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The Swedish Invasion

The Swedish Invasion

Spotify's arrival on U.S. shores brings a new and much-anticipated music platform to American users. The Swedish service's social networking features and broad catalog have been a hit in Europe, and a rumored Facebook partnership shows promise, though competition in the U.S. will be tight. Meanwhile, hackers keep hacking, Netflix pulls a price switch and RIM's two-headed CEO is tasked with justifying its existence.

By Paul Hartsock
07/16/11 5:00 AM PT

For U.S. music fans, Spotify's cruel, years-long tease is drawing to a close. The European music platform is finally coming to the United States.

For the unhip, Spotify is a platform for streaming music. It was launched in 2008 and now claims 10 million users, 1.6 million of whom are paying members. It comes from Sweden, but it definitely plays much more than just ABBA and death metal back to back on a constant loop. Though you can do that if that's your thing. The service has deals in place with lots of major music labels, so it can actually offer a fairly extensive library.

Spotify supports itself in two ways. Most users opt for an unpaid membership, meaning their music streams come with both audio and visual advertisements every so often. A US$5 plan gives you ad-free access via a computer. And for $10, a premium plan gives you online and offline access, and lets you use the service on mobile devices.

The company's managed to attract some positive attention from investors. It caught a $100 million round of funding last month, valuing Spotify at somewhere around $1 billion.

Its big emphasis is on social networking. It carries a fuller set of social and sharing features than your typical Internet radio hangout, and there have been persistent rumors that it's hammering out a partnership with Facebook. That sounds like it could be promising. With a company like Zynga, for instance, Facebook's proven it has the ability to give its partners some serious exposure.

But even though Spotify has some differentiating factors to it, the competition's still going to be thick. There are a million ways to get music over a computer, and a lot of them are already free and have established a loyal user base. Between iTunes, Amazon, eMusic, Pandora, Rhapsody, Rdio, the Zune Marketplace, MOG, Last.fm, Moozone, Wal-Mart and Soundcloud, Spotify might find the U.S. market kind of cozy.


Listen to the podcast (12:41 minutes).

The Last Dirt-Cheap Picture Show

Netflix has its addictive little hooks buried deeper into movie lovers' souls than nicotine-laced popcorn, and so it's done what any self-respecting drug-dealer does when the customers have developed a nice, rock-solid physical dependency on the product: It jacked its prices.

Don't worry -- the company's saying it's actually charging its lowest prices ever. But the way that works is actually by selling smaller baggies. Here's how it breaks down: For years, access to Netflix's online streaming video library has been treated like an additional perk, a sort of side-show entertainment channel to browse through while you're waiting for the real entertainment to arrive by mail -- that being your physical DVDs, the stuff Netflix got its start with.

But no more of that. Netflix Instant is no longer held in the same regard as a free toaster oven. For a few months now it's been available as a low-priced a-la-carte option, and soon that option will be the only way to get instant streaming for Netflix users. If you also want discs, you've got to tack streaming onto whatever other plan you've got going on, and it's $8 per month.

Perhaps you're still waiting for those extra-special "lowest prices ever." That applies to unlimited DVDs. A new plan offers one disc out at a time for $8; two at a time costs $12. Remember, there's no Netflix Instant with that; that comes separately.

Not such a bad deal if you've never really been big on either DVDs or streaming. Now you don't have to pay for a service you don't use. But for many users, the two go hand in hand. DVDs are for recent releases and stuff that simply can't be found in the instant library. Streaming is incredibly convenient because you don't have to wait for the mail to come in, and it's getting some better material lately. But it still has the kind of selection you'd expect to find at a Blockbuster Video on a Friday night in 1995.

So for those customers who like to use both services, prepare to stuff a few more bucks into the monthly entertainment budget. One DVD at a time plus streaming will climb from $10 to $16; two discs plus streaming will hike from $15 to $20. That's a rise of up to 60 percent.

New members will need to decide immediately which of the new subscription options they want; existing members will be transitioned starting Sept. 1. There is no grandfather clause. It may only be a matter of a few bucks, but many customers have taken to social networks to express their acute displeasure over the new pricing scheme. Some say they're even going to quit Netflix cold turkey the moment the new plans take effect.

On the other hand, Wall Street's just eating it up. Netflix's stock hit an all-time high just after the news was announced. Chopping off the streaming feature and making it into its own separate entity will no doubt cause Netflix pain as some customers take their business elsewhere, but it also opens up new opportunities.

Netflix's leadership wants streaming to grow. It's easier to manage and often more convenient to customers. If it can make its streaming library anywhere near as extensive as its DVD library, it could do to cable providers the same thing it did to movie rental chains.

Charging separately for the Instant library elevates that portion of Netflix's business to a new level and could turn it into a more effective tool in negotiations with Netflix's ultimate suppliers, which are TV and movie studios. For instance, now they can deal while looking at a clearer picture of just how much money the streaming business makes. Before that, they couldn't really say how much revenue streaming was bringing in because for most users, it was tied in as part of the DVD bill and it all went into the same bucket.

