Sue, Settle and Buy. The Net Music Shopping Spree.

By Richard Menta- 5/31/01

The Net Music shopping spree is on. This time Bertelsmann AG again makes the move as it acquires the MyPlay storage locker service.

MyPlay's service, which has a reported 6 million users, was the prototype to's service that got that company into significant legal trouble over the past year. Purchased for $30 million, Myplay will be rolled into Bertelsmann's new Net music entity it has just named BeMusic.

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With Universal now in control of and EMusic and Bertelsmann owning Napster, CDNow, and now MyPlay these two conglomerates have taken a significant control of Net music. That should soon spur the other three major labels; AOL Time Warner, EMI and Sony to jump into the game also.

With the tactic of sue, settle and buy working successfully so far, more actions of litigation against remaining Net music companies should hit the press soon. Just last week was added to the list as the RIAA announced its lawsuit against them. The week before that, Napster-clone Aimster lost the domain in a clever trademark dispute by AOL.

Aimster will probably survive by allowing AOL to absorb them. Launch will probably get offers - low offers as their value will plummet from the litigation as is per the strategy - from all five labels. Any site that can fit into the distribution puzzle will be assimilated because it will forward the record industry's goal to lock up Net music distribution as it has traditional music distribution.

Frankly, that is only good business for the record companies - vicious business, yes, but good business. A year ago Big Music's plan was to wipe out Net music and rebuild it in their image. There were several significant problems to this strategy including the fact that record companies had not yet developed a cogent plan among themselves on what their vision of Net music was to be. Buying Net music companies made more sense.

As we said in our November 2000 article "Bertelsmann Claims Net Music Crown":

…When faced with the logic that Net music companies already have the skills the major labels still need, why not buy them? You get a built-in audience and the ideological expertise, both resources that would take time and significant investment dollars to re-create. So far, the first independent offerings from the major labels have met with mixed results…

We further explored this advantages of acquiring Net properties in our detailed January article "Who Will Buy EMusic com?" Three months later, EMusic was bought by Universal.

Now UK research company Informa Media Group, seemingly thrilled by the record industries increased involvement in Net music, is predicting that music sales via the Internet will reach $9.7 billion by 2006. How they arrived at that number perplexes us to be honest because the traditional music industry is worth 15 billion at present and a conclusion that Net music will be worth two-thirds of that in only 5 years sounds overly optimistic.

There are several reasons right off the bat that we can come up with for this. The first are the ever improving P2P programs like Gnutella and FreeNet that the record industry can neither stop or sue because those services are not centralized, feeding off of the grassroots nature of digital music trading. Second, there are 60 million Napster users taught by experience that Net music is a free entity like radio and music videos, not a pay entity like CDs and cassettes. Third are several of the very valid points we brought up in an article we wrote a year-and-a-half ago called "Is MP3 Music a Perishable Product?" an essay that pre-dates the explosion of CD burner sales.

With their upcoming Duet and MusicNet services, the record industry plans on increasing the perishability of downloaded music by making them expire every 30 days unless continual (and perpetual) monthly payments are made (see MusicNet and Duet: all music downloads expire after 30 days ). You won't be able to burn these tunes on a CD either.

The cost to download and hold a CDs worth of music for a year on Duet and MusicNet will be $20, more than what you can buy the CD for. After the year, the digital tunes expire and become un-playable unless you pay an additional $20 for another year. The CD you bought in the store will always work with no added fee. Tell me, does this make MusicNet and Duet compelling to you?

The record companies are buying Net music companies because they want to profit from Net music. There is nothing wrong with that. Just buying Net music sites is not enough though, that is why they are putting them together to build a one-stop architecture to give compelling reasons for the user to part with their hard earned dollars. The problem is they are already charging too much, increasing by more than double the $8.99 standard cost for an MP3 album set by the recently purchased (The albums sold on EMusic also don't expire). That is a sign of an oligopoly's influence. An oligopoly can do that by eliminating choice, which is what these acquisitions also accomplish.

The shopping spree is not over. The question is, will the record industry damage the potential of Net music to itself become an industry in order to protect its traditional music vein and high revenues? That is what may happen if consumers choose to walk away from their excessivley priced offerings.

Many of the points and predictions that we have written about over the last 2 years are nicely encapsulated in Janelle Brown's excellent article for Salon called The music revolution will not be digitized. Anyone interested in the travails of the digital music industry should read this article. As Janelle points out:

The power, then, is consolidated squarely back in the hands of the same record industry executives that held the reins before. Everyone with a good idea that doesn't fit into what the music moguls have already deemed appropriate is out of luck. That personalized radio station will be shut down, that peer-to-peer network will be decimated before it even has a chance to offer a subscription plan, prices for music downloads will be set sky-high, and new music-exchange services will contain only limited catalogs.


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