December 15, 2003 6:50 AM PST

Loudeye, Microsoft team on music store

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Digital music services provider Loudeye and Microsoft announced that they have teamed to promote Loudeye's new service that helps other companies set up online music stores much like Apple Computer's iTunes.

Seattle-based Loudeye and the software giant said Monday that they will work together to handle the infrastructure and distribution for online music services branded by other companies that are looking to sell songs online or to enter the digital media business in some other way.

Loudeye's digital music services, which include its Digital Music Store and iRadio Service that contains 100 preprogrammed music channels, are based on Microsoft's Windows Media 9 Series technology. Early customers of the service include AT&T Wireless and Gibson Audio, a division of Gibson Guitars.

"The problem for companies that want to launch a digital media service with their own brand is that it's very expensive," said Loudeye Chief Executive Officer Jeff Cavins. "We'll charge them a fraction of the cost of what it would take to build it themselves."

Loudeye's plan highlights the growing presence of legal downloadable music, just eight months after Apple launched its iTunes song store.

Many, if not most, of the large online shopping or entertainment destinations have announced plans to offer their own stores. In addition to Apple's launch of a Windows version of its store, Buy.com founder Scott Blum has created BuyMusic.com, Roxio has launched Napster 2.0, Musicmatch has turned its jukebox and radio service into a song store, and subscription service MusicNow has added a store.

Microsoft also has said it will enter the market next year. Wal-Mart Stores is expected to launch a store later this month or early next year. Computer makers Dell and Hewlett-Packard are co-branding other companies' services.

However, the profit potential for these services remains dim. Apple has stated that it does not make money from iTunes, relying instead on the service's ability to drive demand for its iPod digital music player. Other industry executives have said that profits are possible, even if they are razor-thin.

Loudeye's Cavins said there is room for an intermediary in the business despite the tiny profit margins. His company is looking for customers who are interested in digital music distribution as a promotional tool for another product or service, rather than as a standalone business, he said.

"There are a lot of companies that are not your usual suspects that will pay to have services that will drive cross promotion," Cavins said. "What it comes down to is that there are companies that are learning that using digital media is a good way to cement a brand."

Neither of the company's initial customers are doing traditional iTunes-like stores. AT&T Wireless will have a service that will sell ring tones and music tracks that can be downloaded to a PC. Gibson Audio is creating a line of digital music jukeboxes for the high-end home consumer market.

Loudeye has previously focused on encoding and storing digital music for other services, including iTunes, and providing samples of music for CD sales outlets such as Amazon.com.

 

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