Warner-EMI tie-up seen another boost for online music
By Scott Hillis
LOS ANGELES, Jan 23 (Reuters) - One month ago, way back in the 20th century, Internet companies seeking to deliver digital music online were complaining that big record labels were too scared of piracy and new ways of doing business to embrace the World Wide Web.
But the news on Sunday that Britain's EMI Group Plc would fold its music operations with those of Time Warner Inc. (NYSE: TWX) into a joint venture shows how much difference a few short weeks can make, online music experts said.
Time Warner, of course, said earlier this month it was merging with America Online Inc. (NYSE: AOL), the Internet services giant, in a $150 billion deal that promises to send music, movies and news hurtling down the information highway straight into people's homes.
The marriage of Time Warner, the fourth biggest music group, and No. 5 EMI will certainly hasten the arrival of the day when music fans will be able to have songs by the Beatles, the Rolling Stones, Madonna and Cher piped to their PCs with the click of a mouse.
"The combined Warner-EMI entity will be pretty active in trying to set the agenda for music distribution and delivery over the Internet," said David Goldberg, chief executive of Launch Media Inc. (NASDAQ: LAUN), which offers music videos and news online.
The deal -- a 50-50 joint venture in which Time Warner will have boardroom control -- will challenge Seagram Co. Ltd.s (TSE: VO) Universal Music, until now far and away the most powerful record company, the experts said.
Of the five major record labels -- the others include BMG Music, a unit of German media group Bertelsmann AG and Sony Music -- EMI is seen by some experts as the quickest to capitalize on the Internet.
Last year, it enlisted Liquid Audio Inc. (NASDAQ: LQID) to encode EMI's catalog of music so CD-quality songs can be sent quickly over the Internet but cannot be copied without authorization. It has also made its catalog available to Musicmaker.com (NASDAQ: HITS), which lets customers create custom CDs online.
Universal, by contrast, is seen by many as a drag on efforts to get Internet music off the ground.
Brushing off established digital music technologies like MP3 and Liquid Audio, Universal struggled instead to create its own proprietary format that would provide bulletproof copy protection for its songs.
Earlier this month it was unclear where that effort stood when it announced a partnership with Internet media pioneer RealNetworks Inc. (NASDAQ: RNWK) to work out an online music delivery system.
"I give EMI a lot of credit. They are a smaller player but they have tried to compensate by being scrappier. They want to be the first ones to try this or try that," said Goldberg, whose Web site includes videos from both EMI and Warner.
Other experts voiced skepticism, saying the Warner-EMI deal is simply a way for Warner to quickly grab market share and lift margins in a mature industry with modest growth potential.
Selling music online, while eye-catching, accounts for only a minute fraction of the $40 billion-a-year industry that it wouldn't have figured prominently in merger talks, they say.
"Clearly in the brick and mortar CD space, the business hasn't been growing, so consolidation is a way to boost efficiencies and margins," said Marc Geiger, chief executive of ARTIST Direct, an online music news and e-commerce company.
But the experience of clicking on a song, downloading it in minutes or even seconds to a computer, and even transferring it into portable skip-free gadgets is seen as a compelling one that is expected to resonate louder with consumers.
Music "is the one media that is already in huge demand by consumers and that is conducive to the Internet as it stands today," said Kevin Hause, an analyst with International Data Corp.
"AOL already has shown tremendous interest in MP3 and Internet music, and the addition of EMI's content gives them even more content to leverage," Hause said. "Now that AOL owns both (Warner and EMI), it could put AOL in the driver's seat for determining the future of online music distribution." |
