Alan Goldstein: Internet music industry is in search of business model

Wednesday, July 26th 2000, 12:00 am
By: News On 6

There's a scramble on to find a business model that works for selling music that's downloaded from the Internet.

Dallas billionaire Mark Cuban, who co-founded, said last week that he's going to launch a subscription-based service in partnership with a major radio group.

The big recording labels are finally getting on the Internet, too.

In a partnership with Microsoft Corp., EMI Recorded Music started selling 100 full-length albums this month that are downloadable through Web retailers, at prices comparable to those charged for compact discs.

All the activity is in response to Napster Inc., which operates a free service on the Internet that now claims 20 million customers.

Using Napster software, music fans can trade songs stored in the MP3 format, a compression standard to convert music on CDs into data that can be shipped back and forth across the Internet. Because the files are digital, every copy is as good as the original.

So what's wrong with Napster?

Not much, from the consumer's point of view. Napster brings a new level of instant gratification to music listening.

Had it been around when I was in college, we would've been a lot more efficient collecting recordings of Grateful Dead concerts. It seems there's no need to run those cassette decks all night anymore.

And it's not just for kids.

This week, I went searching for some of the songs that have been in my head since I started watching HBO's The Sopranos, like Alabama 3's "Woke up this Morning," Andrea Bocelli's "Con Te Partiro" and Frank Sinatra's "It was a Very Good Year." They're all there, and it won't cost you a cent to download and play them.

Of course, that's the problem the recording industry and a number of prominent musicians have with Napster.

They want to get paid for their work, as they should, and they're looking to enforce their rights through the legal system.

On Wednesday, the Recording Industry Association of America, representing all the big record labels, is expected to ask a federal judge in San Francisco to shut down the service, alleging that it violates copyright laws.

Many legal experts believe that vigorous enforcement is the key to managing copyrights in the digital age.

"The law is out there, and it's a matter of tracking people down," said John Patton, an attorney with Hughes & Luce in Dallas. "I think the statute works."

Yet it's also entirely possible that we are now undergoing a temporary period of instability, for an industry about to be restructured in profound ways.

Even if the recording studios prevail against Napster, the Hollywood giants still could be forced into irrelevancy if artists become more savvy about selling music directly to consumers.

Already, author Stephen King has been causing a stir in the book business by self-publishing his latest thriller, The Plant, over the Internet in electronic installments.

Some people believe that Hollywood has always seen new technology as a threat. In 1908, the music industry went to the U.S. Supreme Court, unsuccessfully, to argue that player-piano rolls violated its copyrights.

More of us remember when the studios went to the high court in the early 1980s, arguing that the Sony Betamax video-cassette recorder should be banned.

Yet in the end, Hollywood has always ended up making a lot more money from every new technology.

Some evidence is rising to suggest that Napster could have the same effect.

Jupiter Communications, a New York-based market research firm, has reported that users of networked music-sharing technologies, such as Napster, are 45 percent more likely to have increased their overall music purchasing than nonusers.

The consumer survey, which was controlled for key music-purchasing factors – such as age, existing spending level, income and gender – "still found that Napster usage is one of the strongest determinants of increased music buying," said Aram Sinnreich, an analyst with Jupiter.

Meanwhile, lots of companies are waiting in the wings with technology to support payment systems for music on the Internet.

On Tuesday, the management team of Dreamstreamer, which has developed authentication and payment technology based on a small key that fits in a personal computer's USB port, was camped out in a conference room at a hotel in Addison. Executives for the San Diego start-up are on a national tour to visit with potential business partners, and they offered me the first public glimpse of where they're headed.

It's a lot like the way we pay for cable and satellite TV. In fact, the executives come out of those industries, where fair compensation systems were established years ago. They think they can do the same thing for the Internet.

"Napster's great for consumers, but in the back of everyone's minds, they know it's not the way to go," said Michiel de Bruijn, chief technology officer for Dreamstreamer.

The software industry has long battled piracy with a combination of technology and legal enforcement, he said, and there's no reason to expect that the same thing won't happen eventually with Internet content.

Technology editor Alan Goldstein writes about the Internet and electronic commerce for The Dallas Morning News. His e-mail address is