iTunes blazed the trail for the other services by delivering exactly what consumers wanted, ease-of-use, liberal personal use rights, and the ability to purchase singles or albums without a restrictive subscription fee. The majors, based on their culture of telling the music consumer exactly how they can purchase music, quickly shuttered their cumbersome digital music subscription offerings, Pressplay and Musicnet, and sold the assets to Napster and RealNetworks respectively. Apple started with the consumer, and infused their own culture of usability, sophisticated design and transparent technology to deliver on the promise of digital distribution of music. Musicmatch, who had the best computer jukebox software on the market for Windows based computers before the PC version of iTunes bowed, has also launched a download service. And just a few weeks ago, the legal reincarnation of the notorious Napster debuted with a 2.0 distinction in the name.

So how do the services compare? Each has its own strengths and weaknesses, but the pioneering iTunes stands above the rest of the pack based on its clean interface, usability, feature set, seamless digital rights management and best integration of a download store and jukebox. iTunes currently has about 400,000 songs in its database, including artists that are not included on the other services and exclusive content. The jukebox feature just kicks ass. Its CD import and management of your music is a standout and features 4 different codec's, AAC, MP3, WAV and AIFF, for "ripping" CD's. The interface is clean and the information hierarchy is very straightforward with sorting by song name, artist, album, genre and several other classifications. The Search facility is vastly superior to the other services, with better results and faster delivery. The software is wonderful, but the real advantage Apple has is its iPod music player. The two together are not only great because of their tight integration, but also because nothing in the market can currently touch the iPod. It really is, as Steve Jobs, CEO of Apple would say "insanely great." The downsides to the software are 1) iTunes only supports the iPod and probably will not support any other personal music device, 2) There's no criteria for searching by year of release, and 3) if you iPod's battery should fail after the one year warrantee expires, its expensive to replace.

Napster 2.0 has the best brand recognition of the three according to recent studies, which should significantly help them drive traffic to their site and acquire customers. However, unlike iTunes, it doesn't support the Macintosh and only works on Windows XP. It has the largest catalog, at half a million songs, but about 40,000 are not available for download, just for listening via their $9.95 per month subscription service. Surprisingly, the Napster jukebox is really lacking. The ripping is downright pathetic and you can't directly import CD's using its interface. You're also very limited in portable player capability; currently only Samsung's Napster player is supported which is definitely a marketing blunder. Napster 2.0 does feature the viral ability to send your favorite song list to your friends and to peruse a list of the music stored on their computer, but only if you pay the monthly $9.95 subscription fee.

MusicMatch began as music management software for the PC and has evolved into the best jukebox offering. The jukebox's premier feature is its ability to store ancillary information with your song files such as album cover art, lyrics and other goodies. The interface packs in a lot of information without overwhelming the user, and has the talent to change its appearance with different downloadable 'skins.' It also works with a wide range of portable devices, setting it far apart from Napster, if you don't want to go the iPod route. MusicMatch also features a comprehensive subscription service that profiles your musical tastes and creates radio stations based on your favorite genres or artists. The major drawback to MusicMatch is its performance. The download store, fine by itself, is clearly a programming "add on" and doesn't communicate quickly with the jukebox. The other trouble is that MusicMatch currently has only 250,000 songs in its library.

A concern has been raised about the amount of CD's that can be burned from a particular play list. For instance, if you have ripped The Police's "Ghost In The Machine" you can only burn 5 copies of this particular play list in MusicMatch and Napster, and 10 copies in iTunes. Its hard to understand why there's a ceiling on how may copies you can burn, when anything more than 1 or 2 seems to invite a piracy question. How did Apple come up with 10 and Napster 5? It's difficult to figure out each service's individual philosophy. In addition, the entire exercise may be a moot point because with so many song files at your disposal, it's hard to resist playing DJ and creating your own sets.

But wait there's more!

