What is Conversion Technology?

Conversion technology transfers content currently owned by the consumer to a digital format, bridging the technology gap and broadening the market for digital products.  Once a CD library is digitized, consumers are more likely to become “digital” consumers and begin consuming new digital services.  Until consumers are converted, digital consumption is mainly curiosity based with no commitment to any product or premium service.  Forrester Research reports that only 1 in 4 digital music player owners download music, leaving a big gap in potential revenue.

FACT:  As of Feb. 29, 2006, Apple reports 1 billion tracks have been downloaded through iTunes, and over 42 million iPods have been sold, which equates to only 24 songs or roughly 2 CDs per iPod.  

FACT:  In just 2005, the RIAA reports nearly 800 million in CD sales for the US (or nearly 10 billion songs).  Over the life of the CD, RIAA data shows over 11 billion units in circulation, or about 132 billion songs.

How Conversion Works

Consumers interested in digital music can easily make the transition to digital by taking their CD collection to a local retailer.  Select Best Buy, Circuit City and Tweeter locations are currently selling this type of service.

Circuit City offers an in-store service where CDs are loaded into a CD autoloader, and for $0.99/CD, the customer’s collection is converted to a digital music library compatible with any player.  Circuit City will also load your iPod, or other MP3 player on-site, and provides you with a few DVDs containing your new digital library and instructions to copy the content to your computer.   

 Retailer Profit Per Consumer

Music Download:
Profit per Track: $.25-.$35
Number Tracks Sold: 24
Profit per Customer: approx. $6 - $8
 CD Conversion:
Profit per CD: $ .75 - $.80
Number of CDs Converted: 125
Profit per Customer: $94 - $100   

Ancillary Advantages for Retailers & Service Providers

Retailers sell the service, assist in loading digital players and computers for additional service revenue.  The real advantage for retailers by offering an in-store solution, is that the risky mail-order alternative is eliminated, as well as consumers are far more likely to purchase peripheral devices and solutions, rather than being sent away to a secondary company for a remote and time consuming process.  Retailers also keep a much larger majority of the highly profitable conversion service, with very little equipment and resource investment.

Service providers interested in capturing dollars from new digital media users can capitalize on the conversion process by presenting the consumer with a digital media experience.  Once the consumer brings their DVD of MP3s home, a customized experience could be presented offering preference based premium content and opt-in subscription services.  Imagine a Yahoo or Apple based service easily blending the newly converted content with premium and downloadable content all configured by inserting the MP3 DVD into a computer.  

Conversion Opportunities

Once converted, consumers are now open to a world of digital services, content, and experiences.  The sales strategy shifts from “Can I try to sell you a digital copy of what you already own on CD,” or “Can you pay me $10/month to subscribe and listen to what you already own on CD,” to “Now that I know what you like, and what is already in your collection, here are some premium products tailored specifically to your new digital music experience.”    

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