Features

SAN FRANCISCO — The record labels blame online song swapping from services such as Napster for taking away valuable customers. In reaction, the labels have created their own legitimate online services for monthly subscribers. 

That move has left music retailers and distributors sitting on the sidelines, as the five major labels launched Musicnet and pressplay and made a beeline past store shelves, straight to consumer pocketbooks. 

Those music retailers gathered at the annual convention of the National Association of Recording Merchandisers on Monday to share their concerns over the digital distribution of music and how they might become more involved. 

Scott Young, who coordinates entertainment sales for BestBuy.com, sees digital music distribution as a promotional tool for CD sales. So do smaller retailers such as Joe Nardone Jr., who operates the 11-store Gallery of Sound chain in Pennsylvania. 

Nardone Jr. has partnered with Liquid Audio, a technology company that provides audio snippets to foster sales at his stores. 

“I think there’s a future there to market to our customers,” Nardone said of digital music downloads. But Nardone and another east coast retailer, Record Archive’s Alayna Hill-Alderman, expressed some reticence in expanding their online market presence as the labels appear to have gone forward without them. 

“I think people have become completely intoxicated,” with digital downloads, Hill-Alderman told fellow retailers during a panel discussion on online music. 

It’s uncertain if file-sharing networks have cost music retailers sales or lured even more customers into stores seeking CDs of music they discovered on the Internet. Statistics vary on the financial impact of Napster, Gnutella, Morpheus and the like, but one thing is certain — the sales potential of digital music distribution has everyone’s attention. 

The Recording Industry Association of America commissioned a survey of 2,225 music consumers and found that 23 percent of them bought less music in 2001 than the previous year because they found what they were looking for online — for free. 

With about $15 billion in annual U.S. music sales at stake, retailers are concerned about their position in the marketplace. Pam Horovitz, NARM’s president, says the major record labels are going in the right direction online, but retailers should be able to travel with them. 

“I think both Musicnet and pressplay are encouraging,” Horovitz said. “We would be happier if those first marketplace offerings from the record labels had involved more input from retailers.” 

In agreement with Horovitz was Sen. Orrin Hatch, R-Utah, who addressed the convention Monday, warning that change was on the horizon and promising Congress would do its part to make the process somewhat orderly. 

Hatch, as chairman of the Senate Judiciary Committee, recently held hearings on the music industry’s fight against Napster and similar services. While he does not support compulsory music licensing, Hatch said he is keeping a close eye on Musicnet and pressplay and their willingness to license music to competing services that retailers might want to launch. 

The entire music industry is shifting, Hatch said. 

“This is in many ways a vastly different environment in which to deal than many of you are accustomed,” Hatch told music retailers. “Change is inevitable.” 

Jupiter Media Metrix analyst Aram Sinnreich said the Musicnet and pressplay services need improvement. Those services limit the number of downloads and streams available to the subscriber, don’t offer a permanent music collection and have only limited CD burning capabilities. 

Sinnreich predicts the online market for music sales, both downloads and CDs, will reach $5.5 billion by 2006. He told retailers they should insist to labels that they be included in the mix. 

“I really think the record labels are getting away with bloody murder here,” Sinnreich said of their direct-to-consumer approach. “I think retailers absolutely need to rebel against these things.” 

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On the Net: 

http://www.narm.com 

http://www.musicnet.com 

http://www.pressplay.com 

http://www.galleryofsound.com