In fact, there's going to be a lot more companies jumping into the music download space in the near future. In addition to the aforementioned Napster, iTunes and MusicMatch, there's BestBuy, Buymusic, Soundbuzz, Lifeway, and several others that are currently selling downloads. But the real action is some of the big players that are developing their own jukeboxes, digital music stores and portable players. Dell is expected to come out with a service in 2004 and a suite of supporting hardware devices. In fact, they've just released a 15 GB portable player with 16 hours of battery life for $249. Wal-Mart is set to enter the digital download market with their new contribution any day now. They've teamed with Geneva Media who recently purchased download pioneer, Liquid Audio's assets for 3.2 million dollars. The new venture will only have about 200,000 songs for purchase, but in typical Wal-Mart fashion, the digital music is expected to be discounted to 79 cents per download and will be weighed heavily towards Country music titles. Sony is also expected to unveil a major new entity next year with several portable devices. Sony will play to its strengths and ignite major techno lust when it rolls out several music players starting at only $60 sources say. In addition, MTV's Viacom, Amazon.com and CNET, which recently purchased MP3.com, are mulling over their options. All of which makes for a suddenly crowded field, in a very short amount of time.

However, the biggest impact on digital music downloads is going to be Microsoft. Microsoft has announced that it will begin selling downloads in 2004 on its MSN.com web site. Microsoft is in the midst of hiring specific personal for its new service and has starting ramping up operations at its Redmond, Washington headquarters. Unlike the other major concerns entering the market, Microsoft merely has to modify its ubiquitous Windows Media Player to sell songs from its own store. With a pervasive bed of installed users, it will have an instant built-in consumer base that will give it a tremendous head start over its rivals. In addition, Microsoft's deep pockets will allow it to undercut its competitors and continue to operate at a loss while the others wither and die on the vine. Microsoft's Window's Media Player also plays nicely with other portables. In fact, several of the services, including MusicMatch, use the technology to support portable devices under their umbrella. However, launching the service won't all be downhill for Microsoft. They're currently in court fending off allegations that it's using its operating system monopoly on PC's to unfairly dominate the media player market.

Where's the beef?

What's fascinating about this download overload is determining how all these companies are going to make money. If you look at the numbers, there doesn't seem to be a lot of profits in the download business. For example, Apple retails a song for 99 cents. Of that 99 cents, Apple pays approximately 65-79 cents to the record label. In addition, Apple then has to sustain credit card processing fees at approximately 25 cents per online transaction plus 2 to 5% of the total amount charged. Best-case scenario, that leaves about 9 cents per song, not including infrastructure costs such as bandwidth, electricity, personnel, servers, etc. Clearly, this is not going to be a major contributor to Apple's yearly profits.
"We'd like to break even or make a little bit of money...but its no money maker," Steve Jobs, CEO of Apple recently stated.

For now, the money is in the hardware. Its no secret that iTunes is the sugar to help the bitter taste of the iPod's high price go down. Apple has sold 1.4 million iPods to date, many of them to PC users. Many analysts estimate that the gross margin is in the 20-22% range for the product. It's an absolutely stunning piece of hardware, especially in a field that is littered with poor performing and bad sounding MP3 players. The device also serves to promote the Apple's computing philosophy, which may lead to increased sales of their computers. MusicMatch believes that it can be profitable without a hardware tie-in by persuading its users to opt into its subscription service. For $9.95 a month the consumer can listen to MusicMatch's entire catalog, but they have to pay 99 cents to download a track. Subscription services have been unsuccessful thus far, but theoretically could yield a margin close to 50%.

Jupiter Research forecasts that online music spending is expected to increase to $3.3 billion dollars in five years from about $800 million today, an increase from 7 to 26% of total music sales. Forrester Research's predictions are that in three years, the online music sales will account for $1.4 billion dollars or 11% of the music industry's total sales of $12.8 billion dollars. Forrester also estimates that by 2008, 33% of music sales will come from downloads. It's clear that downloads will become more influential in the market as these download services mature, but who's going to survive?

The Future: There will be a major contraction of the pure-play, download services. How things will shake out will depend on how the minor players can adapt to the increased and suddenly intense competition. Heavy discounters like Wal-Mart and Microsoft definitely have the fat bankrolls and cut throat business practices to starve their competitors, but that will not ensure their success in the long run. Apple will definitely stay in the market due to its diehard customer base and consist innovation, but will probably lose its lead in 2005. MusicMatch will most likely merge or get purchased by a concern like Dell where its wonderful jukebox would complement Dell's new hardware products. Dell, with its great customer service reputation, will definitely gain sales against the more expensive iPod, but will have to sex up their designs to appeal to the influential cyberpunk market.

What will definitely happen in the mid term is that the minor players will have to change their business model to stay afloat. They will condense their broad strokes and begin to target lucrative niche markets. Lifeway has started early by trying to establish itself as the de facto online resource for Christian music. Wal-Mart will target the Country Music market and look for a major Urban label to launch a strictly Hip-Hop/Rap download service. Diddy's Downloads?

