Recording industry tiptoes into digital-download sales

October 16, 2003|By Mike Himowitz | Mike Himowitz,SUN STAFF

If you listen to digital music on a computer, burn your own CD "mixes" or carry your songs around on a portable player, the world is about to change.

After years of battling online file trading, which gave music fans what they wanted - albeit illegally - the recording industry may be coming around.

True, the studios have an army of lawyers suing every big file trader they can get their hands on (including a 12-year-old), and they're still trying to put copy protection on new CDs.

But this month's widely anticipated launch of Apple's iTunes Music Store for Windows, Napster's resurrection as a pay-per-download business, and the emergence of online stores such as RealOne and MusicMatch show that the industry is coming to grips with the digital technology that has separated its music from the medium it once controlled.

All of these businesses are based on a similar model: Instead of requiring that customers buy an entire album on CD, they'll sell individual tracks online at 99 cents each in a format that users can play on computers, burn to CD or download to tiny digital music players - with restrictions.

For those who prefer traditional media, CDs are getting cheaper. The price of new albums in volume music retailers is heading toward $10, compared to $16 to $19 a few years ago.

Changes like these are normally the result of competition. But in this case, they're the result of technology - and a public that doesn't put much stock in intellectual property.

The revolution began in the late 1990s, with PC software that could read the music tracks from CDs and convert them into compressed data files, known as MP3s. Stored on a PC hard drive, these files occupied a fraction of the space of CD audio. They could also be played on any PC, converted back to standard CD audio tracks, or transferred over the Internet.

When a start-up called Napster established a network that allowed users to search for and exchange music files with the click of a mouse in 1999, online file trading took off.

Of course, it's illegal to transfer copyrighted music this way, since neither the record company nor the artist gets paid. So the Recording Industry Association of America, which represents the big five music companies here, sued Napster into oblivion. But new online file-trading programs such as Kazaa, Morpheus and Grokster - which performed the same function without creating a central directory of files like Napster's - made file trading far more popular than Napster's founders ever dreamed of.

A survey by the Pew Internet and American Life Project showed that by last spring, 35 million people were downloading music online - mainly young people who would normally buy CDs. Two-thirds of the downloaders said they don't care that the music they traded was copyrighted.

Small wonder the RIAA reported a 14 percent decline in revenue from 1999 to 2002 - and blamed it on illegal file sharing.

Now the recession may have had something to do with it, and file traders argued that the public was fed up anyway with an industry that provided lousy music at inflated prices. But there's no question that a lot of file traders aren't buying CDs the way they once did.

Advocates of digital music argue that if the record industry wants to prosecute illegal-file traders, it should provide an alternative that gives customers the music they want, at a reasonable cost, in the form they want it. For an oligopoly that had long dictated terms to its customers, that took some serious rethinking.

The early "legitimate" online music services, which emerged two years ago, had serious problems. The big five labels were either reluctant to license music by their most valuable artists, or demanded copy protection so repugnant that few consumers would buy it - especially with unrestricted music available online for free.

Apple's iTunes Music Store, which made its debut in April, changed that. With 200,000 licensed titles, a copy-protection scheme that was not overly restrictive, and 99-cent downloads without a subscription fee, iTunes was an instant hit with Mac users. At last count, they'd downloaded more than 10 million tracks. And they represent only 3 percent of the computer market.

Meanwhile, over the summer the RIAA began suing individual file traders - more than 260 in all. It was a heavy-handed assault, but it must have instilled some fear, because file trading volume dropped considerably.

That will last only until file-trading programmers figure out a way to cloak users' identities - which is inevitable. But the industry now has a window of opportunity to show whether it's sincere about the alternative.

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