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Online Music Services to Launch Amid Holiday Season

The world’s big record labels are finally rolling out online subscription services smack in the middle of the holiday season that caps the music industry’s worst year in at least a decade.

In coming weeks, music fans – who have for years been pulling everything from Radiohead to Madonna off the Web for free from services like Napster – will be introduced to a new breed of money-for-music services like PressPlay and MusicNet, which have been developed by the major record companies.

Several smaller independent firms like FullAudio and Listen.com will soon be launching subscription services too.

Industry officials and analysts say the new services face an uphill battle against the free services that have proliferated in the wake of Napster, which drew 70 million users at its peak before being idled in July due to a copyright infringement lawsuit.

The launches – originally promised for the late summer or early fall – come as the labels shift into intense an marketing mode to boost sales of physical CDs in a year they’ve been hit by the slumping economy, rising artist costs and online piracy.

The big music labels sold about 11 million fewer albums so far this year in the United States and the industry is poised to post its first year-to-year decline since SoundScan began monitoring sales 10 years ago. Worldwide, album sales fell 5 percent in the first half of this year. Sales totaled $37 billion last year.


“There’s so much advertising dollars urging consumers to go to the mall that this is a tough time to break in a new online service. But they’re going forward because so many of the CEOs have promised they’d launch,” said an executive with a label involved in MusicNet. “The real push for these services will be in the first quarter.” he said.

Analysts agree. “Its not like consumers are cued up with credit cards in the middle of the holiday season, waiting for these services to launch,” said PJ McNealy, analyst with GartnerG2.

“I’d imagine the labels are using their promotional muscle to sell holiday CDs right now,” said Lee Black, with Webnoize.

Nevertheless, MusicNet – owned by media firm RealNetworks Inc., AOL Time Warner Inc.’s Warner Music, EMI Group Plc and Bertelsmann AG’s BMG – is set to launch early December via RealNetworks’ RealOne service at an expected monthly cost of $10 to $20 a month.

AOL also plans to distribute MusicNet by year-end, while MusicNet’s rival Pressplay, owned by Vivendi Universal’s Universal Music and Sony Music, said it plans to roll out sometime in December.

With free services likely to hinder the spread of these fee-based services for a few years, Web research firm Jupiter Media Metrix projects the digital music market to hit $1.6 billion by 2006, with $1 billion coming from subscriptions.

“We don’t even think there will be a lot of action for these services by Christmas of next year,” said Aram Sinnreich, analyst with Jupiter Media Metrix.

To succeed, the services will need to offer good file quality, a big selection of music, artist information and art.

Portability is also key. Users will pay if they can burn songs onto portable devices, analysts said.

“Its extremely unlikely that any implementation of MusicNet or Pressplay will allow for portability at launch, although its necessary to succeed over the long-term,” Sinnreich said, who expects an initial surge of interest but then a drop-off as users see various limitations in the services.

MusicNet and Pressplay officials seem realistic about the challenges. “We know adoption is going to take time. Our goal is to launch the service in a strong and compelling way,” said Seth Oster, a spokesman for Pressplay. “We’re comfortable with the fact that we’ll be going live in December as we approach the holiday season,” he said.

Erik Flannigan, vice president of music services programming for RealNetworks, said he thinks a December launch of MusicNet is an advantage because it gets the service up and running ahead of January, which should be a key month.

“We’re realistic about the level of users of free services out there and where this fits into the marketplace, but I’d rather be learning, adjusting and tweaking as we go rather than just sitting and incubating. It’s time to get out and get feedback,” he said.

“January is an incredibly quiet time for new album releases. We think January is when you can really hit this service. Part of our marketing effort will be in playing up to that period,” he said.

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