Music Skips a Beat

Cable World, Jan 24, 2000 by Joshua Cho

Plagued by frightened record companies, lawsuits and a lackluster Christmas season last year, when curious portable MP3 players were overshadowed by more familiar technology such as DVD players, Internet music hasn't taken off.

But now, in the wake of the AOL-Time Warner deal rather than push out titans like Emusic.com Inc. and MP3.com Inc., the largest and most widely recognized Internet music distributors in the field, analysts say that the AOLTW merger will have positive implications for these companies and companies like them.

"The combination of the two (AOL-TW) will accelerate the adoption of online music," said Phil Leigh, an Internet analyst at Raymond James. "It legitimizes the entire sector."

Up until this point, there have been hindrances from both sides of the music exchange equation. Copyright protection on the behalf of the record labels that are concerned about their margins have made them drag their feet in getting widespread electronic distribution of superstar artists. At the same time, consumers like downloading songs for free.

Why would Netizens whip out their credit cards to pay for a song even if it costs only a few dollars? After all, few music listeners, even serious aficionados, are concerned about copyright infringement, especially budget-minded college students who made the MP3 format popular.

In response, Leigh said he sees the Internet music business moving toward the commercial radio broadcast business model, which gives away its product for free in return for advertising revenues. The radio business is bigger than the record business and sees higher margins, according to Leigh.

Others see only moderate growth in Internet users willing to pay for downloadable music. Paul Kagan Associates Inc. estimates a "fee paying user" base of only 4% last year, which will grow to 28% in 2008. Annual revenues from downloading music were estimated by Kagan to be $13 million last year, growing to $609 million in 2008. Portable players of downloaded music, Kagan found, could eventually reach nine million units per year, or another $170 million in sales.