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Music industry seeks Hollywood's 'windows'

Online evolution means the 99-cent song's role will diminish over time, label insiders say.

FOSTER CITY, Calif.--Even as the movie industry is compressing its longstanding system of "windows," the music industry is betting its future on just such a model of staggered, tiered releases.

Digital download services such as Apple Computer's iTunes have gleaned most of the headlines to date. But the digital music market has already moved to a diverse model, particularly when mobile consumers are counted, Thomas Hesse, president of global business for Sony BMG Music Entertainment, said in a speech at the Music 2.0 conference here on Tuesday.

Sony BMG is already seeing 10 percent of its revenue in the United States, and more than 20 percent of its revenue in China and South Korea, come from digital and mobile products, the executive said. In the next year, labels will increasingly find ways to boost those figures by offering a large range of different products at different times, and through different channels.

"We will see tiered pricing in the online world," Hesse said. "It will be coming out in different windows over time, and will be much more sophisticated than just the 99-cent download that we have seen."

These budding music windows--ranging from exclusive tracks posted on iTunes or prerelease ring tones to live CDs released long after an album's street date--are signs of how seriously the music industry is taking the digital business at last.

Indeed, physical CD sales continue to drop, and executives say they don't realistically expect that to turn around or even to stabilize immediately. Peer-to-peer use continues to rise worldwide, and according to research firm NPD Group, 44 percent of music found on consumers' hard drives in 2004 still came from file swapping or copying other CDs.

Digital sales continue to grow by leaps and bounds, however. According to the International Federation of the Phonographic Industry, about 180 million songs were sold online in the first half of 2005, up from 57 million in the same period last year.

A few individual titles are driving the surge. According to Jeremy Welt, Warner Music vice president of new media, his label is seeing digital sales account for 10 percent to 20 percent of first- and second-week sales for some of its heavily marketed titles. He cited the recent release of a soundtrack from the TV show "The OC," for which 18 percent of the first week's album sales were online.

Releasing content in tightly controlled windows--first in theaters, later to home video, and finally to TV, for example--has been hugely profitable for movie studios in the past few years. These windows have shrunk substantially as DVD releases have been moved substantially closer, but the studios have kept strictly separate release dates for theaters, home video and on-demand services.

With a quickly expanding number of products and channels, including cell phones, online subscription and download sites, retail stores, streaming and downloadable video and more, the music business is evolving into a natural home for windows, some analysts say.

"The reason the movie industry is moving away from windowing is because they got so excited about DVD sales," said JupiterResearch analyst David Card. "But I think windows is more the natural order of things, with multiple packages and multiple release times."

This new product model is also fast changing the role of record companies, which are increasingly dealing with other giant corporations, from telephone companies to Internet portals, as music distributors.

"With the huge telephone companies, with Sprint, with Cingular, it is a completely different world," Hesse said. "It is a world in which the wind blows a little colder, and one in which the record companies are just tiny little cottage industries compared to the sandbox where we were before."