Technology Obstacles Slow Adoption of Digital Music Distribution

Business Wire, July 6, 1999

NEW YORK--(BUSINESS WIRE)--July 6, 1999--

Jupiter Communications Advises Industry Players to Overcome Security

Paranoia and Drive Digital Distribution into the Mainstream

Despite its hold on the popular media and the recording industry, digital music distribution will not emerge as a mainstream consumer technology until it overcomes major obstacles, according to a new report from Jupiter Communications. The Jupiter research, which was distributed to clients of the company's Strategic Planning Services (SPS) in anticipation of Jupiter Communications' Fourth Annual Plug.In music forum, showed that only three percent of online consumers will purchase downloaded digital music by 2003. This timing offers artists, labels, and distribution sites an opportunity to employ various security and marketing approaches that take advantage of consumer music swapping, rather than fighting it.

"The music industry is beginning to come to terms with the MP3 phenomenon, which has been at once overhyped and underappreciated," said Lucas Graves, an analyst in Jupiter's Web Technology Strategies. "However, the music industry's best efforts still fall short when it comes to preparing for the day when digital music distribution is commonplace. Companies that focus on strict security measures rather than maximizing the value proposition will lose out."

According to the Jupiter research, MP3 will continue to dominate the digital music landscape through 2000, even as makers of hardware and software add support for closed codecs backed by major record labels. Mainstream content from well-known artists, along with consumer adoption of recordable CD technology (even more than digital playback devices like Diamond's Rio), will begin to give higher-quality codecs an edge by 2001; nevertheless, MP3 usage will remain widespread until a better format emerges that supports public encoding and music swapping.

Graves warned companies that if they don't accept current standards and adapt to the inherent insecurity of digital distribution, they risk paying the price when the technology goes mainstream over the next five years. He advised record labels to embrace MP3 as a promotional vehicle while the industry settles on formats that offer greater piracy protection for full digital distribution.

The Jupiter Media Distribution research will be one of the topics discussed during Plug.In. Now in its fourth year, Plug.In (http://www.jup.com/events/forums/plugin/) will be held on July 19 and 20 at New York's Marriott Marquis. Industry luminaries such as Strauss Zelnick, President & CEO, BMG; Danny Goldberg, President, Sheridan Square Entertainment and Artemis Records; Fred Siebert, President, MTV Networks Online; Chris Blackwell, Chairman, Palm Pictures; Rob Glaser, Chairman & CEO, RealNetworks; and David Watkins, President, RioPort will join more than 800 attendees to discuss "The Future of Music." Topics will include record label strategies, digital distribution, music-oriented online content, intellectual property issues, and more.

In conjunction with Plug.In, delegates can also attend The Digital Club Festival (www.digitalclubfest.com) taking place from June 20 through 23. Now in its fifth year, the Digital Club Festival is the world's largest online music event, combining the excitement of live music with cutting-edge, interactive technology. Founded by co-executive producers Andrew Rasiej and Michael Dorf, the Digital Club Festival utilizes the Internet to create a high-tech platform for musicians to reach a global audience. More than 350 bands will perform throughout 20 Manhattan nightspots over the course of the four-day event.

Plug.In is produced in association with Michael Dorf, President and CEO, Netmedia; and Andrew Rasiej, President and CEO, Digital Club Festival. Sponsors of Plug.In include BPI Communications Inc., Digital Club Festival, InterTrust Technologies Corporation, Viant Corporation, POLLSTAR, Wired Magazine, Global Fulfillment.com, HSX.COM, LAUNCH, CDDB, Live365.com, Audio Explosion, Inc., and RealNetworks, Inc.

To attend Plug.In, visit Jupiter's Web site (http://www.jup.com/events/forums/plugin/) or call Jupiter's customer service line at (800) 611-1693 or (212) 780-6060 ext. 103 for international callers.

Jupiter Communications is a new media research firm that helps companies make intelligent business decisions about consumer interactivity. Focused exclusively on the way the Internet and other technologies are changing traditional consumer industries, Jupiter's Strategic Planning Services (SPS) deliver a continuous flow of analysis, primary data, and market projections. SPS offers companies investing in new technologies a framework for realizing return on investment--both for new lines of business in mainstream media, entertainment, commerce, and marketing, as well as for Internet- and technology-based start-ups. Jupiter also produces industry seminars, newsletters, and book-length research studies. Established in 1986, Jupiter Communications, LLC is an independent, privately held company with offices in New York City and London as well as a joint operation in Sydney, Australia.