MMW-24 -- Major Music Labels Change Tune, Move Toward Online Services

J@pan Inc Magazine Presents:
Commentary on the week's music technology news

Issue No. 24
Wednesday, July 3, 2002



++ FEATURE: Major Music Labels Change Tune, Move Toward Online Services

- Verizon, Faith Start 16-Voice Ringtone Service in US
- NEC Taiwan to Provide I-Mode Ringtone Site
- Apple Acquires Emagic
- Sirius Satellite Radio Starts Service

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++ FEATURE: Major Music Labels Change Tune, Move Toward Online Services

Having moved from an initial stage of shock and denial on through a
longer period of aggressive legal attacks, the music industry may finally
be coming to accept (however grudgingly) the fact that online music
services are here to stay. Yesterday, music subscription service provider announced that it has reached an agreement with Universal Music
Group to license the label's full catalog of songs for its Rhapsody service.
With this addition, Rhapsody became the first such service to provide music
from all five of the major labels. In addition, Warner Music is expected to
announce that it will allow Full Audio, another online service, to sell its
songs for CD burning.

These deals are receiving considerable media attention, in large part
because several industry analysts see the moves as a turning point in
the music industry's long "battle" with online music services and
file-sharing programs. The industry has been hit by a 5 percent decline
in CD sales for 2001 and continued sluggish sales this year, which it
attributes to Internet piracy and CD burners. Faced with the unpleasant
reality of losing money, the major labels seem to have realized that
they are indeed missing the boat and have no choice but to accept music
subscription services as the lesser of two evils.

Over the past few years, the labels have been widely criticized for
failing to adapt to changes in the music industry brought about by
P2P file-sharing technology. While the record companies are obviously
reluctant to 'cannibalize' profits from CD sales, there may also be some
stronger reasons behind the sluggishness. In the early 1980s, MTV was
granted a fairly wide-ranging licensing deal by the labels, which
ultimately resulted in the video network gaining a huge amount of power
and requiring the record companies to spend exorbitant amounts of money
on making music videos. This time around, the labels have been far more
cautious in their licensing negotiations with online services such as and Full Audio.

In the end, though, it all comes down to profit margins, and the labels
seem to have reached the conclusion that a smaller profit is better than
no profit at all. In other words, it looks as though CD sales will
continue to plummet regardless, so the major labels may as well make some
money now from licensing songs for online sales, even if the margin is
smaller. This has been a bitter pill for these companies to swallow, and
many are still resentful of the P2P services. Unlike other advances in
audio technology like the cassette and CD, which ultimately benefited the
labels by requiring everybody to go out and buy replacements for their
existing LPs, the MP3 file-sharing revolution has so far left the record
companies out of the money-making equation.

What will all this mean for consumers? For one thing, the so-called
'celestial jukebox' that allows access to any music at the click of
a mouse will move closer to reality, and we won't have to worry about
it being shut down or subject to filtering. Second, the smaller margins
from music sales will force the labels to reduce their costs as well,
which will likely result in fewer pop mega-stars and much greater
exposure for artists who sell in the 50,000 unit range. Rather than
pumping out safe, predictable pop hits, music labels will have to get
back to the business of finding and promoting talented, original bands,
and catering to increasingly diverse and demanding audiences.

-- Steve Myers

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** Verizon, Faith Start 16-Voice Ringtone Service in US

Extract: Verizon Wireless, together with Faith West, a subsidiary of
Kyoto-based Faith Inc., announced last week the launch of a new 16-
voice ringtone service for users of Verizon's Z-800 handset. Called
'Rockin' Modtones,' the service features a Web site where users can
search the song catalog and access the song they want by entering the
song ID into the handset.



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** NEC Taiwan to Provide I-Mode Ringtone Site

Extract: NEC Taiwan announced last week that it will be providing
three i-mode sites, including a 16-voice ringtone download service,
for KG Telecom's upcoming implementation of the i-mode service in
Taiwan. The ringtone site, called 'N Melody Town,' will begin with
a library of over 2,000 songs, most of which will be Japanese. NEC
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** Apple Acquires Emagic

Extract: On July 1, Apple announced its acquisition of Emagic,
which makes the Logic sequencer. Emagic will continue as an Apple
division. Currently Macintosh products comprise over 65 percent of
Emagic's revenues. On September 30, 2002, all of Emagic's Windows-
based products will be discontinued.


** Sirius Satellite Radio Starts Service

Extract: On July 1, Sirius Satellite Radio launched its satellite
digital radio service, offering 100 different channels for $12.95
a month. Sirius is starting eight months behind rival XM Satellite
Radio, which claims a total of over 136,000 subscribers.


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SUBSCRIBERS: 809 as of July 3, 2002

Written by: Steve Myers (
Steve Myers heads the Theta Group at Layer-8 Technologies,
which specializes in the development of music-related
software applications.

Edited by J@pan Inc editors: (


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