And another DRM article from IBD...
(If I begin boring you folks with this stuff, let me know... It's an area that I haven't explored much so it interests me... This behavior of mine usually lasts for a few days to a few weeks and I eventually find some other area of technology that excites me more...or if some sporting event takes precedent...)
investors.com
Napster Grows; Paid Sites Suffer
EMusic, others struggle to find subscribers
while Napster offers free songs
By Pete Barlas
Investor's Business Daily
In July 1998, EMusic.com Inc. became the
first Web company to sell digital
downloads of music via the Internet.
Back then it looked as though consumers
would soon be downloading millions, if not
billions, of dollars worth of music directly
to their computers.
Now, three years later, EMusic isn’t hitting
any high notes. Revenue from music
downloads has yet to soar, and EMusic is
laying off 66 employees or 36% of its
staff.
EMusic’s biggest problem is Napster.
Whereas EMusic charges customers for
downloaded music, Napster lets users
download and swap music files at no
charge.
"They are offering a product that you can
get at Napster for free," said Phil Leigh, an
analyst at Raymond James & Associates, a
St. Petersburg, Fla.-based investment
bank.
EMusic’s catalog includes 150,000 pieces,
spanning rock, jazz, classical and other
genres, from more than 600 independent
labels. The company accounts for 8% of
downloaded music in the U.S.
EMusic sells online subscriptions to its
catalog. But through September, the
company had only 3,500 paid subscribers.
Profits Elusive
And so long as Napster lets customers get
music for free, EMusic may have a tough
time turning a profit.
For its first fiscal quarter ending Sept. 30,
EMusic reported a loss of $8 million, or 20
cents a share, vs. a loss of $14.2 million,
or 53 cents, in the year-ago period. Sales
rose to $4.6 million from $180,000.
EMusic’s stock tumbled last year amid the
overall dot-com slide. A year ago, the
shares traded around 10. They now trade
near 50 cents.
EMusic Chief Executive Gene Hoffman
credits Napster for bringing the concept of
audio downloads to the average consumer.
But he says his company’s future hinges
on a federal court stopping, or at least
curtailing, Napster’s free file-swapping
service.
"Napster has done a good job educating
people, but that illegal content has to go
away for us to survive," he said. "We’ll be
in a good position if Napster is shut down."
In the meantime, EMusic is staying afloat
with a restructuring plan that Hoffman
expects will save it $16 million.
"We feel we have the assets to go the
long term, but right now it’s a question of
survivability over the short term," he said.
Napster isn’t EMusic’s only obstacle. Major
record labels are cautious about making
their artists’ catalogs available for
download purchasing.
Embracing MP3 Files
EMusic’s downloads are available on MP3
software files, the most popular software
format for downloading and storing music.
Consumers like MP3s because they’re easy
to download and use. But record
companies object to the format because it
doesn’t prevent illegal copying.
EMusic may have alienated major music
labels by being first to distribute music
using MP3 files, says Aram Sinnreich,
senior analyst for New York-based Jupiter
Research.
"In a way, they said goodbye to the major
record labels" by embracing MP3s, he said.
Independent record labels, meanwhile,
backed the MP3 format as a new way to
reach customers, Raymond James’ Leigh
says.
"The independent labels took the attitude
that most people would act legally," he
said.
Encryption Creates Hassles
Unlike MP3s, music files distributed by the
major labels contain heavy encryption
software, which prevents copying. But the
encryption is difficult to use, analysts say.
Consumers have to download extra
software just to purchase one song or
album, Leigh says.
"There’s a separate registration process
(for the encrypted software), and if you
don’t do it exactly right you can’t use (the
music file), or you could lose it on your
hard drive," he said.
A No-Win Situation
EMusic’s sister Web site Rollingstone.com
sells songs and albums produced by major
record labels. So far, sales are
disappointing. Most songs on
Rollingstone.com are available for free on
the Napster network. That creates a
no-win situation for EMusic, Hoffman says.
"Consumers aren’t willing to make that
jump (to pay) when it’s available for free
somewhere else," he said.
Still, analysts expect sales of music over
the Net to soar in coming years, and
digital downloads will have a big role.
U.S. online sales of music will reach $5.4
billion by 2005, up from $400 million in
1999, Jupiter Research says. By 2005,
digital downloads will account for 25% of
those sales, up from 3% in 1999, Jupiter
says.
EMusic offers three versions of its service.
Consumers can pay $19.99 for one month,
$14.99 for three months or $9.99 a month
for a year’s subscription. Last year, EMusic
signed a deal with Hewlett-Packard Co. to
feature its service on new HP computers.
Several other companies offer similar
subscription services. They include
Epitonic.com, MP3.com Inc., Musicbank,
Music Choice and Spin Records.
Subscriptions May Work
Analysts say consumers will be more likely
to pay for subscription service such as
EMusic than buy songs or albums one at a
time from different sites. Why? It’s
cheaper and easier, Jupiter’s Sinnreich
says.
"Otherwise you will have to go to four
different Web sites and download three
different software applications just to
listen to five different songs on the Web,"
he said.
In the next few years, major record labels
will sell music through online subscription
services, but only if the services are
limited to paid subscribers, Sinnreich says.
Still, major record labels will need a push
before they completely embrace digital
downloads, Leigh says. They may not
come around until they start seeing a drop
in sales of compact discs.
"If (sales) start declining, then record
companies will begin looking for another
way to sell," he said. |
