Thursday, August 16, 2007

Continued from page 1

Europe has plenty of download services too, but you probably haven't noticed. In fact there are 40 online services in Europe, including four in the UK alone, such as dotmusic, MSN Europe, Tiscali and Freeserve. All rely for their output on Bath-based On Demand Distribution (OD2), set up by Charles Grimsdale (who pioneered virtual reality in Britain) and the singer Peter Gabriel. But so far, takeup is modest; Paul Smith, OD2's UK marketing manager, says that for the whole of September across Europe there were 350,000 downloads. "But it's doubling every six months," he notes.

One of the problems that OD2's associates faces is the way in which they sell their music. All the tracks are encoded using Microsoft's Windows Media system, which "ties" the playback of that track to a particular computer. Nor can you create a CD that will play in a normal CD player. Savvy computer users - the first generation of broadband adopters - will know enough to get file- sharing software instead.

By contrast, Apple's system has proved popular in the US because the songs (which are encoded in a Dolby-created format) can be "burnt" to CDs that will play normally, although the original files can only be shared with a couple of computers.

What OD2 needs to prosper is people who won't care about that - the second generation of broadband users, who are happy to go with what's legal and available. They're coming online all the time, though, boosting the numbers able to download music in real time.

OD2 is preparing for that with plans to create its own branded online shopfront, to capitalise on its experience and expertise. Mr Smith won't put a timescale on it, but there's an obvious deadline with the launch, expected in May next year, of Apple's iTunes store in Europe. That has been held up by the need to negotiate the distribution rights for each country with the labels and artists - a rat's nest of contracts.

"It would have been nice if when Napster started up we could have gone to them and said, `This is a nice technology, let's fix it so that we'll get paid every time two users swap a file,'" says an insider at one of the big five record labels. "But the reality is that with a lot of the artists we've got, we couldn't have done that because we've never negotiated digital rights. The contracts, the entire industry, it's all predicated on the sale of physical CDs."

Indeed, the industry hasn't given up on CDs; it will keep selling those, probably for years, alongside its online offerings. "The lesson of the past is that having more formats in which to sell music always expands the market," says Jonathan Morrish, formerly PR manager for Sony Records in the UK, now at the Outside Organisation, whose client roster includes David Bowie, Shakira and Westlife. "Look at ringtones, look at music being used in advertising - it's even broken some artists to the wider public."

The trouble is that the industry hasn't liked the MP3 format - which could be swapped endlessly without restriction. Partly that's because it wasn't its own invention (it came out of efforts to encode music for films on DVD). But some view it differently. Having seen the business rise and slide, another music industry insider (names are dangerous things when one's employers are being criticised) puts it this way: "For 30 years the industry got fat. Fat doesn't necessarily mean lazy. But it does mean that when change comes, you tend to resist it, rather than try to see how you can take advantage of it."