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Market trials can't stop MP3 blitz

ALSO: MP3 is Web's newest craze

While IBM plans a 1000-home test for downloadable music, MP3 has already rolled out to 10 million fans.

February 10, 1999
Web posted at: 1:30 p.m. EST (1830 GMT)

by Rob Guth

(IDG) -- Monday's announcement that IBM and five record companies will field-test a system for selling music over the Internet adds a new dimension to a scramble to stay afloat in what one observer calls the "rising water" of Internet music distribution.

Though the IBM-led project will let record companies test those waters, it will not stem the tide of MP3 (which stands for Motion Picture Experts Group, Audio Layer 3), which has rapidly emerged as the music download format of choice among Internet users, observers said.

Big backers for Madison Project

Code-named the Madison Project, the long-awaited IBM trial will enable commercially available music to be distributed online without threat of illegal copying, the companies said. Expected to start in this year's second quarter, the trial will offer 2000 CD-quality recordings for download to 1000 cable television subscribers in San Diego, California. Customers will be able to make their own CDs by downloading music and artwork, the companies said.

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Backers of the trial include Sony Music Entertainment, Warner Music, Seagram's Universal Music, Germany's Bertelsmann AG's BMG Entertainment Group, and EMI Group's EMI Music.

The partners billed the project as a way for record companies to embrace Internet distribution while protecting their intellectual property. The trial comes amid a grass-roots movement behind MP3, a compression format that makes it easy to download music from the Internet but offers no copy protection. In the past six months major record labels have woken up to an explosion of World Wide Web sites using MP3 to offer music, many without paying royalties.

MP3 is the mass market

But while Monday's announcement promises a secure method for distributing music online, several observers questioned whether the trial will provide an accurate model for how future online music distribution will take shape.

"It will be a nice initiative but I don't think it will bring back mass-market statistics that you can bank a business on," said Mark Hardie, an analyst at Forrester Research.

Hardie also questioned the ability of the system's pirate-proof security to grow beyond the scope of the trial. "You're hard pressed to do that in any mass-market way without it, in some way, being compromisable."

Proponents of MP3 said they see the Madison Project, with its big backers, as a sort of "top down" approach, flying in the face of how MP3 and the Internet have grown. In addition, the project seems to re-create on the Internet the rigidities found in existing music distribution, according to the aptly named MP3.com, an online music seller.

"With the exception of saving consumers a little gas money and the time it would take to go to their local record store, Madison doesn't appear to offer much in terms of the value, flexibility, and convenience that has been the promise of the digital age," MP3.com said Monday in a statement.

Forrester estimated that the installed base of MP3 players, both hardware and software, already surpasses 10 million units, and continues to grow. "They are going to just keep pumping out MP3 content ... and then put out products that match consumer demand," Forrester's Hardie said. "We're looking at this major ... brush fire."

MP3 gains corporate backing

Indeed, the past month brought a string of announcements by several MP3 standard bearers, including MP3.com which received a $11 million injection from two leading venture capital firms, news that some say adds legitimacy to the MP3 format.

Internet search specialist Lycos, said meanwhile that together with a Norwegian partner it would offer a site to make it easier to find MP3 music on the Web. Following Lycos, on Wednesday last week GoodNoise, another online music seller, forged a pact with Harry Fox Agency that will pay the agent's musicians when their MP3 files are sold over the Web. GoodNoise a day later signed an MP3 distribution deal with Rykodisc, the independent label behind musicians Frank Zappa, Bruce Cockburn and Morphine.

The deal rush should continue. In about a week MP3.com will announce a partnership with a major music retailer, according to a source familiar with the plan.

"All of a sudden everyone is moving forward," said Richard Doherty, director of The Envisioneering Group, a consultancy in Seaford, New York. As for the record companies, "water is starting to rise around their ankles," he said.

Still early days

The MP3 scramble shows the movement's immaturity. Though the technology is easily available and partnerships are crystallizing, business models are still fluid. No one can guess exactly how the Internet music rage will pan out, particularly given the looming concern of record labels.

Also a factor is the Secure Digital Music Initiative, an effort led by the Recording Industry Association of America and including the backers in the IBM trial. The initiative aspires to bring all interested parties together and hammer out a secure way to distribute music online by the second half of this year, a time frame some see as overly ambitious.

But for the growing number of musicians who want to reach an audience over the Internet, battles over formats and technology have little meaning.

"The technology shows no bounds at all ... for me [MP3 is] just another medium ," said Arsenio Santos, leader of Hagman, a band that offers music exclusively online and bills itself as the first "Web-only" band. "I'm more limited by my budget and the amount of disk space I have."