May 5, 1999
Record Label Will Distribute Music Online
By MATT RICHTEL
AN FRANCISCO -- Impatient with the recording industry's slow progress in finding a way to distribute music online, Universal Music, the largest record company, said Tuesday that it was investing in technology to sell and distribute music over the Internet by the end of the year.
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The announcement signals impatience with the efforts of the Recording Industry Association of America, the industry group that has been struggling -- with Universal's participation -- to agree on a standard for selling recordings as data that arrive on a customer's computer hard drive, instead of on CD's or cassette tapes.
Universal's sense of urgency is shared by a growing number of labels.
After long ignoring the Internet, the recording industry now finds itself rushing to offer consumers an alternative to MP3, a free technology for delivering music online that is quickly becoming a de facto standard. The industry hates MP3 because it does not prevent illegal copying of music and has quickly become a venue for widespread music piracy online.
Universal, a Los Angeles-based subsidiary of the Seagram Company, said it was working with the Intertrust Technologies Corporation of Sunnyvale, Calif., to develop software to securely store, sell and distribute Universal's music online. Universal said it planned to have a pilot version running by the end of the year and that the success of the pilot would determine the rollout of the full service.
Larry Kenswil, the head of electronic commerce at Universal, whose stable of artists include Elton John, No Doubt and Luciano Pavarotti, said the company ultimately intended to embrace whatever standards the music industry settled on for digital delivery of music. But he said Universal needed to put its technology in place as soon as possible to have any chance to sell music online by next Christmas.
"The demand is there, and demand is being filled now by independent labels and illegal content," Kenswil said. "It's crazy for us to not recognize demand and move."
Industry analysts said Universal Music was the first major record company to publicly announce plans for digital distribution. A few smaller independent record labels already are selling music online, joining a handful of artists, including the rap artists Public Enemy. Some artists are distributing their music in the MP3 format in defiance of their record labels.
Accepting the growing likelihood that the record store of tomorrow will be the desktop computer or digital listening device, the recording industry, in concert with the consumer electronics industry, is struggling to reach a standard for delivering music digitally. An ad hoc group formed by the industry association, known as the Secure Digital Music Initiative, has been meeting twice weekly and will meet in London this week. The group wants to reach a standard by June for portable devices that play digital music.
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Universal wants technology in place by the Christmas selling season.
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Leonardo Chiariglione, head of the initiative, said he was not troubled by Universal's efforts. He said the concept behind the initiative was to find general standards for distributing digital music and to let companies adopt their own technologies to meet those standards.
"S.D.M.I. is about a framework," he said. "It's not about telling them how to do a particular thing."
He said the organization would meet four more times before releasing a standard for portable devices and that this week's meetings had been consumed by discussions of technical details, not political debate.
But while the group meets, MP3's popularity keeps growing. On Monday, Real Networks Inc., the leading developer of Internet audio and video software, released a test version of a program called Real Jukebox, which enables users to record CD's on their hard drives in MP3 format. At the same time, Thompson Consumer Electronics announced it would manufacture a portable player for Real Jukebox.
Mark Hardie, a digital music analyst with Forrester Research, a market research firm in Cambridge, Mass., said Universal clearly had decided it could not afford to wait for the industry group to reach a standard.
"This to me is breaking ranks; they're not waiting for S.D.M.I to test standards," he said, referring to the Secure Digital Music Initiative. "It shows that the major record companies have moved from their original position that everything via the Internet is bad and pirated to saying this is the time to begin testing."
In effect, Hardie added, the labels were saying "there's no point in waiting and studying."
Kenswil disputed the assertion that his company was breaking ranks. "S.D.M.I. is something that has to run in parallel" with Universal's own efforts, he said, adding that Intertrust Technology software would be "flexible" enough to comply with whatever industry standard emerges.
Intertrust's underlying technology, Digibox, is designed to prevent consumers from making and listening to copies of music they have not paid for.
The technology does not prevent music from being copied; in fact one user could send a copy of a song or album via e-mail to another user. However, embedded in the music is a code that prevents the recipient from playing the recording without first paying for it.
Universal announced in April that it had teamed up with another record company, BMG, to create a series of Internet sites to promote and sell music online. But in that case, the sites will simply take orders for CD's and cassettes and ship them to the buyers.
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