The Beat Goes On - trends in online music retailing - Statistical Data Included

Brandweek, Oct 18, 1999 by Eric Schmuckler

One company manning the battle lines is Everycd.com. An outgrowth of the music-by-phone seller 1-800-EVERYCD, the online side is shepherded by co-founder Pierce Ledbetter. He plans to build a digital warehouse to store its subscribers' CDs in virtual, always-accessible form. Rather than buying a hard copy, record lovers could stream the virtual music they own to themselves anywhere on the globe. He says the legalities could be resolved in a matter of months and then he's ready to rock 'n' roll.

Tech side first: While it's not terribly convenient to haul your hard drive around to hear tunes, this Christmas brings a crop of hand-held MP3 players that outdistance the Rio. Sony's has a memory stick half the size of a piece of chewing gum, which can hold up to four hours of music, depending on compression level. As for portability, the Internet-in-the-Sky is coming, meaning so are IP-addressable cars, and so are wireless devices. Thus, your CD collection feeds your car radio and Walkman without ever leaving its shrink-wrap.

As for the legal niceties, Ledbetter is in negotiations with copyright administrators, publishers and major labels. His argument: "We're enforcing and encouraging the sale of the CD. Each person is entitled to make a back-up copy of any record they buy. We say we're making the back-up copy for them. As it goes though the net, it's a performance, and we pay the same royalty as a radio broadcast. Just as the Betamax law allowed time-shifting of TV programs, this becomes shape-shifting--transferring music you bought to your hard drive. The physical CD does not become obsolescent. I could see keeping everything you own on digital and hard copy for the stuff you really like."

Conceived as a customer service, Ledbetter now envisions his digital initiative as a brave, new business. "After we deliver to our customers, we'll deliver to other customers as well. So long as they can prove they bought it from a brick-and-mortar or online store, we'll host it and stream it, in two formats--commercial-based, where we host for free, or no ads, for a fee."

Where will the money come from? Ledbetter will only say that Everycd's revenues exceed $10 million, but hints they are three or four times that. The company charges a $40 annual membership, a turn-off in the no-charge online world, but it offers extras such as a search service that tracks down out-of-print vinyl and CDs.

"Their approach appeals to me," says Jupiter analyst Ken Cassar, "but I'd be worried that Amazon or CDNow could come in."

Ledbetter says he's trying to fortify his position by signing exclusive deals with companies such as RealAudio. "We, too, think [CDNow or Amazon] will challenge us," he says, "but as soon as one does, the other will have to buy or partner with us to stay even."