Web Content Tunes Up - Industry Trend or Event

They have access to a growing broadband audience, the content and the promotional muscle. But will the music industry really tap the high-speed Internet and put digital music into play?

Spurred by the looming fusion of America Online Inc., Time Warner Inc. and EMI Group plc., analysts and industry insiders are increasingly answering yes. With consumer electronics cranking out the devices, broadband subscriber numbers growing and content now available on the Web, 2000 may be the year digitally downloadable music starts to turn up the volume.

"This year is going to be big for music on the Web because all of the pieces of the process are now there," said Rich Fleischman, senior director-product management for Web music distributor Liquid Audio. He added, record labels "became absolutely crystal clear that in the coming year there will be major content made available on the Web. They weren't subtle about it at all."

Downloadable music

Indeed, when honchos at EMI and Warner Music Group announced their merger in January, they emphasized the growing market for Internet music, citing an industry projection that nearly 10% of all worldwide music sales will be made over the Internet by 2004.

That potential is influencing Warner's online music strategy, but the label is far from abandoning its traditional sales markets. Paul Vidich, EVP-Warner's strategic planning and business development, said CD sales and digital downloads will coexist.

"These things are going to have to be parallel," he said. "CD is a bigger market because they are easier to sell and ship, but music downloads are going to increase in the marketplace."

Even before the merger, Warner wasn't exactly ignoring digital music, Vidich points out. In 1999, it promoted 22 Webcast events offering digitally downloadable music. Warner artists also tapped the digital download, including metalhead mainstay Metallica, which posted its entire S&M CD on the Web prior to its November release.

In addition to working with Microsoft Streaming Media, Time Warner Cable and Road Runner on digital download's technical issues, Warner is assembling a worldwide system for direct promotions using directed Internet advertising and e-mail, Vidich said.

"We will work much more in aggressive promotions of music using AOL as a promotions partner," he added. "We will also be looking at new business models -- new ways to make music available to customers and generate incremental revenue."

But Vidich also thinks hardcopy music won't disappear. Music aficionados will still buy CDs and DVDs for their higher-quality sound and the package graphics. Digital downloads will be snapped up by those who want their music on the go via portable digital players, he said.

Consumer Access

Still, a big stumbling block for digital music continues to be consumer access. A July Jupiter Communications Inc. report concluded the lack of standards, bandwidth and Internet-capable audio or home stereo players will delay widescale downloadable music sales for three or four years.

Yankee Group analyst Jim Penhune echoes this, pointing out that while the broadband Internet market is growing, it is still too narrow to carry online music alone.

"Although I think the combination of Time Warner and AOL will make that more marketable, none of this is going to become interesting until broadband becomes more available," Penhune said. "You can do this stuff with a dial-up, but it ain't easy. It is more trouble than it is worth. It's easier right now to march down to Tower Records and buy it."

Creating a distinct digital music market will also be a challenge.

"I don't believe the biggest challenge is getting content anymore," Fleischman said. "I think the biggest challenge is getting the consumers to buy into digitally downloadable music. That is an important step for us this year, for us to move it out of the techno fringe and into the mainstream."

Fleischman also believes retreading CD music as digital downloads won't cut it.

"It's not just a matter of the music label saying `OK, I'll make available 20 million download tracks,'" Fleischman said. "We really have to think about this with the consumer device makers and the labels."

"If you are going to make it a broader experience you need to create that compelling need."

Whatever market digital music carves out, it is part of an unprecedented wave of change combining the Internet, online music sales and the digital music format

"The convergence of those three events at one time is creating more change in the music industry than it has seen in the last 50 years," Vidich said. "It's going to make it a much bigger place."

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