MusicNet and pressplay prepare to replace Napster

Weekly Corporate Growth Report, Sep 10, 2001 by Rock, Justin

Now that Napster, the music pirating service that revolutionized the distribution of music, has been dismantled, major record labels are ready to take a crack at online distribution. But will music lovers warm up to the idea of paying for something they once got for free?

The online music industry is going to have to navigate a few obstacles before even testing out the notion that people will be willing to pay for downloaded music. The two leading services in the works, MusicNet and pressplay, are currently being investigated by antitrust agencies in Washington and Europe, Congress is considering legislation to ensure fair competition, and the threat of music publishers suing to shut down the sites for money lost to each song sold online is still very prevalent.

Much of the scrutiny comes from the fact that the operators of the two sites already control 85 percent of music sold today. MusicNet is backed by Warner Music Group, EMI Group and BMG Entertainment. Rival pressplay is a joint venture backed by Sony Music Entertainment and Universal Music Group. These two entities have regulators worried that competitors will be blocked from entering an online market that is projected to account for 16 percent of the $21 billion United States music market by 2010.

Another problem that these services must remedy is the fact that the bitter rivalries within the music industry have so far halted the two services from crosslicensing music to each other. This means that a consumer will have to subscribe to both services to have access to all music available.

The services, at least initially, do not allow the downloaded music to be burned onto CDs or loaded into portable players and the music downloaded will expire after a certain time period. All of which are limitations that will not be easy to sell to those who had unlimited access and use of the Napster service.

As MusicNet and pressplay prepare to test their models, they will face loud demands from music composers and publishers requiring the services to pay the same royalties for music sold online as they do for each song reproduced on a CD or cassette. They are being pressured into paying as much as 7.5 cents per song, the same "mechanical royalty" rate currently charged. If the online music services do not construct a deal with music publishers, some feel that the labels will not be able to launch the sites.

MusicNet and pressplay are betting that consumers will be willing to pay for a music download service that is faster and offers secure downloads of complete songs, unlike Napster which was plagued by song fragments. Neither company is willing to project how many customers will sign up for their services, but with a tangle of obstacles still impeding their launch, it may be some time before customers even know they exist.