Finally getting in on the act

Whether through ill-judgement or years spent developing the right business model, the major music companies are only now launching digital download sites. But is their move too late in a market dominated by retail brands and the likes of Apple

Like lumbering dinosaurs roused from a long sleep, the big record companies and music retailers are finally waking up to the digital music downloading revolution.

Virgin Megastores and HMV, the UK’s two biggest high street music retailers, are to launch digital download services next week – a year after Woolworths and Tesco. Meanwhile, record company SonyBMG has just announced a deal with a new internet service called Playlouder to provide the first legal digital space for file sharing. This is comparable to the file-sharing sites used to swap pirated tracks, which have devastated music sales for five years.

Subscribers to the SonyBMG service pay &£26 a month for a high-speed broadband internet connection, allowing them to share as much music with other subscribers as they wish. After signing the UK licensing deal with SonyBMG, whose and Dido, Playlouder chief executive Paul Hitchman is confident Universal and EMI will follow suit. Digital “fingerprinting” technology will ensure record companies receive remuneration for each track shared.

Play them at their own game

Hitchman says: “We hope to sign the other big record companies ahead of our full launch at the end of the year. With the quality and speed of our downloads we’ll help bring file sharing to the legitimate fold and create revenue for the industry.”

Playlouder subscribers will only be able to share files with other users of the same service and can only trade tracks by featured artists. Its success depends on quickly securing licensed deals with other record labels to ensure there is an attractive range of artists for subscribers to download. However, being the first file-sharing model to return money to artists will ensure Playlouder has some goodwill from the industry.

Years of inactivity by the music industry as illegal music downloading spread across the globe has cost the record labels dear, and now the race is on between the biggest names of the music industry – EMI, Warner, Universal and Sony – to exploit the new technology.

The digital music sector is expected to explode in the coming year as consumers legally download tracks and videos onto computers, MP3 players and mobile phones. One record company executive defends the industry from accusations of torpor, saying: “We’ve been building the business models for digital download services and getting everything ready since the late 1990s,” though he admits that “meanwhile, we’ve been leaking cash.”

Illegal downloading of digital music has had a catastrophic effect on music sales in the past five years according to the British Phonographic Industry (BPI). In 1999, Napster, then acting outside the law, made it possible for consumers to access their favourite music by taking it off the internet in the form of MP3 files. Illegal downloads and peer-to-peer (known as p2p) file sharing have been a key factor in the recording industry’s 25 per cent downturn in global albums and singles sales since 2000, an amount worth about &£1.3bn a year, according to the International Federation of Phonographic Industries. And a two-year study by TNS estimates that in 2003 and 2004, the industry lost &£650m to illegal downloading.

But record companies, retailers and recording artists are banking on their attempts to legalise the digital music market to bear fruit.

The list of retailers joining the digital revolution and making legal downloads an attractive proposition to consumers through exclusive material is growing. Apple’s online music shop iTunes and a relaunched and fully licensed Napster have existed in the UK since 2004, and between them notched up 5.7 million permanent single downloads in their first year.

Rock-solid opportunity

According to the BPI, more than 500,000 permanent single downloads are now being paid for every week, with revenue returning to companies and artists. Though CDs and vinyl still account for about 98 per cent of industry revenue, there is a consensus across the industry that digital downloading’s global market share will be some 25 per cent by 2008.

Record companies are desperate to secure for their artists as much digital space and as large an audience as possible. There are two business models for music downloads: subscriptions, as used by Napster, and the iTunes’ Ã la carte model, where consumers pay for each downloaded track. On iTunes the price of a track is 79p, but Woolworths sells them for 59p each. Virgin’s and HMV’s service will offer both models, with more than 1 million tracks available for each option.

With the official singles chart combining physical and digital sales since April, and the emergence of new retailers offering a different point of access for consumers, record companies have at last started to take a more creative approach to downloading. EMI released a digital version of the single Feel Good Inc by Gorillaz six weeks before the CD, with the prolonged lifespan of the single sending it to number one in April.

Warner’s digital manager Jack Melhuish says: “Consumers don’t just download music illegally because they want something free, they also want the track as soon as they hear of it and don’t want to wait for the single to be available. Our policy ensures digital tracks are available a minimum of two weeks before the single release. We’re seeing a cultural change in consumer habits already. There’s an overlap of people using both the legal and illegal digital space in equal amounts. We have to keep that swing moving.”

Universal divisional director of new media and digital services Rob Wells says: “Piracy was devastating for the record industry but now it is time to benefit. There’s a metamorphosis happening and we’re in a position to harness the change rather than let it spiral out of control like before.” He describes the 400 per cent increase in record company digital activity since last year as a “brave new world with no locks on doors”. Warner has 500,000 digital tracks ready and is adding 400,000 from its deleted catalogue soon.

The lumbering giants of the music industry are finally getting to grips with digital downloads. But they have already allowed others to move in on their territory and may be closing the stable door after the horse has bolted.v

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