In the digital download age, the memory chip maker and the four major music labels will sell albums loaded onto microSD cards
Once again, memory chip maker SanDisk is making a push into the digital music market. SanDisk, the object of an unwelcome takeover bid from Samsung, on Sept. 22 is announcing a plan to sell memory cards preloaded with digital music.
The "slotMusic" cards can be inserted into wireless phones and other digital music players with built-in memory card slots. SanDisk (SNDK) is making the announcement along with the four major music labels Warner Music Group (WMG), Universal Music Group (VIV.PA), Sony BMG (SNE), and EMI.
SanDisk is the top seller of a type of memory known as flash, commonly used in consumer electronics such as cameras, USB keychain drives, and digital music players. This isn't the first time SanDisk has tried to become a force in digital entertainment, taking on Apple (AAPL), the biggest maker of digital music players.
An effort to launch a TV download service that would compete with iTunes and other efforts like Hulu.com (GE, NWS) went nowhere (BusinessWeek.com, 10/22/07). And a 2006 partnership to create a music partnership with RealNetworks (RNWK) similarly fizzled (BusinessWeek.com, 9/18/06).
Physical Product vs. Downloads
Will slotMusic fare any better? Getting consumers to purchase physical media in the age of digital downloads may be a hard sell. U.S. CD sales dropped to 511 million CDs worth $7.4 billion in 2007, from a peak of 942 million CDs worth $13.2 billion in 2000, according to the Recording Industry of America. Apple, the leader in legally downloaded music, disclosed in June that it has sold some 5 billion songs on its iTunes Store since 2003. "The question to me is the need for physical distribution at a time when, if you're not happy with digital downloads, then the CD is working just fine," says analyst Michael Gartenberg of Jupitermedia (JUPM) in New York.
With slotMusic, songs will be loaded onto what are known as microSD cards, the fingernail-size siblings of the larger and more popular SD card format. Slots for microSD cards can be found in scores of mobile phones, including those from Research In Motion (RIMM), Nokia (NOK), Palm (PALM), Samsung, and Motorola (MOT). "There's a billion phones out there and a lot of them can play music and a lot of them have a microSD slot," says Daniel Schreiber, a SanDisk vice-president. "We think there's still a need for a tangible, physical product. People will appreciate walking out of the store playing music on their phones."
The cards will be sold by retailers including Wal-Mart (WMT) and Best Buy (BBY). The music will be encoded in high-quality MP3 format and will not be subject to so-called digital rights management, which limits where and how often a song can be played. Each card will have a capacity of 1GB, more than enough to store an entire album, with extra space left over. The space might be used by the labels or the artists for videos, interviews, album art, extra tracks, or other premium content.
The songs themselves will be universally playable on any phone, computer, or digital music player that supports MP3, including the iPod and iPhone. And while Apple's devices don't include memory card slots, several music players, including SanDisk's own Sansa line and devices from Samsung, iRiver, and others, do.
Impact on the Takeover Bid?
SanDisk on Sept. 16 rejected an unsolicited $5.85 billion takeover offer from Samsung (BusinessWeek.com, 9/17/08). Now there's speculation Toshiba (TOSBF) or hard-drive manufacturer Seagate (STX) will make competing offers (BusinessWeek.com, 9/16/08).
As well-known consumer electronics brands, Samsung and Toshiba both might have the ability to throw more marketing muscle behind the slotMusic effort than SanDisk. But analyst Nam Kim of market research firm iSuppli says the new music distribution effort is unlikely to have any bearing on Samsung's bid. "Samsung wants SanDisk's retail distribution business in the U.S. and it wants to save money on the patent royalties it pays to SanDisk now," he says. Even if the slotMusic effort helps SanDisk get its long-hoped-for toehold in digital music, it may do little to help SanDisk stay independent.