March 5, 2001 2:45 PM PST

Musicbank CEO skips to a different track

Michael Downing, president and CEO of online music-locker service Musicbank, will step down from his positions to serve in an untitled role that will focus on partnerships and long-term strategy, the company confirmed Monday.

Downing will remain in his positions until a replacement is found, according to a company representative. The company, which has yet to launch a commercial service, laid off 19 of its 61 employees two weeks ago.

The executive shake-up marks the latest setback for online music-locker services, which have been shadowed by doubts since their inception. Although it is too soon to declare music lockers a failure, they have not taken off as quickly as some had predicted.

"Only a limited number of people will pay for it, and they already have a place to go," said Malcolm Maclachlan, an analyst at IDC, referring to the My.MP3.com service from online music company MP3.com.

Music lockers offer some apparent advantages over other online music-distribution strategies. They build on traditional music sales, for example, giving consumers access to music online only after they've purchased the CD.

That's not proved to be a clear hit with consumers, however, and music lockers have faced several hard knocks.

Musicbank rival Myplay.com recently revamped its strategy to provide a business-to-business service aimed at creating and running locker services for other Web sites. MP3.com, meanwhile, has paid millions of dollars stemming from copyright lawsuits over its service.

Music-locker troubles partly show how difficult it has been for online music companies relying on advertising and e-commerce to compete while free file-swapping services such as Napster exist.

A federal appeals court decision last month, however, cleared the way for major changes in the way Napster does business, sparking new hope from Musicbank and others. On Sunday, Napster said it began filtering content on its service, a move aimed at keeping its business alive while it seeks to create a legal version that would charge members a monthly subscription fee.

Musicbank has spent much of its brief existence securing licenses from the major record labels and publishers to create its music-locker service. The licenses allow Musicbank customers to listen to their CDs streamed via the Internet to their PCs.

The company has delayed the launch of its service, however, originally planned for fall of last year. Musicbank spokeswoman Colleen Gallagher attributed the delays to the emergence of other "opportunities" since the Napster decision but declined to elaborate further. Gallagher added that the launch of the service is "imminent."

MP3.com also has secured licenses with the major labels and publishers, albeit for a heftier price tag. MP3.com was found to be infringing upon the copyrights of the major labels. The company settled lawsuits with four of the five majors, and paid a hefty $53.4 million to end its infringement suit with Vivendi Universal's Universal Music Group.

Other companies with competing music-locker services have also shifted direction. In February, Myplay cut 41 percent of its staff to shift its focus to creating software that lets other Web sites build their own music subscription services. Myplay did not draw fire from the record industry because its service makes copies of people's CDs for playback, instead of streaming songs from a ready-made database of CDs.

The direction of the online music business has shifted dramatically since Napster emerged on the scene. Despite its legal woes against the record industry, many online and offline music executives believe that a paid version of Napster would please consumers who want unbridled access to popular songs and the record industry, which wants to protect its copyrights from music pirates.

But creating a paid version of Napster is more complex than it seems. Aside from the difficult task of securing licenses from the recording industry, the technical demands for security are daunting.

Musicbank doesn't want to be left behind on that trend. The company is trying to court partnerships with portals, online retailers and content owners, Musicbank's Gallagher said. It also is trying to secure its next round of financing. Gallagher would not say how close it is to closing the deal.

 

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