For all the growth, the volume of unlicensed downloads continues to dwarf that of paid transactions. In January alone, file swappers traded more than 1 billion tracks over the most popular networks, according to Atlanta-based BigChampagne LLC, a company that tracks file-sharing activity. That figure has remained fairly steady throughout the entertainment industry's anti-piracy campaign, BigChampagne President Eric Garland said.
Still there are indications that the digital market may be slowly swinging in the industry's favor. In a survey of 1,112 people conducted earlier this year by Ipsos-Insight, 11 percent said they'd paid to download a song at least once. An identical percentage of respondents said they'd downloaded at least one song from a file-swapping network. In 2002, the first year of the survey, only 2 percent of respondents said they'd paid to download a song, compared to 19 percent who said they'd downloaded songs for free.
The (Legal) Digital Music Marketplace|
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ITunes: Spurred by the runaway popularity of the iPod player, Apple's iTunes has grown to become the nation's most successful download store, selling more than 250 million tracks -- typically for 99 cents each -- since its launch in 2003.
RealNetworks: Best known for its ubiquitous "RealPlayer," the company offers one-song-at-a-time downloads as well as $10 monthly subscriptions to the unlimited-download Rhapsody service.
Napster: Named for the underground file-swapping service that started it all, the reborn Napster offers a subscription similar to Rhapsody, with a "To Go" service allowing transfers to approved portable players for an additional $5 a month.
MusicMatch: Owned by Yahoo, MusicMatch offers a range of services including a la carte downloads, Web radio and a subscription service.
MusicNet: Unlike its peers, MusicNet doesn't operate a retail store. Instead it provides the back-end download technology for companies like America Online and Virgin Digital.
Wal-Mart: The retail giant sells a la carte downloads at 88 cents a song.
Buy.com: The Internet retailer offers 79-cent singles from major-label artists.
MP3tunes.com: Launched by the founder of the now-defunct MP3.com downloading site, the service offers 88-cent downloads of songs from independent artists.
Emusic: This smaller service specializes in independent labels, offering bulk downloads for a monthly fee.
Peer Impact: Still in its testing phase, Peer Impact would allow users to share files while digital rights management technology automatically determines what fees they owe.
Ruckus Network: Ruckus specializes in the college market, offering music and movie downloads through arrangements with universities.
Cdigix: Another company specializing in the college market, Cdigix uses MusicNet's technology.
"I think that everyone agrees it's headed in that direction. It's just a question of when is it going to be a significant slice," said Matt Kleinschmit, Ipsos-Insight's vice president.
Finding the Right Carrot
To feed the new distribution engine, record companies are shoveling their catalogs into the electronic furnace as fast as they can.
"We've licensed any piece of music that we have the rights to," said Thomas Hesse, president of global digital business for Sony BMG Music Entertainment. "The total number of tracks that we're licensing is 200,000. We generally make our releases available [when they're cleared for radio play] and we sometimes make available B-sides from singles or live recordings that haven't actually been released 'on record.'"
Ted Cohen, EMI Music's senior vice president for digital development and distribution, said the labels' efforts to throw open their catalogs to the online stores have paid dividends for consumers. "I think over the past year there's been a tremendous increase in the amount of variety. You have virtually unlimited choice and you can take it with you."
Like Sony, EMI offers unique "digital box sets" and will often license tracks from foreign artists for sale electronically, even if the CD isn't being sold in U.S. stores. Cohen said EMI has licensed 60,000 songs for online distribution in the United States -- more than 99 percent of its U.S. catalog, according to the company.
For nearly a year, EMI has also been in the process of reorganizing its internal structure to interface more smoothly with the digital marketplace. The company abandoned its CD pressing plants, and Cohen said the firm is spreading the gospel throughout its operation. "We're integrating digital into the operational business units. ... It was never going to be a real business if we kept it sitting on the side."
According to EMI spokeswoman Jeanne Meyer, that means the digital side of the business isn't "three guys in a garage," but the responsibility of every employee in every department. When the hip-hop artist Chingy put out his second album, his first single was made available as a cell phone ring tone before it was released on radio.
The download services, meanwhile, are racing the unlicensed P2P operators --and each other --to find the magic formula that will attract and keep users. Earlier this year, Napster offered users of its basic service -- which allows users to download as much music as they want, but prevents them from listening to it away from their computers -- the chance to pay a little extra for the privilege of taking their playlists with them on an approved portable player. RealNetworks' Rhapsody service will soon be offered in portable form as well, said Richard Wolpert, the company's chief strategy officer.