Online Digital Music Still Faces Major Obstacles

Big players in the music industry must overcome “security paranoia” if they ever hope to profit from digital music as it enters the mainstream, according to a recent report by Jupiter Communications.

Jupiter’s research showed that only 3 percent of online consumers will purchase downloaded music by 2003. This gives the music industry a window of opportunity to devise and put in place various security and marketing programs that take advantage of the soon-to-come onslaught of consumer swapping of MP3 files over the Internet. But instead of embracing MP3, record companies have been fighting it.

“The music industry is beginning to come to terms with the MP3 phenomenon, which has been at once overhyped and underappreciated,” said Lucas Graves, an analyst with Jupiter.

Nonetheless, Graves said that the music industry’s best efforts still fall short in preparing for the day when digital music distribution is commonplace.

“Companies that focus on strict security measures rather than maximizing the value proposition will lose out,” he added.

Embrace the one you’ve got

Put simply: the mistake record companies are making is focusing on developing closed codes, rather than using the same energy to embrace MP3 as a temporary promotional vehicle — while the industry settles on formats that offer greater piracy protection for full digital distribution.

Some analysts go even further

They contend that if the recording industry hopes to survive it must learn to adopt the prevailing e-commerce paradigm that suggests that profit isn’t necessarily made directly from selling a particular product. Instead, e-commerce capital can also be generated by attracting millions of eyeballs to a Web site. What would happen, for instance, if a major label decided to use its inventory of artists as a means of bringing people to a new portal by downloading for free the latest high-quality MP3 selections? In return, it could leverage the high traffic to sell advertising space, tickets to concerts or various other merchandise tied to the demographic segments attracted by its stable of artists?

Step out of the box

If record companies continue to think only linear, refusing to understand the dynamics of the “new economy,” they will simply crumble into insignificance. Some experts say the time for a music industry visionary to emerge on the e-commerce scene is long overdue. Above all, this individual must be willing to step out of the box and accept the reality that the record industry has been flattened and will never return to its glorious past.

If this doesn’t happen and the recording industry continues to deteriorate some experts predict the following sundry scenario: one day soon a giant Internet player such as Microsoft Corp. or America Online will simply come along, pick up the pieces and run with its ball.

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