The news that EMI and Time Warner will merge their music businesses is expected to greatly accelerate the growth of the digital distribution of music.
With online giant AOL poised to buy Time Warner, this merger will form the world's largest record company, backed by the world's largest Internet businesse. It will have both the ability and the desire to put tracks from top acts such as Madonna and the Spice Girls online, widening appeal of formats such as MP3.
While the interest in music for download is huge, with MP3 having long overtaken sex as the most popular search term on the Internet, the challenge is for companies distributing the music to make money. The appeal of most music distributed online is that it's free; but once the majors get involved, things are expected to change.
Prelude to success
According to research company Jupiter Communications, while the long-term potential of digital music is sound, it believes the next four years will serve only as a prelude to mass market acceptance of digital music distribution. The company expects only $147 million in digital distribution sales in 2003.
There are two main reasons for this: limited availability of music for downloading, and what is available is, for the most part, free.
With the new Warner-EMI company we will see more mainstream artists releasing music online, leading to widespread appeal: together they have more than 2500 artists and own the back catalogues of legendary acts such as the Beatles, Frank Sinatra and Led Zeppelin. Together they also own some of the world's best known labels, such as Atlantic, Capitol, Virgin and Warner Bros.
But don't expect the company to join the bevy of sites offering free MP3 tracks for download. It is expected to adopt either a 'pay per play' or 'free preview clips' strategy, thereby making significant headway into digital media without hindering its existing distribution.
"It will make AOL a much more anti-music piracy ISP," said Melissa Bane, director of Internet strategies at the Yankee Group. "However, look to AOL's recent deal with Liquid Audio to work toward a protected digital standard for digital music distribution over the Web, and possibly to use this technology with EMI."
The reaction from those companies already offering digital music has been positive, as it raises the profile of their existing businesses.
"It validates our whole business model," said Martin Turner, chief operating officer of free online music navigator peoplesound.com and former UK managing director of AOL acquisition Compuserve.
Turner told vnunet.com that since the AOL/Time Warner deal was announced, his phones have never been so busy with record labels eager get in on the new wave of music distribution.
"They are now recognising that services like our own are a valid tool for testing new artists and finding new artists," he explained.
Another former AOL boss, David Philips, is chief executive of Crunch, an online music site specialising in independent dance music. He too believes the news further cements the future of digital music. "This will hasten the delivery of downloadable music," he said.
Philips said the chance to deliver music online was one of the principal drivers of the AOL/Time Warner merger, as it allows them to use the Internet to unlock the current constraints of their music and media businesses.
"Music is a core cultural reference and a major driver of other trends. This deal will give them the ability to link music sales with other sales on the Internet."
Analysts believe the marriage of music with technology is essential to prevent record companies feeling a pinch on their sales.
In a recent report Jupiter stressed the need for record companies to drop their defensive stance againt the Internet and forge alliances with media companies to embrace new technologies.
"Because of the Internet's tendency to merge the roles of media and commerce, labels need to recognise the increased importance of forging relationships with music and media ventures - whether information or radio programming - because both will be far more aggressive in targeting fans of certain artists and genres," said Mark Mooradian, principle author of the report.
"Music media's ability to sell directly to consumers will demand, and deserve, more attention," he added.
The emergence of media merchants
Forrester Research agreed, predicting that by 2004 almost 25 per cent of media products sold online will be digitally downloaded. The company foresees "a new breed of media merchants emerging that combine adjacent categories - books, music, software, and video - to serve media-hungry consumers."
So expect 2000 to bring more major record companies round to the idea of using the Internet to help their existing offline business. After years of seeing the Internet and digital music as a threat, they are on the way to embracing its appeal.
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