Digital music's move back to the Web

AOL, Napster and RealNetworks are all pushing their music services online, but will this help them catch Apple's elusive market share?

For several years, most companies selling music online have had an overriding strategy: Follow Apple Computer's iTunes in as many respects as possible.

That now seems to be changing in at least one important way. In the past few weeks, several of the biggest digital music providers said they are moving portions or all of their services onto the Web, as opposed to delivering downloads through a separate software application, as Apple does with its iTunes software.

The biggest to take this step so far is America Online, which announced Thursday that it had purchased the Circuit City-owned MusicNow and would adopt its Web-based music service as AOL's main store. Napster and RealNetworks also have said they would soon offer more access to their music though the Web, however.

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What's new:
Several digital music providers say they are moving portions or all of their services onto the Web, as opposed to delivering downloads through a separate software application.

Bottom line:

This trend toward the Web by music services is part of a broader move by technology companies to offer increasingly powerful computing features on the Web that were once limited to computer desktops and hard drives.

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"What we've heard from customers is that anytime, anywhere access is extremely important," said Ed Fish, the AOL senior vice president in charge of music and other subscription services. "We wanted to integrate music with the rest of our programming, and to do that, we didn't want to require a (separate software) application."

This trend toward the Web by music services is part of a broader move by technology companies--most notably in Microsoft's new "Live" campaign--to offer increasingly powerful computing features on the Web that were once limited to computer desktops and hard drives.

The advantage, at least for music companies, is easier access to a broader number of customers. In theory, it's easier for a relatively unsophisticated consumer to visit a Web site and start listening to music immediately than it is to download a software application, install it, and go from there.

Web-based services are also available from any computer, and potentially even from mobile devices such as cell phones or portable players with Wi-Fi or other Net access features.

In practice, it's not clear that digital music consumers have gravitated this way. Although Web-based Internet radio services have been popular, Web-based digital music stores such as Wal-Mart, Buy.com, and Microsoft's MSN Music have accounted for only a tiny fraction of sales--about 1 percent to 2 percent of the overall market, according to the NPD Group.

Meanwhile, Apple's store, which requires all consumers to download the iTunes software, has consistently retained close to 80 percent market share.

Separate paths converging
All of the companies expanding their music businesses to Web-based services have parochial reasons for doing so.

RealNetworks--the first to hint that it would move access to its Rhapsody service onto the Web--did so as part of its antitrust settlement with Microsoft several weeks ago. CEO Rob Glaser joined with Bill Gates on stage to show off ways the two companies would work together, including allowing access to free Rhapsody songs directly through MSN.

Rhapsody already offers nonsubscribers the ability to listen to 25 songs a month for free, but requires that people download the software first.

Rival Napster hinted at its new plans in its quarterly earnings conference call on Wednesday. Providing few details, Chief Executive Officer Chris Gorog said that the company was preparing a new free, advertising-supported component of its music service that would live on the Napster.com Web site.

"The power of the Napster brand name drives millions of unique visitors our Web sites every month, where today they can do just one thing: download our subscription software," Gorog said. "Our intention is to...create the default music destination on the Web."

Gorog declined to give specifics on how much music would be available for free to visitors, or in what form, but he said the Web site would help Napster lower the cost of finding new subscribers to its paid subscription service.

AOL's plan is the most ambitious, and involves bringing music distribution in-house for the first time, after several years of partnering with MusicNet and even Apple.

The new AOL MusicNow service, available now in a preview form, will be relaunched by the end of the year, Fish said. The company plans on weaving access to music downloads and subscriptions in with some other of the company's popular products, such as the AOL Music Web site and the AIM instant message service.

That's part of a broader move across AOL to focus on reaching nonsubscribers as well as subscribers. Previously, its music store and monthly subscription services were available only to subscribers.

"We have 112 million unique visitors coming to AOL sites," Fish said. "We should make music available to those people as well."

Analysts look at the move of these companies to Web storefronts with some skepticism, although they note that each company's reasons are compelling. Cutting further into Apple's digital music market share will still require cutting into the overwhelming popularity of the iPod and the way that device has helped boost iTunes' fortunes, they say.

"What's worked so far is a link back to the portable device," said GartnerG2 analyst Mike McGuire. "As long as that's true, it's still going to be a challenge for these companies."

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