Little Has Changed on Digital Music Front

Major media companies are preparing to launch music subscription services before the end of the year, but many consumers plan to continue downloading music for free through illicit online resources, according to a report by Webnoize.

The report found that 62 percent of college-age music consumers plan to continue accessing free MP3 music files through non-commercial channels, such as peer-to-peer file-sharing networks and email. Meanwhile, high-profile media outlets including America Online, RealNetworks, Napster, Microsoft, and Yahoo prepare to market music subscription services designed by major music label groups. Two such services, MusicNet and Pressplay, are slated to charge consumers a monthly fee for access to downloadable songs.

“Free MP3s will never go away,” said Webnoize Senior Analyst Ric Dube. “If commercial online music services are to compete with that, they must offer a whole lot more than just a limited number of monthly song downloads.”

A report from GartnerG2 also cast doubt on the music industry’s ability to maintain successful digital music services. According to G2, “Big Five” record labels (Universal, Sony, BMG, EMI and Warner Music) must agree to a standard platform for digital music distribution to become viable. It goes on to predict that, by 2004, digital rights management (DRM) for music distribution will be standardized.

The change will take place because without standardization, none of the companies is realizing the profit potential of digital music distribution. As each label struggles to find the right DRM solution, they are simultaneously alienating their consumers and stalling the economics of the proposition. According to GartnerG2, consumers will ultimately vote with their wallets or they will go elsewhere if they can’t get what they want online.

“Until there is a de facto standard for DRM, consumers won’t line up to buy services,” said P.J. McNealy senior analyst for GartnerG2. “Digital distribution needs to be brain-dead simple for consumers, and any DRM solution deployed should work with all music software and hardware. In order for this to happen, the Big Five need to work together, and that doesn’t look hopeful before 2002.”

In June of 2001, GartnerG2 studied the music listening habits of 156 million U.S. adult Internet users. The survey found that nearly 50 percent of those polled listened to CDs on their PCs. But only 25 percent listen to music downloads from the Internet on their PCs. The survey also found that only 6 percent of the same demographic purchased digital music downloads in the last three months.

How music companies handle the digital distribution issue can also have wide-ranging consequences for other media, which are watching music distribution as the guinea pig.

“What happens with the music industry’s adoption of DRM technologies will serve as a leading indicator for other types of content such as movies, video games and print,” said Mike McGuire, research director for GartnerG2. “More importantly, is that DRM implementations for each will have an enormous impact in getting consumers to shift from buying products — CDs, tapes and books — to buying these content types as services — be they subscriptions or pay-per-download.”

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