US record companies follow Napster's lead

Universal Music Group, which this week will begin letting customers download and pay for music over the internet, is the latest record company to accept that a new model for music distribution is inevitable.

Music sharing website Napster and download site MP3.com are forcing companies to rethink their strategies as they adjust to a wholly different market. The result is a rush by major record labels into deals to produce downloadable formats of their music.

Gartner analyst PJ McNealy said record companies are finding themselves doing business in a world of smaller profits than they are used to - and they are struggling to adjust.

"The past business model has been built around full-sale CDs worth $15 each, but as you move to digital distribution you move to single track sales," he said.

"Companies are not going to sell tracks for $4 or $5 each as people cherry pick three songs off a CD. They're going to have to figure out how they're going to change their business model."

Almost every major record company has entered into at least one agreement with a content distribution company to make its music available for digital download as they adjust to the new reality.

Universal this week began to experiment with its own music distribution format known as Bluematter. The system was developed in partnership with a number of technology companies including InterTrust Technologies, a developer of distributed digital rights management technology; digital commerce service Magex; and internet media delivery company RealNetworks.

Songs in the Bluematter format come with enhanced multimedia content such as biographies, photographs, lyrics and credits, said UMG. From this week they are available at a number of websites including Lycos Music, Music.com and RollingStone.com.

Separately, Warner Music Group has reached a licensing agreement with MP3.com to make its catalogue available on MP3's website. Terms of the agreement were not disclosed, but Warner said it would share monies received with artists in accordance with the terms of their agreements.

BMG Entertainment has signed a similar deal with MP3.com, as well as one with Musicbank, which uses its own technology.

EMI has also reached an agreement with MP3.com, as well as making 200 singles and 100 albums available at more than 50 online retailers. The sites will use both the Liquid Audio and Supertracks secure delivery services.

The only major company that has yet to reach any partnership arrangements is Sony Music. The company has opened a website for the purchase of whole CDs and is expected to launch its own digital download site later this year.