Music websites are fighting to be free

By Jefferson Graham
USA TODAY
Feb. 6
                                                                                      
LOS ANGELES — There's a new music revolution brewing, and it's social.

Social music sites Imeem and Last.fm — which offer on-demand, ad-supported free music — have grown rapidly to 20 million monthly users each. Their success has the music industry seriously exploring the viability of ad-supported, free music as the next big business model for online music.

"This is driven by the reality of the way the Web is working now, and the amount of advertising dollars moving to the Internet," says Rio Caraeff, executive vice president of eLabs, Universal Music's digital arm. "This is about going where the money is and where the fans are, and giving customers what they want, which is free music."

In the wake of declining CD sales, the music industry has struggled with new ways to market music online. Apple's iTunes store is one powerhouse, with over 4 billion songs sold since 2001. But the industry has had little success trying to incubate alternatives, such as monthly subscriptions for on-demand music. Just this week, Yahoo announced it would close its subscription music service and migrate its customers to Rhapsody.

Last week, start-up Qtrax threw a splashy launch party at a European trade show for a free, ad-supported music-download service. It fizzled after the major labels said it had no signed deals. Another start-up, Spiral Frog, offers free, ad-supported downloads, but only one major label, Universal, has signed on.

The latest trend is ad-supported, on-demand online music streaming, most notably, Imeem and Last.fm.

The old negative for such Web-only services — that you can listen to a song, but can't download it — no longer appears to be an issue. In the age of always-on, high-speed connections, "Who cares?" says Quincy Smith, president of CBS Interactive, which bought Last.fm for $280 million in 2007.

Imeem and Last.fm are positioned as music communities, where friends tell each other about what songs and artists they like. Since the sites have licensing agreements with the four major labels, fans can share songs and playlists with each other. Last.fm restricts users to listening to a song just three times, while Imeem has no restrictions.

Both services are online radio stations, but they are different from competitors Pandora or Slacker, which create personalized stations based on your musical tastes. Here, you pick the songs and the artists, or choose music based on recommendations from peers.

"Friends pay a lot more attention to what their peers say than music reviewers," says Mike McGuire, an analyst with Gartner.

The sites also differ from social networks like MySpace and Facebook in that "our audience isn't looking for dates," says Steve Jang, Imeem's chief marketing officer.

Still hope for subscriptions?

Music industry executives and analysts believe the social sites could even help subscription services, providing the boost they need to win consumer acceptance.

"You introduce them to free music (on the social sites), and let them know they could pay a monthly fee and get no ads, portability and higher fidelity," says Caraeff at eLabs. "This could be a real shot in the arm for subscriptions."

Imeem and Last.fm have attracted millions of fans, while fee-based services have struggled. Rhapsody has fewer than 1 million subscribers, and Yahoo had fewer than 400,000 for its Music Unlimited, according to analyst Phil Leigh at Inside Digital Media.

But such services — including Rhapsody, Napster and Microsoft's Zune Marketplace — are easier to navigate. At the free sites, songs are available on-demand — but that's about it. "You can't find the entire album, unless you're lucky," says David Card, an analyst with JupiterResearch. "It's more of a hit and miss."

Last.fm says it will launch a subscription service later this year.

While ad-supported on-demand online music is clearly striking a chord, the category is so new that few analysts have factored in its growth. For now, JupiterResearch projects a $3.5 billion digital music industry by 2012, from nearly $2 billion in 2008.

Card expects CD sales to decline to about $10 billion by 2012, from $12 billion for 2008.

"Digital isn't saving the industry yet," he says. "Maybe ad-supported music will do it, but we'll have to see."

Free Music vs. Subscription
By Jerry Del Colliano
Professor of Music Busness at USC
                                                        
from his blog InsideMusicMedia.blogspot.com
Feb. 7

Yahoo just turned over its "Music Unlimited" operation to the rental music service Rhapsody.

True, Yahoo is in short pants these days. True, Microsoft knows this which is why they are making an unfriendly move to buy Yahoo.

Rhapsody isn't lighting the world on fire, either. Rhapsody charges $12.99 per month for millions of songs. It promises "Play all the music you want for one low monthly price". Maybe it would do better if Rhapsody were more portable. Maybe not.

There's Slacker's WiFi Net radio player which is mobile. It has a four inch screen that pushes the Internet radio stream to the player because it is able to cache stations on flash memory -- works when WiFi doesn't. It's built to fail, however. The service is free but you have to pay -- here we go again -- $10 a month to get unlimited skipping, no ads and option to save songs.

There is persistent thinking that free trumps paid -- and that subscription services delivering millions of tunes will be a clear winner with the next generation. But to date, music rental services have not been all that popular. Stealing music is still the number one means of acquiring songs and that when music is purchased it is bought through the intuitive interface at the iTunes store.

In fact, Apple now controls the destiny of music because its products dominate the infrastructure. There are iPods everywhere. Apple has defined cool. Apple has used great precision in understanding how Gen Y thinks and what it wants.

There are also great lessons here for the radio industry.

Radio is free content. But it is content that the next generation only casually uses. I did a survey at USC today (with the usual disclaimers that these young people do not represent all young people) and few looked to radio as a music trendsetter.

One person added that radio was an influence -- a bad influence -- when it came to music.

Radio people get angry and contentious when they are challenged by the thought that their role may have to change if they want to resume being a music trendsetter.

And they will certainly have to accept that on the terrestrial signal, they know just what it takes to entertain Gen X and baby boomers (even though their owners may not give them the resources).

But when it comes to being a relevant part of the next generation's musical life, radio content providers must look to the Internet and personal mobile devices.

The next generation's passion is personal mobile MP3 devices and, again, Apple controls this.

Young people tell me that it isn't the iPod itself that has killed the record labels -- it is the ease of use of iTunes and the connectivity. That combination is the winner.

When I suggested that without the iPod record labels and radio stations would be in a better position today, I was quickly corrected -- "Something else would have come along".

Right now (in spite of their declining stock price) Apple knows the next generation better than anyone else. They have proven it. It is likely they will for the time being at least continue to serve as facilitator of music and even radio's future.

The road to the next big thing goes through Cupertino, CA -- the home of Apple.