Business Matters: Is the 'Tesco Model' Music Retail's Next Big Problem?
Business Matters: Is the 'Tesco Model' Music Retail's Next Big Problem?

Starting next week, U.K. customers will have one less legal option for buying MP3s. UK retailer Tesco has announced it will close its MP3 store on September 1. The news was first reported Thursday morning at MusicWeek.

The move is clearly an attempt to stay ahead of the curve. Tesco acquired a 91% stake in Internet radio service We7 for £10.8 million in June. (The retailer links to We7 in its announcement of the closing of its MP3 store.) Downloads are a maturing product, but most growth and market share have been commandeered by major retailers such as Apple and Amazon. Internet radio presents Tesco an opportunity to start anew.

MP3 sales aren't exactly on the decline in the U.K. About 500,000 digital albums are sold each week in the U.K, up from 64,000 in 2006, according to the BPI. And U.K. album sales broke the 100-million barrier earlier this month. Download sales are definitely maturing, but they are far from falling.

The big problem with the MP3 download is that so few companies still sell them. After iTunes and Amazon the market share of an MP3 seller is frighteningly low. eMusic is still in the game. Google is young and growing. 7digital offers white label services for a variety of partners. This scarcity of legal sources leads to problems. Search for MP3s at Google and you'll find that illegal sources far outnumber legal sources. In fact, you're likely to find only two or three legal sources in the first ten pages of search results.

This could be a great move for Tesco. MP3 sellers need to offer cloud storage and mobile ecosystems, a la Apple, Google and Amazon. Instead, Tesco can offer Internet radio to its customers. To keep them listening is to keep them buying.