Google Music, and the Cost of Holdouts

Google is set to debut its cloud-based music service, called (creatively) Google Music. This isn’t revolutionary after Amazon launched its service. What makes it fun for IP nerds like me is that Google initially tried to strike licensing deals with the major music labels, but when they failed, they altered their service (to avoid the fate of MP3.com, and stay within the parameters of Cablevision, at least in the Second Circuit) and went ahead without licenses.

There are three interesting aspects to this. First, even though the music business is a near-oligopoly, with only four major labels, there’s clearly division within it about how to handle services like this. Apparently Sony and Universal demanded terms too onerous for Google. (Presumably EMI and Warner were more obliging.) This is the tricky part about oligopoly: it’s really all or none when it comes to deals. One holdout can change everything.

Second, I wonder about the labels’ strategy. If we compare what Google wanted (to avoid duplication by storing a single copy of a song rather than one copy per user) with license revenue to what they got (multiple copies, but no need to share the money), is that a superior outcome for the labels? Does it make Google less of a competitive threat? I’m dubious.

Lastly, it provides evidence for my back of the envelope conclusion that innovation in the tech space often comes guised as IP infringement: the MP3 player, the player piano, the photocopier, the VCR, and so forth. Incumbents (who are often the rightsholders) are simply too risk-averse to innovate effectively. Microsoft hasn’t done much in cloud computing because it’s worried about killing Windows. Lotus had some trouble shifting to Web apps because of fears of cannibalizing sales of Notes / Domino. And the record labels want to protect what used to be a stable, high-margin environment: sales of complete albums on compact disc. IP law is their tool of choice for market preservation. But if they’re wrong – if what Google and Amazon are doing does not require permission – then intransigence will speed their demise. I don’t have any feelings about the labels (other than a strong suspicion that other intermediaries can perform their functions just as capably), but it’s always a little strange to see intransigence that flies in the face of self-interest.

2 Responses to “Google Music, and the Cost of Holdouts”

  1. Not just back of the envelope. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1273385

  2. How is Google music different from the Amazon cloud player? In Amazon, we have an incumbent retailer that has consistently challenged the status quo, first on drm and now on online backups.

    I fail to see how record labels will hold any power, after a few more years in this retail environment.