FOOL ON THE HILL
Industry-backed Internet music subscription sites are finally beginning to pop up, but offer little for the music lover. With many hurdles to clear before they even reach acceptability, they may never be able to compete with existing free services. Ironically, former enemy Napster may be the music industry's best hope to beat the free sites.
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Alas, poor Napster, we knew ye well. And we may know ye even weller sometime in the future because, in a delightful twist of fate, you may represent the music industry's best hope of pulling off the near-impossible task of getting folks to actually pay to download tunes. In its heyday, Napster was a wild free-for-all, a sort of eclectic online Woodstock with millions of users swapping millions of songs. Of course, it was also illegal, as the vast majority of the songs swapped -- or replicated, more accurately -- were copyrighted. Their duplication and/or redistribution were strictly prohibited, even with the express written consent of the commissioner of baseball. And so it was that the music industry battled Napster in court, and finally prevailed. Napster collapsed into a shell of its former self and finally closed its doors in June, but promised to re-open as a legal site as soon as it was feasible. Since then, the "Big Five" players in the industry have been working on ways to monetize the voracious online music appetite whetted by Napster. Sony (NYSE: SNE) and Vivendi Universal (NYSE: V) have teamed up to form pressplay, and AOL Time Warner (NYSE: AOL), BMG, and EMI have created MusicNet. (Smartly, EMI is licensing its music catalogue to both services, and also has an agreement with Napster.) But new services that have recently launched clearly demonstrate the failings in the music industry's plans. For example, RealNetwork's (Nasdaq: RNWK) RealOne is powered by the MusicNet service and costs $9.95 per month. Subscribers are limited monthly to 100 music downloads and 100 "streams," a way of listening to a song without downloading it. So far, not so bad. But it's downhill from there. Users will only have access to their songs for a month, and will have to renew to continue listening to them. Also, non-U.S. customers need not apply, because, according to Britain's Guardian Limited, foreign music rights have not even been negotiated. But here's the killer: The available library is woefully limited, and the songs can't be transferred to portable MP3 players or "burned" onto CDs. Without those two features, no music service will survive. RealOne, and other new services like Listen.com's Rhapsody, hope to improve in these two areas, but it's doubtful they'll ever improve enough. Let's look at these two crucial issues separately: Availability Indeed, the two Big Five joint services are being questioned by legal experts. "I'm really confused as to why the plaintiffs came upon this way of getting together in a joint venture," Federal Judge Marilyn Hall Patel said in November during the Napster proceedings. "Even if it passes antitrust analysis, it looks bad, sounds bad, smells bad." Quack. Bottom line here: What are the odds the five major labels will, in a timely manner (i.e., before several sites have to shut down from losing money), fairly and equitably license their music not only to each other but to competitive independent services as well? Slim just left town, podnah. Portability The issue here isn't a technical one; any service could offer MP3 files. But the major labels are rightly worried about files that can be replicated and passed on to non-paying users, and are hesitant to allow portability in their licensing agreements. Bottom line here: There's really nothing they can do about that anyway, and the majors are going to have to give in eventually. Songs from store-bought CDs can be copied, and so can MP3s. I would give this issue a greater chance of being resolved than the portability problem. No matter what happens with all of the problems facing the pay sites, however, there is one more huge issue out there. Even as Napster was in its death throes, dozens of alternate free sites were popping up. These services, which are more decentralized than Napster and harder to regulate, are an adequate Napster replacement. A recent New York Times article reported that one service, Amsterdam-based Fast Track, already has more users than Napster did at its peak. It would be a true nightmare for the record industry to attempt to shut down all these services. Even if they succeed, what would they do about a service operating from a "rogue" country that doesn't heed international copyright law? All these hurdles are, I believe, too much for the record industry to overcome. The first attempts -- RealOne and Rhapsody -- to play by industry-imposed rules are laughable, and the billions in revenue the major players were envisioning will never materialize if they continue down this road. Ironically, the answer was in front of them months ago. In February, Napster offered to settle the litigation by paying out $1 billion in fees over five years to the industry: $150 million a year to the Big Five and $50 million annually to the independent labels. Maybe that figure wasn't enough, but at least it was a start. The industry turned them down cold, however, as visions of billions, their own billions, danced in their heads. Even though it's been shut down for months, Napster is still a powerful name among music lovers. When it re-starts its service early next year, its brand will likely deteriorate if it charges for a limited selection of tunes that can't be downloaded to portable players. The record industry would do well to re-open negotiations with its former adversary in an attempt to offer the public the "old" Napster, with a virtually unlimited selection and unlimited downloads. Most of the old crowd, which was once over 50 million strong, would happily plunk down $10 a month for that. Now is the time to strike, before the power of the Napster brand fades away or is destroyed by a half-rate service, and before music lovers settle permanently for any of the many free sites available. Rex Moore rates Jewel's Oh Holy Night among the best Christmas songs ever.... near perfect. At the time of publication he held no companies mentioned in this article. The Fool's disclosure policy is a real page-turner.
With Napster, users could download nearly any song imaginable, no matter who the artist was or which record label controlled it. Industry-backed services like MusicNet however, are only licensed to feature artists from three of the Big Five labels, and no independent labels. Additionally, the majors have dragged their feet in licensing their content to independent startups that would compete with their own services, and that has drawn some antitrust scrutiny from the U.S. Justice Department.
Napster users could, of course, transfer any song they downloaded to their portable MP3 players, or burn them onto CDs. Portability is a crucial issue, because there just aren't that many people who want to be tied to their computers in order to listen to music.
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