Sony, Universal Implement Latest Anti-Piracy Strategy

In an attempt to thwart piracy -- and to find an online music strategy that works -- two of the United States' Big Five record companies, Sony Music and Universal Music, have announced they plan to make downloading music from the Web less expensive for listeners.

After earlier attempts to provide digital downloads to consumers for higher fees did not meet with a warm reception, the record companies have turned their attention to other models.

Consumers now will be able to purchase digital singles under the Universal label for less than one dollar and albums for about US$10 through several online retailers, including Amazon.com (Nasdaq: AMZN) and Best Buy (NYSE: BBY). For its part, Sony (NYSE: SNE) plans to lower its prices to $1.49 per song and will offer music through RioPort, the company's online distributor.

Distribution Revolution

Michael Goodman, a senior analyst at the Yankee Group, told the E-Commerce Times that the planned moves by Sony and Universal are about "more than just lowering prices."

He said a more significant aspect is that the record labels "are making more titles available online and loosening their business rules. Those are all really important steps in the [creation] of a business model."

Goodman added that the moves indicate the labels realize they must evolve.

By shifting their online music strategies, the record companies will stimulate real change in music distribution, which "has been linear before -- from the artist to retailer to consumer, with the record label serving as the gatekeeper," Goodman noted.

"I don't think it's so much a digital music revolution as a distribution revolution," he said.

File-Sharing Backlash

It is unclear how successful the companies will be in luring users spoiled by free downloads. With the exception of music giant Bertelsmann -- which invested heavily in Napster and later purchased the troubled company's assets -- the largest music labels consistently opposed the Napster model, claiming it cost them millions in lost licensing fees.

Napster's opponents launched a successful campaign against the popular online music service, effectively shutting it down in July 2001.

Similar file-sharing services, such as Morpheus and Kazaa, have found themselves in court as well.

Napster, which filed for Chapter 11 bankruptcy protection after selling its assets to Bertelsmann, has vowed to relaunch later this year.

Denying Opportunity?

There is mounting evidence that the music industry as a whole could benefit from Napster-like services. For example, Jupiter Media Metrix released a study indicating that Internet file-sharing actually increases music sales.

According to the research firm, 34 percent of all peer-to-peer file sharers dole out more money for music than they did before they started swapping tunes online, although 15 percent of file swappers admitted to purchasing less music than they previously did.

The study also pointed out that about 50 percent of respondents said they spend the same amount of money on music as they did before they started using file-sharing services.

There is no doubt that consumers remain interested in downloading and sharing music, although they seem to be unwilling to spend a lot for each download.

Time To Evolve

In response to the free services, the Big Five joined forces last year to create online subscription services MusicNet and Pressplay. But those services received only a lukewarm response, partly because of their limited CD-burning capabilities.

The Yankee Group's Goodman explained that record companies must reshape their online music models because consumers have had a real taste of what is possible -- and are unlikely to turn back now.

"The genie is out of the bottle and it is not going back in," Goodman said. "All of a sudden, the consumer is demanding who, what, when, where and how."

But according to the record labels' new strategies, users will have more control over customizing playlists and burning them to CDs.

Pay-for-Play Competition

News of Sony's and Universal's plans came just after Internet media giant Terra Lycos launched a subscription-based online listening service, Lycos Rhapsody, with the full cooperation of at least four major record labels.

Rhapsody, which claims to have more than 10,000 albums in its online repertoire, was developed by Terra Lycos and Listen.com, the online music company that will distribute the music.

Listen.com has gone to great lengths to secure relationships with major labels, including Sony Music Entertainment, Warner Music Group, EMI Recorded Music and Bertelsmann AG, as well as several independent labels.

Fighting the Inevitable

Despite statements by the International Federation of the Phonographic Industry (IFPI) that recordable CD technology has helped spawn a 50 percent increase in bootlegged music sales worldwide, Rhapsody reportedly will let listeners burn CDs by year's end, requiring Listen.com to rework its license agreements with record labels.

With listeners accustomed to getting music for free, pay-for-play and subscription services face an uncertain future.

Goodman told the E-Commerce Times in an earlier interview that he gave up counting the number of free services being used to swap songs and other content online when the number of peer-to-peer networks topped 70.

"You knock these out and there are another 70 to take their place," he said, referring to current top traders Kazaa, Morpheus, LimeWire and iMesh. "You're never going to shut down the free services."

Forever Free

The music industry must now contend with a growing number of companies aggressively pursuing a free music model, even moving their operations offshore to sidestep U.S. legal restrictions.

Goodman noted that there are drawbacks to both licensed and non-licensed music plans, with the former putting real restrictions on a listener's choices and the latter making the user "more susceptible to viruses," and often awash in confusion.

"You have to know what you're looking for," said Goodman. But he noted that "there are more drawbacks to the licensed than the unlicensed" model.

Analyst Michael Gartenberg, a research director at Jupiter Media Metrix, told the E-Commerce Times that record companies should "not treat all customers as criminals," but rather should meet consumer demand with reasonably priced services and original content.

In an industry that has been hit hard by the economic downturn, the labels could have no other choice.