HMV to Sell Digital Music Online.

By Robert Menta 8/26/02

HMV, the British record retailer, reached a deal with digital music service On Demand Distribution (OD2) to sell digital tracks over the Net. With over 100,000 tunes to be made available the deal marks the largest release to date of label sanctioned digital tracks in the UK. Looking at a September launch, the service makes a major record retailer a lead player in the sale of online music, an area that has faired poorly against Napster clones that are not only free, but offer a greater variety of music.

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Services like MusicNet and PressPlay are label run affairs that cut out the middlemen, i.e. the traditional record stores. Net vendors like Real and have also created services, equally met by consumer indifference.

Record chains have been left mostly out of the mix. On Demand Distribution, a company co-founded by artists Peter Gabriel and formed to exploit new channels for music sales through technology, looks to change that by becoming a wholesale distributor of label-blessed digital music tracks. OD2 will offer all the back end machinations to support the online endeavors of record stores who wich to enter digital music file retailing.

"This is a very important deal for the industry as a whole as HMV is one of the largest High Street retailers of CDs and stocks quite a broad catalogue." said OD2 Chief Executive, Charles Grimsdale.

Grimsdale hopes more retailers will follow now that HMV has taken the plunge. Despite the setbacks, recent research from several sources including Edison Research has shown that there is a clear market for the sale of digital music online, even with the existence of the free file trading services. If they want people to pay, though, these services have to offer as much as their P2P brethren like KaZaa and Xolox.

That has been the key problem with these services. Not only were prices overly expensive when the first services appeared, but they were also cumbersome to use, overly restrictive, and still only have a sampling of the music available from the Napster clones.

Initially, files could not be burned to CD or transferred to a portable digital music device. That alone turned many potential users off. Recently, several of these services like PressPlay have eased these restrictions, but have not removed them altogether.

If services like PressPlay want to remain viable and compel consumers to part with their dollars and pounds, they must listen to the market and mimic much of the freedom offered by the free P2P services. The expectation is that they will be forced to in relatively short time. Record retailers are aware that if digital files sales should ever take off they need to to make sure they are not cut out of the action.

HMV's new service will cost five pounds or around $7.00 US for an undisclosed number of tracks. PressPlay recently changed their model to offer unlimited streams and downloads for $14.95 a month. OD2's Grimsdale feels confident the pricing for these services are getting closer to satisfying consumers.

"It's still early days but the consumer feedback is good," said Grimsdale. "The cost per track is low, so if you want to listen to music on your computer, it is very good value."


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