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Online Music Market Offers Plenty of Potential

Users are ready to pay for tunes, but subscription services need to offer more choices, study says.

Scarlet Pruitt, IDG News Service

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Fee-charging online music providers could become a $1.6 billion industry by 2005, but the success of such services will largely depend on having broad content and giving consumers flexibility, according to a study released this week by IDC.

Although consumers are hungry for online music, the fate of music subscription services and pay-per-download providers is largely in the hands of the labels and how they choose to license their works, IDC says. Providers that do not offer content from all of the major labels will lose out, as consumers have come to expect to find as much music online as they can find offline.

"Consumers need to be able to get music in a place that resembles an online version of a music store, where they don't need to know which artist belongs to what label to find the music," says IDC Consumer Devices and Technologies analyst Susan Kevorkian.

Under Investigation

While the major labels are eager to get a share of the online market, and are busy launching their own subscription services, their licensing practices are coming under scrutiny. Earlier this year, the U.S. Department of Justice launched a preliminary investigation into nascent major label-backed subscription services MusicNet and Pressplay, reportedly over monopolistic concerns.

MusicNet is backed by AOL Time Warner, Bertelsmann, EMI Group, and RealNetworks. Pressplay was formed by Vivendi Universal and Sony Music Entertainment.

In addition to licensing concerns, the other factor holding online music providers back is flexibility. As it stands now, the labels are reluctant to let users burn CDs and move content from their PCs to MP3 players. This too needs to change, says IDC, if the online providers want to attract and retain users.

Kevorkian thinks it will be a couple more years before the labels agree to allow user flexibility and wide licensing of their works. However, she is optimistic about the market, given the strong consumer interest.

"This is still a very young technology and it will take time for the market to develop," Kevorkian says. "But the bottom line is that people love music and this is an efficient way for them to get their dose."

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