New plan from former Napster Exec, let;s give the young people music thet want while in college and let them pay for it later......more out of touch thinking from the gorund losing music industry..... This seems like a desperate attempt once again to stop piracy.
Making a Ruckus in the Music Business
An upstart run by a former Napster executive aims to change how people get songs online—and give Apple a run for its iTunes money
by Catherine Holahan
Mike Bebel has a plan for inducing young people to pay for downloaded music: Give them all the songs they want for free while they're still in college, then start charging them a fee when they're out of school and gainfully employed. Bebel, a veteran of Universal Music Group and Napster (NAPS), is putting that plan to the test at Ruckus, a media download service he now runs.
Since February, 2006, the company has offered students at participating colleges access to a library of movies and more than 2 million songs, including the latest releases from major music labels, generating sales through ads. On Jan. 22, Ruckus is expanding its offering to let anyone with a valid ".edu" e-mail address gain access to the service and participate in the site's social communities.
Listen Now, Pay Later
Bebel believes students will opt to build a music collection of complete, licensed tracks through Ruckus instead of stealing songs via popular peer-to-peer networks that can be plagued with adware, spyware, and incomplete tracks.
The catch: When they graduate and drop the ".edu" for a ".com," students will need to start paying $8.99 a month or risk losing access to that vast collection they built up while in school. If subscribers also want to listen to songs on their portable music player, they're looking at an additional $4.99 a month.
Ruckus' business model might sound like a pipe dream in a market dominated by piracy and iPods. But Bebel has recently found a sympathetic ear both with investors and music industry executives who are struggling to wean customers off the illicit services that make up an estimated 90% of the music download market. "It has taken a bit for [the music industry] to get comfortable with the notion of it being free and being ad-supported," says Bebel. "But now there is recognition that the piracy problem is not going away and further recognition that a lot of this is happening on college campuses."
Legit Sales Declining
According to market research firm NPD Group, nine songs are downloaded illegally for every digital track purchased legitimately through a service such as Apple's (AAPL) iTunes. Russ Crupnick, a senior industry analyst at NPD, estimates that more than 45% of music is acquired for free through illegal downloading, ripping friends' CDs, and sharing copyrighted files. Conversely, compact disc sales, which make up the majority of record labels' revenue, comprise about 50% of the market. Less than 5% of music is acquired through legitimate, paid download or subscription services. "A huge portion of the pie is unpaid content," says Crupnick. "The record labels are faced with, 'How do I preserve the business that pays the mortgage for the industry?'"
It's a question that the recording industry is under increasing pressure to answer. Though the number of legitimate digital music purchases has steadily increased in recent years, the growth has failed to make up for losses in album sales. Digital track sales grew 65% in 2006 from 2005, reaching just under 582 million, according to Nielsen SoundScan. But total album sales, including both digital and physical CDs, decreased nearly 5%, to roughly 588 million.
The decline is all the more worrisome, coming at a time when actual music consumption is growing at a healthy clip, says Crupnick. People are listening to more music than ever before. They're just not paying for it. "As many as 15 billion songs are acquired for free in an unrestricted MP3 format each year," says Eric Garland, chief executive officer of research firm BigChampagne. Apple's iTunes, by comparison, has sold about 2 billion songs since it started in 2003 (see BusinessWeek.com, 1/17/07, "Apple: What Options Scandal?"
. "That makes not only iTunes but also traditional CD sales look like an also-ran business," says Garland.
Weaning Users Off Piracy
Some subscription services that depend all or in part on advertising, such as the soon-to-debut SpiralFrog, hope to lure users from peer-to-peer services by making music feel free in the same way network TV makes its content available (see BusinessWeek.com, 9/5/06, "Meet the iTunes Wannabes"
With Ruckus, college consumers "pay" by viewing ads targeted to young adults and students while they surf around for music and participate in social networks. Bebel says audio ads are not appended to songs and there is no advertising that must be viewed before a song downloads. SpiralFrog users are encouraged to surf around the site and view advertising while waiting for songs to download.
Garland thinks such services have a shot at success, provided that they can offer music labels' full catalogs. "People want everything, they want their music on demand, they want it in an unrestricted MP3 format," says Garland. "And if it is not that, they don't want to pay for it."
As evidence, Garland cites the success of eMusic, the second most popular music download service after iTunes. While iTunes has largely been buoyed by the popular iPod media player and the copyright-protection software that prevents songs from other services from being played hassle-free on the iPod, eMusic lets customers buy subscriptions and download songs in a format that works with all music players. Trouble is, major labels have not licensed their material to the service in part because of the lack of desired digital rights management (DRM) software that encodes restrictions such as the number of times a song can be copied (see BusinessWeek.com, 1/5/07, "Music Fans: Dismantle DRM"
In Garland's view, an ad-supported service such as Ruckus answers some key consumer demands: It has a large catalog, feels free, and even has some of the social components that consumers use to find new music.
Still, it lacks the interoperability that consumers also demand. And that may be its biggest drawback. In Bebel's ideal world, this issue would be resolved and the service wouldn't need to have restricted files in order to offer major-label releases. However, the industry has been unwilling to abandon DRM altogether. Companies such as Apple and Microsoft (MSFT) also favor the technology, arguing that their own proprietary DRM software is necessary to ensure a seamless experience between their players and music stores.
NPD's Crupnick believes the recording industry will eventually be forced to abandon DRM in order to compete in a digital marketplace that has free, albeit illegal, alternatives. "Consumers want to own music," says Crupnick. "If they cannot make a copy to put in their car or they can't get it onto their portable player to take to the gym, it ticks them off." And the alternatives—not all of them legal—can look plenty appealing to an angry consumer.