Many cyberspace commentators believe that the music business is cases free of charge and free from record company interference. It will empower recording artists and listeners, but could it leave the music industry in dire straits? engaged in a last-ditch attempt to gain control of the digital music industry that has sprung up behind its back and without its blessing. But record company bosses face an uphill battle to regain control. MP3, the open standard for digitally compressed music, has already become the de facto and pretenders to its throne have to contend with the buccaneer inclinations of the internet generation.
Put simply, MP3 permits compression of audio files by a factor of almost 12, with little quality degradation from the original source. A five-minute track traditionally takes about 50Mb of hard disk storage space but, in MP3 format, the same song occupies just 5Mb.
As a result, the rise of MP3 software and Walkman-like devices has the potential to seriously affect the channel.
Although retailers will eventually get most of the action, there is some revenue potential available to early channel adopters, according to Neil McGuinness, marketing manager for northern Europe at Diamond Multimedia.
He predicts that a raft of consumer devices and computer peripherals will come in on the back of MP3 audio.
Diamond's Rio PMP300 is one of the first MP3 players to hit the UK. 'We are on the ground, ready to go, with no competition near us and tremendous general interest in music and the internet to tap into. There shouldn't be a conflict - the consumer audio and PC areas can work together on this,' says McGuinness. 'We have had a huge amount of pre-launch interest in the product and are working hard to get it on the shelves. We are formulating a promotional plan to bring Rio to the attention of everyone who isn't a total Net slave.'
While the replacement battery turnover isn't likely to result in much added business, the sale of SmartCard memory cards for Rio and similar devices will go from 'modest' to 'quite considerable' volumes, given that some digital cameras share them. Digital cameras are dear, but MP3 players are relatively cheap, so it will be the audio devices that will dictate volumes.
Sales of other peripherals for PCs are also set to rise - bigger, faster hard disks, speakers, sound cards and maybe even recordable CD drives - if the availability of music on the internet catalyses demand. People who weren't previously motivated to purchase PCs and those resistant to Net hype may now do so on the basis of the burgeoning music channel. The upgrade business should do nicely on the strength of Rio's success.
In addition, downloading music from the Net requires bandwidth and that could shift a lot of fast modems and ISDN terminal adapters. It could even be the spark that sets the long-anticipated satellite internet services alight. KissNordic and Adaptec's BroadLogic are ready with interface cards that can send your favourite tunes to your PC at 400Kbps through a satellite dish and can transfer a CD's worth of MP3 music in a matter of minutes.
But David Atherton, managing director of Dabs Direct, a Rio mail-order reseller, says the MP3 revolution hasn't quite reached its base in Bolton.
'It is a new category and is pretty expensive relative to the mini-disc in the consumer electronics market. We are selling the Rio unit at #179 including VAT, but it and its competitors will be on the streets for less than #100 by the end of the year.'
But the success of MP3 is not a sure thing, he adds. 'It may be an uphill climb - the delivery mechanism for content needs to be smoother and cable hassles will keep it in the hands of the techies. If Sony released a mini-disc PC drive it could damage the prospects of the MP3 hardware market. But MP3 and the Net are likely winners. I'm glad Dixons is doing the groundwork, as there is a tremendous consumer education effort required.'
As regards to software vendors, the internet offers little solace. There may be a limited opportunity for highly specialised software that manages catalogues, but little else. What audiophiles want is available for the price of a local phone call to their ISP. The Rio product and others like it, as well as memory cards, are the types of 'no moving parts, no service content' kit that can be efficiently bought from a Website. Why wait for a hot track when you can download it now?
A variety of high-profile artists are already spinning their music on the Web, including The Artist Formerly Known as Prince, David Bowie and Roger McGuinn. And Web entrepreneurs will need considerable bandwidth to manage the growing demand.
But before CDNow and other online music distributors can sell music without need of invoking boxes and sticky tape, the recorded music establishment will need to give its blessing.
What remains to be seen is how the high street music shops will fare.
They will certainly need fewer square feet if they become chip filling stations. Many will migrate to the internet to satisfy requests for obscure or unpopular music more efficiently. Fan Web pages, chat rooms and gig listings can also be added to the equation.
The business of music distribution may change from top to bottom once other recording artists figure out that they don't need the record companies to get their music into the public domain. The Artist Formerly Known as Prince has been quoted as saying: 'When I used a leading label, I made $1 a copy. Now I make $7. So what if my sales are a little lower than before?'
Meanwhile, Diamond is working hard with resellers to get Rio on the streets in volume, says Ron Forman, channel marketing manager at the vendor. 'The Gold programme is for dealers and system integrators that commit to volume with four main distributors. Our Gold partners are given an extra push from our end - information flows freely in both directions. And because they have demonstrated volume business, they also receive suitable discounts from the distributors. Manufacturers can do one of two things: sit there and be reactive, or be active in making the channel successful.'
Diamond has four main distributors: Computer 2000, Microtronica, Actebis and CHS Electronic's subsidiary, Karma. Steve Jackson, UK marketing manager at Karma, is bullish about Rio's prospects. 'It is a new product category and so far there are no rival devices over here, so we have a clear field to set the market's expectations. The devices can also drive demand for other PC add-ons and component upgrades.'
The threshold issue for the MP3 player and peripheral resellers is one of product classification. Is Rio and its soon-to-appear close relatives a personal electronic gadget or a computer peripheral?
The case can be made for both but, ultimately, it will be the retail experience that will dictate which way to go. Rio is used as a replacement for a personal hi-fi, but is useless without a PC or Mac to load its memory with tunes and provide access to new material - and archives of past tunes - on the Web.
