Narm Chief Addresses Online Distrib. At Meet

NEW YORK‹A few days before the heads of the world's major record labels gathered in New York to address the issue of online distribution of music (see story, page 5), the president of the National Assn. of Recording Merchandisers (NARM) was tackling the same topic at the annual Executive Summit, sponsored by the International Recording Media Assn. (IRMA), formerly the ITA.
"The electronic download is the aspect of Internet retailing that holds the potential for the greatest change in our industry," NARM president Pam Horovitz told more than 200 recording media executives and analysts in attendance at the Dec. 10 event. Among its implications, she said, is a likely growing fluidity of the traditional roles of retailer, label, and distributor.
She noted that such names as Liquid Audio, Real Audio, a2b Music, and MP3 were familiar to most attendees as technologies for downloading music. "With MP3 as the only open standard, not surprisingly it has taken off the fastest," she observed. "It also poses the biggest problem to copyright holders because it is unencrypted and unwatermarked."
While the Recording Industry Assn. of America is devoting considerable time and energy to tracking down MP3 sites that are illegally posting its member labels' copyrighted music, Horovitz pointed out that "artists out there are aggressively using MP3 sites to promote themselves."
"One view of the brave new world of the 21st century even provides for all music to be free, with the only money coming from music ancillaries such as artwork, interviews, and T-shirts. The reality will probably be somewhere in the middle," she continued. "We've always had 'free' music as part of our history, with giveaways from record clubs and radio stations in the millions. But giveaways need to be controlled‹and controlled wisely," she emphasized.
Noting that consumers will tire of needing five or more protocols to get music off their computers, Horovitz predicted that "content owners will collaborate . . . to release an open standard sometime in the near future. This will provide a secure technology for delivering music electronically to the consumer."
Such a collaboration was indeed the subject of the recording industry's Dec. 15 press conference in New York.
Looking at the ramifications of this action for the rest of the industry, she feels that in the short term‹the next five years‹there won't be much. She cited Internet bandwidth, hardware and software limitations, and minimal cable-modem household penetration as factors in controlling the initial impact.
"A lot of windows of opportunity will be there for experimentation, and old paradigms will be tested," she said. "For example, is radio or TV going to be the applicable strategy for handling content, and will pay-for-play finally come into its own?"
Among the implications for the record industry, she listed the following:
€ The definition of what constitutes an "album" will be up for grabs, she said. With the marketplace more song-driven than ever before, online compilation services will gain in popularity.
€ The roles of "label," "distributor," and "retailer" are going to become fluid. A label's brand strength is with the artist community, while the retailer's is with the consumer. While online retailers like Amazon.com, CDnow, and Music Boulevard have had to pay a lot of money for portal positioning in a bid for Internet market share, savvy brick-and-mortar retailers are letting Net consumers make returns to their stores, providing another opportunity for sales that doesn't exist on the World Wide Web, Horovitz said.
€ While "artist" branding may stand supreme on the Internet, band sites can't permit impulse purchases of other artists' products, the lifeblood of most music stores.
€ Singles are problematic for the industry due to the cost of manufacturing and distribution. Many label executives see the Internet as the perfect way to get rid of singles, and if downloading songs as a promotional tool on the Internet continues to grow, there will be a severe drop-off in sales and distribution of the physical single.
€ One tricky issue is determining the appropriate environment for "in-store" play in an online environment. Traditional retailers have an exemption in copyright law from paying royalties for public performance, and the promotional aspect of in-store play has served the industry well for 40 years. Outlining NARM's position, Horovitz said, "We believe the industry should actively work on finding the right combinations of length, permanence, quality, and age for various situations. The value of the copyright and the concept of public performance can be protected for in-store play on the Net, but it will take some work."
€ Last, there will be significant cannibalization of the sales of prerecorded music by electronic distribution, but it will not totally eliminate either stores or prerecorded product, she predicted.
There are human aspects of the physical shopping experience and the physical collecting of music that can't be replicated online. Most important, as more traditional retailers aggressively promote their own Web sites, their customers are more likely to shop online at the same "stores" where they shop in person.
Citing various statistics regarding the growth of the Internet, she noted that just two years ago there were only 50 million Web users worldwide; there were 55 million users just in the U.S. in May, and 150 million users are projected worldwide by 2002.
Online music sales are predicted to top $110 million this year, triple the $36.6 million in 1997, with a forecast for $1.3 billion by 2002, according to Jupiter Communications.
The bottom line, concluded Horo-vitz, is that there are tremendous opportunities for the recording industry in the 21st century.
"Everyone's excited, but no one's in a panic either," she observed. "The voyage [into the next millennium] is going to take a lot work and a lot of cooperation, but it will be a lot of fun."