research firm IDC, might have put it best.

"Internet-based distribution is not for everyone," said Levitas. "But the (demographic) segment that values physical media the most isn't the one that spends the most on music. I get why they (SanDisk) are doing this, but I just don't know that it adds up into a compelling business."

The bottom line is that an attempt to put a band aid on the way music is distributed isn't going to stop consumers from going for what is most convenient to them. And a USB filled with DRM free songs that can't be played on an iPod just isn't going to make a difference.