Digital Music Grows Up

I've avoided posting anything about digital music on VentureBlog since I sit on the board of and represent August Capital's investment in Listen.com and it has been hard for me to dispassionately write about the space. However, given that the company is in the late stages of being purchased by Real Networks, I've mentally moved on from that ownership position and am beginning to search for new opportunities in the space.

What's most interesting to me is how much the digital music industry has matured in the three years or so since Napster exploded on the scene and changed everything. Sure, there are still a bunch of issues to be worked out but this is no longer a group of renegade upstarts and pirates attacking an entrenched industry. With the surprising success of iTunes, the purchases of PressPlay by Roxio and Listen.com by Real, and the announced entry into the space by Microsoft and Yahoo, digital music distribution is quickly becoming a must-have product. A visit to this year's CES provided a window into the large number of consumer electronic devices in development that will bridge the gap between computers and stereos for home playback of digitally stored music.

The most recent sign of the mainstreaming of digital music can be found in a story yesterday that would have been unheard of even six months ago. Nielsen SoundScan announced that it would start tracking digital music downloads and Billboard magazine is going to publish the results along with its regular album sales charts. We're not quite there -- digital music is being lumped in the "nontraditional" category. But Billboard and SoundScan are very much tools of the establishment and their opening up to digital music is a watershed event in the industry's development.

Of course, the digital music industry is still in its infancy. The next few years will be even more interesting than the last as bigger players fight to consolidate what a bunch of little companies started. It is doubtful that any new start-up opportunities remain in the actual distribution of music. However, now that music is well down the path to becoming a pure digital good, whole new categories of opportunities await the next generation of music entrepreneurs.

Update: Within minutes of posting this, I received Rafe Needleman's most recent What's Next column by email and it reports on a new product which allows DJs to control digital music files via regular analog turntables (they spin LPs with time codes on it). A nice example of a next generation music app.