Record Industry Forced to Face Music Internet Changing Business Landscape

Article excerpt

MILL VALLEY, Calif. -- It is far more than a David and Goliath story for the dawning Digital Age: Suddenly empowered by Internet technology, music lovers the world over are now able to obtain and share their favorite recordings for free.

With digital formats like MP3 and music-swapping Net services like Napster Inc. poised to render compact discs and other recording industry media archaic, the question arises: What is music worth?

Sony, Warner, BMG, EMI and Universal -- the Big Five of the music industry -- earn more than $14 billion in revenue a year in the United States alone on all those $16.99 compact discs.

But their tight grip on the music market is rapidly loosening.

Already, more than 11 million Americans have downloaded tunes for free over the Internet, evidencing a copyrights- be-damned attitude that could eventually consign CDs to history's bargain-basement bin, along with $7.99 vinyl albums, $6.99 cassette tapes and $4 eight-track tapes before them.

Unless, that is, the brick-and-mortar music sales business gets hip to music's inevitably chaotic digital future.

"To me that's the exciting part, if I'm a record company executive. [Consumers] love music so much they're willing to steal to get it. There are very few products about which you can say that," says Eric Scheirer, an analyst with Forrester Research.

Although as an industry they've sued Napster, the Big Five know that file-sharing programs are a juggernaut they can't stop even if they succeed in putting out of business an Internet clearinghouse like San Mateo-based Napster.

So the recording industry is itself responding to the desire for digital downloads. Sony now offers 50 songs for online purchase, at $3.49 per song, all of them encoded with security measures to guard against unauthorized duplication and distribution.

Both BMG and EMI plan to follow suit with similar schemes this month.

Kevin Conroy, a vice president of marketing for BMG Entertainment, says the company is choosing the technologies and vehicles that will give it "the greatest possible reach and provide consumers with the best possible experience while protecting our artists' rights."

But at what price for the consumer?

The most likely business model would be a subscription service that allows people to buy tailor-made selections of music downloads, Scheirer said.

That may not sit with listeners who are voraciously bootlegging music via Napster, where terabytes of music are swapped daily. A quick log on to just one of Napster's more than 100 servers last week revealed 7,300 users sharing more than 801,500 MP3 files.

DEATH OF ALBUM FORMAT

One longtime independent record store owner thinks the recording industry has only itself to blame for the free-for-all.

"The record companies have done this to themselves, and now they're reaping the whirlwind," said John Goddard, who has owned Village Music of Mill Valley since 1968. "They spent 25 years converting music into a commodity. Now they're upset because people don't consider it an art form."

Goddard has focused on vinyl in his store, a focal point for people seeking rare copies of 33 1/3, 45 and 78 rpm recordings.

He says his clients -- who include Carlos Santana, Van Morrison, Elvis Costello, B.B. King and Mick Jagger -- come for the love of music, for art they can't find anywhere else.

But Goddard worries, also, that digital distribution could mean death for the album format: "People don't want to pay $17 or $18 for two songs they love and a lot of filler."

Indeed, some Napster users appear increasingly unlikely to buy CDs.

A recent study by VNU Entertainment Marketing Solutions found that CD sales fell 4 percent in stores within five miles of college campuses over the last two years. …