Online Issues Take The Lead At Meet

CANNES‹The online music community had its European coming-out party at the 33rd annual MIDEM convention, held Jan. 24-28 here.
With more than 30 such companies in attendance, demonstrating their wares and looking to put together deals to buttress the upstart business, all aspects of E-commerce‹including digital distribution, conventional online retailing, custom CD building, and security and copyright protection issues‹dominated the conversation among delegates attending the convention.
Online players from both the U.S. and Europe here agreed that the European music business has been two to three years behind the evolution of E-commerce in the U.S. But they say the convention is serving as a wake-up call, and they predict that the European market will develop quickly.
While convention attendees were debating the future of digital distribution for music, digital distribution companies and other online players used the meeting as a platform to make a plethora of announcements:
€ New York-based MCY Music launched MCY.com, which allows customers to digitally download (for a fee) approximately 300,000 songs from about 350 independent labels, including music by Tina Turner and John Coltrane. MCY, which acts as a service provider for labels, supplying them with a variety of digital distribution options, uses Aris Technologies encryption and watermarking technology and plans to market a $199 MCY chip-encoded player in March.
€ Dingwall, Scotland-based Music on Demand (MODE), a provider of digital distribution technology and related services, announced that it is incorporating Lucent Technologies audio compression into its system.
€ A2b Music, a New York-based digital distribution and marketing supplier, introduced to Europe the 2.0 version of its product, which features Real Networks streaming technology that gives the a2b player Mac compatibility and bundles E-commerce tools with it. Also, a2b announced its first European marketing campaign, promoting the Squeeze cut "In The Morning" via a digital download of the track. The campaign includes a coupon for the Quixotic Records album "Domino," which contains the track, redeemable at HMV stores in Europe.
€ Liquid Audio, a Redwood, Calif.-based provider of audio delivery systems, announced that Warner/Chappell Music Inc. will use its software to promote its songwriters to the industry on its World Wide Web site, warnerchappell.com. Initially focusing on featured artists but with plans to digitize its entire song portfolio, the Web site will allow producers and editors to sample songs for licensing. Liquid Audio also announced the "Genuine Music Coalition" (see story, page 1).
€ New York-based label and online merchant Bip!Com announced a strategic partnership with Ray Gun magazine to launch a commerce site in April that, in addition to selling music, will carry lifestyle-related products and services to its target audience of 18- to 24-year-olds.
€ Middlesex, England-based MediaTag debuted AudioTag, a watermarking technology, which it is marketing to musicians and producers, while apparently letting bigger music security providers chase the label business.
€ Camas, Wash.-based MusicMatch debuted the 3.0 version of its MusicMatch Jukebox, an MP3 online player.
Following is other news that was not announced at MIDEM but heard circulating around the show:
€ Seattle-based Amazon.com, the largest online music merchant, is apparently preparing to launch European and Japanese sites. Sources say the company's executives were trolling the exhibition floor, meeting with wholesalers in those markets in an attempt to look for potential fulfillment suppliers.
€ A2b has reached a deal with Alliance Entertainment Corp. to provide the Coral Springs, Fla.-based wholesaler with its digital downloading technology, according to sources. It's unclear how Alliance would employ the a2b technology, but in addition to providing fulfillment for online merchants, AEC's online involvements include its Store 24 program, which provides custom online retail sites for independent merchants, and the All Music Guide, a music database that it licenses to online merchants.
€ Boxman product director Bill Odqvist confirms that the Stockholm-based online merchant will expand beyond its current markets of Finland, Sweden, Norway, and Denmark to Germany, France, and the U.K. in the next six months.
€ West Sacramento, Calif.-based retailer Tower Records/Video is testing an online store in the U.K., according to VP of worldwide marketing Mike Farrace (Dec. 5, 1998).
Amazon, a2b, and Alliance executives declined comment.
FUNDAMENTAL CHANGES
Due to E-commerce, "everything we know about music is undergoing fundamental changes," noted Cary Sherman, executive VP/general counsel of the Recording Industry Assn. of America, in his keynote address at the convention. "The impossible is becoming possible overnight."
As a result of digital distribution, the industry "will have to create new licensing systems and royalty schemes," he said (see story, page 1).
In a panel on "Shopping On The Net," Mark Mooradian, group director at Jupiter Communications, said that worldwide digital distribution of music probably generated about $1.3 million in sales in 1998 and that sales were projected to grow to $39 million this year. (The U.S. market accounts for the majority of online sales to date.)
Mooradian, who moderated the panel, noted that while the technology exists to allow suppliers to provide digital distribution, it will take about five years before enough consumers have broad-band technology in the home for digital delivery to have a meaningful impact on the music industry.
