Battle Amongst Online Music Sellers

[DudeAsInCool]

E-Commerce Report: Music at Your Fingertips, and a Battle Among Sellers

December 1, 2003

By BOB TEDESCHI

COMING to a music download store in 2004: Yo-Yo Ma's Shostakovich Quartet No. 15 and Bob Dylan's second show at Amsterdam.

So go the predictions of some music industry executives, who say that as music labels and retailers compete more aggressively online, they will offer more obscure titles and recordings of live performances that could find a paying audience through downloads but make no financial sense to distribute on CD's.

This is but one of a handful of trends likely to emerge

next year in the paid digital download arena, industry

executives said. With hundreds of millions of investment

and marketing dollars flowing into the sector, it could be

the most active online commerce category. And with the

activity comes a risk that it could resemble the Internet

bubble of 1999, though on a smaller scale.

The first area of resemblance, analysts and executives

predict, will be in the sheer number of online music stores

that sell downloads, which will continue to build through

the early part of next year, only to contract beneath the

weight of excessive marketing spending and slim profit

margins.

There will be fewer paid download sites running a year from

now than there are today, said Josh Bernoff, an analyst at

Forrester Research, a technology consulting firm.

The reason, Mr. Bernoff said, is that music tracks that are

downloaded digitally generate tiny profits. Apple pays

roughly 70 cents to the labels for each song it sells for

99 cents, Mr. Bernoff said, and, based on Apple's

projections of sales of 100 million songs by April - the

first 12 months of its iTunes service - "you're talking

about $30 million in gross margin, not counting all the

advertising or the costs of running the store."

"That's brutal, and this is the company with the dominant

market share."

Peter Lowe, Apple's director for marketing of applications

and services, agreed that it was hard to make money selling

music downloads. But, he said, iTunes is close to

break-even. Still, he acknowledged that one reason Apple

was in the business was to drive sales of its iPod music

player and to help the company position itself as a

cutting-edge brand.

Those attributes may not apply to other entrants in the

field. Nonetheless, other companies are certain to join the

competition for music fans looking to start downloading

songs, or to switch from peer-to-peer services like Kazaa

and Morpheus, as the music industry fights piracy.

In addition to Apple's iTunes, RealNetworks' Rhapsody,

Napster of Roxio, MusicMatch, BuyMusic.com, BestBuy and

others, online music stores from several other companies

are expected to start in the coming weeks and months.

JupiterMedia, a technology research firm, predicts digital

music downloads will be a $1.1 billion marketplace next

year and $3.2 billion in 2008. According to Nielsen

SoundScan, the biggest paid download sites sold $3.2

million worth of individual tracks in October alone, more

than double the number sold in July.

While some sites will stick to the business of selling

downloadable songs, others will gravitate toward

multiservice offerings along the lines of iTunes and

Rhapsody (www.listen.com), where radio stations sit a click

away from the store, or MusicMatch, where users listening

to the site's jukebox can click on an icon for the current

song and buy the track.

Sean Ryan, vice president for music services at

RealNetworks, expects the services next year to include

some form of subscription download service. Such an

offering, he said, would combine the flexibility of the

so-called streaming services - where users listen to

unlimited numbers of songs on demand, but cannot download

them - and the portability of downloaded tracks.

"The idea is that consumers can download as many songs as

they want," Mr. Ryan said, "and move them from one device

to others, but at the end of 30 days, if you don't pay the

subscription fee, the songs go away.

While the technology exists to offer such a service, Mr.

Ryan said there were a number of issues to work out,

including how much to charge. "But I think we'll see such a

service by the end of next year."

"And that's where this gets interesting," he added. "You've

got a portable music player that can fit 10,000 songs on

it? Come on. No one will spend $1 a track filling it.''

But portable players, he said, "become totally useful''

when it is possible to rent an unlimited number of tracks

for a flat fee. Mr. Ryan and other executives said

consumers would also enjoy a greater range of tracks next

year, as the download sites expand beyond pop music, and as

artists migrate toward a growing revenue opportunity.

Classical and jazz tracks will begin to proliferate, and

Mr. Ryan said, live, archived performances from popular

musicians will see new life online.

Sony would not say whether it planned to release sets of

Mr. Dylan's live shows or of Yo-Yo Ma's less mainstream

recordings. But Philip Wiser, Sony Music Entertainment's

chief technology officer, said, "We will see more tracks go

straight to digital."

Mr. Wiser said the expanding range of music would coincide

with the growing number of devices consumers will use for

playing digital downloads. "It'll move outside the study

and into the living room," he said.

Sony's RoomLink, for example, is a $200 device that

wirelessly connects a Sony Vaio comer to a television, so

users can play downloaded tracks over their home theater

systems, among other things.

Other computer makers and consumer electronics companies

sell competing devices or are working on them. Sometimes

the devices are marketed alongside specific online music

stores. Napster, for instance, rolled out the Samsung

Napster MP3 player this fall. It directly connects to the

Napster download service and includes an FM transmitter for

listening to burned tracks.

As manufacturers push the prices of portable devices ever

lower - the Dell Digital Jukebox is among the cheapest, at

$250 - digital music services will attract more mainstream

users. "A key underlying driver of our business will be the

expansion of the consumer's ability to make music

portable," Napster's president, Michael Bebel, said.

Music owners will also have more flexibility in what to do

with the tracks they download, said John Rose, executive

vice president of EMI.

"Two or three years out, I'll be able to send you an album

that you can listen to once or twice, but that will expire

after a certain amount of time if you don't buy it," Mr.

Rose said. "The technologies are all starting to percolate.

We'll start to see much more of that come to market in the

next year."

http://www.nytimes.com/2003/12/01/technolo...4fa68402316fd9d

[HolyMoly]

"Two or three years out, I'll be able to send you an album

that you can listen to once or twice, but that will expire

after a certain amount of time if you don't buy it," Mr.

Rose said. "The technologies are all starting to percolate.

We'll start to see much more of that come to market in the

next year."

I'll believe it when I see it and so far I haven't seen it. For $11.95, you can buy a legal utility called Total Recorder from http://HighCriteria.com that captures a digital audio signal on its way to a sound card and saves it as a WAV file (a WAV file that can be burned to a CD and will never expire) as you're listening to the sound.

[Pebbles100]

The idea is that consumers can download as many songs as

they want," Mr. Ryan said, "and move them from one device

to others, but at the end of 30 days, if you don't pay the

subscription fee, the songs go away.

Why pay 1$ per song when you can download it for free with no restrictions? Also, there are roughly 10-12 songs on a cd, sometimes more. So if you really insist on paying $1 per song, why not just go buy the album? It's about the same price. And the song doesn't disappear after you stop subscribing. I just don't see the logic in restrictions like that.

[Kooperman]

I used to buy a few of the limited amount of jazz albums Rhapsody had. Sometimes a jazz album has only 3 or 4 10 minute songs on it. Nice bargains there, especially when they had the 79 cent per song sale.