Report: Music Labels Must Adapt to Net

In order to succeed on the Net, major music labels must quit fighting the digital music revolution and implement their own digital distribution model to support single-track purchases, according to a report released Thursday by the Gartner Group.

With the days of consumers being willing to purchase an entire CD for one or two tracks now gone, the Stamford, Connecticut-based research firm advises record companies to establish a business model that will allow consumers to go to a site and sample music from an old or new CD and decide on a track-by-track basis what they want to purchase.

Less is More

“With technological developments, such as MP3 file formats, consumers are becoming more familiar with digital music formats and ‘ripping’ CDs,” said P.J. McNealy, senior industry analyst for Gartner’s e-Business Services group. “Many of these consumers don’t want a full album but instead are looking for three to four tracks from a CD.”

In order to make money in the age of digital downloads, record labels need to either establish their own music portals or sign licensing agreements with as many Internet distributors as possible and then find a way to sell single tracks off CDs.

The problem with allowing consumers to purchase single tracks is that in order for the labels to recoup the same amount of money as if a consumer purchased a full CD, consumers would have to be charged up to $5 (US$) per track. Unfortunately for the labels, Gartner believes that consumers would only be willing to pay $0.99 to $1.99 per track.

Alternative Approaches

One way that the labels could overcome this obstacle is to develop a business model that is the inverse of the traditional model — where someone buys a hard copy CD and then rips the CD into digital format.

One suggestion by Gartner is a new model that would allow consumers to purchase the full digital download first and then receive a hard copy CD. Consumers would have the choice of paying only for the digital download or paying for the digital download and the CD.

“It will be up to the record labels to counterbalance their needs with the demands of the consumers and then to distribute their content through effective Internet channels,” McNealy said. “If a Napster-like or peer-to-peer solution with DRM (digital rights management) were offered, it would be palatable to all content owners and a likely legal solution.”

Labels Listening

There are signs that the major labels are heeding Gartner’s advice and developing their own digital distribution models. Seagram’s Universal Music Group announced Thursday that it is expanding its digital distribution format, Bluematter.

Universal launched Bluematter two weeks ago with trials of about 60 songs from artists such as opera tenor Luciano Pavarotti, jazz guitarist George Benson and pop band Blink 182. The company will expand Bluematter to thousands of tracks over the next couple of months.

Universal does not have its own music portal, but is making Bluematter-formatted songs available through selected affiliate sites, including RollingStone.com and Music.com.

Sony has announced plans to resurrect its popular Walkman brand for MP3s. The MC Walkman, one of several new versions that Sony is rolling out, is designed to use Sony’s MiniDisc format but will include a digital-to-analog converter.