If you thought Microsoft’s purchase of Skype for $8 billion was large, than Google’s announcement of its deal to buy Motorola Mobility for a price of $12.5 billion dollars was gargantuan (that’s about the yearly revenue of total global music sales). This was a brilliant strategic move by Google in its battle with Apple in what should be dubbed the ‘Smartphone wars’. Yet what are the wider implications for the music business?
Firstly, Google went ahead and launched its cloud music service without licenses from the record labels and music publishing companies. Why is this significant? Because Google did try and negotiate with the music business, yet according to sources Google walked away as it became clear to them that Apple was getting preferential terms for it’s iTunes and iCloud service. And perhaps yes a valid criticism of Google is that they do not respect or ‘get’ the value of music as Apple clearly does.
Without a doubt Google wants equal terms with iTunes and no doubt margins, when dealing with the music business. TMV would argue it is in the record industries own interest to give Google equal terms and hence create a level playing field in terms of competition within the digital music retail arena. Real competition ensures content owners and consumers as well as digital music services are all better off.
Moving back to Google’s purchase of Motorola Mobility it is clear that this purchase brings a twofold benefit to the Google ecosystem. Firstly, it delivers a Smartphone hardware-manufacturing base to Android (which has the largest global market share in Smartphone mobile OS – almost double that of Apple’s iOS). This reinforces Google going head-to-head with the iPhone and iPad. Secondly, the deal brings with it a massive haul of over 17,000 patents. This in itself made the deal worthwhile for Google – especially considering the ever more vicious patent wars going on between all the players in the Smartphone sector.
The implications over the medium to long-term for the music industry are massive. Now Android has an in-house Smartphone and tablet-manufacturing beast. Google will clearly release Smartphone’s that provide increasingly better user experiences – just by the nature of streamlining device manufacture and software OS. This will be a real fight for the user experience crown and there can only be one winner (currently Apple). There are more consumers on a global basis using Android OS devices in comparison to Apple iOS devices.
Whilst the music business continues to give excessive favourable terms to iTunes over every other digital music service, music fans and record labels will never see TRUE competition. Its been confirmed to TMV that standard terms from labels to digital music services other than Apple are 21% of retail price, whilst Apple gets 30% (the stupid employee at this particular label sent over an excel spreadsheet which included the splits Apple receives as well as the split this particular MSP receives). That is almost a 33% difference – and as most digital music start-ups along with their VC investors realise; that is why so many MSP’s have died.
It’s time for the music business to ‘man up’ and grow some cajones and enable true competition. This includes when negotiating with Google. TMV predict within a 2-3 year time frame given the chance, a Google music service could take a 30% market share away from Apple on a global basis in terms of digital music sales. But for this to occur there has to be a level playing field for all new market entrants. There is no doubt such a scenario would be good for labels, publishers, entrepreneurs and music fans alike.