Anti-piracy plan rocks the MP3 world
By Colleen Bazdarich, CBS MarketWatch
Last Update: 3:17 PM ET Jun 29, 1999Personal Finance News
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SAN FRANCISCO (CBS.MW) -- The days of the lone MP3 king staying up all night on a his PC to pirate favorite alterna-songs from Elliott Smith and Rusted Root, are limited.
Record company crack-downs and new piracy-protected digital music formats like AT&T Corp.'s a2b are making the Web a somewhat more legal place, much to the chagrin of college students everywhere.
"...the idea of people personalizing their music choices is likely to be a hot commodity."
Jennifer Jordan,
Black & Co.
This past Monday, The Secure Digital Music Initiative (SDMI), whose members include BMG Entertainment, EMI Recorded Music, Sony Music Entertainment (SNE: news, msgs), Universal Music Group (VO: news, msgs) and Warner Music Group (TWX: news, msgs), announced that it has completed design specifications for anti-piracy security measures on portable digital music players, such as Diamond's Rio player.
As usual, when it hurts the little, illegal guy, it's good for big corporations. CBS MarketWatch's Colleen Bazdarich talked with analyst Jennifer Jordan of Portland, Ore. based Black and Co. about the bright future of companies who design MP3 technology, and the effect that new security measures will have on stocks.
MP3s have been creating quite a stir lately. How long have they been around now?
I think people were developing it some time ago and it has been out there in the indie market for quite a while. I would say that while people knew it was coming and it was growing in popularity, there was a real reluctance-- especially on the part of traditional entertainment, record companies, television companies-- to be involved with it.
Which are the public MP3 companies?
There are a couple, and there are a couple that have been bought. The company I am most familiar with is Real Networks (RNWK: news, msgs). They have recently purchased a company called Xing, which was one of the originators of MP3 technology.
And how have the stocks been doing there?
Real Networks has done very, very well. In May they released an area of their site called "The RealJukebox" and the download of that has been at an even faster pace than people originally downloaded the Real Player. The RealJukebox had 1 million downloads in 10 days. That's pretty impressive. The songs are in AT&T's (T: news, msgs) a2b format, which allows for copyright security.
That was very interesting to see. Immediately the demand was there and the idea of people personalizing their music choices is likely to be a hot commodity. One of the reasons that it became possible for them to be aggressive and pursuing Xing is that there are now three or four major companies, AT&T and IBM (IBM: news, msgs), that have the ability to digitally encode the music so that the copyright isn't violated.
What do the new anti-piracy initiatives from SDMI mean for these MP3 tech companies?
What that means is now all of a sudden there is an opportunity for those MP3 companies to partner with large music studios and get involved in the delivery of that music via the Internet. As long as the music is secure there is a lot of ways that that can happen. You have the ability to go on-line and play it.
I was reading about a boxed technology yesterday. The digital music has a segment which is accessible to anyone so you can play a sample of the music and then if you want to play the whole song or have the ability to record it to your CD or to your Diamond Rio player or load it to your hard drive, then you would have to pay with your credit card. But you can take that box and send it to a friend and say "Hey listen to this great cut." They can listen to the sample but not to the whole song until they pay.
There are really interesting opportunities in that way, especially for people to go on-line and to download things to their computer or to cut their own CDs as CD burners become cheaper.
And who is marketing these things?
Diamond Multimedia (DIMD: news, msgs), Real Networks, MP3.com. I am sure I am leaving a ton of people out.
What kind of future do you see for these companies?
I think the future is bright for all these companies. I think that one of the keys is going to be who can they partner with and who has the reach. Certainly MP3.com has a broad brand-name presence, having adopted the name of the technology. Real Networks has the installed base.
Sixty million people use their Real Player now so the number of people logging on and accessing their page all the time to keep the player updated, their equipment is certainly going to draw people to the Real Jukebox. There is an incredible potential there for them.
Have any of these companies made connections with the record companies yet?
Well, I know that Real Networks has because they made an agreement with IBM, and IBM had five of the major labels agreeing to look at their digital encoding technology. That list of labels is on the Real Networks web site.
(editor's note: the list of major record labels and Internet companies providing music for RealJukebox includes: Amazon.com (AMZN: news, msgs), DreamWorks Records, LiquidAudio, TCI Music (TUNE: news, msgs), Tower Records).
Do you see any problems ahead for the MP3 companies?
Well, there has been talk in the past of whether the studios might want to bypass these people and start providing the music directly themselves. I think that is not what the record labels want to do. Their job is to produce music and market music. They are better off using these technology players as their partners and associates rather than trying to do that all themselves. I just think the technology is moving too quickly and becoming too complicated for them to try to vertically integrate.
What I mean by vertically integrate is: you own the factory that makes the thing, plus you design and market the thing. It is much simpler if they make the music and manage the artists and let somebody else do the production and take their cut. As far as I know no studios have tried to get involved in that. They have just been working with partnerships.
And you don't think more record companies are going to try to do it themselves?
It's always possible but from my perspective I don't think it would be the right move. You are really talking about some challenging technology. What might happen is maybe one of the record companies will buy somebody and let them do it. But again you are talking about something that is moving really quickly and you can't be really sure what the next technology is going to be or what the next move is going to be. That's why it is good to partner with someone like Real Networks who has won by sheer size in terms of the streaming media.
Colleen Bazdarich is a personal finance reporter for CBS MarketWatch.
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