The Failures Of The Zune And The Record Labels

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By Saul Hansell

Tags: j allard, Microsoft, Music, zune

I posted a few excerpts from my conversation earlier this week with J Allard of Microsoft about the company’s grand plans and its ideas about cellphones.

What about Zune itself, the music player that Mr. Allard oversees? The technology press dismissed the first generation, introduced a year ago, as a non-event. The second generation, which hit the market this week, is getting mixed reviews.

Before I met with Mr. Allard, I spoke with Chris Stephenson, the head of marketing for Zune. He was in his own way convincing that Zune hadn’t been a total flop. The first line sold 1.2 million, making it No. 2 to Apple. That is a distant No. 2, as Apple has about three-quarters of the market — that is, if you define the category as music players with hard drives. In North America, Apple had a share of 75 percent in the category to Microsoft’s 15 percent.

Of course, smaller players with flash memory account for three-quarters of the roughly 40 million music players to be sold this year. So earlier this week Microsoft added cheaper Flash Zunes to its line. And Mr. Stephenson said the company hopes to displace Sandisk as the second-ranked vendor of MP3 players next year.

“Fifteen percent [market share] would be great for us,” he said.

When I spoke to Mr. Allard, he was up front about Microsoft’s slow start. But he defended the approach of “fail fast” and learn. And in typical Microsoft fashion, he talked about the first generations of Zune as early moves in a long-term strategy. (That Xbox actually has become successful, unlike many recent Microsoft efforts, bolsters his credibility on this somewhat.)

And he was equally frank about the idea that the main ways that Microsoft sells music †on behalf of the major record labels †don’t really work in today’s world. He said he expects much music to be free, probably accompanied by advertising. He didn’t have much to say about what sort of advertising, but figuring that out is now a priority in light of Microsoft’s $6 billion acquisition of aQuantive, an online ad firm.

Here are some of his comments related to the Zune and the music industry.

I’m a big believer in failing fast… If we skipped last year, we would have never come out with the product we did this year… We learned that because of the shortfalls in the PC client [software], the device was less useful… People hated that there was no podcasts, that they couldn’t fill their cultural cache [the Zune] with the stuff that was meaningful to them.

We would not have added Wi-Fi sync [a feature that adds music to the Zune over a wireless network]. That’s not a very sexy feature to demo. If you are out for a run, your girl comes home and rips 5 new CDs on the PC upstairs. You come back home, dock your device and make some risotto. When you go out for a run the next day, the CDs magically appear. That’s cool. The confidence that NPR is always going to be there. That’s cool.

People are unhappy with DRM download-to-own. If I buy a track with DRM and it has fewer rights than the CD, that is where people get their nose out of joint. There is no art, no track information, no liner notes. I can’t sell it for four bucks to buy a burrito if I’m hungry. [The Zune marketplace sells tracks in MP3 format for labels that allow it.]

It is easy to get subscriptions right, if we could reinvent rights. If we had full rights to every piece of music recorded since the beginning of time, and we could choose what to do with it, we could build a dynamite service….

It would be free and available on every device…. There would be advertising. Or it would be a loss leader to a higher value proposition.

The music industry is very healthy. The record industry is the problem. The notion that the only way to monetize artist creation is 10 songs that come out every 18 months, in a package called an album — the classic record model — isn’t what it used to be. [Musicians can profit from] reality shows. Fashion. Maybe I release five or six tracks and the rest comes in a paid subscription, that is basically a fan club…. Most labels are going to become management companies [making money from booking concerts, etc. rather than selling CDs.] There will be a lot of pain.

Oh really. Nice for us consumers to sit back and reminisce about all the glamorous ads about how the Zune would be so cool and amazing. Now they’re admitting it was a giant helping of fail. You people need to get your marketing in line with reality. Your pretty zune site with it’s many gradients and collection of young happy faces eagerly enjoying the zune was an outright lie, and sitting here reading this column I can’t help but feel a bit of satisfaction and smirking at the marketing effort that took place. You’ve lost credibility. You need to reign in your marketing group, take them off their lofty chairs and approach the consumer and market with a little bit more humility. Especially when you’re an underdog with what was obviously a subpar product. Thankfully many people saw through the hype.

†Posted by Bjorn

If we had full rights to every piece of music recorded since the beginning of time, and we could choose what to do with it, we could build a dynamite service

Um..I’m going to just throw this out there. Instead of investing in Facebook, how about MS gets itself Warner Music or Universal Music for Christmas. I hear record labels are having 50% off sale just in time for the holidays.

I think Mr. Allard should be the face for Microsoft. Whatever MS has to say just have Allard say it. I get the sense that guys in HS hated him. He was the guy that everybody liked the moment he started talking.

Great interview Saul Hansell of the NYT.

†Posted by coolrepublica

Failing fast? Maybe in geological terms. If they ever get Windows right (i.e. bugless and even relatively hacker-proof), maybe we can take this fail-fast enthusiasm seriously.

†Posted by tcement

[This is in response to the comment by ‘coolrepulbica’: Instead of investing in Facebook, how about MS gets itself Warner Music or Universal Music for Christmas.]

Frankly, this is what will probably happen… and though it may seem like a great solution to a heck of a lot of people out there, in my opinion, that is precisely the kind of decision that has been contributing truckloads of problems to the Industry. Sure… Apple’s 11th hour introduction of the iPOD and iTUNES struck a chord (no pun intended) with millions of music consumers… but to expect other tech companies to be able to get involved without seriously mucking things up for the consumer and artist alike is too implausible to describe. Why? because to get an edge on Apple’s model would probably entail buying a major record company and all of its assets and getting intimately involved on the artist level. You think the majors are in trouble now? Jeeze Louise! Somebody get me some water!

My radical suggestion is that MS should lick its wounds, go back to enjoying their 3/4 market share on PC operating systems and leave the creative stuff to truly creative people.

†Posted by Dan Nash

i just love that they are letting us first gen zune owners upgrade to the new firmware. that’s a class move.

†Posted by jade

“The music industry is very healthy. The record industry is the problem.”

This quote only works if you add Apple’s iPod revenues to “music industry”. And Zune’s. Neither Apple nor Microsoft make music; they sell XXI Century record players. Anyone who thinks selling music subscriptions, digital singles, Ringles, branded jeans, 360 concert deals, etc. will replace the revenues lost when CDs go away doesn’t know how to use Excel.

†Posted by Drew Robertson

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