The New York Times The New York Times Technology November 11, 2002  

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A Hard Sell for Online CD Merchants

(Page 2 of 2)

The idea, Mr. Somers said, is that by giving songs away, artists will entice customers to buy the entire albums. And although he would not be specific, Mr. Somers said, "We definitely see a positive effect on sales."

A similar, but even more successful effort, Mr. Somers said, involves pre-release promotions. For customers who place advance orders for various albums, Amazon will allow them to listen online to the entire albums before they are released in stores. Notably, these digital streams, as they are called, are copyright-protected so users cannot download the songs to a CD.

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Amazon is also exploring ways to make use of the paid music-downloading services that record companies and others have started over the last year, Mr. Somers said. But, he said, there are still issues to be worked out, including the number of artists offered by each service and the constraints under which users can listen to or download songs. "But if music comes in a banana," he said, "we'll figure out a way to sell bananas with music in them."

In the future, Mr. Black of Jupiter said, online music retailers will probably need to sell digital streams and music downloading, while also selling items "that have more value than today's CD."

For instance, Mr. Black said more merchants would migrate to DVD audio disks, which would include music videos, better sound and a trove of information about the artist and the album. "It's all the stuff you can't put into an online music experience," he said. The major record companies are already either producing or developing such products, with about 1,000 titles available.

"Will online subscriptions be the dominant form of revenue for the music industry? No," Mr. Black said. "Will CD's dominate? No. Will DVD's replace them? No. But the market has to come up with ways that embrace all of those."

In the meantime, online music retailers are increasingly pushing nonmusic products. Bertelsmann's CDNow, for instance, features movies prominently on its home page. CDUniverse.com, the fifth most highly visited music site, according to comScore Media Metrix, offers movies and games.

Charles Beilman, CDUniverse's chief executive, said his company had increased music sales in the last year through increased marketing, among other steps. "But it concerns me that the market is shrinking, and that will catch up to us," he said.

If retailers online and offline are becoming less reliant on selling CD's, they may find themselves losing leverage as recording companies begin selling digital music directly to consumers, without sharing the revenue with wholesalers or merchants.

Pressplay, jointly owned by Sony and the Universal Music Group, part of Vivendi Universal, sells music downloading directly to consumers on the www.pressplay.com site, as well as on Yahoo and MSN. The other major effort by the companies, MusicNet, whose major owners are EMI, AOL Time Warner's Warner Music and Bertelsmann's BMG, is offered online through sites like RealNetworks, and also through America Online.

Mr. Beilman, of CDUniverse, said he feared that some or all of the record companies would one day choose to cut retailers out of the transaction. "Even though it'd certainly scare the labels to try something like this, if they played chicken, retailers would probably lose," he said. "And I'd hate to try to compete against them."





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Music Industry In Global Fight On Web Copies  (October 7, 2002)  $

Technology Briefing | Internet: Judge Issues Injunction Against Madster  (September 5, 2002)  $

Music Services Aren't Napster, But the Industry Still Cries Foul  (April 17, 2002)  $

Technology Briefing | Internet: Napster To Get Industry Documents  (March 27, 2002) 



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