All Things Must Pass. Maybe.

Atari has filed for bankruptcy in the USA. The filing was not nearly as surprising as the realization that the company, a pioneer in arcade-style video games, is actually still in business in 2013.

[Image credit: Rijk-Jan Koppejan]

Atari is not alone. The downward arc of the PC technology cycle is bringing about exits by several former industry leaders.

Dell is considering going private, perhaps funded by Microsoft. Intel — whose eponymous 'Intel Inside' ad campaign created consumer demand for branded CPUs where none existed — announced it was phasing out manufacture of branded desktop motherboards. HP CEO Meg Whitman, whose company's stranglehold on the business of printing on paper did not lead to innovations in 3D printing, said in an interview, "We've ultimately got to be in the smartphone business."

 

No technology remains dominant forever. Neither does any music delivery format. Jan Koltai published an extraordinary graphic summarizing the four technology cycles in the music industry 1975-2007. (See below.)

 

 

• Vinyl record sales peaked in 1976 at $344 Million, trending down to near-zero by 1991.
• Cassettes peaked in 1988 at $450 Million, with demand bottoming out in 2004.
• CDs peaked in 2007 at $942 Million and are on a steep downward trajectory, falling another 13.5% in 2012.
• Digital downloads are still on the rise, up 9.1% to a new high in 2012, but are threatened by the growing popularity of streaming audio services.

While technologies fade, they seldom go away completely. Atari's backruptcy filing is intended to shield its US operations from the financial woes of French parent company Atari S. A., so that its assets can be sold to continue a now-profitable line of Android and iOS games. The resurgence of vinyl is well-documented, with double-digit annual sales growth in each of the last five years (though vinyl still represented only 2.4% of physical album sales in 2012). Cassette singles still have a following in the UK, while sales of pre-recorded cassettes fuel the growth of the music industry in Africa.

 

What goes around.

 

            Vinyl-to-Digital Restoration #50            

Artist: Old and New Dreams

Title: Playing
Genre: Jazz
Year: 1980





Jazz continuously evolves. Old and New Dreams, founded in 1977 and composed of trumpeter Don Cherry, tenor saxophonist Dewey Redman, bassist Charlie Haden (a personal favorite), and drummer Ed Blackwell, made for a mighty team, performing high-quality free bop in the tradition of the Ornette Coleman Quartet (of which they were all alumni). This Austrian concert CD features the quartet stretching out on three of Ornette’s tunes, plus a song apiece from Cherry, Redman and Haden.

© 2013 Thomas G. Dennehy. All rights reserved.

 

Would Pandora Survive Russian Winter?

If the world was fair, a new rival entering your market would have to compete head-to-head on features. Innovation would rule. But the world is not fair, and new rivals often enter your market specifically because they can win with inherent advantages that make head-to-head comparisons irrelevant. The software industry coined a term for this—Russian Winter. (Why?) And Pandora may be about to experience it.

Russian Winter has been a factor in the rise and fall of many products. Two examples:

• Mosaic, the first inernet browser, was invented at NCSA. Netscape commercialized Mosaic in 1994, and Netscape Navigator commanded 80% market share at its peak in 1996. Microsoft countered by introducing Internet Explorer. Whether or not it was a better browser than Netscape Navigator was irrelevant. As a stand-alone product, you can't compete with "pre-installed with Windows." Microsoft achieved 80% market share by 2000, 95% at its peak in 2002, completely defeating the invasion of its Desktop.

• Similarly, the market for simple chart-drawing software was once dominated by Visio and Autodesk Actrix. Feature-for-feature, you could make the case for either one. But when Microsoft bought Visio (the company) in 1999, the climate became much chillier. As a stand-alone product, you can't compete with "bundled in Office." Autodesk cancelled Actrix almost the same day, ceding the market to Microsoft.

In both cases, the victory virtually shut down disruptive innovation in these technology areas.

Pandora invented user-customized radio. You select a song and it will program a stream of more like this music based on its musical "genome." It now streams more than a billion user hours per month. Consumer awareness of Pandora is 50% among internet users, double that of its nearest competitors.

But a new competitor may be entering the market. The Wall Street Journal and New York Times reported that Apple is preparing an audio streaming service to compete with Pandora. How does Apple bring Russian Winter to the streaming audio market? Five things are immediately apparent:

1. Installed Base. You can't compete with "pre-installed on 365 million iOS devices."
2. Halo Effect. There is no brand loyalty like Apple brand loyalty. Not only will an Apple streaming service trigger an exodus of Pandora users who were there merely because there was no equivalent Apple service, the cool factor of Apple will bring many new users into the sector who were sitting on the sidelines. Pandora desperately needs these subscribers.
3. Lack of Transparency. Pandora is having trouble turning a profit, and has to say so every fiscal quarter in SEC filings, incurring negative brand image. Apple will bundle its streaming service with iTunes, burying the costs inside the rosy financials of the world's largest music retailer.
4. Leverage. The New York Post reported that Apple is negotiating directly with music labels for content, rather than adopt Pandora's disadvantageous statutory licensing model. Apple doesn't need Congressional support to make its business work.
5. Game-Changing Ability. Pandora's service defines user-customized radio. But, with more that $100B in cash and securities available, Apple could raise the stakes by introducing new capabilities requiring capital investment that Pandora couldn't match in its current financial condition. Or, taking another cue from the software industry, Apple could offer its service free to listeners. In August 2012, UK retailer Tesco announced that it was closing its MP3 store, citing the rising capital costs of trying to stay competitive with the big players, Apple and Amazon.

Could it be that the real target of Apple's ambitions is Amazon? By adding a streaming music service to iTunes, Apple would force Amazon to roll out a similar service to stay competitive. Being acquired by Amazon could be Pandora's way out of the cold.

            Vinyl-to-Digital Restoration #43             

Artist: Paul Winter Consort
Title: Earthdance
Genre: New Age
Year: 1977



I'll admit, I chose this library title for this piece because of the artist name. But The Paul Winter Consort is a foundation group in my collection, with metadata tentacles radiating through many other titles. Among the descendent links: the groups Oregon and Gallery, and the musicians Glen Moore, Paul McCandless, Collin Walcott (1945-1984), David Darling and Ralph Towner.

© 2012 Thomas G. Dennehy. All rights reserved.