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TechnologyDaily Mobile
E-Music Industry Gets Into A Groove
by Maureen Sirhal
A flurry of deals reached between record labels during the past six weeks is a harbinger of good health for the online music business, say industry members, but concerns lurk behind e-music business models and possible regulatory oversight.
These new services tout themselves as keys to meeting hungry consumers' demand for online content, but some observers are wary about the long-term viability of their business plans. Moreover, some rival groups have questioned whether, without regulatory oversight, the recording industry truly will deliver the content consumers want at a fair price.
A Model For All?
Listen.com's Rhapsody system and MusicNet are the latest high-profile services to hit the market.
Rhapsody combines on-demand music with "contextual data," such as artist and album information, and technology that can track listeners' tastes. A month ago, Listen.com signed deals with music publishers to license the rights to music, a key challenge that several other venture still face.
MusicNet, a joint venture among AOL Time Warner's Warner Music, Bertelsmann's BMG, EMI and RealNetworks, also launched its RealOne service last week. RealOne delivers on-demand music as a "tethered" download -- a digital music file that operates while the consumer's computer is connected to the RealOne site.
Pressplay, a joint endeavor of Vivendi's Universal Music Group and Sony Entertainment, promises much the same. It is still "on track to launch this fall," according to a spokeswoman.
Other ventures like Full Audio and Echo Networks have secured agreements with several recording labels. And each stands to benefit substantially from a deal brokered in June between music publishers and the Recording Industry Association of America (RIAA). The deal would provide full rights to the music of RIAA member firms.
For most of the firms, the business model is relatively simple: Users pay a monthly fee to access streaming music from Web sites. In turn, the firms close as many licensing agreements as possible to lure consumers who seek the most musical choices.
But to access the huge array of music that major recording labels can offer, users must "stream" the files, a process that the service providers say protects the intellectual property of recordings. The services rarely let users download songs to their computers for "burning" onto a compact disc or sharing with other portable devices.
"We are a streaming-only service," said Tuhin Roy, executive vice president of Echo. "You won't be able to get anything on demand. What you will be able to do is set up ... [an Internet radio] station to share with the community."
Quality Vs. Quantity
While it is still early to assess the services and their long-term prospects, some industry observers have noted that most of the paid services will continue to be measured against the Napster model -- free music downloads that can be copied onto CDs and shared with other listeners.
Before music industry lawsuits, Napster created one of the biggest attractions to the Internet, and huge demand for more bandwidth or high-speed Internet connections. Since a federal court ruling required the file-swapping site to restrict its use of the "peer-to-peer" technology by screening copyrighted materials from its system, traffic on the Napster network has declined dramatically.
"Basically, you had Napster in the beginning that offered consumers an incredible experience and one that they really loved," said Lee Black, director of research at Webnoize, a digital media research firm. Major recording labels "are having to change their entire business model around to embrace that, and that is not an easy thing for these huge businesses," he said.
"Consumers will feel somewhat cheated when they discover that they are unable to 'keep' the music files they access through the subscriptions," said one industry source.
He added that the major subscription-based models offer little in the way of "compelling selections" and, to make the services even more confusing, force consumers to be mindful of which recording label acquires rights to various artists in the name of protecting intellectual property. Black noted, "The down side [of subscription models] is that there is limited content. You compare that with a peer-to-peer site, where you can find everything. It doesn't compare."
The new services also face a major threat from several Web sites that still offer free music. Analysts predict that free online music via sites may have increased significantly, despite the well-publicized litigation that has crippled Napster.
Webnoize reported that the activity on free-music sites like Aimster, MusicCity, Kazaa, Grokster and FastTrack has more than doubled in recent months. It also estimated that the number of users of FastTrack likely would exceed 1.57 million, the peak of Napster's success.
RIAA, along with members of the film industry, filed a lawsuit in federal court in California in October against MusicCity and its affiliated service Grokster, as well as FastTrack, which operates the Kazaa file-swapping site
Some subscription services do offer free downloads, although most of them are severely limited and expire once stored on a hard drive. Still, backers of the services believe their models will offer advantages over the lower-quality files once available on Napster, Black noted.
The New Business Of Oversight
Some groups attempting to offer online music have criticized the new subscription services, charging that major industry-backed services use the Web as a means of deterring government oversight but offer products that are weak and unfriendly to consumers. Citing the limited choices on the services, observers have said that the major recording firms are not serious about making the Internet a major distribution channel for music.
The House Judiciary Committee is slated to examine such issues this week. Similar concerns led to an ongoing Justice Department antitrust investigation of the music industry, to price-fixing concerns at the European Commission, and to congressional oversight hearings -- all of which have been factors in "motivating" recording labels and their publishers to license more content to potential online competitors.
"It's been a long process" to obtain recording and publishing licenses, said Sean Ryan, president of Listen.com. "It's gotten significantly easier in the last few months. ... Let's face it, there is a Justice Department investigation going on and significant pressure out of Congress. They are seeing a risk out of not licensing."
RIAA President Hilary Rosen recently told a conference of peer-to-peer providers that the recording industry was moving more quickly to unveil options for consumers and noted that the industry's reluctance to get online might have "encouraged piracy ... by not filling the vacuum of consumer demand."
The recording industry and music publishers have protested against congressional intervention in the online music space, arguing that mechanisms already are in place for the market to function fairly. Arbitrators at the U.S. Copyright Office, for example, are close to setting royalty rates for fees that webcasters will pay recording and publishing firms for the right to re-broadcast musical works on the Net. That process likely will be used to establish final royalty rates for subscriptions services to licenses recording and publishing rights.
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