Part 2 In A Series: eMusic Under Attack

For millions of consumers who have purchased iPods, eMusic has the most comprehensive catalog
outside of iTunes of downloads compatible with their players.  For indie music lovers, eMusic offers a diverse catalog of 2.5 million tracks and a community of like minded fans.  300,000 subscribers happily
pay to scour these virtual shelves and grabbing DRM free tracks.

Real competition, however, is looming on the horizon.

First came niche players like InSound and the UK’s 7Digital selling mp3’s.  Then almost simultaneously, EMI signaled a willingness to sell its entire catalog DRM free and internet retail giant Amazon got
serious about an mp3 only store.

Ultimately EMI cut its first deal with iTunes who will begin offering DRM free tracks any day,and other
providers like Zune will follow soon. At the same time, Amazon has been working aggressively to make its offering unique; and despite public pronouncements to
the contrary, Universal and to one degree or another every major label is privately discussing the release of portions of their catalog in unrestricted formats.

How does eMusic plan to compete in this more crowded field?  "Retailers are defined by what they carry," says eMusic VP of Corporate Communications Cathy Halgas Nevis. "As the major labels decide to offer their music in the MP3 format and as other competitors come into the market, we will continue to focus on our target customer and provide them with the music that they are most interested, in a well-priced service. To continue our growth, we will continue to seek out and license music from the most remote regions of the world and bring even more diversity to the sales selection of our customers. We are looking at additional markets and product lines – there are other areas, such as video, that are interesting to us."

But eMusic’s future ability to deliver on their main value propositions – diverse selection and lower prices – is under attack.

A number of significant indie labels including Victory and Urge have left and Red House, Silva Amreica,

Tzadik and others reportedly have one foot out the door. Additionally, several larger indies and even some labels with major distribution that have resisted eMusic’s subscription model payouts are poised to offer their product DRM free via other services. The major labels led by EMI are also freeing up more catalog, but their contractual obligations and pricing models may prevent eMusic from carrying those tracks.

If more and more product is only available DRM free elsewhere will eMusic be able to maintain it’s subscriber base? Will increased diversity elsewhere leave eMusic competing on price alone?  And how long will labels settle for smaller per track payouts as checks from other services begin to grow?

One solution offered by eMusic is to position itself as guides through an increasingly crowded musical landscape.  The site already has some of the best and most comprehensive charts, editorial, gatekeepers, forums and other music discovery filters of any of the download services. Continuing and expanding that tradition – as well as working to improve relations and payouts to its labels – could be eMusic’s best hope for holding or growing on to its 300,000 subscribers.

PART 1 of our exclusive series "eMusic Has Become Indie Cornerstone" here.

NEXT WEEK: We try to understand "The Math of eMusic", "Industry Reaction" and more.