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Life after Napster: Act II for digital music
The major music labels are rushing into digital music services. Here's why they will come up short, says columnist Erick Schonfeld.

COMMENTARY--Everyone these days seems to be trying to figure out how to turn digital music into a profitable business. At center stage are two companies, backed by major labels, that are preparing to launch their own for-pay digital music services on the Web before the end of the summer.

Those services--Pressplay (backed by Sony and Vivendi Universal  and MusicNet (backed by AOL Time Warner, EMI, Bertelsmann's BMG, and RealNetworks--will be the first true test of whether anyone will be willing to pay for streaming music and downloads off the Web. Here's why both services will find it difficult to pass that test. (Full disclosure: AOL Time Warner owns Business 2.0).

For starters, Napster may be gone--or at least very different from its original form--but the idea of peer-to-peer file sharing is alive and well--and still dogging the recording industry. Services such as Audiogalaxy, LimeWire, and Gnutella have sprung up to take Napster's place, offering a wide selection of digital recordings. And even if the music industry somehow crushes those services as well, the millions of music fans who have tried them won't soon forget the experience. The bar has been set awfully high for the recording industry. Consumers recognize that they can't have every song in the world at their fingertips for free, but if they are going to have to pay for their digital music, the services they subscribe to will at the very least have to be just as good as the old Napster.

MusicNet, for one, will look and feel very much like Napster (no surprise there, since Bertelsmann has lent $60 million to Napster with an option to convert that loan into a 58 percent stake in the company). The similarities, though, will be mostly cosmetic. Both MusicNet and Pressplay will be streaming and download services. They will not allow file sharing, except, in the case of MusicNet, between paying members of the service. So what happens if a Pressplay member wants to share music with a friend who is a MusicNet member? That won't be possible unless the two competing music camps come to some sort of agreement.

And that brings us to the second drawback of these services. Both will suffer from huge gaps in the selection of music they will offer. If Napster taught us one thing, it was that in order to be compelling, a digital music service must be comprehensive. But Pressplay subscribers won't have access to music from artists on the AOL Time Warner, EMI, or BMG labels; likewise, MusicNet subscribers won't have access to bands whose music is put out by Sony or Vivendi Universal. And then there is all the really great music out there on independent labels. In other words, consumers will be able to find a better selection by simply walking to a local music store.

The selection issue isn't going to be resolved overnight, as the major labels are at a standstill. Andy Schuon, CEO of Pressplay, thinks the market will eventually sort this out. "We will become a place where the other music companies will want to have their music because, ultimately, content goes to where the customers are." Of course, those customers could just as easily end up at MusicNet, which is exactly what the Pressplay rival is banking on.

But it could turn out that neither really becomes a destination for music lovers. Both are licensing their content and services to other sites. MusicNet will be available through AOL, RealNetworks, and Napster, while there will be links to Pressplay on MSN Music,, and Yahoo Music. Arguably, a third-party music site should be able to license from both services, as well as independents, and thus be able to assemble a complete music selection.

Even then, consumers will run into another problem. At least at first, songs they download from Pressplay or MusicNet will not play on anything except the PC that downloaded them. That means fans won't be able to burn the files onto a CD or even download them onto an MP3 player. Subscribers will eventually be able to move their songs from PCs to other devices, as soon as Pressplay and MusicNet can figure out a way to make sure that those songs remain in the possession of those who paid for them.

"We are not going to support illegitimate file sharing," reports Schuon. But policing people's music devices and listening habits may prove impossible. If I pay for a song, why shouldn't I be able to listen to it on someone else's stereo, in my brother's car, or on my girlfriend's MP3 player as I go for a jog? For that matter, why shouldn't I be able to e-mail it to a friend? I'd argue that all of these examples fall under the copyright doctrine of fair use, and they are all things I can do today with songs on a CD (although, in the case of e-mailing, I'd first have to rip them from the CD to my hard drive).

If Pressplay and MusicNet are supposed to prove that the record labels finally understand the Internet, Schuon's comment is a sad indication of how far the industry has yet to go. It is still obsessing over how not to cannibalize its existing business instead of obsessing over how to make the consumer experience with digital music the best one possible. The truth is that most of the world isn't really ready yet for digital music. How many people have great speakers hooked up to their PCs? Even then, listening to music from a PC is only good for when you are sitting in front of it. You want to be able to hear your music on a stereo or download it onto an MP3 player. Yet, according to IDC analyst Bryan Ma, by the end of this year, there will be only about 8 million MP3-playing devices out there in consumers' hands. Also add the fact that downloading music is not a lot of fun without a high-speed connection.

Napster was a huge tease in a way. Folks were willing to deal with sub-CD quality and a tricky interface mostly because it was free music. Now that companies need to grow a loyal base of paying customers, the road back to 70 million users (which Napster once proudly claimed) is going to be long and painful. The new reality is lackluster enough to keep most of us buying CDs--online or in stores. And the Net, at least for a while still, will just be a place to learn about bands, maybe listen to some of their tracks, and hunt for low prices. In fact, the biggest impact of digital music may turn out to be to drive more people to their local music stores with well-researched shopping lists. If the record industry wanted to slow down the pace of change when it went after Napster, it succeeded--perhaps too well.

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