Netflix Kills Plan To Split Off DVD Movie Rentals From Streaming Business
Netflix Kills Plan To Split Off DVD Movie Rentals From Streaming Business

Let's Get Physical, Physical, Says Netflix
-- For insight into the state of the CD, look to a recent decision by Netflix to unbundle its streaming and DVD rental plans.

The 1% gain in U.S. album sales in the first half of 2011 has brought up some good questions about the state of the American music consumer. Are there now more digital buyers in the marketplace? Are CD buyers still seeking out harder-to-find CDs at the fewer retailers that still carry them? More importantly, is there any overlap between digital buyers and CD buyers?

The CD's heath depends mostly on retailers' willingness to stock the format. That's because there is no indication that consumer demand for the CD is going away entirely. After some consumers have migrated to digital formats, others appear to be left still wanting a physical format.

The result could be an end to the steep, ongoing drop in CD sales, NPD Group's Russ Crupnick told CNET recently. "Between the years 2006 to 2009, the number of CD buyers dropped by around 20 million. We talk about young people and the lost generation but some of these younger music buyers are telling us 'I want that thing I can hold, the liner notes and album cover and the other ancillary materials that come with physical products.'"

Likewise, there is a similar delineation at Netflix: online streaming will be one division of the company and the DVD operation will be an entirely separate division. Accordingly, streaming and DVD subscriptions will be priced separately, too -- $7.99 for each. The two used to be bundled at a price that saved customers money. Customers can still opt for a combination of streaming and DVD rentals. However, a physical-streaming bundle is not priced at all like a bundle. The pair will cost $15.98 - or $7.99 apiece.

The move by Netflix sends a strong message that physical formats are not dead. And by separating the subscription plans and operating two different divisions, the company has acknowledged that a growing number of consumers simply want either one or the other.

As a side note, it may seem a bit strange that Netflix is effectively raising some prices for DVD renters while the CD is holding on for dear life due to lower prices. Netflix does not depend on retailers for its DVD-related revenue and can act unilaterally. But labels need to keep retailers happy to retain shelf space and, well, shelves. Over the years that has meant lower prices and new types of "greatest hits" catalog titles that provide a better value. As NPD's Crupnick noted in a June 2009 blog post, "Ultimately a lot of the solutions distributors are using to survive the transition from physical to digital rely on a significant amount of retailer cooperation."
( Netflix blog)


Debunking Reuters' Pandora Story

-- If you see a Reuters article with the headline, "Pandora fails to reassure on music royalties," just ignore it. Nobody in their right mind should have been scared by any disclosures about royalties in Pandora's analyst day presentation Tuesday morning. Here are the two big problems with the Reuters article:

First, any analyst who spent more than ten minutes researching Pandora already knows that its royalty rates are set through 2015. The company pays the webcasting rates established 2009, in addition to smaller amounts to performing rights organizations. Since the royalty rates are locked in, there is nothing Pandora can do to ease analysts' worries about the amounts the company must pay rights holders. An analyst who was worried before the IPO is probably still worried. In any case, nothing regarding royalty rates has changed since the company filed for its IPO earlier this year.

Second, the timeline shows Reuters' main thesis is wrong. Pandora's stock dropped as soon as the market opened at 9:30am E.T. The analyst presentation did not begin until 11am E.T. and the part about royalty rates was well into the presentation. Thus, something other than the analyst day presentation must have caused the company's stock to fall. As it turns out, there is a plausible explanation that fits with the timeline: another analyst had opened coverage of Pandora with a "sell" rating.
( Reuters)

TargetSpot and Slacker Partner on AOL Radio Ads
-- TargetSpot has reached a new advertising partnership with Slacker for Slacker's new partnership with AOL Radio. The company will deliver targeted in-stream audio, video and display ads to consumers who access the music service via web or mobile apps. TargetSpot claims to reach 69% of all online listeners and 17% of the entire U.S. Internet population through 77 distribution partners, according to its web site. In January it announced the closing of an $8 million round of funding with participation by Union Square Ventures, Bain Capital Ventures, CBS Radio and Milestone Venture Partners. They raised $8.6 million from the same investors back in 2008.
( Press release)

Randy Goodman To Co-Chair Nashville Music Council
-- Randy Goodman has been named co-chairman of the Nashville Music Council. Goodman was most recently the president of Lyric Street Records until it closed last year. Mary Ann McCready, a partner at Flood, Bumstead, McCready & McCarthy, has served has co-chaired the Council with Mayor Karl Dean.

The Music Council was established by Karl Dean to do four things: create jobs by recruiting music-related businesses to the city; attract creative people to live and work in Nashville; improve the city's live music scene; and develop a leading system of music education in public schools. The Council's latest developments are a partnership with the Nashville Entrepreneur Center and the plans for a 60-apartment artists' residence called The Ryman Lofts.
( Nashville Music Council blog)

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