Gremlin Is Coming

Universal Music Group has become the first label to reach a digital distribution agreement with MusicGremlin, a New York-based company preparing to launch a direct-to-device wireless music service later this year.

Sources close to the deal say the agreement includes all digitally enabled tracks in UMG's catalog. UMG declined to comment.

What sets MusicGremlin apart from other online music download and subscription sites is that it bypasses the PC as the center of the digital music experience. Instead, MusicGremlin believes customers will purchase and download digital tracks directly to a wireless Internet-connected digital music player loaded with its proprietary software.

The company is in discussions with several device manufacturers it declined to name to include its technology in upcoming WiFi-connected devices. These devices, whose primary focus would be to provide MusicGremlin, will come preloaded with track information available via the online store and feature a direct connection to the service.

Customers can buy music either by the track or purchase a subscription. Subscribers may set their devices to download genre-based playlists on a regular basis to refresh the music stored on the device. Users may also broadcast stored titles for other MusicGremlin customers to see, sample and purchase through the online store. A pricing structure has not been set.

The service "changes the device from a [storage unit] to a point-of-sale device," says Jonathan Axelrod, who founded the company with Robert Khedouri.

The entrepreneurs hope that labels will see MusicGremlin's technology as a way to make digital music more of a value-added service, which in turn would reduce piracy.

"This is a more secure channel for distribution," Axelrod says. "Piracy can be fought two ways, with the carrot or the stick. We're trying to use the carrot."

Labels say they like the idea because it limits the number of devices that touch their content. The fewer links in the chain, the less chance of leakage.

But while labels may support the tactic, enticing customers will be a bigger challenge because of existing competition and the PC's prominence.

MusicGremlin believes the service will stand out from other online music stores, pointing to the integration between device and service, a primary element cited in the success of Apple Computer's iPod and iTunes.

The online store will launch once devices supporting the MusicGremlin technology become available at retail, something not expected until midyear. In that time, the company expects to make additional content agreements with other labels.

While the company has the capacity to build its own hardware, MusicGremlin is more interested in providing its technology to existing manufacturers. The system uses digital rights management technology from Microsoft and will support Windows Media Audio music files.

The MusicGremlin service will initially target the portable player market, but the company intends to include its technology in other audio playback devices, such as home stereos, so users can connect to the online service and download or stream music directly. However, a time line for this evolution has not been discussed.