May 24, 2004 (Computerworld) --
Call it the neutron-bomb effect: In less than a decade, the aisles of music retailers will be empty. I predict that online music sites such as Apple's iTunes, Napster and Sony's Connect will have drained Virgin Megastores, HMVs and Tower Records of their customers. No, I take that back. The big brick-and-mortar music retailers won't just be empty; they'll be gone -- along with their shelves, bins and dimwitted sales assistants who can't direct you to anything other than the latest Britney Spears CD. The success of Apple's iPod, which plays Internet-downloaded music, demonstrates how the world of traditional retailing is colliding with digital technology. With recommendation engines, shared playlists and downloadable samples all at a consumer's fingertips, why buy at a store? Even big music companies such as Warner, BMG and EMI are getting into the act, teaming with RealNetworks to start a service dubbed MusicNet. But this effort comes with restrictions on what you can do with the music. You might want to burn a CD so you can listen in the car, but the service's protected Real Audio and Windows Media files chain you to your desktop. Virtual music should let you take music anywhere. And as soon as you go virtual, the economics of shrink-wrapped CDs begins to look dicey. A consumer who pays 99 cents per song at iTunes (soon to be $1.25; the music companies are being true to form, biting the hand that feeds them) is putting about 65 cents into the pockets of the record companies. For Apple, the real money is in selling the iPod. But for the music industry, the important lesson has been Apple's demonstration that it doesn't take a music company or a traditional retailer to rearrange the business model of selling music. With the record companies taking two-thirds of the money, margins for stores are going to get squeezed. They are already razor thin, and promotional deals, chargebacks for unsold inventory and co-op advertising seem ridiculous when a consumer can point, click, sample and buy. This lesson wasn't wasted on Wal-Mart, which now charges 88 cents to download a song. OK, Wal-Mart may not be a teenager's idea of cool, but its downloads are among the cheapest you can find. And it could be that the only thing that's more appealing than a cheap download is a free one. One of the hottest albums of the year is Danger Mouse's Grey Album, a remix of Jay-Z's Black Album with the Beatles' so-called White Album. The Grey Album exists in a legal limbo, since Danger Mouse was working without permissions, so you can't buy this music in stores.But until EMI pressed its legal case (it owns the rights to the White Album), the Grey Album was downloaded via the Internet more than a million times. That's a lot of downloads. But it's nothing next to the sales that music retailers and the big labels will miss out on unless they get hip to technology. Pimm Fox is a London-based journalist. Contact him at pimmfox@pacbell.net.
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