Similarly, custom CD builders, which market their product over the Internet, think that the custom-burning of CDs will dominate their business for the next five years, even though such companies are adding digital downloading options on their sites, William Crowley, VP of sales and marketing at Reston, Va.-based musicmaker.com, told Billboard.
The two online merchants on the "Shopping On The Net" panel‹Jennifer Cast, GM of Amazon.com's music store, and Jason Olim, president of Jenkintown, Pa.-based CDnow‹both said they are eager to add digital distribution capabilities. Said Olim, "We don't care if we sell it physically or digitally. Our goal is to get the consumer to buy product."
Until now, the majors have been reluctant to embrace digital distribution, largely due to concerns about security protection for their music. MP3 technology has made available for free about 20,000 songs on the Internet, industry observers estimate.
With the Dec. 15, 1998, announcement of the Secure Digital Music Initiative, which is aimed at establishing a worldwide industry security standard, some observers suggest that the major record companies could begin making music available for digital download by next December.
"The industry is being dragged kicking and screaming to digital distribution," said Mooradian. However, Jim McDermott, VP of new technology at PolyGram Group Distribution, told Billboard that despite industry opinion, the majors are not "asleep at the wheel" on this issue. During the "Shopping On The Net" panel, he said, "The bathtub is filled with water and the rubber duck is floating in it, and guess what, the fat guy is about to get in."
NEW ATTITUDES
Other attendees said they see major record company attitudes changing on other Internet issues as well. For instance, Olim told Billboard that during the fourth quarter, for the first time, CDnow received cooperative advertising money from the majors.
And a custom CD burner says that the majors appear more willing to consider business opportunities in that area. Previously, with the exception of EMI and Elektra, which have made a limited number of titles available for promotions, major labels have not made their music available to custom CD builders.
In addition to speculating on when the majors will jump into digital distribution, convention attendees wondered when the European music industry will become more aggressive online.
Dougie Dudgeon, A&R director of London-based Snapper Music, said, "There is no doubt that the U.S. is probably three to five years ahead of [most of] Europe in terms of applicability and usage of the Internet. There is not yet enough of a market" for the European industry to chase, he added.
While that may be true, Dick Wingate, VP of content development and label relations at Liquid Audio, told Billboard, "Everything Internet is behind in Europe, but I think they are getting a sense of urgency from this show."
Meanwhile, online merchants told Billboard that European wholesalers should begin gearing up for the business opportunities E-commerce affords. "The European wholesalers don't get it," said Boxman's Odqvist.
Boxman generated $25 million-$30 million in online sales last year in the four Scandinavian countries in which it operates, according to Odqvist. The company fulfills out of Stockholm but sets up offices and sites locally. Odqvist predicts that Europe "will become huge business" for online merchants.
Miami-based wholesaler MSI, which handles online fulfillment in the States, opened Depot 31 to service the European online marketplace. According to Ben Colonomos, managing director of Depot 31 and president of MSI, its European operation has been so successful that it is looking for a larger facility.
Meanwhile, Woodland, Calif.-based wholesaler Valley Media, the dominant online fulfillment provider in the world, attended MIDEM in an effort to encourage European wholesalers to provide fulfillment services. Senior VP of sales Ken Alterwitz told Billboard that Valley can help wholesalers to replicate its fulfillment operation. "I don't expect to make money on this but rather [provide it] as a service to our online merchants to give them a global package."
With preparation for the assault on Europe now more than just a gleam in the eye of online merchants, Jupiter's Mooradian asked if an online realm would break down global borders and move the industry to one price worldwide. Amazon's Cast appeared to second that notion when she pointed out that "customers don't understand why albums are more money in one country than another."
tools & services
Other companies were too busy marketing themselves to take sides on the debate at the convention. For example, MODE, which launched its service last May, was here touting its abilities to labels. "We want to be the enabler to the labels for online distribution," said projects manager Stein Aanensen. "We can give them the tools, or we can do it for them."
The MODE system provides production and storage, Web shop integration and online delivery, transaction monitoring and reporting, market analysis and consumer trends, and one-to-one marketing.
Similarly, German phone company Deutsche Telekom says it will soon provide digital distribution services for labels. The company is in the testing phase of its system, and when it launches the service, it will collect money from customers who digitally download music by including the charges in their phone bills, reported Kerstin Schott who handles marketing and management for on-demand services.
Even those in the thick of Internet issues used the MIDEM meet to take advantage of enhancing their business. For instance, CDnow's Olim said the company's digital licensing crew was at the show because "we want to add licensing and custom compilation capabilities."