Sony leads record industry into Web music

Sony leads record industry into Web music
TOKYO — Sony Music Entertainment will give the nascent Web audio market a push forward next week when it becomes the first major record company to launch a Net-based music distribution service. Three other record companies — and Japan's largest mobile phone provider — are expected to follow Sony's lead next year with Web music services of their own.

Sony's "bitmusic" site will tap Microsoft's Windows Media technology for distribution and, in January, will layer on the Electronic Music Management System developed by IBM. Music content is compressed in Adaptive Transform Acoustic Coding 3 (Atrac3), developed by Sony and used for the first time in the MemoryStick Walkman.

Sony says its technology — compliant with the Secure Digital Music Initiative (SDMI) specifications hammered out in July — will safeguard content. But some analysts say the move may fragment the market coalescing around the de facto MPEG Audio Layer 3 (MP3) standard.

"Music downloading from MP3 sites that ignore the copyright of artists and record companies" has been rampant this year, said a spokesman for Sony Music. "We took the lead in the record industry in launching network audio distribution because we want to expel such illegal distribution. We want to establish a rule based on copyrights."

A site has been established in Japan on which 44 recent releases are available for download. Sony Music intends to add further titles to the site on the same day the selections are released as CD singles. "For the time being, since the number of users and titles will be limited, we anticipate the business won't bring a profit," the spokesman said.

Sony Music will only release titles for which it holds producer's rights, and for now the titles will be largely limited to Japanese artists. Sony Music also intends to limit the distribution area by means of user domains and fare correction systems. Sony Music will accept payment only via credit cards issued by Japanese institutions or via Smash or WebMoney. (Smash is a settlement system; WebMoney is a prepaid card. Both are available only in Japan.)

Tokyo market research firm Seed Planning Inc. has projected three possible scenarios for the growth of the digital music distribution market over a five-year period from 1998 to 2003: the A pattern, which predicts growth to 100 billion yen (about $1 billion), the B pattern, at 60 billion yen (about $600 million), and the C pattern, at 40 billion yen (about $400 million) "The B pattern is most probable. In that projection, the total music market will grow by 6 percent, from 690 billion yen in 1998 to 730 billion yen in 2003," said senior analyst Kenji Hara. CDs' share of sales would remain flat, while the record rental market is seen shrinking from 90 billion yen to 50 billion yen. Digital distribution, meanwhile, would grow from zero to 60 billion yen, and music kiosks (for downloading music at retail sites) would grow to 20 billion yen. "Sony Music Entertainment's launch has an impact on the industry . . . Record companies will enter the market quickly," Hara said.

Watermark provisions

SDMI specifies up to three copies of a title may be made from a PC; Sony's system allows one copy. Though the first phase of SDMI does not specify a watermark system, Sony tapped the watermark technology of Verance Corp. (Cambridge, Mass.) , which is expected to be adopted for the next version of SDMI.

Dan O'Brien, analyst at Forrester Research (Cambridge, Mass.), said Sony's initiative illustrates how the five major record labels are "struggling with the Internet and music piracy and how they can incorporate the Internet without cannibalizing their existing business."

He questioned whether the electronic music distribution service will succeed given that Sony is using proprietary memory and compression formats and a proprietary security wrapper, "all of which run counter to the open standards of the Internet."

Citing the precedent of Sony's adherence to the Betamax standard in the early days of the VCR, O'Brien asserted that the company doesn't "like to play in the open standards market until they have to."

Some record companies have recognized the popularity and promotional value of an open standard such as MP3, which is used by millions of consumers. BMG Entertainment invested $21 million in Riffage.com, an MP3 programming site that offers playlists and music events and lets consumers download MP3-formatted songs for a fee.

Thomson Multimedia has a financial stake in MP3, having co-developed the format with the Fraunhofer Institute. But a company spokesman said the proliferation of electronic music initiatives based on divergent formats convinced Thomson to design its DSP-based Lyra Internet audio player as an upgradable platform. "Everyone is still groping with the right framework and method for distributing Internet audio," the spokesman said.

The Lyra player supports MP3 and RealNetworks' G2 format and will support Microsoft's Windows Media via software download starting in January.

The Secure Digital Music Initiative is struggling to define a framework for Phase 2 screening technology. Some of the issues still under discussion include what Phase 2 certification will entail, what the licensing terms will be, who will be responsible when the system is hacked and what functionality will be permissible in the future.

Girding for hackers

Thomson's spokesman said the company believes SDMI must assume hacking is a given and set out to design systems that are upgradable so changes can be made when the system is hacked.

While content owners would like device makers to be responsible for any hacking into electronic music distribution systems, device makers need to have the consumer's interests at heart, the spokesman said. "We don't think consumers will appreciate if you remove functionality from future products."

Avex Inc. and Nippon Columbia Co. Ltd. (Denon), major record companies in Japan, also plan to begin electronic musid distribution (EMD) service next spring. Avex has not disclosed details; Denon said its experimental service will let users download Japanese music classics.

Meanwhile, other technologies not traditionally associated with the music industry are figuring into the EMD equation. Early this month, Sanyo Electric Co. Ltd., Fujitsu Ltd., Hitachi Ltd. and Infineon Technologies AG announced a flash card format designed for secure music downloading via portable phones. And NTT Mobile Communications Network Inc. (NTT Docomo), the largest mobile phone carrier in Japan, plans a summer launch for a music information and content distribution service called Mobile Media Distribution (MMD).

NTT Docomo plans to begin field tests of the service next April using NTT's Personal Handyphone System (PHS), which supports 64-kbit/second data communications. Songs, concert schedules and other music-related information from record companies, music-publishing houses and other content holders will be provided directly to PHS phones. IBM Corp., Sony Corp. and Matsushita Communication Industrial Co. Ltd. are participating in the field tests, and NTT Docomo and Matsushita are also establishing a joint venture to pursue a music distribution system.

NTT Docomo intends to extend MMD to wideband code-division multiple access when mobile phone service based on that format kicks off in Japan in the spring of 2001.

The company also established the MMD Service Workshop with 19 record companies in October to explore the opportunities for mobile phone-based music service and the development of technologies and systems for secure, reliable MMD service.