googlestein
March 3rd, 2003, 09:14 PM
By SAUL HANSELL
as the music industry found the 99-cent solution to its file-sharing woes?
"Solution" is far too final a term for this business still very much in flux. But after years of denial and confusion, belligerence and panic, most of the big record labels have coalesced around a set of prices at which they will make almost all of their music available to an ever-expanding array of legal online services.
Advertisement
A major step toward a legal mass market for online music came last week when America Online started offering its first online music service to its 27 million members. AOL's plan roughly matches the terms and pricing that have evolved over the last 18 months by about half a dozen other paid music services.
They all now charge $9 or $10 a month for customers to listen to a pool of about 250,000 songs online, using a technology called streaming. And they charge about 99 cents to download a song and copy it onto a CD, where it can be played in a car or on a home stereo, or converted to a computer file format like MP3 to be shared with others (legally or not).
Other variations have also evolved. AOL's service, and others, include an unlimited number of what are known as tethered downloads, where songs can be copied onto a computer and played offline, for example, by a traveling laptop user. (The tethering means a subscriber can listen to the downloads on no more than two computers, and cannot copy the files to other devices or send them to other people.) And others offer variations on Internet radio, where users can pick genres or even specific artists to listen to online.
These options, along with the expanding pool of songs, finally have created online services that might have a chance of appealing to consumers and luring at least some from the free file-sharing services like KaZaA.
"We are at a crossover point," said Rob Glaser, the chief executive of RealNetworks and the chairman of MusicNet, which operates an online music service sold by RealNetworks and AOL. "Everyone doesn't agree on everything, but everyone agrees on enough things that we can start putting products in the market."
This agreement is also helping to frame some of the difficult questions the music industry must confront as it moves, however slowly, into a post-CD world. It is unclear so far whether the dominant digital business model will be selling downloads or renting access to a full catalog. It is clear that consumers are more interested in buying one song at a time than entire albums, an audience preference that is likely to mean major changes for the way the recording industry produces music. What those songs are worth in the long run is very much up in the air — except everyone agrees that eventually the hottest hit and the stalest oldie will not both be worth 99 cents.
But for now at least, the $10-a-month and 99-cent-a-song price list is letting the marketing side of the business take over from the deal makers. And Internet users will start to see increasing promotion for the first time for the online music services.
Listen.com, a privately held service, has attracted quite a bit of attention by discounting the price of burning songs onto CD's to 49 cents, from 99 cents, until March 31. And Internet service providers, including AOL, are looking to bundle stripped-down versions of these music services with their high-speed, or broadband, offerings.
The industry has come a long way since the first legal downloading services were introduced at the end of 2001. Back then Napster, the hugely popular file-sharing service had just been shut down by the courts. With a sense that the threat of free swapping had subsided, the big labels set up paid services, trying to preserve all sorts of advantages for themselves.
For one, the labels split into two groups. Sony and Universal, the two largest labels, created PressPlay. Warner, Bertelsmann and EMI along with RealNetworks, created a rival, MusicNet. Neither had access to music of their rival's owners.
Both offered limited numbers of songs that could be listened to online, or through tethered downloads. Only PressPlay allowed songs to be copied onto CD's or portable music players, and only in limited numbers.
Consumers spurned the first services. And indeed America Online refused to introduce the first generation of MusicNet, even though it is part owned by its corporate cousin Warner Music (both part of AOL Time Warner).
But as the music industry fiddled, the file-swapping masses were burning more free CD's than ever.
"After Napster shut down, the music-sharing community reassembled like the cyborg in `Terminator,' " Mr. Glaser said. "It was much more rapid and much more organized than anyone expected."
Indeed, far more people use KaZaA, the largest of the file-sharing services, than ever used Napster. And sales of recorded CD's kept on falling, declining 9 percent in 2002.
So the music companies stopped jockeying for advantage in the music services they owned, and stopped worrying so much about how the paid services would cannibalize their CD sales and started searching for something — anything — that music lovers would actually pay for.
EMI, for instance, first focused on receiving a share of the profits of any online service selling its music, and by the end of last year decided to sell its music to most any online service.
Advertisement
"We moved to the notion that we are a content company and our content will have the greatest value for us and our artists if it's ubiquitously available and we enable the maximum number of business models to thrive," said John Rose, an executive vice president of EMI.
So EMI, which owns part of MusicNet, decided to license its music to PressPlay, Listen.com and others. By the end of last year, all of the labels were available on all of the services.
The music services, meanwhile, were able to use their lack of success to persuade the labels to allow them to offer unlimited streaming and more flexible downloads.
"The industry over the last year has developed a much greater understanding of the viability of this market," said Michael Bebel, chief executive of PressPlay. "We are at a point where a set of fundamental economics has emerged."
A basic wholesale price structure is coming together that online services can use to create product offerings. For example, a download of a song, with a suggested retail price of 99 cents, has a wholesale cost of about 65 cents from the labels, according to music executives.
The streaming services and tethered downloads have a more complicated price structure. Basically, the services pay between two-tenths of a cent and a penny to the label every time a user listens to a song. But there are monthly guarantees to the labels that together make the minimum monthly cost for music licenses to offer an unlimited streaming service about $5, according to music executives.
