Best Buy announced (http://biz.yahoo.com/bw/061005/20061005005675.html?.v=1) plans to launch a digital music store powered by RealNetworks’ Rhapsody (http://www.rhapsody.com) service. The Music Store (http://www.bestbuy.com/digitalmusicstore), which launched yesterday (Oct. 15th), features tight integration with memory card maker SanDisk’s line of Sansa Rhapsody MP3 players (http://tinyurl.com/dz44x). Anyone who purchases the $139 (2GB) or $249 (8GB) Sansa e200 Rhapsody player will be given a free two-month subscription to the service, enabling unlimited downloads to the players; after the trial period the portable downloads service will cost $14.99 per month. Users can also purchase tracks from Rhapsody a la carte for 99 cents each.
“Whether they want to purchase downloads or a subscription and have access to all the music, we’re giving consumers the ability to enjoy entertainment on their terms,” said Jennifer Schaidler, vice president of music for Best Buy. http://www.dmwmedia.com/news/2006/10/06/report-digital-music-sales-buoy-overall-market
This launch aligns with the release of Rhapsody 4.0, an updated version of the digital music service that allows users to drag-and-drop songs from the service directly onto their portable players. By aligning with RealNetworks and SanDisk, Best Buy positions itself in the download music market, Rhapsody can drive more subscribers and the combination of all three mean they can compete in the end-to-end music solution space dominated by Apple. This is where Microsoft is headed with the Zune (http://www.microsoft.com/presspass/press/2006/sep06/09-14ZuneUnveilingPR.mspx), launch set for November. Best Buy is the #1 retailer of MP3 players in the U.S. SanDisk is the #2 manufacturer of MP3 players in the United States, and RealNetworks is the #1 digital music subscription services provider, with >1.6 million subscribers. An interesting side note is that the most-stolen item from Best Buy stores is the MP3 player (http://blog.wired.com/music/#1568666).
Best Buy clearly wants a larger piece of the download music sales and with a strong (DRM-ed) music service, and it might even influence customers to stop stealing?! They have significant floor space locked up in album displays and according to Nielsen SoundScan data (www.Nielsen.com), physical album sales dropped 8.3% year-to-date. At the same time more than 418 million tracks were purchased from digital music retailers, a rise of 72% over the same period last year, So, it’s easy to understand the motivation. When Digital album sales year-to-date (22.6 million, up 115% from last year) are combined with digital singles and physical sales, the overall music industry has sold 434.9 million albums, down from 439.2 million during the same period last year. http://today.reuters.com/news/articlenews.aspx?type=industryNews&storyID=2006-10-05T084239Z_01_N05410414_RTRIDST_0_INDUSTRY-INDUSTRY-DC.XML&WTmodLoc=EntNewsIndustry_C1_%5BFeed%5D-1
Best Buy as an online digital music retailer is focused on the TAM expansion sweet spot of the market. Rhapsody adds between 30,000 and 50,000 new tracks every week, and will be at 3 million tracks by the end of the year. The MP3 players and Rhapsody service require higher performance PC’s to rip, sync, download, post and update your listening history on a blog using RSS.I’m interested to see how the music implications of this deal plays out…