PC World carries Rio, as does Dixons' duty free shops. Placement in Dixons and Currys on the high street are pending. Chris Burrett, Dixons Stores Group product manager for peripherals at PC World, says: 'We are selling it as a computer peripheral. It is similar to a CD-Rom drive in that it makes music, but doesn't work without a PC. But that positioning may change. Beginnings are sensitive periods - a lot of people are talking about Rio and MP3, but there hasn't been much take-up yet.'
He adds there is no reason for MP3 not to be successful, even if the music industry refuses to support it. Rio may not be an overnight commercial success, but it is the vanguard of a trend towards internet-delivered entertainment.
Record industry executives are sailing into dangerous waters as they try to control the distribution of music over the Net - the influence they can exert over cyberspace appears to be minimal. For once, the will of the masses - not the few - could set the agenda.
TRACKING DOWN MP3
As always on the internet, MP3 was able to get its toehold because it is free. Both players and music clips in the MP3 format are widely available. The other proprietary formats are an anathema to the Web community, requiring either purchase of software or payment of a fee to the company that developed them.
At the last count, the MP3 association said there are more than 100 types of MP3 players available. Operating system and application support includes Microsoft Windows 95 and 98, NT and Net Show, Macromedia's Shockwave and Real Media's RealPlayer.
Goodnoise is an internet record company that has an area containing free songs to download from various artists, including Frank Black and the Catholics, Square the Circle and Reid Paley. If you like what you hear, you can buy the entire album or individual tracks in MP3 format directly from their pages.
But not all CD and record companies are playing along with this philosophy. As they make clear in the not-so-small print, other than personal copies of paid for content, unauthorised duplication of any recordings downloaded from the internet or made from audio CDs are a direct violation of copyright law and international treaties.
In other words, re-posting the recordings on the internet or making copies for others will earn users a stern ticking off from the relevant music industry lawyers.
One reason why Diamond Multimedia and the even more controversy-shy Far Eastern Rio clone vendors missed the 1998 Christmas rush was a lawsuit brought by the Recording Industry Association of America (RIAA) seeking to stop Rio in its tracks last autumn.
It accused Diamond Multimedia of alleged collusion in the hijacking of copyrighted material via the internet and issued an injunction stopping the distribution and sale of the device.
Diamond managed to get the injunction request dismissed, but the lawsuit behind it trundled on. What was going to be a very tight schedule turned into an impossible one. Smarting from its lack of initial success, RIAA and five of the world's biggest recording companies laid plans just before the festive period to establish a standard for secure digital music sent over the internet, safeguarding consumers from the evils of audio piracy and, of course, protecting their revenue streams.
But the agreed standard, the Secure Digital Music Initiative (SDMI), faces a tough fight in getting the consumer electronics industry's various chip, software and systems suppliers to all sing the same tune. The DVD debacle provides ample evidence of what can go wrong when vendors refuse to co-operate, but with MP3 there is one crucial difference - it's here now and it works.
However, announcing to the public a new standard that flatters the interests of the leading music industry companies may not be high on the agenda of many internet users.
Any standard has to meet and beat MP3. Already five to 10 million audio players have been downloaded from the Web and will be joined by as many million Rio players as Diamond can muster in the coming months.
But SDMI has an ambitious timetable. Hilary Rosen, president and chief executive officer of RIAA, says: 'SDMI will have its first meeting this month to prepare a specification in time for SDMI-certified products to ship in the autumn of 1999.' That assumes the disparate parties in SDMI can get a single standard agreed and convince the rest of the world to follow. To meet the pre-millennial holiday requirement, the standard will need to be agreed on by March, and this is beginning to sound like a tall order.
Diamond, in an attempt to accommodate the music industry giants, has committed to SDMI but it is moving ahead with its Rio player marketing effort.
The vendor is readying a second-generation Rio player for mid-year that will have an application programming interface (API) which will allow the various existing and proposed encryption schemes to work with Rio.
In the face of the considerable installed base of MP3 software, and soon-to-be-released hardware, SDMI doesn't appear to be the standard to bet on in the short term.
HER NAME IS RIO
Before Christmas they were as hard to come by as the largely mythical Furby, despite the total lack of consumer education either through conventional advertising or high-profile product point-of-sale material. But Diamond Multimedia's Rio MP3 player is now available in sufficient volumes to make it worth the reselling investment, according to Neil McGuinness, marketing manager for Northern Europe at Diamond.
The Rio PMP300 is palm size and extremely portable. The design is clean and the relevant switches are logically laid out. Unlike tape and CD players, it can play without interruption when bounced or jostled, as there are no moving parts to skip or knock out of alignment. The lack of a spinning motor also pays off in power consumption - the unit can run for about 10 hours on a single AA battery.
The player supports MP3 compression and can hold a dozen songs or so in its 32Mb built-in flash memory. Playback time can be extended with flash memory SmartCards, although this type of storage is one of the most expensive per-megabyte media on the market.
The retail pack contains a parallel port bypass connector and cables.
A copy of MusicMatch Jukebox Limited Edition software for converting CDs into an MP3 format, Rio interface software and a CD of music samples are also included.
Anyone that has run a Walkman can run a Rio, but users will require a little bit of PC knowledge to get it hooked up for downloads from CDs or the Net. The software is simple to use and shouldn't be the source of too much support angst. And in terms of sound quality, it is excellent and on a par with CDs.
It will be very easy to sell the skip-proof playback to the sporty sorts, but it may take a while to temper the internet aspect for customers who aren't already Net aficionados.
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