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Muze gets creative with Net music business model

While untried start-ups stampede the Net, veteran entertainment information company Muze is quietly reinventing itself to get a cut of the action.

While untried start-ups stampede the Net to get a piece of the online music scene through album sales or advertising revenue, veteran entertainment information company Muze is quietly reinventing itself to get a cut of the action.

Muze's computerized catalogs of music, books and video titles already serve as the search directories for more than 13,000 retail outlets, such as Virgin MegaStore, Barnes & Noble, Amazon.com and Yahoo, which in turn sell products by major record labels, movie studios and publishing houses.

But when Muze executives saw the free MP3 phenomenon taking hold and digital music players coming to market more than a year ago, they decided to rebuild Muze's core to prepare, not only for the inevitable e-commerce boom, but for a fundamental shift in how consumers buy and collect music.

Muze launched in 1991 as a provider of look-up kiosks to stores, but it is now aggressively moving its services online. The privately owned company is trying to position its entertainment information database as the industry standard. By doing so, the company is looking to cash in on the ever-growing battle to sell songs, promote artists, and push various digital music formats and players online.

"We're a common denominator across sites and stores, bringing together all the products and turning it into a smart inventory system for retailers," said Matt Puccini, senior vice president of technologies and services for Muze. "Do I care which format wins or which device wins? Not really. We want to be a catalyst for all digital distribution."

The company's strategy mirrors that of others that have sought to be "enablers" for all companies in a given field. On the music front, for example, Seattle-based Encoding.com is trying to draw revenue from the growing market for music downloads by offering a service that converts digital content, such as music on CD, to formats for streaming or consumer downloading.

For its part, Muze early next year plans to unveil a system aimed at making it easier for its retail partners--online and off--to sell digital music, allowing consumers to download songs to play via their PCs, handheld players and eventually car and home stereos.

"It's a good move for Muze to be in a position to support a more digital distribution network, because consumers are interested in being able to pick and choose from different artists and download music the way they want to," said Michael Goodman, an entertainment analyst with the Yankee Group. "[Muze] makes it easier for a consumer to find what they are looking for, so they are in a much more secure position that other companies."

Muze makes money by licensing its database for a monthly fee or by getting a portion of retailers' music sales. When it comes to clients that act as portals to other retailers, such as Yahoo, Muze gets a percentage of advertising revenue.

Muze's updated system centers on individual songs instead of CD titles. Building on its partnership with Liquid Audio, which created a library of more than 1 million music samples in Liquid Audio's proprietary format--called Liquid Muze Previews--Muze's database will include clips in other popular digital formats, including MP3.

Features in Muze's catalog could be used by music rights management companies developing security standards to keep track of song sales and curb piracy. Muze's system also could eliminate the technical nightmare of bringing together content from multiple distributors by making it possible to combine and customize its music, video and book databases based on retailers' sales models.

Muze is trying to push the widespread adoption of its system to lure retailers to its music information directory and digital samples and away from offerings by potential competitors, such as Muzak's Enso.

And Muze could face other rivals online. For instance, EMusic.com, which sells digital music downloads, today announced that it is acquiring Tunes.com, which, like Muze, combines millions of song clips with artist profiles.

With a slew of Net music companies coming online in the last six months, analysts say Muze's strategy could survive an imminent shakeout, making it an initial public offering candidate.

"Having a business model that works under multiple music formats is a great idea, and if you can take that model and move it from an online environment to a brick-and-mortar store, you're that much more valuable to your clientele," said Yankee Group analyst Goodman.

Muze doesn't seem to be in danger of stepping on the toes of major record labels, though, as other online music companies have. Muze already has forged relationships with the "Big Five" record companies--Sony Music, Universal Music, BMG, Warner Music and EMI--through deals involving its in-store kiosks.

In addition, Muze has partnered with companies also seen in a favorable light by the record companies. For example, Liquid Audio is creating digitally encoded copies of designated EMI sound recordings.

Record sellers such as Virgin, which is embracing the sale of digital singles through its JamCast site, agree that Muze's database as a service, not a threat.

"Muze has updated its service to allow customers to come into a Virgin MegaStore, find what they want, listen to a sample, and then see that it's in 'aisle three and bin two.' Muze's new business model works very well for retailers like us," said Anthony Deen, vice president of retail design and development for Virgin Entertainment Group.

Virgin MegaStores already use kiosks by Sony Music, which has licensed Digital On-Demand's proprietary, high-speed network--dubbed the "Red Dot Network"--that allows for the delivery of digital content such as music, video or games in numerous formats to retail locations. Muze's offerings could be integrated into that system.

"One downside of these kiosk systems is that a lot them are being set up to get between the retailer and customer, with their own credit card swipe, for example. Retailers don't want to be real estate for kiosks," Deen said. "We want to support customer loyalty programs and provide look-up services, and to do this we need services like Muze. But we want to drive the car."

Muze's online partners, on the other hand, say the company's reformatted database will help music lovers find what they are looking for: individual artists.

"People come in and search for Britney Spears, and Muze has been a pretty valued partner in providing artist data; so layering in these clips seemed like a natural extension of that relationship," said Matt Rightmire, general manager of media at Yahoo, which incorporates Liquid Muze clips into its shopping area.