July 23, 2001 4:20 PM PDT

Net music in a post-Napster world

NEW YORK--With Napster and other online threats to major record labels on the ropes, the task of challenging the status quo at a major Net music gathering here fell to one of the industry's biggest profit generators: singer Alanis Morissette.

In an incendiary keynote speech at the Jupiter Media Metrix annual Plug-In music conference Monday, the platinum-selling pop star highlighted the shattered promise of the online music revolution, blaming everyone from major record label executives to radio stations and music publishers for their role in stifling the Internet's ability to promote unknown musicians.

"The development of the Internet was an option for these artists," Morissette said. "We are now seeing the Internet turned into a bottleneck for creativity."

Morissette's remarks underscore how suddenly the tables have turned on start-ups out to challenge entrenched media interests with file sharing. A year ago, the question was not so much whether the labels would shut down Napster, but whether Napster might somehow shut down the labels.

Napster has since been neutered by a court order forcing it to filter most of the songs from its network. But its influence is still palpable as the labels turn to the hard task of developing commercial uses for technology that has so far been used primarily as a way for consumers to get music for free.

Even as the labels begin to move online with planned music subscription services, Net music companies say economics such as licensing terms remain a major sticking point in challenging underground file swapping with authorized commercial services.

"The real issue is around price," said Gerry Kearby, chief executive of Liquid Audio, which has launched its own music subscription service. "Can we make a system that gives you the same satisfaction of Napster at a price that will not be a barrier of entry to anyone? That's hard."

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 Protecting your digital music
David Goodman, CEO, LockStream
For now, the major record labels have divided into two online subscription camps. RealNetworks, BMG Entertainment, Warner Music Group and EMI Recorded Music have formed MusicNet, which will allow sites to resell subscriptions. Sony and Vivendi Universal Group have created Pressplay and will use MP3.com to create its technology backbone. Vivendi Universal is acquiring MP3.com.

Both of these ventures are still in the works and are expected to launch by the end of the summer.

The labels are also seeking to license their songs to third parties, although price remains an issue. EMI's new media Vice President Ted Cohen said during a panel that the company has an economic model to charge people for downloading or streaming songs from its catalog. The presentation came after EMI last week licensed its catalog to online music reseller FullAudio. Licensing terms were not disclosed.

Has anything really changed?
While the pending launch of Pressplay and MusicNet are being closely watched as a major step forward by major labels on the online music front, there are still many issues that need to be worked out.

The biggest issue is the depth of song selection that Pressplay and MusicNet will offer. The services still need to figure out complex arrangements to share revenues with a variety of parties, including artists who own their works and music publishers.

The record label is also struggling to deal with the legacy of Napster. While the labels have won significant victories so far in court that have defanged their most potent online enemy to date, they have yet to escape Napster's sway.

Despite their legal actions, the recording industry has taken cues from Napster's success to try to replicate its service. Other online companies have jumped on the demand for creating music subscriptions. And most importantly, consumers have woken up to online music's potential.

"Consumers were educated via Napster about digital music and consuming digital products," said Dannielle Romano, an associate analyst at Jupiter.

Nevertheless, participants have pointed out that free music and file sharing remain mercurial and will not go away with the limiting of Napster. Disabling Napster has pushed people to use other free music download services such as Gnutella or Morpheus.

The threat from free services still remains. It will be up to the labels to offer people something better than getting free downloads.

"It's not just a matter of providing it legally and charging people for it and hoping people sign up," said David Goldberg, chief executive of Launch Media. "You've got to actually know that people have alternatives, and that alternative is free and pretty darn easy."

 

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