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Online Music Services Ready for Prime-Time Showdown

After a long struggle marked by false starts, frustration and fan indifference, commercial online music services see this year as the crucial second act of a hit show in the making.

Since launching a year ago, subscription music services headed by the major label-backed ventures Pressplay and MusicNet have taken heat from music fans who compared them unfavorably with free peer-to-peer networks like now-idled Napster.

But after expanded licensing deals and platform upgrades, these services and rivals Listen.com’s Rhapsody and FullAudio, are better armed to take on free services like Kazaa and Morpheus, which emerged in the wake of Napster’s legal demise.

“Everything until now has just been a prelude. The business really begins this year when we begin marketing and educating consumers,” said Alan McGlade, chief executive of MusicNet, owned by Bertelsmann AG, EMI Group Plc, AOL Time Warner Inc. and RealNetworks Inc.

As the industry focuses on moving to a legitimate online market, the legal battle continues, with the labels now embroiled in a copyright infringement lawsuit against Kazaa, Grokster and Morpheus like the one that shut down Napster.


Hilary Rosen, chairman and chief executive officer of the Recording Industry Association of America (RIAA), has said she hopes the enforcement issues will fall out of the limelight as the business grows, putting music back on front pages.

In recent weeks, MusicNet and Pressplay, owned by Vivendi Universal and Sony Corp. completed cross-licensing deals now giving them songs from all five major labels. Previously, privately held Listen.com’s Rhapsody had offered content from all five majors.

The labels also now let consumers buy permanent downloads, which can be transferred to portable devices or burned to a blank CD – features they were criticized for lacking.

The record labels are also working on getting digital rights for music from some of the biggest acts, like the Beatles, which are determined on a case-by-case basis.

But experts see this year’s challenge in getting the word out to a public still largely unaware of legitimate services.

Analysts estimate there are half a million subscribers in total for all the paying music subscription services, while Kazaa alone has topped 10 million home users.

“We’re finally at the starting line,” said Mike Bebel, president, chief executive of Pressplay. “Now that we’re all here, we’ll have a good shot at driving a legitimate market.”

“Building awareness is a big element and we haven’t done that in a very focused way because we haven’t had all the content until now,” he said.

Part of Pressplay’s marketing approach will be to deliver unique programming, like more world premiers. For instance, in a few weeks it will launch an exclusive soundtrack distribution deal for the upcoming Sandra Bullock film, “Two Weeks Notice.”

Rather than put the physical CD on the market, the film’s producers opted to make the music available only on Pressplay.

MusicNet, which is marketed largely by its affiliated partners, is gearing up to launch on AOL by year’s end.

“Our model is to work through distributors who have enormous marketing clout and can get the message out to a wide audience,” said McGlade.


For his part, Richard Parsons, the chief executive officer of AOL Time Warner, believes online services are key to the overall music industry’s survival.

Piracy, weak economies and competition from other entertainment like video games have been blamed for the slump in global music sales, which were down 9.2 percent in the first half of 2002, after falling 5 percent to $33.7 billion in 2001, according to industry statistics.

“It may be that the days of charging $15 for 12-track CDs has seen its zenith,” Parsons said. “If we don’t figure out how to tame the technology and make it a business, there won’t be any music,” Parsons said at a recent media conference.

A spokesman for Listen.com’s Rhapsody cites a subtle change among consumers’ perceptions already.

“One year later, a growing number of consumers have changed from criticizing what these services don’t have such as the Beatles and unlimited downloads, to appreciating what they do offer, like extensive libraries, consistent file quality, ease of use,” said Matt Graves, a spokesman for Listen.com.

“Consumers can now sign up for these music services almost anywhere, including more than 20 locations online, compared to the handful of online outlets when the services launched last year,” he said, noting that most of the biggest broadband cable, DSL providers and portals now offer music services.

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