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Access to music is a commodity. Now what?

Where were you when you first discovered that you could hear (almost) any song on demand for free on YouTube? (And if you haven’t discovered this, where have you been?)

From Jackie Wilson to Lady Ga Ga, it’s all pretty much there on YouTube for the taking. Services like MixTube, iPooq, and Veewow allow you to create personalized music video channels and playlists using YouTube as the content source. Israeli company Jogli takes this idea a big step further by adding sophisticated search, lyrics, and structured meta data to the service – its like a video version of Deezer with a slick and intuitive interface.

MTV accelerated this trend when it announced in October that it would make its entire catalogue of 16,000 music videos available online (the new homepage has a Google-like simplicity to it that I like a lot).

So despite the recent spat between Warner Music and YouTube, the writing is on the wall: Just like information, music wants to be free. Universal Music is showing us all the way forward and doing what many other labels have already done, embracing YouTube and setting up a dedicated channel there. And according to CNET, it’s paying off big time. Peter Kafka’s got some great commentary on the licensing deals between YouTube and the labels. However the revenue share ultimately breaks – these deals will get done and the music will flow…

So what does this mean for start-ups? First, it probably means that music content deals are not much of a differentiator. The big labels are going to eventually work out the details that make sense for them (content is king, after all) and are going to make their content available to smaller players as well (either directly or through a partner such as YouTube).

Second, it means that the content  floodgates are open to your competitors. I don’t know how much more room there is for new music services, but even services with fantastic user interfaces and great value propositions are going to have to move very fast and work very hard to maintain their edge in order to rise above the noise.

Third, the game is probably going to be more about richness of metadata and great UI (see: FoxyTunes, an old favorite) than it is about great algorithms for recommendation. I’m not sure users can really tell the difference between’s recommendations and those of Pandora…but they know a great UI when they see one.

Fourth, there might be still be some interesting opportunities for companies that can drive significantly better monetization for music consumption in both audio and video formats…but if any gaps remain there, they are going to be closed by the giants pretty soon.

Finally, margins on music content sales (iTunes style) are probably not going to be very high (any given song is truly a commodity after all). Even if your business involves selling music, your profits are still likely to come from selling tickets, goods, or ads in one form or another.

There are still going to be great opportunities for music oriented start-ups, but they are going to be as rare as this joint performance of U2 and Springsteen: