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Recording Executives See Brighter Outlook

Online music piracy isn’t likely to vanish soon, but the rise of paid online services and the growing popularity of portable digital music players portends greater demand for digital music next year and better fortunes for the embattled recording industry, music executives said Monday.

Taking a mostly positive outlook on an industry racked by a three-year slide in CD sales, executives for recording companies and Internet music retailers told hundreds at the Music 2.0 conference in Universal City that online music sales should take off in 2004.

“What we see is an explosion of interest in this space. It’s a really exciting time,” said Sean Ryan, vice president of RealOne’s music division, which owns the Rhapsody digital music service.

The recording industry feels it has made progress in 2003, after two years of trying to develop an online digital music model that could appeal to a majority of music fans – many of whom believe they should be able to listen to music on their computers and burn copies for personal use for a fraction of a CD’s cost.

The year has seen a rash of new online music services, offering music for subscription, download or both. Apple Computer’s iTunes Music Store, which launched in April and sells individual song downloads for 99 cents, has sold more than 17 million song downloads as of last month.

Ryan said demand for portable music players and the rise of home networking devices, which allow people to also enjoy digital music and movies on their entertainment centers and stereos, will also drive digital music.

“That’s where people want to consume, in their stereo, in their home theater system and eventually in their car and cell phone as well,” Ryan said.

That alone may not help the industry make up for lost revenue from the millions of songs illegally downloaded using software like Kazaa, nor add up to the kind of profits made off CDs. About 70 percent of U.S. households don’t get their music over the Internet, according to a study by Dallas-based market research firm Parks Associates.

Many of the panelists said they were bullish on the chances for digital music sales to pick up next year, but conceded that the industry has to be willing to change as it embraces the online music business model.

“I don’t think we can look at the old models of how we made money in the past and say we can duplicate them in the new world, that’s not going to work,” said Courtney Holt, head of new media and strategic marketing at Interscope A&M Geffen Records.

One way the recording companies can help boost interest in online music services is by licensing their deep catalog of recordings, including rarely heard cuts of artists’ songs, B-sides and concert recordings, Ryan said.

Obtaining clearance from the sometimes complex web of rights-holders for some songs has been difficult.

“More players are coming into the marketplace,” said David Ring, vice president of business development at Universal Music Group. “But we still have kinks to work out. We don’t have all the artists there, and usually, almost in every case, it’s an artist issue, not a record label issue or a publisher issue.”

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