Music World Sees Value in 'Free' But the Downside of Digital Access is the Exposure to Ads

Jan 28, 09:36 AM

The mainstream music industry is coming to recognize a price for digital songs that might be good enough to compete with the underground exchange of tunes on the Internet: free.

It is a new and abrupt acceptance in a business that has been desperate for a defense against the steady erosion in overall sales of recorded music. Last year likely saw another 10 percent decline, to $17.6 billion globally, a trade group estimates, compared with $38 billion in 1998.

"The pressure is totally toward free," Ted Cohen, a music industry analyst and former EMI digital music executive, said at the annual Midem music business conference here.

Unlike their predecessors, the new field of "free" digital services may even have Top 40 tracks that consumers can download, keep and sometimes copy. The catch? For the most part, it is being exposed to advertising.

The latest Web site to join the ad-supported free-music bandwagon, Qtrax, had a coming-out party Sunday complete with rap stars and invitation-only concerts. Hyping itself as "the world's first free and legal peer-to-peer music service," Qtrax blanketed the start of the music market with posters, free flash drives and snappy slogans.

Qtrax says it is opening its virtual doors Monday with all of the major record labels signed on, adding that it has a selection of 25 million tracks. But that total comes from an estimate of all the tracks available on LimeWire and other peer-to-peer networks, not just commercial and licensed releases from the record companies, and so may not represent actual customer choice.

Industry observers had other questions about the Qtrax approach, which despite five years of spade work was still missing a few details at its opening. But Qtrax says it offers a version of "free" that is better than the pirated-music networks: It will come without the computer viruses, spyware and other technical obstacles that peer-to-peer music networks are known for, and it will incorporate elements of social networks and fan sites.

But "free" is relative. Its tracks will not be free of software restrictions that would limit their usefulness to consumers; Qtrax would not detail the limits Sunday.

Outside of the Apple ecosystem of digital music, which ties purchased songs to its brand of player, the choice for consumers seems to be coming down to music that is free of monetary cost but restricted, or music for a set price that can be played on any device.

A year ago, many in the record business were dismissive and downright suspicious of letting their music loose on the Web in the plain-vanilla MP3 format without being controlled by a set of digital locks and keys, known as digital rights management, or DRM.

But in just the past seven months, all four of the major recording companies have agreed to allow DRM-free licensing of their catalogs of music. Earlier this month, Amazon MP3, the online retailer's new music store, signed up Sony BMG's unrestricted catalog, with individual tracks for sale at 89 cents each.

Last week, Last.fm, the British music site owned by CBS, announced that it would open up its service, which streams music to personal computers like a radio station, for free. At the same time, Yahoo let word out that it was in talks about an advertising-driven free service as well.

Today's wave has been building for some time. The people behind Qtrax and We7, the British free download service backed by the musician Peter Gabriel, for instance, were talking up their approaches in Cannes a year ago. Others, like Spiral Frog and Mashboxx, have seen their moment in the sun come and go.

Record label executives, with billion-dollar businesses that still rely on sales of CDs, were careful not to be too enthusiastic about the free model.

"We are very committed to the CD," said Jean-Bernard Levy, chief executive of Vivendi, said at Midem on Saturday. Vivendi, based in Paris, owns the largest record label, Universal Music Group, whose digital portion of total music sales grew to 15 percent last year, mirroring the pace of the industry as a whole.

Harvey Goldsmith, managing director of Artiste Management Productions, said he was not ready to write off the pay-per- download business. "There's no such thing as a free lunch," he warned at Midem.

Analysts are keeping a wary eye on the free wave as well. Michael Altberg, a credit analyst at Standard & Poor's, wrote in a report last week that despite obvious benefits, "we are uncertain whether the proliferation of DRM-free, [dagger] la carte downloads will help boost overall digital sales anytime soon, and we believe the absence of security software poses significant risks for further increases in piracy."

Some believe the two can co-exist happily. "Free is complementary," said Laurent Krantz, chief executive of Jamendo, a free peer-to-peer site based in Luxembourg that focuses on Creative Commons licensing. "Free is not the opposite of pay. We see there is no cannibalization with free."

On Last.fm, for instance, you can play a song three times before you are prompted to buy it, and you cannot download a track for free to put on a portable music player.

Likewise, Imeem, a U.S.-based ad-supported Web site with the blessing and participation of all the major music companies, focuses on streaming unlimited music but provides a one-click option to buy from iTunes or Amazon.com.

One of the benefits that record labels take some glee in is that unrestricted music - whether free and ad-supported or paid-by-the- track - is likely to lessen their dependence on Apple.

It has been only since 2003 that Apple broke open the digital music industry by selling digital downloads that cost 99 cents each in the U.S. market, by most accounts offering consumers an acceptable alternative to the piracy-driven Internet file-sharing that has hurt the sale of recorded music.

But Apple's insistence on price controls and a DRM system that locks iTunes sales to its iPod music players have increasingly frustrated the labels. And the unauthorized sharing of songs on the Internet has kept up its pace.

Despite the publicity push and presence of celebrities like James Blunt and the Sugar Hill Gang at its press conference Sunday, Qtrax still left questions unanswered.

Allan Klepfisz, the Qtrax chief executive, said the service would start Monday morning for customers in the United States, Canada and seven other countries, but he would not name them.

Most of the tracks will come with Windows Media DRM, but other rights systems are possible, he said. "DRM has a very important use in free music, not to restrict it but to track the number of plays so that the rights holders and advertisers are compensated," he said.

In addition, the songs will not be "portable" until Feb. 29, they will not be compatible with the Apple computer operating system until March 18, and there will not be a "solution" to allow songs to be played on iPods until April 15, Klepfisz said.

Without naming any advertisers that had signed up, Klepfisz showed off the logos of McDonald's, Nintendo, and more than a dozen other companies.

"There is a necessary nervousness in the industry about giving it away for free," Klepfisz acknowledged. "But they are satisfied that it will be completely secure."

Originally published by The New York Times Media Group.

(c) 2008 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved. Music World Sees Value in 'Free' But the Downside of Digital Access is the Exposure to Ads
Back to Current Headlines