Online Gold Rush
Sapped by illegal file sharing via the Web and a three-year slump in sales, the recorded music industry may turn it around in 2004. Pay-for-play music services and digital song player technologies have begun to return profits to producers, while the new toys have also caught the attention of brand marketers looking to establish a connection between music and their products.
Five major music labels — BMG, EMI, Sony Music Entertainment, Universal and Warner Bros. — and over 200 independent labels now sell their music through the Apple iTunes Music Store, which launched online last April with 400,000 downloadable songs. Apple products let music fans browse, preview, buy and download songs for 99 cents with the combination of the iTunes digital music jukebox, iTunes Music Store and the iPod digital music player. America Online offers direct links to iTunes via a co-marketing agreement with Apple.
“During its first week of operation, the iTunes Music Store sold five times as many songs as Napster did in its first week — 1.5 million versus 300,000,” says Steve Jobs, Apple’s CEO.
But will consumers pay for music when they can continue to purloin it on the Web? Apple is betting the answer is yes. Since its launch, iTunes has sold more than 25 million songs. According to Nielsen SoundScan, iTunes had more than 70% market share of legally purchased downloads in December.
But such numbers don’t tell the whole story. Apple barely profits from online music sales: 65 cents from every track sold goes to the music label, and another quarter is devoured by distribution costs, leaving Apple a measly dime per track. However, the site boosts the sale of iPods. Over two million had been sold as of January, retailing from $299 to $499 a pop for 15 GB of storage. The iPod mini, at $249 per unit and 4 GB capacity, was also introduced this year in a rainbow of colors and 1,000-song storage capability.
Then there’s the former renegade, Napster. Once a pioneer in illegal MP3-sharing, Los Angeles-based Napster 2.0 returned to the scene last October with a headphone-wearing cat logo and 500,000 songs. Similar to Apple, the digital music service offers 99 cent tracks. In September, Samsung Electronics and Napster jointly introduced a new YP-910GS digital audio player, which is co-branded and identified as “Napster compatible” on the packaging and bundled with a promotional offer of 20 free songs.
Horsham, PA-based Music Choice joined Napster in December to launch a broadband service available in early 2004 reaching 33 million homes and 50 million weekly users. A “download now” button featured on the music player allows listeners to purchase the track or the album on which it appears and subscribe to Napster.
“We allow our customers to conveniently buy music while listening to it on the Web,” says Music Choice President-CEO David Del Beccaro. “They are one click away from buying the song.”
Students at Penn State University are currently part of an experiment, launched in January and sponsored by both the school and Napster. The collaboration, a first of its kind, provides 17,000 Penn State students at 12 campuses with free legal access to the digital music service. Costs are absorbed by Penn State’s existing technology fee ($160 per student per semester).
“Most students are 18- to 19-year olds that have grown up over the past four to six years having illegally stolen music available to them over the Internet,” explains Bill Mahon, spokesperson for Penn State. “They don’t feel as if they are really stealing — only swapping. But it is stealing and this is going to help that particular problem.”
Promotional materials for the partnership include posters, brochures, Napster-branded hats, T-shirts and a specially created Web site, www.napster.psu.edu, providing background information and other details. Napster is currently working with record labels to offer Penn State students a free concert during the second half of the spring semester.
“In two to three years, music services like Napster will be very common on college campuses,” predicts Mahon. Penn State plans to offer the service to all students at most of its 24 campuses for Fall 2004.
On the bandwagon
The overwhelming success of pay-for-play sites has caught the attention of major brand marketers. Beverage companies have teamed up with online music resources offering premiums and contests. In January, Coca-Cola launched an Internet music download service in the U.K., the first consumer brand to enter Europe’s Internet music market. The download site www.mycokemusic.com offers 250,000 songs, selling for 99 pence or $1.71 each.
Coke woos young consumers by linking the brand with new technology. To support the launch, the company plans a yearlong promotional campaign that will include free, exclusive tracks. In the U.S., Coke currently sponsors a site highlighting new music, called www.cokemusic.com; however, no music is sold through the site.
This June, Miller Brewing Co. will feature a two-month online sweeps giving consumers 21 and older the opportunity to win Samsung Napster music players and $50 in music credits. National print and radio advertising, promotional activity at bars, P-O-P in liquor stores, convenience stores and supermarkets will support.
“We’ve just launched a new marketing campaign that encourages beer drinkers to make their own choices, so this partnership with Napster is a perfect fit,” says Bob Mikulay, executive VP-marketing, Miller. “It’s all about ‘choices,’ whether you’re talking about drinking a beer or downloading your favorite songs from Napster.”
Apple formed a partnership with Pepsi-Cola Co. for a 100-million-bottle under-the-cap promo that lets consumers download free songs. The 60-day campaign, which kicks off with a Super Bowl ad this month, lasts through March and puts codes on bottles of Pepsi, Diet Pepsi and Sierra Mist. Consumers can enter a code at the iTunes Music Store and choose one song to download free of charge.
“This historic promotion to legally give away 100 million free songs will go down in history as igniting the legal download market,” says Jobs.
Other brands, including Virgin, Amazon, AT&T, MTV, Gibson guitars and RealNetworks, are looking to join the seven digital music sellers earlier this year.
And now the biggest players are getting in the game. Apple nemesis Microsoft has announced a partnership with digital-music company Loudeye to allow businesses to start branded digital music stores quickly and inexpensively.
Retail giant Wal-Mart began testing digital music downloads in December, selling songs for 88 cents on www.walmart.com. It plans to gather feedback and officially launch the site this spring, expanding music offerings and exclusivities.
“With 64% of our customers online, we see digital music downloads as a natural extension of the music selection offered in Wal-Mart stores,” says Kevin Swint, spokesperson for Wal-Mart.com.
Target Corp. and Napster announced a partnership beginning Feb. 15, which brings the complete Napster online music experience to retail. The companies plan to launch the first “one-stop shop” in a retail environment where consumers can purchase pre-paid Napster download cards, a Napster 2.0 and Roxio software pack, blank Napster-brand optical products from Imation that feature promotional codes for free downloads, and Napster-brand CD cases from Case Logic.
“Endcaps will be featured in the electronics section of Target and will be fully Napster branded,” says Larry Linietsky, senior VP-business development and analysis for Napster. “We view this as a long-term commitment to each partner and Target.”
Target Direct will feature Napster products on the Target.com Web site, the first online retailer to carry the complete Napster line. Guests of the site will be able to join Napster 2.0 throughout Target.com, available at www.target.com/napster.
“All partners felt that Target was a great place to start this partnership. They are very strong in building brands and reaching a large number of consumers with products that consumers want,” adds Linietsky. “We are starting with Target but we are having discussions with other retailers. One benefit of the Target relationship is the online and offline capabilities. We hope to duplicate that kind of experience wherever we can.”
