Sony's digital path leads to record stores

In a deal with Digital On-Demand, the entertainment and consumer electronics giant is hoping to preserve its relationships with brick-and-mortar retailers while continuing its drive for digital music delivery in cyberspace. And Virgin Megastores will be the first to enlist in the campaign.

Sony Music said today that it has licensed Digital On-Demand to deliver "much" of its content to retailers, the companies said. Digital On-Demand operates a proprietary, high-speed network--dubbed the "Red Dot Network"--that allows for the delivery of digital content such as music, video, or games in a number of formats to retail locations.

As a result, consumers will get access to recordings by Sony artists--who include Mariah Carey, Ricky Martin, and Lauryn Hill--at kiosks where they can listen to samples and buy the recordings in stores, even if those retailers do not have them in stock at the time.

"The beauty of this agreement is that everyone benefits," Danny Yarbrough, chairman of Sony Music Distribution, said in a statement. "Sony Music can make more of its catalog available than ever before, retailers will be able to provide their customers with an expanded inventory, and music fans will now be able to find the albums they want when they want at their local retailer."

Using the new technology, stores will download desired tracks onto a CD, DVD, MiniDisc, or a handheld device that complies with specifications set by the recording industry's Secure Digital Music Initiative. The Red Dot system also allows consumers to get the original packaging used in traditional, shrink-wrapped CDs, such as cover art and liner notes, according to Fred Goldring, an attorney for Digital On-Demand.

Virgin will announce tomorrow that one of the new kiosks will be installed in its newest store, opening July 16 in Columbus, Ohio, according to Anthony Deen, vice president of retail design development for Virgin.

The arrangement is significant because it is a compromise between the current way most consumers buy music and the way many say they will buy it in the future--by downloading it onto a PC, handheld device, set-top box, or other medium from the Internet. It also helps brick-and-mortar retailers, which have seen their already-low margin business threatened in recent years by online retailers, Goldring said.

For Virgin's part, the move is "part of a larger process of integrating the online and brick-and-mortar stores," Deen said, adding that the company plans to put the kiosks in all of Virgin's 20 North American stores throughout the fall. "There is the potential for this in our entire worldwide operation," which includes about 200 stores, he said.

The Sony-Digital On-Demand arrangement is also different from the myriad projects technology and music companies have undertaken to offer a download format they hope will become a standard for the consumer market. Those initiatives--which include IBM's Madison Project and Sony's own Super MagicGate technology--are aimed at offering consumers a way to do the downloading themselves onto their own PC hard drives or portable devices.

"We think there's a real value-add here for the labels," Virgin's Deen said. "This is an opportunity for the labels to get music out that otherwise couldn't be well-marketed." He added that older titles that still sell but aren't always kept in stock also can be sold through the kiosks.

So far, however, Digital On-Demand has signed only Sony up for the program. Goldring said the company is in talks with the other major record companies--BMG, EMI, Universal Music Group, and Warner Bros. Music--but he declined to give a time frame for other deals.

If the other record companies agree to similar deals, brick-and-mortar retailers will be able to offer many more CDs than they are able to now because of space constraints, which will help them to compete with their online counterparts, Goldring noted.

"When you buy a record at Amazon, you don't get it the same day. And the advantage of digital downloads is that you get [the product] instantly. But the advantage to Amazon or CDnow is that you can get almost anything," Goldring said, pointing out that the DOD arrangement would allow consumers to have the best of both--getting all the music they want when and where they want it.

Virgin also sees the kiosks as a first step in its program dubbed "Megastore 2010," an effort to figure out "what the music retail space is going to look like in 2010 and roll that out in the next 24 months," Deen said. Other plans for that program include adding personalization features to the kiosks so they can suggest music to customers based on past purchases, for example.

Under the terms of the Sony-DOD deal, Sony can acquire DOD stock if all goes well, the companies said. No further details about the arrangement were given.