Emi 2nd To Enter Commercial Download Arena

This issue's column was prepared by Marilyn A. Gillen.

THE HOT-BUTTON QUESTION of whether consumers will pay for digital downloads will get a further test when EMI Recorded Music becomes the second major label—after Sony Music—to make a significant quantity of its music available for sale in the fledgling format.

BMG has also said it will put its music up later this month, although it has yet to announce either a hard launch date or a release slate.

Anyone who has been following the unfolding saga of the commercial download (otherwise known as "It's Coming—Honest") knows that major-label content has long been held out as one of the required building blocks for establishing a viable paid-music market online.

A second cornerstone—the proliferation of portable music players and other home audio devices that will allow "computer music" to migrate off the desktop—is also being put into place, as major consumer electronics companies such as Sony, RCA, and Philips join pioneers such as Rio and Creative Labs in bringing a wide variety of units to market at prices reaching as low as $150 for new models. When those prices consistently hug $99, the digital-player market could explode, according to Andersen Consulting, which predicts that the digital music market will account for $3.2 billion in revenue by 2005, at which time 37 million digital audio devices will be in consumers' hands.

That assumption—major content plus portables equals a commercial digital music market—predates the arrival in force of the wild card Napster, of course, which has had the dual effect of wildly popularizing the downloadable music format while also raising some concerns about the potential to build a revenue-generating model around that expressed demand.

But those questions have primarily existed in a vacuum until now. No more. Beginning Tuesday (18), more than 100 E-tailers will begin offering for sale in North America some 100 albums and 40 singles from EMI acts including D'Angelo, Janet Jackson, Pink Floyd, Frank Sinatra, and Snoop Dogg, according to EMI Music Distribution president Richard Cottrell, who terms the retailer response "enthusiastic."

"EMI's strategy all the way through has been very retailer-friendly," says Cottrell. "We don't see this as being, in the short term, a massive sales opportunity. It's really about establishing the commercial digital download channel, and we've been trying to find a way that we could support our retail partners and get the channel open and operating for the long term."

Participating retailers have been taking part in a closed test since July 1, Cottrell says, to "iron out any technical glitches" before going live with consumers. EMI is making its files available in the Microsoft Windows Media and Liquid Audio formats.

Unlike Sony, EMI has chosen to release its downloads into the online market via the traditional offline "gross margin" model that allows the merchants to set their own prices on goods. (Sony is using the so-called "agency" model, whereby labels set the consumer price and assign a fee or commission to the merchants.)

EMI is pricing its digital music to merchants at parity with its physical titles, Cottrell says, so that if those retailers intend to keep the same margins online, consumers could expect to pay the same ticket price whether they get a hard good or a software file. Retailers can and may choose to go lower, of course.

"I think that's going to be one of the big learning points of what we're doing here," says Cottrell of the sticky question of whether consumers will be willing to pay the same amount for a digital file as they do for a packaged good. "We're planning to follow this up quite quickly with some in-depth consumer research, which we're already preparing now, and obviously one of the big questions is the price/value question. That's something we will be asking consumers about in detail."

CDnow founder Jason Olim, who says he is excited about adding the EMI tracks to his virtual racks, has done his own consumer research and concluded that "consumers do expect to pay less," he says. "And in fact, it bothers me that they expect to pay significantly less."

Olim is hopeful that there will be some "wiggle room," however small, in label wholesale pricing to allow him to pass some savings along to customers, and he also notes that the absence of shipping charges carries its own savings.

While EMI is not making any new titles available in the launch, Cottrell says he would like to move to "day and date" digital releases, possibly as early as August. "We believe the digital format should be our third format later this year—provided everything proves worthwhile and people adopt it," he adds.

Also in the works is an expansion beyond the audio-only downloads on offer now, to include either value-adds or such possible components as liner notes or visual elements.

"We'll be looking at a lot of differ-