Music Labels Acknowledge Challenge

In the new world of digital music, it turns out that many of the major players are singing the same tune.

When the presidents and chief executive officers of rival online music services MusicNet, Pressplay, FullAudio, Listen.com, and RioPort got together for a panel discussion on the future of their business Thursday, they tended to agree on the main issues: Pirate music-swapping sites need to be eliminated, music licensing should be fair and painless, and portability is fast approaching.

In fact, the panel of industry bigwigs assembled by Jupiter Media Metrix for an online music industry teleconference more resembled a chummy meeting of business partners than a quarreling group of industry competitors. Jupiter sponsored the discussion, Plug In the B-Sides, this week.

That is not to say that the company heads aren't vying for best of show in their industry, which Jupiter predicts will rake in revenues of $5.5 billion by 2006. But many of the services the group offers are similar, as are the challenges they face.

Clone Chorus

Among their similarities, most of the online music executives agreed that the affiliate business model is the way to go. By licensing their services to established online media outfits, the music services gain access to an established audience of users. Furthermore, the big online media players usually have more experience with how to market to an online audience, the group said.

"It's an enormous task and great cost to brand directly to the consumer," said Alan McGlade, MusicNet president and chief executive officer. MusicNet, the music subscription service backed by AOL Time Warner, Bertelsmann, EMI Group and RealNetworks, launched in December through RealNetwork's RealOne content subscription service.

Andy Schuon, president of rival Pressplay (backed by Vivendi Universal and Sony Music) agreed. The affiliate model allows his service to stick to its core business, Schuon noted.

"Our winning strategy is our people. We aren't a tech company," Schuon said.

And despite the services' various licensing agreements with record labels, all agreed the licensing process should be simplified. They noted, however, that the negotiations have gotten easier in recent months, as the record labels see a need to support legitimate online music services, as well as make up for the recent lag in offline retail sales.

"It's in [the labels'] self interest to cut deals," said Listen.com President and CEO Sean Ryan.

Fighting Pirates

It's important for the labels to back legitimate players, because the pirate services are still thriving. All of the panelists agreed that although they doubt that pirate peer-to-peer file swapping services will be closed completely, they need to be marginalized so legitimate services have a chance to gain market share.

"Faster adoption will come when people can't get the music for free," said McGlade, who predicted that his service would need at least 500,000 to 1 million paying subscribers to be viable.

"I encourage all copyright holders to defend themselves," said Pressplay's Schuon, in a call to arms against music pirates.

While creating a legitimate market for music is one challenge, so too is offering consumers a service that they consider to be worth paying for.

"At the end of the day, [the services] need to be convenient and reliable," said MusicNet's McGlade.

Portable Challenge

All of the panelists agreed that part of the convenience will come in the form of offering portability--whether that means allowing consumers to download music onto their handheld devices or play it in their cars.

"Portability will be solved this year," predicted RioPort CEO Jim Long.

James Glicker, president of FullAudio, agreed, saying a number of electronics manufacturers plan to support the digital rights management platforms that the services are using in handheld devices being rolled out over the next six months.

And while the panelists conducted an amiable discussion on the future of the nascent online music market, they also underscored the fact that the market is changing at lightning speed. Perhaps by the time the next conference takes place, the competition will have heated things up significantly and the panelists will be fierier.