A small outbreak of heavy-metal fever hit the Internet in October when Kittie, an all-grrl Canadian rock band, posted a free sample song online. Few in the United States had even heard of the group, but soon thousands of listeners eager for something edgier than Britney Spears were downloading and sharing the band's tune on a Web site called Myplay.
By the time Kittie's album hit stores in January, pent-up demand helped sell 8,800 copies in a week, propelling it to No. 147 on the Billboard charts. Since then, the record has defied the long odds against pop stardom and is on the verge of selling 400,000 copies, a feat that guitarist Mercedes Lander attributes to nonstop touring and word-of-mouth buzz on the Internet.
"It's cool, it helped record sales, it helped get our name out," says Lander. "The Internet for us has been a big help."
Despite the current music industry panic over online piracy, the Web is starting to look to some in the business like a multibillion-dollar opportunity cleverly disguised as a mortal threat.
So far, the labels have mostly cowered and tried to litigate their song-stealing problems out of existence, filing suit against music-sharing companies, such as Napster, which have helped roughly 13 million consumers download half a billion songs without paying anyone a cent. But emboldened by success stories like Kittie, the major labels will finally unveil their pay-for-play Web music offerings, going well beyond the occasional snippets they've posted so far.
The ventures are a belated counterpunch to the free music phenomenon, which utterly blindsided the industry in the past year and has prompted forecasts of financial disaster. Instead of ruining the business, however, the craze for downloadable songs could make labels and artists richer than ever, according to an evangelizing group of record executives and techies. And the good times might have already started. As music pilfering caught on, music sales actually rose briskly, up 8 percent in the first quarter of this year compared with the same months in 1999, according to Soundscan.
Recording industry officials argue that their sales would be even higher without Internet piracy, and they attribute the recent uptick to a healthy economy. New releases by mass-marketed and hugely popular teen bands, like 'N Sync, are helping too.
Some music business watchers have another explanation: Losses through thievery are being more than offset by legitimate music sales, even before the labels offer a legal, downloadable music alternative. In a recent survey of more than 16,000 computer users, the Digital Music Association found that 66 percent of consumers who listened to a song online eventually bought a CD or cassette featuring that tune. Only 6 percent of respondents said that listening to music online made them less likely to buy.
"It's like VCRs, which the movie studios initially tried to sue off the market, figuring that it would ruin interest in first-run movies," said Ric Dube, an analyst with Webnoize, an online marketing research company. "The VCR quadrupled the size of the movie business by multiplying excitement about the movies. That's what the Web will do for music."
Preemptive Strikes?
The music industry has a long history of fulminating against innovations that eventually made it more wealthy. When cassettes caught on in the 1970s, for example, the labels howled about home taping devices, certain they would crush album sales. Instead, the labels made hundreds of millions selling prerecorded cassettes.
Even the dowdy old vinyl record was once deemed a menace by, of all people, the musicians' union. Musicians held recording session strikes in the 1940s, convinced that the growing popularity of vinyl would ruin the live concert business, then by far the largest revenue source for artists. (The boycotts are remembered mostly for cutting precious time from the all-too-brief recording career of country king Hank Williams.)
The Internet, however, has terrified labels for understandable reasons. A downloaded song is typically a near-perfect digital copy of the original and can be sent to thousands of computer users with relative ease. And failing to foresee the online future--including MP3, the software format that compresses songs into easy-to-send files--the record industry churned out billions of CDs without any built-in piracy protection.
"Our problem is the CDs that we already have sold," says Ken Berry, the CEO of EMI Recorded Music, one of the world's largest record labels. "It is far from a foregone conclusion that we'll deliver unprotected content in the future."
Napster, the most popular MP3 swapping program today, allows users to download thousands of songs, free of charge, which are stored on other users' hard drives. The company has been sued by the Recording Industry Association of America (RIAA), but stopping it won't end music's piracy problem. Other programs, such as Gnutella, are gaining popularity--guerrilla software supported by a loosely affiliated group of code writers and listeners. Filing lawsuits against Gnutella is pointless because it's not a company; nobody owns it and it doesn't originate from anywhere in particular.
Nobody knows exactly how much music piracy has cost the industry. Last week the RIAA cited a study indicating that Napster and other services have slashed record sales by 13 percent in stores near colleges, where Napster is most popular. The problem is that the survey looked only at stores within a one-mile radius of the colleges, which is unlikely to include mega-chains like Wal-Mart, the country's largest music retailer. And it didn't include online CD sales through stores like Amazon.com, which is a likely place to buy music if you're already online.
"People are only beginning to document the losses," says Alexandra Walsh of the RIAA. "With all those people getting music for free, somebody is not paying for music."
Though Napster isn't bankrupting anyone now, and isn't particularly popular with either adults or preteens, it and other "freeloader" programs are gradually winning over the 19- to 23-year-old set. The worry is that every year that the industry fails to offer these college-age kids a pay-for-play alternative will mean another million fans who think of music as something you pluck free from the Web.
Before turning the Internet into a moneymaking casbah, however, the industry must overcome a gantlet of obstacles, some of its own making. Not least of these hurdles is a serious image problem and the widespread sense that labels have been gouging fans since the advent of the $18 CD.
And there are countless ways for the industry to botch its forays online, either by pricing songs too high, or slapping annoying restrictions on legally downloaded songs, or presenting a confusing maze of retailers and technologies. Some labels are planning to charge $3.49 a song, a sum that might only enhance Napster's popularity.