But the fact remains that most of the customers who stick around will have to pay more to get the same stuff, so Netflix is going to have to come through with real improvements if it wants to get away with that. Its two biggest tasks will be to expand its selection of instant content, and make newly released DVDs available sooner. Otherwise those red envelopes could lose out to red boxes.

Amazon to Tune Up Android?

Yet another wave of rumors regarding an Amazon tablet computer arrived recently, this time courtesy of The Wall Street Journal, which reported that the online megastore is getting ready to jump into the market by October. That would put it in play just in time for the holiday sales season. It's also rumored the company will have a couple of new Kindle e-readers to go along with it.

This supposed Amazon tablet would run on Android, and while that's a platform with a very large and growing footprint, it's getting difficult for any given company to stand out very much in the Android tablet universe. Squint your eyes a little and a Galaxy looks an awful lot like a Xoom or an Iconia. Even full-time hardware makers are having trouble differentiating their tablets from one another -- what could an online megastore possibly do to make noise?

It's possible that an online megastore is exactly what the Android platform needs. Sure, most Android phones and tablets have access to the Android Market for buying apps. But what about buying stuff like video and music? There are ways to get that kind of media through Android, but there is no main, centralized, high-profile media mall that loads anything you want directly to the device. There is no firm answer to iTunes.

Say Amazon builds a decent piece of hardware -- or at least gets some other company to build it before slapping the Amazon brand on it. Then it mixes in a central Amazon portal through which buyers can get movies, TV shows, books, music and apps as easily as iPad owners can get that stuff through iTunes. Suddenly Amazon's tablet would have a real point of distinction. The company sells all that stuff already, even Android apps. This would give it the opportunity to pump that media directly into a tablet, rather than via the user's computer by way of a sync.

Justify Your Double-Headedness

When a company's stock value has dropped more than 50 percent for the year, its CEO will be lucky to leave a shareholder meeting without requiring reconstructive surgery. But this week Research In Motion's CEOs -- both of them -- walked away with maybe some singed eyebrows, which was nowhere near the burning at the stake that could have been.

For a few years now, the heads of the Research In Motion household have had a very nontraditional marriage -- in the business, sense, I mean. Two people share the top positions. Both Jim Balsillie and Mike Lazaridis are half CEOs and also half chairmen. Two guys, two roles, and both do both.

That arrangement has bothered some institutional investors so much that one, Northwest and Ethical Investments, earlier this year proposed a stockholder vote to split the roles once and for all and live life as a more traditionally structured family. That vote would have happened at the meeting this week, but RIM worked out a compromise, and now it has six months to prove that its co-leadership setup is vital to the company's business.

With that fireball dodged for the time being, Balsillie, Lazaridis and other top RIM execs still had many investor nerves to unfray at their annual meeting. RIM's stock went into shock a few weeks ago when the company put out a hideous quarterly report and forecast, and for months RIM's been hammered with criticism that its devices and marketing efforts just aren't keeping pace with the competition.

BlackBerry devices ruled the smartphone world at a time when Droids were from "Star Wars" and iPhones existed only in the dreams of Apple fanboys. What's it going to do now that so much of its market share's been eaten away?

For one thing, RIM's going to pepper the market with new phones. Seven new handsets will arrive this year, including a new Bold that will finally get BlackBerry phones in the same league as other high-end smartphones in terms of processing power. The company's QNX operating system will also go on tap, and a 4G version of its PlayBook tablet will arrive in September.

If these promises are kept, they could do a lot to address a common RIM criticism that its hardware lineup is stale. But app selection is a key factor for any mobile platform, and RIM is still flat in that regard as well. Much will depend on BlackBerry DevCon Americas this October.

Meltdown and Madness

The hackers of Lulzsec may have broken up the band a few weeks ago, but one of the group's main legacies lives on: Antisec. Before LulzSec went dark, it and Anonymous jointly declared open season on all government networks and called on hackers of all stripes and flags to cybernetically damn the man in any way possible. Doesn't matter if it's the local DMV or Berlusconi's BlackBerry -- if it's a piece of tech owned by a government or a related organization, it's a valid target for operation Antisec.

The Antisec battle cry has accompanied lots of attacks, some of them successful. Most recently, U.S. military contractor Booz Allen Hamilton was in the crosshairs, and hackers associated with the not-really-a-group group Anonymous yanked something like tens of thousands of emails off its servers. They wadded them all into a ball, flung them around the Web to anyone who cared to look, and then had the chutzpah to post an itemized mock invoice, pretending to bill the contractor about $300 to diagnose its security shortcomings.

Also included in the leak are many thousands of email password hashes -- in other words, passwords that are locked up with encryption. But the kind of encryption BAH used to secure those passwords was apparently MD5, which is relatively easy to pry open -- so I'm told.

So, very embarrassing for Booz Allen Hamilton to get hacked in the first place, and very surprising that it used a rusty old padlock to secure those passwords. But it's unclear exactly how sensitive the leaked data was. There's so much of it that it may be virtually impossible to comb through every last detail and assess just how much risk comes with the disclosure of each and every leaked fact. Military contracting is a big, tangled web of secrets and lies and alliances, so if anyone out there with a lot of time and a whole lot of whiteboards wants to take a crack at it, this could get very interesting, in a scary kind of way.


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