Music Companies Gear Up For Electronic Distribution

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Major music companies are moving out of the market-test phase and are beginning to implement business plans to authorize the sale of downloaded music over the Internet.

Before the end of summer, songs from at least three of the country's five largest music companies will be available for consumers to buy as digital files downloaded from authorized websites. And by the end of the year, all five companies could be downloading songs for a fee.

Until now, the five largest music companies have distributed music for sale electronically as part of limited market trials or have authorized free music downloads for promotional purposes. The free downloads would be locked to the user's hard drive and would often "time out" after a few days.

The market tests included the recently concluded Madison Project, which involved broadband distribution of music from all five companies.

As they authorize a greater selection of electronically distributed music for purchase, analysts and suppliers contend, the music companies will help broaden the potential customer base for downloaded music, Internet audio portables, and future home-audio-component-style devices that will connect directly to the Internet to download or stream music.

"Unless you're an edgy, early adopter from a music standpoint, then the music you want isn't available online except for promotional purposes," said Forrester Research analyst Jeremy Schwartz.

Other factors needed to build demand for Internet portables and downloaded music are also expected to arrive in the next few years. They include broad access to broadband connections, which reduce download times, and less-than-$100 portable players with the capacity to store at least an hour's worth of music at near-CD quality.

"All of these things will come together over the next couple of years," said Forrester's Schwartz.

In doing its part to promote commercial downloads, Sony Music Entertainment made about 30 songs available in late April on its website at $2.49 each and will offer songs through authorized online retailers beginning in May. BMG will move into the commercial download market in late June or early July, when online retail partners are expected to offer select BMG songs for sale as downloadable files.

EMI Recorded Music is expected to sell songs online through retail sites sometime during the summer. And possibly by the end of the year, a Universal Music Group/Sony joint venture will launch a subscription service that will download songs and videos and possibly deliver streaming audio and video content.

For its part, Warner Music Group plans a "meaningful" second-half launch, most likely in the fourth quarter, a spokesman said.

Here's what music companies plan:

Sony Music Entertainment: In late April, Sony made about 30 songs available for downloading from its site, sonymusic.com. For now, consumers download songs only in the Sony-developed ATRAC3 format, which Sony Music is protecting with Microsoft's digital-rights-management (DRM) technology. Only Sony currently offers Internet portables that play back Microsoft-protected ATRAC3 files.

Sony Music will add support for additional codecs, a spokeswoman said, as other SDMI (Secure Digital Music Initiative)-compliant portables join Sony's compliant models in the market.

In May, Sony Music will expand its authorized selection to more than 50 songs and expand their availability to include retail websites operated by retailer Tower Records and by two music distributors -- Alliance Entertainment and Hastings Entertainment -- that operate websites for their retailers, she said.

Sony plans to expand the song selection "on an ongoing basis" and expand distribution through additional online sites, the spokeswoman added.

The launch marks the first time that Sony has authorized commercial downloads of paid-for songs, outside of market trials. Last year, Sony also authorized free downloads for promotional purposes.

Sony's authorized songs are currently available at an introductory price of $2.49 each. The regular price is supposed to be $3.49, but Sony hasn't decided when to implement it.

The authorized songs are performed by popular artists such as Celine Dion, Lauryn Hill, Jennifer Lopez, Pearl Jam and Mary Chapin Carpenter. The songs have been released as CD singles and have received radio play, the spokeswoman noted.

For now, the music is available only to consumers within the United States and its territories.

Sony Music also provides a downloadable ATRAC3 plug-in for people who don't own a Sony portable, which is packaged with its own download software. The plug-in enables users of Microsoft's Windows Media Player to download and play back ATRAC3 files on their hard drive.

BMG Entertainment: The music company plans a late-June or early-July launch of authorized paid-for downloads "through an open network of retail partners" that will include the company's music retailers.

The number and prices of songs available at launch "will be announced soon," said Kevin Conroy, senior VP of worldwide marketing and new technology. "Our plans are to expand our music offering rapidly to keep up with and help to drive the demand for electronically distributed music," he told TWICE. At launch, the company expects to offer "a mix of music that reflects the wide variety that we have in our rich catalog of music."

Although BMG hasn't announced support for specific download formats, Conroy noted that "our artists' music will be playable on SDMI-compliant portable devices that [will] support the formats in which our content is released."

Like Sony, BMG is ruling out support for the unprotected MP3 format, preventing their authorized music from being played back on the many portables that play back only MP3 files. "We believe that second-generation technologies offer superior audio quality and a better consumer listening experience," Conroy said.

Whatever formats it chooses to support, BMG said it will use three DRM technologies -- IBM's EMMS, Intertrust's Metatrust, and Microsoft's technology -- to protect its music. Support for multiple technologies will help BMG "to achieve maximum reach in the marketplace and to ensure a flexible and competitive market for downloadable music," he said.

As part of market trials during the past year, BMG has participated in the Madison Project but has also authorized various sites, mainly the Liquid Audio Network, to download almost 20 songs for $2.49-$3.49/song. Since 1997, Conroy added, "BMG's labels have made extensive use of promotional downloads that time-out after a specified period of time."

EMI Recorded Music: The company said it would announce its commercial-download plans in May, but a marketer familiar with EMI's plans said the music company is targeting the summer for the sale of songs downloaded from authorized websites. The music would be transferable to Internet audio portables.

Under a program launched in January, EMI has authorized urockitmusic.com to download songs that are locked to a consumer's hard drive. Under the promotion, purchasers of select NEC computers get a prepaid card entitling them to $20 worth of music downloaded from the urockitmusic site, which uses Lucent's ePac format to download music. The ePac format isn't supported by portables currently on the market.

Universal Music/Sony: The two companies recently announced plans to establish a joint-venture company that would license music and videos from its parents to distribute electronically over the Internet as part of a subscription service.

A Sony spokeswoman said the joint venture, which would distribute content worldwide, would probably distribute streaming content as well as downloadable files for a flat monthly fee.

"We want to do this as soon as possible, hopefully by the end of the year," she said. The service would probably be launched first in the United States.

The intent is to distribute music electronically to PCs and eventually to wireless phones and set-top boxes, she noted.

The two companies haven't announced which codecs or digital rights management technologies would be used.

Universal couldn't be reached for comment on other download plans it might be making, but some of the company's music is already available as free promotional downloads on the Rioport.com site and the MTV family of sites.

Warner Music Group: Having participated in market trials and promotional downloads, Warner plans a "meaningful launch" of commercial digital downloading in the second half, most likely in the fourth quarter, through authorized retailers' websites, a spokesman said.

Warner has already licensed Sony's ATRAC3 format but plans to license one to two more formats for the launch. The selected formats won't include unprotected MP3 files, but Warner didn't rule out MP3 files wrapped in selected digital-rights-management technologies.

In the next few months, Warner will release additional details of its plans, but the spokesman stressed that its launch will be a "substantial" one involving more than 100 songs.

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