EMI heads toward full digital distribution

The new partnership advances EMI's plan to capitalize on consumers' growing interest in collecting music in a digital format for play on their computers, portable devices, and eventually car and home stereos.

EMI already is working with Encoding.com and Liquid Audio to encode and catalog its collection. Supertracks' system, which uses tools by online software provider Preview Systems, represents the last mile for EMI. In about two months the label will start to slowly offer digital singles, kicking off its plan to let all online retailers sell its CDs and cassettes alongside downloads.

"This is the beginning of making digital distribution a normal part of the business," said Jeremy Silver, vice president of EMI new media. "There will be a way for honest people to take part in this without turning themselves into pirates."

The major record labels--EMI, Warner Music, Sony Music, Universal Music and BMG Entertainment--were not prepared when computer users began encoding music in the popular but insecure MP3 format and storing it on their computers and Web sites. When the labels did respond, they launched an effort known as the Secure Digital Music Initiative (SDMI) to provide a framework for compatibility and security.

Supertracks' system supports SDMI, which helps protect the labels' coffers. However, other firms, such as MP3.com and Napster, have found themselves in legal battles with the Recording Industry Association of America (RIAA), because they offer services that the labels' trade group says promote piracy.

EMI and Supertracks, which worked on a promotional deal earlier this month to offer 25 full-length albums and singles for download, will now try to build an international market for secure downloadable music--starting with music by the 1,500 artists on EMI's Virgin, Capitol, Blue Note and Angel labels. Under the deal, EMI will receive a minority equity stake in Supertracks.

"EMI is very serious about digital music being its third distribution arm along with cassettes and CDs," said Supertracks CEO Charles Jennings, who also co-founded Preview Systems.

The partnership likely will stretch beyond EMI's catalog, as the company plans to merge with Time Warner, creating a $20 billion music powerhouse. The proposed company--to be called Warner EMI Music--will have some of the biggest names on its roster of artists. The label's catalog includes The Beatles, Spice Girls and The Rolling Stones, while Time Warner's list of artists includes Madonna, Phil Collins and Jewel.

Although there is a massive online offering of digital music by independent and unsigned artists, when the EMI-Supertracks deal comes to fruition, many more popular artists' works will finally be available for download.

EMI's digital play comes as another Big Five label, Universal Music, is working with RioPort.com to bring its collection online in a digital format. In addition, Sony Music has a licensing deal with Digital On-Demand (DOD) to deliver much of its content to retailers via DOD's proprietary, high-speed "Red Dot Network," which is accessed through retail store kiosks.

Commercial distribution of digital music is seen as desirable for several reasons. For music listeners, it takes up less space than CD collections, making it more portable; it will be especially convenient once all stereos and players support it.

For retailers and consumers, digital distribution is cheaper, too: It bypasses the packaging, distribution and retail shelf costs that CDs incur. And digital music enables artists to control their own careers, eliminating the need to sign with labels as long as they don't mind giving up the promotion they would get in return.

Yet the path to digital distribution is nascent, and it faces ingrained cultural barriers. The major record labels are used to the lucrative system of selling CDs. And consumer electronics makers still have to manufacture compatible car and home stereos so consumers can play their collections on every device they own.

The SDMI has been working toward secure standards, but then there is the piracy issue: Many labels and artists worry that if music goes completely digital, it will be easier to copy and distribute illegally. The SDMI has been working on this issue, but its progress has been slowed by infighting among its members.

Supertracks, for one, hopes to work with all the major music companies.

"We're very focused on the Big Five and are in very interesting stages with all of them; it is building the marketplace," Jennings said.