Internet radio is far cheaper for the online services to offer, costing stations seven-one hundredths of a penny a song for each listener, under a royalty arrangement the federal government set last year. And the services like MusicMatch's Radio MX that let users choose the artist they want to listen to but not the song, have a wholesale price that is higher than regular Internet radio and less than services that let users pick each song.
"We found demand drops off quickly after about $5 month," said Dennis Mudd, the chief executive of MusicMatch. Indeed, Radio MX, which has $2.95 and $4.95 a month options, has 120,000 subscribers, more than MusicMatch and PressPlay combined, according to analysts estimates. (Neither releases their subscriber counts, but they admit they are small.)
There is quite a debate about whether $9.95 (or $8.95 on AOL) is the right price for the unlimited streaming services.
Paul Vidich, an executive vice president of the Warner Music Group, argues that a service that lets users only listen to music — not copy it onto a CD or other device — is likely to be offered free with a broadband Internet subscription.
"At the end of the day we will invite people to listen without charging an admission fee," he said. "We are in the business of selling songs for people to own."
But others argue that in a world where stereo systems and even cars would be hooked up to the Internet with access to every possible song, no one will need to buy any music to keep. If that is true, the value of a monthly music subscription could be far more than $10.
The price of the songs themselves is also very much in question. At first, the labels tried to sell songs for as much as $2.99 each. But a series of experiments showed that consumers were not interested until the price hit 99 cents. That appears to resonate because it is in line with a 12-song CD that costs $15.
For simplicity's sake, the labels started by charging the same price for all their songs. But they are already working on plans to charge more for some and less for others. EMI, for example, is charging a premium of 50 to 75 percent for hot songs when they are released to download services before the albums are available in stores. And others are considering selling older titles in their back catalogs at a discount.
Moving forward, this emphasis on selling one song at a time may substantially hurt the industry. Since the the demise of the two-song 45 r.p.m. record a quarter-century ago, the recording industry has generally been able to charge for a full album on a CD — even if the consumer only wanted a song or two.
But Mr. Rose of EMI argued that the big issue for the music industry is not the subtleties of whether people buy songs or albums, but finding something that music lovers will pay anything for at all. And there is money to be made in volume, he said.
"If all the consumers who pirate tracks today bought them for a buck, that would be a $5 billion a month business," Mr. Rose said, noting that that is twice the size of the music industry today.
http://www.nytimes.com/2003/03/03/technology/03TUNE.html
have to be a meber to view it.
as the music industry found the 99-cent solution to its file-sharing woes?
"Solution" is far too final a term for this business still very much in flux. But after years of denial and confusion, belligerence and panic, most of the big record labels have coalesced around a set of prices at which they will make almost all of their music available to an ever-expanding array of legal online services.
Advertisement
A major step toward a legal mass market for online music came last week when America Online started offering its first online music service to its 27 million members. AOL's plan roughly matches the terms and pricing that have evolved over the last 18 months by about half a dozen other paid music services.
They all now charge $9 or $10 a month for customers to listen to a pool of about 250,000 songs online, using a technology called streaming. And they charge about 99 cents to download a song and copy it onto a CD, where it can be played in a car or on a home stereo, or converted to a computer file format like MP3 to be shared with others (legally or not).
Other variations have also evolved. AOL's service, and others, include an unlimited number of what are known as tethered downloads, where songs can be copied onto a computer and played offline, for example, by a traveling laptop user. (The tethering means a subscriber can listen to the downloads on no more than two computers, and cannot copy the files to other devices or send them to other people.) And others offer variations on Internet radio, where users can pick genres or even specific artists to listen to online.
These options, along with the expanding pool of songs, finally have created online services that might have a chance of appealing to consumers and luring at least some from the free file-sharing services like KaZaA.
"We are at a crossover point," said Rob Glaser, the chief executive of RealNetworks and the chairman of MusicNet, which operates an online music service sold by RealNetworks and AOL. "Everyone doesn't agree on everything, but everyone agrees on enough things that we can start putting products in the market."
This agreement is also helping to frame some of the difficult questions the music industry must confront as it moves, however slowly, into a post-CD world. It is unclear so far whether the dominant digital business model will be selling downloads or renting access to a full catalog. It is clear that consumers are more interested in buying one song at a time than entire albums, an audience preference that is likely to mean major changes for the way the recording industry produces music. What those songs are worth in the long run is very much up in the air — except everyone agrees that eventually the hottest hit and the stalest oldie will not both be worth 99 cents.
But for now at least, the $10-a-month and 99-cent-a-song price list is letting the marketing side of the business take over from the deal makers. And Internet users will start to see increasing promotion for the first time for the online music services.
Listen.com, a privately held service, has attracted quite a bit of attention by discounting the price of burning songs onto CD's to 49 cents, from 99 cents, until March 31. And Internet service providers, including AOL, are looking to bundle stripped-down versions of these music services with their high-speed, or broadband, offerings.
