All five major record labels now have plans to develop digital distribution services.
Established music companies now recognize that they need to develop their own services to compete with and provide an alternative to illegal services. Last October, BMG invested in Napster with the aim of retaining its user base and transforming it into a commercial service. In February 2001, Universal, who had been testing digital distribution through an American website, Framclub, joined forces with Sony to develop an online music service called Duet. Warner Music, Bertelsmann and EMI have now confirmed their plan to form an alliance with RealNetworks in the opening of MusicNet, another digital distribution service.
The development of the two rival services, Duet and MusicNet, has the potential to completely transform the online music industry. The success of unofficial services, enabling free delivery or exchange of music, however, presents a significant challenge to the development of commercial services. It will be necessary to convince the vast majority of current and future online music fans to pay for content that is also available for free. This can be done if commercial offerings provide a higher level of service with greater choice at an acceptable cost.
Services such as Duet and MusicNet will need to provide added value compared to free services through greater convenience, with a simple service making it easy for consumers to find the desired music. In addition, they need to provide improved functionality through added features, such as music videos, and fast and reliable downloads providing high levels of quality.
The development of digital distribution services by all five major record labels marks the start of the commercialization of online music. Such services will, however, develop gradually as the record labels experiment with revenue and price models and learn about consumers’ behavior and requirements. Ultimately, due to their brand strength and control over the music supply chain, the major record labels can be expected to dominate the online music world as much as they do the offline world.
