Conference shows doubts still plague online music

Despite the fact that major music companies have finally joined Internet services to offer a much greater variety of authorized online music, market growth is sputtering as the industry remains mired in legal and business problems, said entertainment and Internet insiders at the Jupiter Plug.IN Conference & Expo in New York this week.

Contention over publishing contracts, debate over how restrictive to make DRM (digital rights management) copy controls, continuing use of unauthorized file-swapping sites, and failure to capitalize on new marketing techniques made possible by the Web continue to curb growth, according to speakers.

Jupiter kicked off the conference announcing that online CD sales in the U.S. will remain flat in 2003, at US$750 million, or 7 percent of the entire recorded music market in the country. Less than $75 million of those sales will be for music that is downloaded, according to Jupiter.

Part of the problem is that difficulty over obtaining necessary publishing contracts is forcing online services to put a variety of restrictions on the ability of paying consumers to download songs and burn them onto CDs, some panelists said.

"We want to give music to the people the way they want to have it, but the question is will the licensing and the lawyers get out of the way," said Jonathan Potter, executive director of the Digital Media Association (DiMA), a Washington, D.C.-based trade group.

Several panelists and conference attendees cited restrictions on Apple Computer's iTunes Music Store, which allows consumers to burn songs onto CDs, but makes that service available only to users who can supply a U.S. billing address.

Looming over the debate, as it has been for years, is the specter of file-swapping services that let Web surfers trade unauthorized copies of copyright music. The extent to which copy controls should be implemented is still the subject of raging debate in the industry, and several heated conversations during panel discussions illustrated this.

"What would you do if your livelihood was threatened? Technology has to be part of the solution -- when cable companies made it more difficult for people to steal cable (TV), then the amount of people stealing cable went down. We don't need to eliminate piracy altogether, we could live with 5 percent, but technology needs to be part of the answer," said Ron Stone, co-founder and president of Gold Mountain Entertainment, based in Los Angeles, and a veteran manager of the careers of rock stars such as Neil Young.

But some industry insiders here said that attempting to stop piracy with legal controls on copying may be fruitless or at best a waste of time and money.

Rather than target ISPs (Internet service providers) with subpoenas and lawsuits in an effort to root out users of file-swapping services like Kazaa, the recording industry should work with network operators to come up with a fair flat fee that the service providers would pay for the file-swapping traffic, according to Jim Griffin chief executive officer (CEO) of Cherry Lane Digital, a consulting company.

"This would eliminate legal hassles for ISPs and let them carry the file-swapping traffic," which is helping expand the ISPs' business, he said. The fees would create a pool of money that current publishing societies such as BMI and ASCAP would split up, much the way they do for radio airplay and the playing of songs in public places like restaurants. "BMI and ASCAP don't know exactly each time a song is played in a restaurant, but we have a system in place that is actuarial; we agree on a fair way to split up the pool of money -- it's not perfect but the parties involved agree it is fair and it lets everyone move on with business," Griffin said.

Illustrating how divided the music industry is, conference speakers disagreed even about what the market's biggest problems are. Some music business executives said that the biggest hurdles for growth in the online music are not legal or technical but an inability to understand how to market to consumers.

For years, some panelists said, music company marketing has consisted of mainly trying to get the big radio networks, and more recently music television programs, to play their songs. The radio and TV programs have done the real marketing. Now, companies are at a loss how to market to consumers on the Web.

"The elephant in the room is marketing," said Ken Herz a conference panelist and partner in music law firm Goldring, Hertz, Lichtenstein & Haft in Los Angeles. "In the past six weeks Apple has been able to sell more music online than the labels have in five years -- Apple knows how to market."

Music companies and online services need to be creative about ways to use technology and the Web to create new marketing tools rather than replicating traditional retail channels online, panelists said.

"Using real estate on video games can become key to marketing plans," for bands, noted Steve Schnur, worldwide executive for audio at games maker Electronic Arts.

Meanwhile, online music service providers promised to make it easier for consumers to purchase music.

Declaring that "there have to be no obstacles to downloading music, you should be able to access any song you want, pay a fair fee, and leave," Roxio Chairman and CEO Chris Gorog said that the company's Napster 2.0, set to be launched by the holiday season, will next year let consumers download music and then transmit the music to a variety of different mobile devices.

The best way to combat free file-swapping is simply to make it time-efficient for people to buy music from legal sites, said DiMA's Potter. "It all comes down to -- how much time do you have? Do you have a simple and easy way to purchase music?"

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