The industry has come a long way since the first legal downloading services were introduced at the end of 2001. Back then Napster, the hugely popular file-sharing service had just been shut down by the courts. With a sense that the threat of free swapping had subsided, the big labels set up paid services, trying to preserve all sorts of advantages for themselves.
For one, the labels split into two groups. Sony and Universal, the two largest labels, created PressPlay. Warner, Bertelsmann and EMI along with RealNetworks, created a rival, MusicNet. Neither had access to music of their rival's owners.
Both offered limited numbers of songs that could be listened to online, or through tethered downloads. Only PressPlay allowed songs to be copied onto CD's or portable music players, and only in limited numbers.
Consumers spurned the first services. And indeed America Online refused to introduce the first generation of MusicNet, even though it is part owned by its corporate cousin Warner Music (both part of AOL Time Warner).
But as the music industry fiddled, the file-swapping masses were burning more free CD's than ever.
"After Napster shut down, the music-sharing community reassembled like the cyborg in `Terminator,' " Mr. Glaser said. "It was much more rapid and much more organized than anyone expected."
Indeed, far more people use KaZaA, the largest of the file-sharing services, than ever used Napster. And sales of recorded CD's kept on falling, declining 9 percent in 2002.
So the music companies stopped jockeying for advantage in the music services they owned, and stopped worrying so much about how the paid services would cannibalize their CD sales and started searching for something — anything — that music lovers would actually pay for.
EMI, for instance, first focused on receiving a share of the profits of any online service selling its music, and by the end of last year decided to sell its music to most any online service.
Advertisement
"We moved to the notion that we are a content company and our content will have the greatest value for us and our artists if it's ubiquitously available and we enable the maximum number of business models to thrive," said John Rose, an executive vice president of EMI.
So EMI, which owns part of MusicNet, decided to license its music to PressPlay, Listen.com and others. By the end of last year, all of the labels were available on all of the services.
The music services, meanwhile, were able to use their lack of success to persuade the labels to allow them to offer unlimited streaming and more flexible downloads.
"The industry over the last year has developed a much greater understanding of the viability of this market," said Michael Bebel, chief executive of PressPlay. "We are at a point where a set of fundamental economics has emerged."
A basic wholesale price structure is coming together that online services can use to create product offerings. For example, a download of a song, with a suggested retail price of 99 cents, has a wholesale cost of about 65 cents from the labels, according to music executives.
The streaming services and tethered downloads have a more complicated price structure. Basically, the services pay between two-tenths of a cent and a penny to the label every time a user listens to a song. But there are monthly guarantees to the labels that together make the minimum monthly cost for music licenses to offer an unlimited streaming service about $5, according to music executives.
Internet radio is far cheaper for the online services to offer, costing stations seven-one hundredths of a penny a song for each listener, under a royalty arrangement the federal government set last year. And the services like MusicMatch's Radio MX that let users choose the artist they want to listen to but not the song, have a wholesale price that is higher than regular Internet radio and less than services that let users pick each song.
"We found demand drops off quickly after about $5 month," said Dennis Mudd, the chief executive of MusicMatch. Indeed, Radio MX, which has $2.95 and $4.95 a month options, has 120,000 subscribers, more than MusicMatch and PressPlay combined, according to analysts estimates. (Neither releases their subscriber counts, but they admit they are small.)
There is quite a debate about whether $9.95 (or $8.95 on AOL) is the right price for the unlimited streaming services.
Paul Vidich, an executive vice president of the Warner Music Group, argues that a service that lets users only listen to music — not copy it onto a CD or other device — is likely to be offered free with a broadband Internet subscription.
"At the end of the day we will invite people to listen without charging an admission fee," he said. "We are in the business of selling songs for people to own."
But others argue that in a world where stereo systems and even cars would be hooked up to the Internet with access to every possible song, no one will need to buy any music to keep. If that is true, the value of a monthly music subscription could be far more than $10.
The price of the songs themselves is also very much in question. At first, the labels tried to sell songs for as much as $2.99 each. But a series of experiments showed that consumers were not interested until the price hit 99 cents. That appears to resonate because it is in line with a 12-song CD that costs $15.
For simplicity's sake, the labels started by charging the same price for all their songs. But they are already working on plans to charge more for some and less for others. EMI, for example, is charging a premium of 50 to 75 percent for hot songs when they are released to download services before the albums are available in stores. And others are considering selling older titles in their back catalogs at a discount.
Moving forward, this emphasis on selling one song at a time may substantially hurt the industry. Since the the demise of the two-song 45 r.p.m. record a quarter-century ago, the recording industry has generally been able to charge for a full album on a CD — even if the consumer only wanted a song or two.
But Mr. Rose of EMI argued that the big issue for the music industry is not the subtleties of whether people buy songs or albums, but finding something that music lovers will pay anything for at all. And there is money to be made in volume, he said.
"If all the consumers who pirate tracks today bought them for a buck, that would be a $5 billion a month business," Mr. Rose said, noting that that is twice the size of the music industry today.
http://www.nytimes.com/2003/03/03/technology/03TUNE.html
have to be a meber to view it.