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Music sales don't sing online

CD sales are not increasing online at the same pace as the technology is evolving and new music sites are cropping up.

    At the sound of it, the combination of CD sales and the Web would seem to go together in perfect harmony: limitless title searches, audio samples, and custom purchases, with nary a surly store clerk in sight.

    But as studios continue to announce sites and technologies promising to revolutionize entertainment, bewildered consumers are lost among the mountains of press releases churned out daily from Hollywood to New York.

    "The total number of CD sales online represents less than 1 percent of sales overall," said Mark Hardie, senior analyst at Forrester Research. He said online music sales "are not Amazon-ish," referring to the successful online bookseller that has achieved a primary goal that has eluded the music business: create a viable brand name.

    The technology evolves at what seems to be a breakneck pace: Companies such as RealNetworks release upgrades and improvements to their streaming plug-ins, Webcasting becomes more and more common--there are even sites that give consumers with the right equipment the ability to record their own CDs with music purchased on the Internet.

    But solid online sales thus far have not matched the ever-evolving technology. Major industry players are frantically trying to be everything to everyone, instead of building a brand based on a solid service. As a result, no one is much of anything to anyone.

    Further, there is growing skepticism that online brands will ever be able to withstand competition from brick-and-mortar competitors that come to the Web merely to augment--not cannibalize--the sales of their physical stores.

    "The Net is going to do for business what the telephone and fax did--it's a tool," said Josh Kaplan, president and chief executive of Intouch Group, a San Francisco-based company that builds Internet-based kiosks for music stores and creates music retail sites branded for its clients.

    The Net "isn't a business in and of itself," he said, adding that Net-based companies are mistaken that the Web alone will provide enough business to be a viable revenue source on its own. "A lot of people are letting the tail wag the dog. The dog here is the $40 billion music business, not the piddling little amount of online sales."

    So far, the online music business in general is "chaotic," Hardie said. "There is no central resource, no perceived difference between retail sites vs. company sites vs. fan sites."

    "The audience is dispersed to such a degree that there are no Yahoo-esque traffic patterns," he noted.

    The music industry has seen massive changes in the last few decades, including technical advances from records to 8-tracks to cassettes to CDs and beyond as well as cultural changes including the advent of MTV and the evolution of rap. Now, with the onslaught of the Internet and interactive technology, the music industry is running circles around itself trying to find the "killer app"--the truly revolutionary aspect of the new medium that will help it make money.

    As a result, small companies are cropping up, trying to tap into what many in the Net music industry perceive as the potential moneymaking opportunity of the Net. Today, for example, a music site called launched, touting itself as a major competitor to the bigger online sites such as CDnow and N2K's Music Boulevard. Apparently, sites like this don't mind that CDnow, which is planning an IPO, brought in roughly $9.5 million but reported a net loss of $4.1 million for the nine-month period ending September 30, according to its filings with the Securities and Exchange Commission.

    The bigger online sites, including CDnow, are advertising up a storm online and off and striking deals with each other and others, trying to drum up some semblance of loyalty and repeat business--but so far, to no avail.

    Today, for example, N2K announced that Music Boulevard has formed an exclusive music retailing alliance with SonicNet. Under the agreement, Music Boulevard will be the exclusive music retailer for SonicNet's network of music sites, including Addicted to Noise, Trouser Press, Cinemachine, and the recently announced Streamland. The latter is an upcoming joint venture between SonicNet and Levi's Jeans, which promises streaming video on demand.

    But none of these arrangements have created what Hardie calls a "rewarding" experience.

    "The online experience is more efficient but it isn't more rewarding" in terms of overall enjoyment, he said. As for listening to samples online, he added, "The listening experience isn't directly tied to the retail experience."

    The scattered nature of the Net affects music sales for two reasons, Hardie said: There are too many sites and those sites are doing too many things. In the real world, most people have relatively few choices as to where they can purchase music. Even in large cities, neighborhoods tend to offer one or two of the larger chain stores such as Tower Records or HMV and one or two mom-and-pop outlets. On the Web, there are thousands of music sites--and though not all of them are points of sale, they dilute the market and make the experience of purchasing music online that much more daunting. With the lack of a solid online brand--a destination--it is still easier, faster, and more pleasant to buy music from a physical store.

    Also, the approach of "read content, hear samples, and buy" all in the same place is not done in the physical world, and thus is unfamiliar to consumers.

    "You don't go to the Home Shopping Network to buy clothes after reading an article in Vogue," Hardie said. "You go to the mall, and usually go to one of the stores you know and have been to before."

    "Widespread online sales requires that consumers change their behavior," he added. "They don't do that so fast."

    "That's not how people buy," Kaplan said. "People are creatures of habit, and people like to shop. There will never be a human interface on the Internet--and it's always nice to walk into a store and talk to someone."

    Another obstacle to widespread music sales online is the way retail sales take place on the two-dimensional Net.

    "The online shopping experience pales in comparison to the actual in-store shopping experience," Hardie said, noting that online sales are "search-and-retrieval"-oriented and "very directed." In a physical store, he pointed out, it would be much faster for a customer to be greeted by a salesperson who would retrieve the exact item for which the customer is looking. Stores don't do that because they hope that in looking for the item that brought them to the store, customers will find other items that catch their attention and buy them as well.

    "The impulse buy is extremely limited" online, Hardie said.

    This also explains why in-store sales reflect more current music than online sales. Whereas a consumer might hear a popular song on the radio or see a video on MTV and decide to buy the CD when they go to a store, a Net surfer who had trouble finding an older or more obscure album could turn to the Web to hunt down what they want.

    The solution, according to Hardie, may be a turning away from the one-stop-shopping model, and separating points of sale from other content such as information about artists.

    For now, "Retailers would do well to use the Net as a promotional opportunity," he said. "Music labels also should look to the Net for promotion, but differently."

    "I don't think [the Net] is going to change the music industry," Kaplan said. "I think it will augment the existing business."