From: Chris Rasch (crasch@openknowledge.org)
Date: Tue Apr 24 2001 - 14:03:11 MDT
-------- Original Message --------
Subject: Record Labels Struggle With Napster Alternatives
Date: Tue, 24 Apr 2001 15:53:02 +0100
From: "R. A. Hettinga" <rah@shipwright.com>
To: Digital Bearer Settlement List <dbs@philodox.com>
http://www.nytimes.com/2001/04/23/technology/23ECOMMERCE.html
April 23, 2001
E-Commerce Report: Record Labels Struggle With Napster Alternatives
By BOB TEDESCHI
OVER the last two years of litigation and recrimination involving
Napster,
record companies have made it clear which activities they consider
unacceptable. Now, for the first time, they have begun to say what forms
of
digital distribution they will accept.
In announcing that they will roll out two new online music subscription
services this summer, MusicNet and Duet, the five biggest record labels
whetted the appetites of consumers and investors. Previously, there had
been little in the record companies' words and actions to suggest that
these businesses truly intend to create an alternative to Napster.
The announcements are about as far as the record companies have gone.
The
follow-up remarks betray the labels' lack of clarity about how to master
new technology in a way that balances their business needs with the
expectations of music consumers, many of whom have become accustomed to
sharing files freely online over Napster. In a sense, such hesitancy is
understandable, given that the music business stands to be transformed
by
the Internet more than perhaps any other industry.
"In many ways, it really is too early to know what business models will
work," said Eric Scheirer, an analyst with Forrester Research, the
Internet
consulting firm. "The questions are very difficult ones: How much is a
service with X amount of music worth to consumers? What formats are they
willing to pay for? Will they want ads, and if so, how many? The labels
have to go out with a variety and see what happens."
The recent announcements about MusicNet and Duet certainly leave a lot
of
room for options. Officials of MusicNet, a joint venture of
RealNetworks,
EMI, AOL Time Warner's Warner Music and Bertelsmann's BMG, said earlier
this month that they would jointly market their digital music to online
companies by late summer or early fall. The online companies would then
allow their customers to download songs or listen to them on the site,
in a
so-called streaming audio format.
But the way the online companies package and sell those products and
services, MusicNet officials said, is essentially up to them. The first
two
online companies that will offer those products and services to
consumers,
America Online and RealNetworks, have not disclosed specifics about how
the
music will be sold - whether, for instance, consumers will have access
to
unlimited downloads, or whether they will be able to store music by
burning
it onto CD's.
A RealNetworks spokesman said the company was considering a monthly fee
of
about $10, among other pricing possibilities, while an AOL spokeswoman
declined to speculate.
The other two of the so-called Big Five record companies - Sony Music
Entertainment and Vivendi Universal's Universal Music Group - said
earlier
this month that they, too, would roll out a music licensing operation,
called Duet, this summer. Aside from having a completely different music
list, Duet's service will differ from that of MusicNet in that Duet will
control the packaging and pricing of its music offerings.
Sony and Universal spokesmen said Duet would soon announce the hiring of
its first executives. But one person working on the Duet project, who
spoke
on condition of anonymity, suggested that Duet would offer various tiers
of
service, for varying prices, "depending on a person's depth of
interest."
Those wondering about the most promising formats for MusicNet and Duet
affiliates have found little guidance from the various Internet
experiments
sponsored by the recording companies. Witness EMI, which, to date, has
invested in roughly 40 different companies with digital music
aspirations.
Among them are companies involved with wireless subscription services,
in-store digital kiosks that enable consumers to create their own music
mixes and put them on CD, and Internet-based jukeboxes for bars and
pubs.
Several labels have also been offering downloads of a limited number of
singles, as Sony does for $1.99 a song. But analysts said none of the
record industry's online experiments had gained a following with
consumers,
in part because record labels have not made many of their better- known
acts available for downloading.
"The selection is horrible," said Mike Farrace, a senior vice president
at
Tower Records, which has distributed music digitally on its Web site and
in
its stores, through kiosks. "I figure there are something like 10
million
songs out there in the world. I'd guess that certainly less than 500,000
have been licensed to distribute digitally, and it could be as little as
half of that."
Even though Duet and MusicNet promise to broaden the scope of available
music, analysts said that licensees and affiliates might still face
difficulties because neither would offer music from all of the major
labels. As it now stands, consumers would have to go to a MusicNet
licensee
for Beatles music, because EMI has rights to the Beatles catalog, but
then
click away to a Duet affiliate for a Mariah Carey song, because she is a
Sony artist.
A MusicNet official said the company was in discussions with Sony and
Universal to have them join the group. And Duet is having similar
discussions with EMI, BMG and Warner. But for now, companies like
RealNetworks, which recently said it would begin a service by the early
fall, and Yahoo, which has a deal with Duet, would have to negotiate
separate deals with the other providers - and then hope to be able to
integrate the services in a way that would not confuse customers.
Michael Nathanson, an analyst with Sanford C. Bernstein & Company, the
investment bank, said that simply because a consolidation of MusicNet's
and
Duet's song lists was logical did not mean it was probable. "I'm hopeful
it
will happen," he said, "but I've seen way too much from this industry to
expect it anytime soon."
Even if they can rely on a consolidated music list from the record
companies, MusicNet licensees and Duet affiliates must still choose from
a
multitude of ways to package and price their subscriptions. On that
front,
consumer research has offered few solid clues.
For instance, a survey released by Forrester Research earlier this year
said that of consumers who had downloaded music free or for a fee, 75
percent would be unlikely to pay by the individual file to download
music
in the future. Fifty-nine percent said they preferred a monthly
subscription approach rather than a charge-per-song system.
As for pricing, those surveyed said they would pay about $5.25 for a
monthly subscription. Those who said they would be willing to use a
song-by-song system said that they would pay no more than about 60 cents
a
song. A separate survey by Webnoize, an online music consulting firm,
suggests that half of college- age consumers would pay as much as $20 a
month for a subscription with unlimited downloads.
While record companies try to gauge what consumers are willing to pay,
they
are assessing how much it will cost to sustain such an effort. Among
other
things, analysts said, the recording companies are working hard to
develop
technology that is as reliable as Napster's, but with copyright
protections
and with prices that will allow them to make a profit.
Matt Bailey, an analyst with Webnoize, said it would cost a company $300
million a year to deliver songs from central distribution points at the
same pace that songs were flying back and forth on Napster's service
before
the courts curtailed the traffic.
Mr. Bailey said the cost would fall 90 percent in the next three years,
as
the cost of network capacity, or bandwidth, plunged. Against such
economics, it might behoove record companies to drag their heels.
Such speculation, in fact, has helped fuel the perception that record
companies are reluctant to enter the digital world.
But executives are quick to defend the industry's efforts. "The
recording
industry has taken herculean steps," said Jay Samit, senior vice
president
for new media at the EMI Group. "The difference is, these are
billion-dollar companies that have systems in place to make sure
everybody
gets paid, and building that business takes more steps than just letting
people steal stuff."
Copyright 2001 The New York Times Company | Privacy Information
-- ----------------- R. A. Hettinga <mailto: rah@ibuc.com> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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