Fine-tuning prices and systems could take years and it will challenge the often sclerotic corporate music world, a mutually suspicious network of artists, retailers, labels and hardware makers. These players have spent years jostling over the size of their cut of the music business pie and the Internet threatens to radically change those portions. So building consensus among them about how to move forward has proven tricky and arduous, which is why the industry-wide effort to produce secure electronics and software for downloadable music is well behind schedule. The Secure Digital Music Initiative, as the effort is known, was supposed to have yielded a batch of pirate-proof devices by last Christmas.
Still, the labels bring to this game enormous built-in advantages. Some 30,000 records are now released each year, about 10 times the number of a decade ago. That makes a major-label contract ever more vital to performers, who need the label's public relations expertise and radio connections to break through the clutter. Kittie's online debut, it's worth noting, was no accident--it was part of a carefully orchestrated and funded public relations blitz by its midsize label, Artemis Records.
It helps, too, that nobody seems to have a clue about how to make money from pirated music. Napster, for instance, doesn't have a business strategy, let alone real revenues. That's why dozens of tech companies are now knocking on the label's doors, hoping to sign partnership deals and help Sony, BMG, EMI, Universal and Warner Bros. navigate their next digital steps.
Even companies that were unabashed enemies of the labels are in join-them-if-you-can't-beat-them mode. After watching its stock plunge and legal bills soar, MP3.com, which initially billed itself as a label-slayer, recently joined the law-abiding fold by agreeing to pay Warner and BMG about $100 million to settle a lawsuit against the company. It would surprise few in the industry if Napster cried uncle next.
"The hard thing in the music world is finding Madonna, not developing online technology that lets you play a song by Madonna," says Mike Dreese, CEO of Newbury Comics, a New England record store chain. "The labels have Madonna. They'll eventually get to the technology."
And labels are increasingly vital to consumers, who, whether they know it or not, rely more than ever on the companies' talent scouts and promotional muscle to weed out the lousy music and advertise the good. Labels have longed stirred resentment among artists and they push a lot of unworthy acts, but they're all that stands between consumers and teeming hordes of talentless acts. If you doubt that, take a peek at riffage.com or any of the other Web sites that post songs by unsigned artists; the experience is perplexing and time-consuming, and decent songs are a rarity.
"We don't have a great rep out there," says EMI's Berry. "But the marketing and promotion process takes a lot of expertise and without it, how would any consumers know what they want to hear?"
Paying and Playing
Persuading consumers to buy music to support the label's vast and largely invisible filtering mechanisms could be a tough sell, executives say. So the industry must fashion imaginative answers to a vexing question: How to get consumers to pay for something they can take free.
In part, the industry is hoping that most consumers will abide by the law if given the opportunity, and they might be right. In a recent survey by Webnoize, the online research company, 58 percent of Napster users said they'd pay a monthly subscription fee for the service. And the more time someone spent on the service, the more willing they were to pay.
But what about consumers who don't consider downloading songs to be stealing--the "Napster Nation" youth who don't expect ever to pay for music? For the time being, the labels aren't romancing them, though the Internet makes possible some tantalizing overtures.
What if you could buy a song for, say, 99 cents, and get with it lyrics, some downloadable photos of the band and an online seat at the group's kickoff live show? Perhaps you could store the song in an online locker so you could listen to it from your combination cell-phone/MP3 player--already a popular item in Europe--or your work computer, or, eventually, your car.
Maybe if these goodies were delivered smoothly and quickly, you'd pay. As the software industry discovered years ago, the key to reducing intellectual property theft is adding value to licensed products. Instead of merely stigmatizing software thievery, companies like Microsoft made paying for programs more attractive than heisting them by offering invaluables like instruction manuals and tech-support hot lines.
"There's no question that there will be a certain minority of people who will steal music online, just the way there are people who get HBO for free," said Danny Goldberg of Artemis, the label that distributes Kittie. "But HBO still makes a ton of money."
And the Internet has precision-market possibilities that could make radio seem like a blunt instrument. The tale of Kittie's purring sales shows why.
Hello, Kittie
The band, born four years ago in a high school gymnastics class, hails from Ontario. Metallica is clearly an influence. All the members of the quartet are teenage and touchy enough about it to make the topic off-limits in a recent phone interview. They've toured the United States seven times and will join Ozzfest this summer.
In October, Artemis Records signed a deal with Myplay to promote a free Kittie song, "Brackish." The site, which launched last year, provides online music "lockers" where fans can upload and store their legally acquired CD collections, allowing them to enjoy music from any device that can link to the Internet. And it lets users share their songs with friends, though restrictions keep it on the right side of the law. (For example, you can access a song sent by a friend for only two weeks, then it vanishes.)
For labels, Myplay offers a trove of invaluable information, including the e-mail addresses and listening habits of its users. If Jive Records, for instance, is launching a new boy band, it could instantly send free sample songs to anyone with 'N Sync tunes in their locker, then alert fans when the act's new album is released.
That's roughly what Myplay did for Kittie. The site advertised the band on its Web pages and alerted fans that the group was coming to New York to film a video. A simple-to-access button allowed fans to pre-order the album with a click of a mouse. Within a few weeks, the song was in 12 percent of all lockers and hundreds of Myplay users placed orders for the album weeks before it came out.
"The music business is like the movie business in that a big opening week is crucial," says David Pakman, Myplay's co-founder. "And all those pre-orders count toward the first-week total, which is part of the reason it wound up on the charts." Which generated attention, and so on.
Sooner or later, the Internet could change how music is sold and experienced. It might even kill off the "album," giving rise to a pick-and-choose singles market that harks back to rock's early days and the age of 45s. But there's evidence that even in pop's brave new world, many fans still want to "own" their music--even old-fashioned CDs purchased in old-fashioned record stores.
"You could download a lot of our music from the Internet and burn it onto a CD, but we think our fans will want to buy our album, too," says Kittie guitarist Lender. "We've found that even people who listen to us online buy our albums."
