Frost & Sullivan Reveals Litigation to Slow, NotStop Internet Audio Markets.

Business Editors & High-Tech Writers

SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 9, 200

The Internet has changed the way we listen to and acquire music thanks to the development of MP3 technology.

The traditional music industry, wary of the threat unsecured online music

New strategic market research from Frost & Sullivan (www.frost.com), "World Internet Audio Markets," reveals that while still in its infancy, this industry is poised for tremendous growth. Frost & Sullivan defines Internet audio as tools that consist of software, hardware and services that allow consumers to encode, publish and playback audio files over the Internet with the use of a personal computer or any other digital device. In 1999, this industry generated revenues of $41.7 million. Frost & Sullivan projects revenues will reach nearly $14 billion by 2006.

Music publishers, led by the Recording Industry Association of America (RIAA), are trying their best to limit the growth of unauthorized music distribution because it represents a distribution channel that bypasses the music industry, thereby taking money from it.

"The primary reason the RIAA has been so vigorous in their legal pursuit of online music companies is a matter of control," says Frost & Sullivan industry expert Rick Applewhite. "The Big 5 record labels are aggressively moving to protect their turf in a war pitting the new music economy against the old guard."

The evolution of the Internet audio market has been mired in lawsuits aimed at market participants accused of infringing on content copyright laws. The most publicized lawsuits are those against MP3.com and Napster.

The ease of downloading music files directly from personal computers (PCs) has fostered an environment that says it's okay to get music without paying for it. Users are employing software applications to search other users' hard drives and download digital media files, bypassing the traditional method of buying music from retail channels.

"File sharing networks such as Napster and Gnutella have made locating and downloading music easier than ever, effectively promoting and further solidifying a culture accepting of illegal distribution of copyright protected music," says Applewhite.

As long as there is a centralization of services, as is the case with Napster, the RIAA has a target. But what about decentralized services?

"The latest entrant and possibly the most imposing is the various versions of Gnutella software which allows users to directly trade any type of digital media without any centralization of services," says Applewhite. "Gnutella's decentralized, peer-to-peer architecture provides a constantly moving target and makes prosecution unlikely."

In the near future, these lawsuits will take some of the steam out of the growth in the Internet audio markets. But a long-range outlook suggests that these Internet companies will team up with the recording industry and work out a way for everyone to profit.

Frost & Sullivan presents the 2000 Marketing Engineering Awards to companies that have worked hard to make a positive contribution to the world Internet audio industry. The Product Innovation Award is presented to Sensory Science (AMEX:VCR). E-Music (Nasdaq:EMUS) receives the Pricing Strategy Award. The Strategic Alliance Leadership Award is given to Diamond Multimedia, which was acquired by S3 (Nasdaq:SIII) and re-launched as Digital Media Company, but is still traded under the S3 symbol.

Companies that participated within this industry include: a2b music; Adaptec Inc.; Alive.com; Amazon.Com Inc.; Amplified.com; American Society of Composers, Authors and Publishers (ASCAP); Apple Computer Inc.; ARIS Technologies Inc.; Audible Inc.; Audio Explosion; audiohighway.com; AudioSoft Inc.; Audiovox; Atomic Pop; Beatnik Inc.; Best Data; Broadcast.com Inc.; Broadcast Music Inc. (BMI); Casio Inc.; CDnow Inc.; Cognicity Inc.; Compaq Computer Corporation; CD Plus; Creative Labs Inc.; Custom Revolutions Inc.; Digital On-Demand; D-Link; Diamond Multimedia Systems Inc.; Discover Music; e.Digital Corporation; Eiger Labs Inc.; EMI Group plc; empeg Ltd.; E-Music; Encoding.com; Escient Inc.; Forefront; Fraunhofer Institut fur Integrierte Schaltungen; GlobalScape; GMN.com; HyCD Inc.; Han Go--DBA Remote Solutions; IBM Media Center; I-Jam; Inktomi Corporation; InfinityEdge Systems Gbr; Innogear; Iomega Corporation; Intel Corporation; InterTrust Technologies Corporation; J. River Inc.; LAUNCH Media Inc.; LG Electronics Inc.; Liquid Audio Inc.; Lucent Technologies Inc.; MacPower Peripherals Ltd.; Macromedia Incorporated; Matsushita Electric Industrial Co. Ltd.; Microsoft Corporation; Morton Software; mp3.com Inc.; MpegTV/Xaudio; MP Man; Mslide.com; Musicmaker.com, Inc.; MusicMatch Inc.; Napster; Night 55 Inc.; Null Soft Inc./Spinner.com; Online Music Company Inc.; Oracle Corporation; Pine Technology; Philips North America; PlayMedia Systems Inc.; PONTIS Me(beta)technik GmbH; QSound Labs Inc.; RCA; RealNetworks Inc.; Reciprocal Recording Industry Association of America (RIAA); Rollingstone.com; RPK Security Inc.; Saehan Information Systems Inc.; Samsung Electronics America Inc.; Sandpiper Networks Inc.; SanDisk Corporation; Sensory Science Corporation; Sonic Foundry Inc.; Sony Corporation of America; Sony Music Entertainment Inc.; Spinner.com; swebmusic.com; TellSoft Technologies Inc.; Telos Systems; Texas Instruments Inc.; Thomson Consumer Electronics Inc.; Toshiba America Electronic Components Inc.; Tunes.com; UBL; Universal Music Group; Voquette Networks; Warner Music Group; Xing Technology Corporation; Yuan Technologies and ZipLabs Pte. Ltd.

Frost & Sullivan, which is headquartered in San Jose, Calif., is a global leader in international strategic market consulting and training. Frost & Sullivan's industry experts monitor the information technologies industry for market trends, market measurements and strategies. This ongoing research is used to complement the Internet and E-Commerce Custom Subscription, which includes studies on the Internet Content Delivery Market and the Internet Messaging Software. Executive summaries and interviews are available to the press.

Along with publishing in-depth strategic market consulting research, Frost & Sullivan also provides custom consulting needs to a variety of national and international companies.

World Internet Audio Markets

Report: 7301-72 Date: October 2000