HolidayBuyer's Guide

Digital music spins new sales approach

Subscription services try playlist swapping in battle against iTunes, but it's an uphill climb.

Despite the millions of dollars that record labels spend on advertising, it may be folks like Robert Burke who determine the future of music marketing.

Burke, a South Carolina software tester, operates a popular series of Web sites called Scopecreep.com, where he's posted thousands of digital music playlists, from "Best songs of 1989" to "Palindrome songs," that can be played by any Yahoo or RealNetworks Rhapsody music service subscriber.

On one level, this is little different than the age-old practice of making mixed music cassette tapes for a friend. But as online music retailers look for ways to guide listeners through catalogs of millions of songs, this latter-day mix-making is drawing renewed attention, particularly from subscription services that see people like Burke as key allies in their fight against Apple Computer's popular iTunes.

Last week, Yahoo the creator of Webjay, a site for posting playlists. Yahoo is getting in on what could be a major part of the online music business: A recent joint study from Harvard University and the Gartner Group predicted that by 2010, 25 percent of online music sales will be sparked by consumers recommending songs to one another.

"We fit in between traditional media and word of mouth media," Burke said, explaining the appeal of sites like his. "We're that in-between world that's the best of both worlds."

To date, the playlist-swapping boomlet represented by Burke, the newly Yahoo-owned Webjay and others has been more of a grassroots phenomenon than an effective weapon in the digital music wars. But ambitious subscription music services see music-sharing tools playing an important role in their futures.

A key feature of subscription services is that they give their users the ability to listen to unlimited amounts of music. As long as two people trading song recommendations have both paid the service's subscription fee, they can legally listen to thousands of songs, or swap dozens of playlists without any additional fee.

"The people who get this are those who are more engaged," said Evan Krasts, director of product management for RealNetworks' Rhapsody service. "If you've got someone who understands what this is about, you're going to get someone who's going to be a good customer."

iTunes itself is also a haven for playlist makers. Indeed, its iMix section, with more than 330,000 playlists contributed by individuals, is one of the biggest repositories of music recommendations online.

But at 99 cents per song, a 10-song iTunes playlist costs $10 to download, which limits the amount of songs that people can actually listen to, subscription service executives say.

Still, that argument hasn't exactly triggered a mass rush to subscription services. Carried on the back of the phenomenal success of the iPod, Apple's iTunes remains far and away the most dominant force in the digital music business. Apple executives have said that consumers want to own their music, rather than "rent" it through subscription services. Analysts say that subscription services need to spend far more time explaining their version of legal music swapping to the public before the approach will become a significant draw.

"I think (playlists) will be an important feature that many people will eventually use," said Jupiter Research analyst David Card. "But it will have to be promoted to death."

Digital music's baby steps
Indeed, after all the headlines about iPod sales and the impending death of CDs, it's easy to forget just how unfamiliar digital music remains to most people.

According to a recent Jupiter Research survey, just 16 percent of online adults listened to music using a playlist in 2005, up from 9 percent in 2004. Among 18- to 24-year-olds, 43 percent listened to playlists in 2005, up from 19 percent in 2004.

Only 2 percent of adults now online, or 9 percent of 18- to 24-year-olds, actually shared playlists during 2005, the Jupiter study found.

For now, most consumers say they're more interested in price, virus-free music and the amount of music available, Card said.

Many of the big services are still in the process of adding technology that makes legal digital music sharing more simple.

Yahoo launched its initial subscription service last spring, with features that allow subscribers to post playlists online, and send song links to one another through Yahoo's chat software. The company hasn't said what, if anything, it plans to do with the Webjay playlist site.

"We're really trying to educate people about subscription music first and foremost," said Yahoo spokeswoman Charlene English. "Community sharing and discovery has always been a priority for us."

Rhapsody, which has always allowed people to e-mail playlists to one another, recently moved much of its service onto the Web. The new version of the service allows even nonsubscribers to click on playlists like those at Burke's site and hear the first 25 songs for free.

For its part, Apple allows iTunes users to publish their playlists in the iMix portion of the iTunes store. However, without purchasing the songs, users can hear only a sample of each song on the playlist. An iTunes customer can also purchase a playlist as a gift for a friend.

But until these services are able to introduce the sharing features to more people, the playlist sharing phenomenon may well stay in the grassroots.

For committed mix-makers like Burke, whose site now attracts about 50,000 hits a month, that's only fair. He's still waiting for more songs to be available, and for features that make sharing music through the subscription services even simpler.

"Ultimately, there will be a true celestial jukebox, where everything is available," Burke said. "Then you can have playlists available that don't have gaps. That's what I'm trying to get to."

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