New Music Model: Free Before Fee
Saturday, September 15, 2007
When three roommates at Brown University decided to start a music download Web site, the first thing they resolved was what it would not be like.
There would be no free file-sharing, which can raise legal issues, but also no fixed corporate pricing, which can scare off cash-strapped students. Instead, the three carved an unusual path down the middle, with a site called AmieStreet.com, part of a wave of companies both large and small that have tried to establish themselves in the lucrative digital music market.
Amie Street's solution is a plan where songs start as free downloads and then inch their way up in price as they get more popular, to a cap of 98 cents per song, based on the number of downloads. By recommending music and offering song reviews, members can also earn credit toward purchases.
The effort is aimed at solving the issue of variable pricing, which record labels have advocated but music site operators -- most notably Apple -- have resisted. But it also comes with risks that have sent big companies such as Microsoft and MTV back to the drawing board as they try to capture market share in a field dominated by iTunes and file-sharing sites such as Limewire.
"It's a fascinating and interesting concept," said David Card, a senior analyst with JupiterResearch in New York. "The idea that you would have a simple and low-price system makes tremendous sense."
But that doesn't mean it will work, he said.
Amie Street's catalogue doesn't include songs from major record labels, which means the latest Coldplay or Britney Spears tracks won't be available, though the site's operators say they are in discussions with major labels. Instead, Amie Street offers tracks by independent artists and sells music without the copyright restrictions common on other sites.
The field is rife with competitors, all looking to differentiate themselves. Rhapsody, for instance, offers shoppers several ways to get music, including a monthly subscription that allows song rentals. EMusic also uses a monthly subscription model that offers discounted purchases from independent labels.
Amie Street doesn't even register on Nielsen-NetRatings' list of top 40 music Web sites. And it is competing for an audience that already has free options or with sites that boast bigger libraries.
The site was named after Amy Street, a road in Providence, R.I., where founders Joshua Boltuch, Elias Roman and Elliott Breece -- all 23 -- shared a house while attending Brown University. In a year's time, it has grown from about 100 songs to "hundreds of thousands" across a diverse mix of musical genres, Boltuch said.
"We wanted to include the people who are getting music through peer-to-peer networks and not paying anything," he said. "Every other online store excludes them because they put a price on music. Things need to start free so people who are into finding free music -- we call them crate diggers -- will have that opportunity."
The project has attracted support from online retail giant Amazon, which invested an undisclosed amount of money last month. Amazon has said it will launch its own music download site this year that features songs without copyright restrictions.
Card said he was watching the Amie Street flexible pricing as an experiment that could expand to other music sites.
"In an online environment, it's way easier to do that than it is in the physical world," where CDs are priced with stickers, he said. In retail, "it's harder to manage that kind of flexible pricing."
Record labels would also like to see some flexible pricing, Card said, but they have been unable to convince industry leader Apple, which stands by its price of 99 cents per track and has even broken off partnerships with companies rather than compromise on pricing.
Boltuch says that his site is no threat to Apple. He wouldn't reveal membership numbers or financial information for his company, but he said that growth prompted them to move from Providence to New York offices, just across the East River from midtown Manhattan. The company, made up largely of computer engineers from Brown, has grown from five employees to 13, including two people who left Google, Boltuch said.
Roman, a business economics major who interned at Goldman Sachs and Merrill Lynch, said he had lined up a job as a consultant with Bain & Co. Boltuch, an English major who had interned at Warner Brothers Studios, was planning to head back to Italy, where he'd spent a semester studying.
But it was Breece, a Washington native who attended Banneker High School near Howard University, who convinced Boltuch and Roman to spend the summer working on Amie Street.
"Not a lot of convincing had to happen," Breece said. "It was impossible for us to pass up. The online reception was great. The music industry was so ripe for change that people really attached themselves to the model."