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Downloading: The Next Generation

So far, bulk-subscription or "rental" models like Rhapsody and "Napster to Go" have lagged behind iTunes' pay-per-download model. But devotees say it offers an experience closer to that of the illegal services, in that users can download songs on a whim without adding to their bill. JupiterResearch predicted that the subscription market would eventually eclipse the market for a la carte songs.

Consumers may soon have a third option in the form of licensed file sharing. Using technology developed by Shawn Fanning, who created the original Napster in the late 1990s, several companies are planning to launch file-sharing services that let users swap songs with one another, just as they would if they were using one of the unlicensed services like Kazaa or eDonkey. The technology simply requires users to pay for the trades that were once free.

The (Legal) Digital Music Marketplace
From washingtonpost.com at 8:53 AM

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.

--David McGuire

_____Digital Rights_____
Artists Break With Industry on File Sharing (The Washington Post, Mar 1, 2005)
High-Tech Tension Over Illegal Uses (The Washington Post, Feb 22, 2005)
Disparate Cast Lobbies Court To Restrict File Sharing (The Washington Post, Jan 26, 2005)
More Stories

Among the legal download services, only iTunes has the resources to mount a big general advertising campaign, but the underdogs are aggressively hunting down new customers where they think they're most likely to find them -- on college campuses. Starting in 2003, when Napster inked a deal with Pennsylvania State University to give students free access to the company's all-you-can eat download service, online music sellers have flooded college campuses with deals and arrangements designed to snare young consumers with legal options before they're tempted by the fruits of file-swapping networks. Two of the smaller, newer players in the online-media market – Herndon, Va.-based Ruckus Network and Englewood, Colo.-based Cdigix – so far serve nothing but college campuses.

Competing With Free

"What we're doing is to try to create a service that does [the] best it can to mirror the experience of peer to peer. What we do to get people away from peer to peer is give people the best service we can," Napster spokeswoman Dana Harris said of the young firm's strategy for attracting users.

It's a refrain repeated throughout the industry. A good pay-to-download service should include everything that's good and fun about peer-to-peer, minus the incomplete files, adware and viruses. EMI's Cohen said users don't want to think about their service as anything other than an always-on conduit for music: "The most compelling interactive service is the one that you don't actually interact with unless you're having a good time."

Observers broadly agree that the pay services have moved closer to that aim over the past year, but buyers of licensed electronic music still can stumble into glaring reminders that they aren't in the freewheeling early days of Napster anymore. Download from iTunes "and for 99 cents you get a guarantee that you're getting the thing you want," said Roger Kay, a vice president and market analyst for IDC in Framingham, Mass. "But if you put in the word 'Beatles,' ... you'll get John Lennon and Elton John singing some schlock tune together. ... You'll get nothing else, because Apple [the Beatles' record label] won't play."

The number of mainstream artists who won't provide their recorded music in digital form is dwindling. But licensed downloading also still lacks the hundreds of concert sets, rare studio outtakes and unreleased B-sides that made the original Napster so appealing, Kay said. "Once you fence the prairie, there's no more 'Wild West,' but it's also not quite as much fun."

And contrary to what some online music executives believed at the outset of the pay-to-download business, the depth of the catalog has a direct impact on business. In a 2003 interview, RealNetworks' Wolpert questioned the need for a digital service to have millions of tracks in its catalog, saying, "Eighty to 90 percent of the songs people download [on free services] are the same couple hundred songs."

After nearly two years of watching his own customers, Wolpert jettisoned that supposition. "Catalog does matter," Wolpert said, noting that the company's customers download 90 percent of RealNetworks' million-song catalog every month. That monthly figure remained steady even as the company doubled its catalog.

"In digital there is a 'long tail' of tracks that will sell," Sony's Hesse said. "There is a great opportunity here to go even deeper in the catalog. People will actually find this stuff." Added EMI's Cohen, "The whole promise of this unlimited digital shelf is playing itself out."


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