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AOL, Pop Star - Company Business and Marketing

Industry Standard, The, March 19, 2001 by Hane C. Lee

As Napster fights for its life, AOL Time Warner quietly prepares to rule digital music.

NAPSTER IS TRYING, REALLY IT IS. That's the message coming out of the beleaguered song-swapping service, where executives, lawyers and engineers are scrambling to fend off legal attacks while they fashion a secure subscription service by summer.

But they aren't alone. A gaggle of opportunists - from obscure startups to major music labels - are building music-subscription services of their own. And in the race to dominate the post-Napster world of digital music distribution, one contender stands out: AOL Time Warner.

The media behemoth is sitting pretty - and not just because it owns Warner Music, one of the five biggest record labels. With 27 million paying online customers, AOL has the whole online subscription thing down. The company recently hired Kevin Conroy, former chief marketing officer and president of new technology at major label BMG, to head up the AOL Music division. Add to that the marketing muscle that comes with owning a plethora of media outlets, a leading cable operator and one of the Net's most popular MP3 players, and you've got all the elements of a digital music powerhouse.

AOL Time Warner officials won't give specifics on the company's music-subscription plans. But a study commissioned by AOL late last year [see bottom chart] suggests that it is working on a service that would let consumers stream music from a central server and download a limited number of songs. Conroy declines to comment on the study, saying only that "AOL Music is focused on creating a single integrated platform that will make it easier and more convenient for consumers to discover, experience and own music across our properties."

That's exactly what AOL members want, according to the poll of 461 subscribers conducted by the Benenson Strategy Group. Forty percent of the respondents said they'd try a music subscription service - especially if it offers the kind of variety that made Napster the darling of 60 million users.

But even Napster isn't delivering that variety now. Last week the Redwood City, Calif., company bowed to legal pressure and began filtering copyrighted songs. The move came just hours before U.S. District Judge Marilyn Hall Patel issued an injunction setting ground rules the labels and Napster must follow to wipe the system. It's the end of Napster as we've known it.

The filesharing outlaw's popularity was due largely to the breadth of its library, which until last week included virtually any song ever recorded. A service that offers only a portion - including Napster and Bertelsmann, the BMG parent funding Napster's development of a subscription model - will have a hard time attracting a critical mass of users.

Not surprisingly, AOL Time Warner is at work hammering out deals with its own music subsidiary, Warner Music Group, and with the other four major labels: BMG, EMI, Sony and Universal. The key to a comprehensive service could well be AOL's Conroy, who lends automatic credibility to the project. "He really understands and has sensitivity to copyright and content and the need to explore new avenues to distribute music," says Fred Davis, a partner with entertainment law firm Davis, Shapiro & Lewit and son of Arista Records founder Clive Davis.

In other words, Napster: Watch your back.

                        It's All About Distribution
                      The major labels are preparing
                     their own subscription services.
LABEL     DEAL                                    TO LAUNCH
BMG       Pledged to contribute catalog to        July
          a secure version of Napster
EMI       Signed deal with music-subscription     End of March
          startup Streamwaves
Sony      Developing joint service with Universal Summer
Universal Working with Sony; willing to sign      Summer
          on with a secure Napster
SOURCE: COMPANIES LISTED

The Next Napster?

Last fall America Online commissioned a study to gauge interest in a possible music subscription service.

HOW THE BUSINESS WAS DESCRIBED: "The service will let you play music, organize the music you want to listen to or share it with others online with a few simple clicks of your mouse. This service is a fast, easy way of opening the world of online music to you and lets you keep and manage the music you like all in one place and listen to it easily. This service would be completely legal."

                            BREADTH: Percentage
                           likely to sign up if
                           service delivers: [*]
* "Many of your favorite
 songs"                17%
* "All music ever
 published"            40%
                         PRICE: Percentage likely
                         to sign up if the monthly
                            subscription price
                                 were: [*]
* $9.95  45%
* $14.95 34%
* $19.95 39%

(*.)AMONG RESPONDENTS LIKELY OR SOMEWHAT LIKELY TO TRY AN AOL MUSIC SERVICE. SOURCE: AOL

AOL, Pop Star - Company Business and Marketing

Industry Standard, The, March 19, 2001 by Hane C. Lee

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