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Subscription Music Services Heat Up

Most likely, you’ve never even heard of the Web’s two best legal subscription-music services.

The humble jukebox has been a mainstay of soda shops, pizza parlors, and pubs since the 1950s. Yet creation of an online equivalent of the jukebox-one that elicits the same sentimental and lucrative appreciation as its coin-operated predecessor-has thus far proven a nearly impossible endeavor.

It’s not for lack of trying. Scores of Internet services offer a subscription-based mix of streaming, downloads, and CD burning. Each of the five major record labels is involved in at least one of the efforts, and dozens of independent labels have licensed their catalogs as well. But much to the industry’s horror, only the illicit services are resonating with consumers.

Various analyses of the half-dozen or so services put the total of their combined subscribers at between 300,000 and 500,000. Emusic, the one legitimate music service that discloses its subscriber numbers, claimed 70,000 subscribers as of year-end 2002. Meanwhile, Kazaa, the leader of the file-trading services not sanctioned by the music industry, has been downloaded more than 200 million times.

Technology Battles

At the South by Southwest Conference-the annual gathering of the music industry, held in in March-bands, beer, and barbecue were in abundance. But discussions on digital music were not. Only one panel of the dozens presented during the four-day confab in Austin, TX, had anything to do with the Internet and music. Also gone were the several dot-com sponsors from years past.

It seems that with the dissipation of the dot-com buzz and the absence of 50 or more Internet companies pitching their visions of the digital-music future, the music industry has united to rally behind the paid-subscription services offered by the major labels. None of these services can match the catalog or-to state the obvious-the pricing of the illicit choices. That said, most of the services are moving very slowly in the right direction. And within the category of “legitimate subscription services,” there are a couple that are actually pretty good deals right now.

Back in 1997 when the digital-music space started to heat up, the battle focused on technology standards, and three main players were fighting for dominance. The first, MP3 (perhaps you’ve heard of it?), was created by the Fraunhofer Institute in Germany. Its advantages were small compression and flexibility. Users could add security features if they wanted, increase the bit rate, and so forth. The second, Advanced Audio Coding, created by AT&T Labs, offered the highest sound quality. The last, Liquid Audio’s eponymous technology, touted itself as the most industry-friendly service, coming as it did with advanced features for security and digital rights management.

Ironically, the standard with the lowest audio fidelity-MP3-won. MP3 had the advantage of longevity in the marketplace. Furthermore, it was free, and it was not tied up with security measures. Neither of today’s primary major-label-backed services, Pressplay and MusicNet, offers music in MP3 format.

Busy Days

These are busy days for the major-label-backed services. In late February America Online launched its version of MusicNet, version 2.0. Late last year, Pressplay signed an agreement with Warner Music, thereby offering music from all five major labels. Apple Computer is preparing its own version of a music subscription service, and according to the Wall Street Journal, it will launch in the coming weeks with music from all five major labels. FullAudio’s MusicNow just announced it had finally signed on all the five major labels as content partners.

Despite their gains, both the Pressplay- and MusicNet-powered services-and the myriad services they license to-are saddled with burdensome restrictions. Consumers much choose from a confusing array of options that require their deciding whether they want just downloads or downloads and streams. The right to burn songs to a CD costs extra. “These services are generally not successful because the usage rules are restrictive,” says Phil Leigh, an analyst with Raymond James and Associates.

On the basis of their selections and ease of use, two services rise above the fray. The first, Emusic, which has been around since 1998, was purchased in 2001 by Vivendi Universal. For $9.95 per month, users may download as many MP3-formatted songs as they want, and they may do whatever they want with the songs-burn them onto CDs, move them onto portable players, whatever. Most other services charge extra for these options. In addition, users who cancel their subscriptions may hold onto their downloaded files. Downloaded files from other services disappear when subscriptions are cancelled.

The problem with Emusic is its sparse selection of songs. To allow such unrestricted interaction with the music, the company had to steer away from major-label content. This site is not likely to satisfy fans devoted to top-40 bands. But for those whose tastes run to independent-label music, blues, or jazz, Emusic is the place to go. The company has signed up 950 music labels and offers more than 250,000 songs. “We don’t target mainstream fans,” says Emusic’s general manager, Steve Grady. “We look for people who are passionate about music. People with collector’s mentality. Those are consumers that major labels don’t serve very well.”

The second offering worth checking out is Listen.com’s Rhapsody service. Rhapsody is a stream-only service-it doesn’t allow downloading per se. Upon realizing that its customers were clamoring for portability for their music, the company recently instituted a CD burning program and allows consumers to burn a CD with songs from its service for 99 cents per song. Unlike the other major label services, which allow “tethered” downloads that disappear if your subscription payment lapses, Listen.com’s burning service skips the download and goes directly to the burner. Of course, users can later rip the songs from the CD and turn them into unrestricted MP3 files.

The company has deals with all the major labels and a number of independent companies, and it’s gambling that in a broadband environment, users don’t need to download songs: with high-speed connections that are always on, the broadband service acts almost like a radio with deep station selection.

Despite the slim catalogs of the major-label subscription services-decidedly meager compared with the scores of peer-to-peer offerings-Internet jukeboxes could still prove a successful enterprise. “The music labels are too apprehensive right now,” says Leigh, noting that the industry’s number one concern is stemming the losses in their CD divisions. “After this transition period though, the labels will look back and realize the celestial jukebox will have been their salvation.”

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