February 15, 2001 12:45 PM PST

Myplay turns to subscriptions, cuts staff

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Online music company Myplay.com said Thursday that it will lay off 41 percent of its work force as it refocuses its business to capitalize on emerging demand for Internet music subscription services.

The cuts, which will affect 22 employees, will mainly slice through the Redwood City, Calif.-based start-up's marketing, administration and communications departments. Myplay, which has tried to lure consumers with an online music "locker" service, positioned the cutbacks as the result of the souring advertising market and an overall shift in its strategy.

That new focus, Myplay said, centers on plans to launch a new product next month that will let Web sites build custom music subscription services for the Web--an area that has drawn increasing attention in the industry.

"Creating subscription services or variations on them is where you'll see the most money flow into the music industry in the next five years," said Mark Mooradian, an analyst at market research company Jupiter Research.

Up to now, Myplay has competed with companies such as MP3.com and Musicbank, which let people store and play music from CDs they own through any Internet-connected device. Unlike Myplay, however, record labels have licensed their libraries to these rivals.

For Myplay's locker system, such licenses have been unnecessary. That system lets subscribers upload their own songs and does not broadcast copyrighted music--a practice that landed MP3.com in court until it signed licensing deals with the major labels.

The new custom subscription services, however, will require cooperation from record companies, leaving the plan lingering in midair until the coveted licenses are struck. Given the history of the music industry's overall caution in approaching the Internet, obtaining licenses will not be easy.

Myplay isn't the only company to consider a shift to the business-to-business market.

In June, MP3.com repositioned itself as an "infrastructure" company that would provide technology services built into new hardware and software. The announcement was a giant step from its previously vocal proclamations that it would become the next MTV.

However, creating the supporting infrastructure to allow digital, on-demand distribution of an entire music catalog can be difficult and complicated. It is unclear whether Myplay will be able to solve all of the problems involving encoding, hosting, security and royalty collections.

Myplay founder David Pakman said the company's pending subscription service would cover all of these issues, although he admitted it is still looking for an encoding partner that would convert files into formats that could be sold online. Myplay's music locker service would still be available after the new service launches.

The subscription prescription
Music subscription services have been the talk of the town since Napster blind-sided the record industry and music fans around the world. The music file-swapping service lets its members download songs encoded in MP3 audio format by searching through the hard drives of other members. Although the major record companies--BMG Entertainment, EMI Recorded Music, Sony Music Group, Universal Music Group and Warner Music Group--are in the midst of a landmark copyright infringement lawsuit against Napster, the online company's appeal has emphasized that Internet consumers want their music without limitations.

Enter what the industry has labeled the "celestial jukebox." Record labels, online music companies and media giants alike are salivating over the possibility of creating a service that offers every song ever recorded via the Internet. But unlike Napster, the service would charge a monthly subscription fee, with payments lining the pockets of all parties involved, especially the labels.

The biggest names in the online and traditional media industries are throwing around music subscriptions as the next trend. Heavyweights ranging from AOL Time Warner to Yahoo have stated their desires to launch subscription services. With their enormous amounts of Web traffic, these giants could boost the popularity of such services.

More importantly, especially for Web portals and start-ups, music subscriptions could allow them to rely less heavily on advertising revenue. If Myplay can become the middleman in subscription offerings, it could become a strong source of revenue for the struggling company. Its free, advertising-supported service has been hurt by the dot-com downturn, which has led to a squeeze in Internet marketing budgets.

But such aid will depend on whether Myplay can outpace the clock to secure licenses. Historically, record companies have not enthusiastically opened their prized song libraries for Internet consumption. The labels have especially been hesitant with downloads, fearing widespread distribution even if the files are securely formatted.

"The plight of all service companies is that you're reliant on your biggest client," Jupiter Research's Mooradian said. "Myplay is not in a different position than Liquid Audio or InterTrust. All of these companies that are in music infrastructure plays are somewhat at the mercy of the labels."

Will other Web sites bite?
Myplay's new subscription service would let Web sites select several factors from pull-down menus: billing method, whether the music can be downloaded or streamed, whether to add digital rights management, a time limit for the offer, and even the types of songs available over the service.

Once the parameters are set, Myplay would launch a page on the Web site where consumers could buy the subscription. Subscribers could then listen to the songs available on the service through downloads or Web streams. Myplay also would let consumers manage their song lists through its locker service and manage multiple subscriptions that use this product.

Web sites would pay Myplay every time a subscriber listens to a song. Myplay, in return, would pay the labels' licensing agreement. The Web sites would dictate the price for subscriptions.

"Our feeling from beginning was that everyone will want to have subscriptions on their site, but everyone will have different terms just like when you sell regular entertainment goods," Myplay's Pakman said.

Pakman added that the company has been in discussions with the labels about licensing their catalogs for months. He said he hopes that by securing the licenses, Myplay can become the middleman for Web sites that don't have the resources to undergo the grueling process of negotiating with the labels.

"The choice for the big players is: 'Do they want to build it themselves or to use something that's already been built?'" Pakman said.

 

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