Carriers view on-line music as a sure-fire hit

CommunicationsWeek International, March 1, 1999 by Kenneth Cukier

The music industry is set to be a significant user of Internet bandwidth, and some major network operators have spoiled its revenue potential.

As recording companies, software vendors and Web sites squabble over standards and legal issues for on-line music, network operators see riches ahead.

Music distribution over the Internet has fast become one of the most competitive areas in electronic commerce, attracting the likes of AT&T and IBM, among others. That's because today's recordings, produced as digital products, are perfectly suited for network-based delivery.

At stake is a slice of the $38.1 billion in annual sales for the global music market, one third of which in the United States alone. Market Tracking International Ltd., a London-based research company, estimates Internet-based music sales will grow to around $3.93 billion by 2005 from $28.7 million in 1997.

Bandwidth-hungry

Telecoms providers stand to gain from this emerging niche because "one of the things necessary to make this fly is bandwidth," said Amancio Kolompar, business manager of networked commerce at EUnet Multimedia Services, of Amsterdam. EUnet is in talks with Web-based music companies to form a joint venture that includes sharing revenue from on-line sales, and expects to sign a deal this year.

"They all need a network operator as a partner," said Kolompar, since "no one can afford the cost of bandwidth themselves." Also, the operator can provide the systems integration, hosting, security, and e-commerce technology.

Indeed, beyond music format standards and trademark protection issues, the chief obstacle to mass-market introduction of on-line music services is the provision of the high bandwidth it needs. Although the number of Web sites serving up music is growing, higher-speed capacity is needed on the backbone and for local access. Unlike streaming audio applications that send music to internet users in real-time in small chunks of data, digital music distribution will require more bandwidth to accommodate better sound-quality recordings and entire albums rather than single tracks.

Downloading

Steve Crandall, a researcher at AT&T Labs in Florham Park, New Jersey, said new compression technology makes downloading music easier over conventional analog modems, but believes the tempo of use will quicken once faster local Net access, such as the 1-megabit-per-second speeds of cable modems, is available.

The U.S. carrier is conducting two Internet music trials, called a2b Music and Digitalphono. "One reason why AT&T is doing this is because we are very interested in cable modems. They are going to change the whole music industry," said Crandall.

While consumers today listen to network-delivered music from their PCs, because they are usually the only appliances that have Internet access, Crandell said AT&T is preparing for when music is regularly purchased electronically, and stored on home entertainment systems.

IBM, for its part, in February unveiled its "Madison Project," a pilot initially launched in San Diego. California to examine consumer behavior and piracy-blocking techniques. Participating in the trial are music and media giants Sony Music Entertainment, Warner Music, Universal Studios, Bertelsmann AG and EMI.

Despite today's lack of big band-width, many Web sites and Internet-based radio stations proffer digital music. Yet most are illegally reproduced tracks that violate copyright laws. The Recording Industry Association of America is working with technology firms to develop an open standard this year that protects digital music copyrights. And the most popular on-line music format--"MP3" (MPEG1, Audio Layer 3)--lacks anti-piracy features, such as encryption to prevent mass reproduction, so recording companies are reluctant to support it.

These factors could delay the widespread rollout of on-line music, and prevent telecoms operators and technology firms from unveiling specialty services, such as Internet music search engines.