Google's newly announced record label-sanctioned music search engine site is being heralded as an important step in the development of new monetization models and, not surprising, has drawn a good deal of commentary.
Gerd Leonhard has an insightful post at his blog on why the Google deal is so important and what it means.
"Clearly, it is much better for Google to offer and develop a new payment logic and mechanism for the music that is being used, i.e. to somehow license and pre-pay for ... until such time where the revenues from advertising, up- and cross-selling are big enough to pay for everything, and quite possibly beyond that, as well. And as far as the music licenses are concerned - otherwise a no-go minefield that few Internet companies have crossed in the past - China is clearly a very good place to start as most of these new revenues will be 'found money' for the record labels. ...
The bottom-line? For all parties, it is better to deploy new kinds of ads (think mobile - that will certainly be key), sponsorships and affiliate links while the music is being used (fka consumed;) and to thereby fund the pool of music licensing costs, then not to get involved and leave the turf to all the other guys that don't play by the rules, anyway."
Leonhard goes on to cover some questions raised by the deal. For example, why is this deal done in China and nowhere else? There's not much of a legitimate market - especially physical - to cannibalize, he rightly points out. China is a unique market with unique problems for content owners - mainly piracy. Licensing music to Google solves some of those problems. And Google runs second place to market leader Baidu in China. Baidu uses entertainment as a traffic driver. Google chose to do the same in order to gain market share.
One misstep was Leonhard's claim it is unfair that a good is priced differently from one country to the next. Such is a reality of unique economies, different standards of living across those economies and their different levels of purchasing power. Companies price according to each market, not all markets. (Imagine how little return on investment Western artists would get if they set a global price equivalent to a competitive price for a developing country.) This fact is one reason the Google China model difficult to introduce in wealthier countries.
The difference between China and other countries is not just about purchasing power. It's about culture. As the Financial Times pointed out, record labels had to adjust to China.
When it comes to China, western companies have often thrown their principles overboard. But the free music search service launched by Google together with the music industry this week breaks new ground even in this area.
The music industry, which has fought internet piracy, is resigned to the fact that Chinese internet users will not pay for music downloads. The labels settle for the revenues that they hope will be generated through ads on the download site.
Evan Hessel pointed out the differences between China and other markets in an article at Forbes.com and also alluded to Americans' greater willingness to pay for content.
The U.S. market for digital music is not so bleak. While illegal downloading, particularly over peer-to-peer file-sharing services such BitTorrent, cuts into music sales, new digital business models have emerged to partially replace those losses. ...
If Google wanted to launch a product similar to its Chinese music service in the U.S., it is unlikely the music industry would license its catalog for a price that would allow the search giant to make money delivering music. It is also possible that Google would operate the Chinese service as a loss leader to win traffic from Baidu, which controls 62% of the search market to Google's 28% share.