the brutish and short life of a commodified complement

On-demand subscription services don’t earn a profit for their owners. All the money goes to other parts of the ecosystem. The subscriber fees are passed to the labels. Electronics used for listening make a profit for the manufacturers.

Think of iPods. Most of the money for buying tracks goes to the labels. Apple keeps the money from selling iPods. There is no independent “music store.”

So how to interpret the news that Beats, which is owned by HTC, is buying MOG? Beats and HTC are device companies. They make good money by selling equipment on which to listen to music. In addition, Beats is affiliated with Universal Music Group, the biggest label.

MOG makes little money. In that sense it’s no different than other online music distributors, including Pandora and Spotify. However such companies do make money for device makers and labels. The content, equipment, and distributors are complementary goods. HTC, and sorta kinda UMG, are buying a complement in order to enhance the value of their primary line of business.

This move is ultimately good for the internet music industry, because it puts the industry on healthier footing. MOG’s product makes more sense as part of a larger service which makes a net profit than it does as a standalone which breaks even at best. The underlying economics are getting better.