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Gateway tests waters of music business

The PC manufacturer is examining a number of strategies that could effectively turn the company into a player in the music publishing and distribution business.

Gateway hears the music.

The Poway, Calif.-based PC manufacturer is examining a number of strategies that could effectively turn the company into a player in the music publishing and distribution business.

Gateway already maintains a site, MusicZone, where select singles can be legally downloaded, but in the future the company's involvement could extend to launching Web sites with a larger selection of music; it may even promote new and upcoming artists.

"We are actively in discussions with major and independent labels and (are) talking with established acts about bringing the music-business model into the present day," said Brad Williams, a company spokesman.

Digital technology is changing the traditional relationship in the music industry between artists, publishers, distributors and consumers. The shake-up has opened the door for new players. With the advent of MP3 files and recording CD drives, the PC has become the nerve center of the home stereo.

File-swapping networks have also changed the way music is bought and sold. Instead of buying a complete CD, people can go online and get singles from famous as well as unsigned acts.

Gateway can take advantage of both of these trends, said David Turner, senior vice president of sales and marketing at the company. Although it has retrenched in the past year, Gateway is still one of the biggest PC manufacturers in the United States. It also has a large network of stores and a strong Web presence. The basic infrastructure exists, therefore, to turn Gateway into a channel for entertainment distribution.

So far, Gateway executives have not specified exact plans that the company will pursue, but they have indicated that it could position itself as a conduit for content from established and new artists. Turner also indicated that Gateway is contemplating bypassing the titans of the music industry if necessary.

"We have retail stores that aren't beholden to the music industry," Turner said. "There are a lot of artists out there."

Gateway CEO Ted Waitt is also known to be a music fan. The ponytailed Waitt currently stars in a television commercial where he drives a big rig and sings duets of "Whip It" or "Sundown" with a cow. The ads promote Gateway PCs and legal music downloading.

"We have retail stores that aren't beholden to the music industry. There are a lot of artists out there."
--David Turner, senior vice president of sales and marketing, Gateway
Waitt is also an investor in Palm Pictures, a record and film production company started by Island Records founder Chris Blackwell.

The ad campaign has drawn the wrath of the recording industry, but Gateway executives have countered that it is promoting only legal music downloads. The company has also spoken out against a bill proposed by Sen. Ernest "Fritz" Hollings, D-S.C., that would place the onus of copyright protection on hardware manufacturers rather than the studios or distributors.

"The Hollings bill seems to go too far," said Turner. "The solution is going to have to be collaborative."

Creating stronger ties with the music industry could also allow Gateway to better differentiate itself from competitors. The company is trying to carve out a niche in the industry that would insulate it to some degree from the rampant price cutting of larger companies like Dell Computer and Hewlett-Packard.

In late 2000, Gateway launched a line of consumer-electronics devices to separate itself from the pack. Months later, these products were shelved in a corporate overhaul.

Enhancing PCs by optimizing them for entertainment or including music with them could be less risky because it's adding on to something the company is already selling. Additionally, Gateway's larger music strategy opens up the opportunity to develop a recurring revenue stream, he said.

"We think we will be positioned as a digital-solutions retailer (in three years)," Turner said.