In the short term, Time Warner's $20 billion merger with
EMI Music will overshadow the $140 billion (or whatever today's valuation is) integration
of Time Warner Inc. into America Online Inc.
It's also a reminder that AOL -- which clearly knew about
the EMI negotiations -- and its CEO in waiting, Bob Pittman, are ready to guzzle from the
cornucopia of digitally distributed music.
The music industry is wrestling with Internet issues that
are far more crucial to its very survival than the similar battles being fought among
high-speed carriers and long-range content strategists.
It was no coincidence that on the day of the Time
Warner-EMI alliance, Microsoft sprayed an array of digital and Internet entertainment
deals and investments. Some of those ventures will quickly lead to clashes between
Microsoft and its key rival, AOL.
The ways in which Internet music-on-demand issues evolve
during the next few years could set the path for the subsequent richer and more complex
skirmishes about Internet video.
"Disposable music" is at the heart of today's
music-industry rearrangement. For many of us, collecting records was a matter of pride:
lining up those album covers and stacking crates full of vinyl was a sign of
accomplishment and good taste. Admit it: you probably still have a stash of favorite music
in the basement -- things you never got around to transferring to tape or CD-ROM, but
still plan to get around to.
Today's young listeners, as confirmed by several polls,
merely want to hear the music. They toss out the CD jewel boxes and only sporadically keep
the notes/inserts. They sell or trade the CDs as soon as they tire of the music. They find
time to dub their few favorite songs onto hard drives. RealAudio has made that very easy.
MP3 and other music-download techniques cut out the
middleman altogether and elevate a new breed of alternative musicians. Listeners scavenge
for the songs they want, then delete music when they move on to the next sounds. Big
labels may still control the big artists, but underground (online) distribution has given
new life to garage bands -- as has insurgent promotion via chat rooms and other Web tools.
Meanwhile, the nature of Web commerce itself has worked
against traditional music labels.
A CD that costs $15 in Los Angeles or Cleveland may sell
for $30 in France or New Zealand. Thanks to CDNow, Amazon.com and other e-tailers, a
customer anywhere in the world can buy music at the U.S. price, pay the shipping and still
get a bargain -- much to the dismay of the music labels' existing worldwide
But selling and shipping plastic discs is not what the Time
Warner-EMI deal is all about. It's about fear: the fear of what will happen as fickle
listeners turn increasingly to the Internet for the music they want now.
AOL had the foresight to buy spinner.com -- a major online
source of downloaded music -- last year. That asset gives AOL-Time Warner another avenue
to exploit the Warner-EMI music library.
Meanwhile, there are no assurances that giants like
Warner-EMI (which combined controls about 25 percent of the global music market),
Universal or BMG have a lock on the music of the future.
Companies such as Liquid Audio, which provides software for
digital delivery of music via the Internet, continue to grow in importance.
Microsoft allied last week with Liquid Audio, which will
use Windows Media technology to host and distribute music to hundreds of online retailers
in its network and serve as a clearinghouse for Windows Media digital-rights management.
That adds strength to the online music community (and it jazzed Liquid Audio stock by 32
percent in one day).
Separately, Microsoft last week pumped $56 million into
Intertainer Inc., a company with strong cable connections, but with plans for
digital-music packaging and digital-subscriber-line distribution.
Remember: On-demand technology works just fine for audio,
and Intertainer (headed by music-industry stalwarts) can make an easy move in that
direction -- if it can get content.
Microsoft's money can help them to find that content. The
funding bought Microsoft a 20 percent stake in Intertainer and a reminder that the Redmond
giant plans to work its way deep into the infrastructure of online music distribution.
A deluge of digital and Internet music tools surfaced at
last week's MIDEM music trade show in Cannes, France.
Lucent Technologies licensed its enhanced
"Perceptional Audio Coder (ePAC)" to several online music-security systems,
recognizing the need to offer pirate-proof distribution if music is to be sold online.
Lucent touts that its technology makes safe the "virtual record store" -- a
quaint and perhaps final reference to the vinyl discs that are long-forgotten.
Copyright-protection tools are crucial to Web music. The
free access to and manipulation of Internet music will continue to drive rights-holders
crazy, which is why Warner-EMI, Microsoft and AOL are scrambling to stake a place in the
business and claim glory for rescuing the music industry from Internet enslavement -- or
I-Way Patrol columnist Gary Arlen keeps a stack o' wax
handy for those after-work sock hops.
Contributor Gary Arlen is known for his insights into the convergence of media, telecom, content and technology. Gary was founder/editor/publisher of Interactivity Report, TeleServices Report and other influential newsletters; he was the longtime “curmudgeon” columnist for Multichannel News as well as a regular contributor to AdMap, Washington Technology and Telecommunications Reports. He writes regularly about trends and media/marketing for the Consumer Technology Association's i3 magazine plus several blogs. Gary has taught media-focused courses on the adjunct faculties at George Mason University and American University and has guest-lectured at MIT, Harvard, UCLA, University of Southern California and Northwestern University and at countless media, marketing and technology industry events. As President of Arlen Communications LLC, he has provided analyses about the development of applications and services for entertainment, marketing and e-commerce.
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