What will also happen is that these download destinations will become mini-major labels. With the five majors consolidating into three public entities, they will be forced to focus on major acts who have the best chance to score hit singles because their shareholders will demand quarterly profits. On the other hand, by hiring the right A&R personnel who can find the diamonds in the rough, the download services can inexpensively "test" the market for new artists. Leveraging this revolutionary online distribution model, these mini-majors will be able to sell direct to consumers, bypassing the exorbitant cost of marketing that the majors incur to promote a new act. Apple is backing into this by offering a large amount of "exclusive" content in the form of live performances and their own version of Unplugged where bands perform in their retail outlets and then Apple offers the performances as downloads on iTunes.

The most apparent part of these new digital services is how music has become so devalued to society. First the industry was hit by a multitude of illegal Peer-To-Peer services that potty-trained Gen-Y'ers that music was free. Now, legal music services are using downloads as loss-leaders to entice customers to their stores to buy more profitable items. This perception is not going to demonstrate the value of music to consumers in the long run and must be combated by getting behind and promoting new, better sounding formats. Futuremusic has been a long proponent of the new Super Audio CD and DVD-A formats. Unfortunately, the Beta VS. VHS battle that's shaping up is only going to stymie the consumer. Consumers are not going to adopt either one of the new formats for fear that they're going to get stuck with a BetaMax.

../ Pioneer Announces DVJ-X1 Digital Audio/Video Turntable

The DVJ-X1 looks very similar to their best selling CDJ-1000mk2, however it's slightly larger and weighs almost twice as much. Utilizing the same concept behind the their other digital turntable products, the new DVJ-X1 allows DJ's to manipulate DVD visual content with the same techniques and mechanics that they've acquired from mixing vinyl records. Video looping, video scratching, cues, reverse and other features can now all be incorporated into the Video DJ's repertoire.

Pioneer is hoping to create a new breed of Club DJ who can ignite not only the sound systems, but also the video screens. Features include Video output via BNC, S-Video and RCA, a preview video out for "monitoring," an analog audio out and a digital audio output via coaxial. The DVJ-X1 also has a SD card slot for storing loops and cue points.

The Future: Look for a complimentary Digital Audio/Video mixer with LCD preview screen to bow shortly after this release.

../ Universal Shutters MIT's Music Service

Loudeye Technologies seems to be at the epicenter of the licensing problems. According to Keith Winstein, he believed that they purchased the music "fair and square" from Loudeye who were the only company with the authority to issue a comprehensive licenses for MIT's unique system. MIT issued this statement on October 31st:

"We have been working with Loudeye on obtaining content since October 2002 and Loudeye assured us on multiple occasions that the content they provided to us was prepared fully under authorization from the record labels and on behalf of the publishers."

Loudeye claims that MIT misunderstood it contract, but that's obviously a load of nonsense since their press release stated that they had provided MIT's service with "approximately 48,000 licensed digital music tracks." Loudeye has since removed the press release from their web site.

Josh Mandel and Keith Winstein developed the on-demand system from the get-go to make sure that it fully complied with all music licensing requirements and still got the shaft from the industry. Universal went so far as to state that "it is unfortunate that MIT launched a service in an attempt to avoid paying recording artists, union musicians, and record labels." This is simply Universal's spin to discredit the students integrity.

The Future: Another victory for illegal file trading. Even when you try and work within the system, the music industry stabs you in the back.

What's also apparent is that the industry still has no clarity with the current copyright infringment and performance right laws in the new millennium. When the major players are too confused to determine what licenses are needed to launch a simple on-demand service, then how can the industry move forward legally?

../ Technics Announces New Digital CD Turntable

The technical details are anorexic, but this is what we've learned: the solid metal unit on display featured a direct-drive 8 inch platter, it plays red book CD's as well as MP3 CD's and SD media, has a multitude of built in effects including vinyl simulations, beat-sync'd delays, filters, reverbs and flanges, full sampling and looping, sample accurate manual cue-points, up to 50+/-% pitch control with pitch lock, tempo and range control, instant forward and reverse operation, 4 pads for triggering samples, 4 cue pads, brake speed control, real time recording and a digital output.

Technics is also said to be readying a new 4 channel digital companion mixer. No release date has been set.

The Future: Witness the final nail in the vinyl coffin yourself...

Copyright 2003 Futuremusic. All Rights Reserved.