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Why we're better than Napster

Alan McGlade is the first to admit that while building an online music subscription service isn't glamorous, it's the best way to avoid getting sued.

Alan McGlade is the first to admit that while building an online music subscription service isn't glamorous, it's the best way to avoid getting sued like Napster.

Since becoming CEO of MusicNet last October, McGlade has held non-stop meetings with music labels, publishers and recording artists to get permission to sell their songs. He's won support of the big studios, sure; but now he's got to try to win consumer support.

MusicNet, owned in part by RealNetworks, AOL Time Warner, Bertelsmann and EMI Recorded Music, has so far failed to capture the imagination of music fans who formerly flocked to Napster and other peer-to-peer sites that offered digital music downloads for free.

The first version of the service, launched by RealNetworks as RealOne Music, was roundly criticized. Even America Online, a distribution partner, passed on MusicNet's first incarnation.

Unfazed, McGlade says success won?t come overnight; in fact, it may even take years. In a conversation with CNET News.com, the former MTV executive talked about the future of online music and how he'll convince music fans to sign on the dotted line.

When MusicNet came up with version 1.0, many people complained it was too limiting. How do you view that product?
You know the way I view the first version that was out there? It was launching as I walked in the door. It was really a tremendous effort to put a stake in the ground and say this industry is now beginning. It's in its embryonic form, but it's going to evolve over time. And I think everybody who was involved was aware that it came with significant limitations.

It was a different reaction than the one people had with Napster.
One of the things that's been interesting to me is to see people continuously draw a comparison between file sharing sites like Napster, and the many that have followed in its footsteps. There is no basis of comparison. There's nothing difficult about taking files and putting them out someplace for free. Just like it wouldn't be hard to run a store where you just put everything on the shelves and people could just take what they want. You wouldn't stay in business very long, but it wouldn't be hard to do. It will have to evolve over time, and it's going to take a significant amount of time. Was there enough catalog? Did we have enough music? No. And did we have all the rights necessary to make a seamless experience for the consumer? No. Could we address those things over time? Absolutely.

Was that first phase pushed out prematurely?
Well, I guess if people are treating it like it's a finished product and doing side-by-side (comparisons) in publications, then, yeah, maybe it is premature. Because I don't think anybody's seen the real product yet.

There's nothing difficult about taking files and putting them out someplace for free.
What should we expect from the next product?
Well, all the things that you would probably expect. The first thing you've got to look at is what kind of catalogs you have to push out to people. If people were going to pay a monthly fee, then every month you have to reinforce the value of what they're paying for. I think the biggest issue is if somebody is looking for a particular song or a particular artist, and they go there one time and they can't find it, maybe they're going to be a little disappointed. But if that happens multiple times then they're going to start to question why they're paying for a service.

What?s the No. 1 issue for your business?
From our point of view, the single biggest issue that we have to deal with is getting as much catalog as possible. Right now we have three out of five majors licensed. Obviously, one of the major issues on the table for us is getting all the majors licensed and get them licensed quickly. So we'll do that.

The Justice Department is looking into online music distribution by the major recording studios. Is there a negative for consumers if the big studios expand into the Internet?
You mean for us not to go get Sony's and Universal's (music) content? Why would the DOJ not want us to have more content? I think the only reason the DOJ would investigate anything is if they thought there was a negative effect for the consumer, right? But it's good for the consumer to get more product.

Over time there will be a comprehensive catalog that's available online through a variety of companies in the United States. But it's going to take time to build that. And that's why I started with the idea that there was this false expectation, because people were looking at Napster and saying, well, they had it all. Well, of course they did--they stole it.

But if you have to go through the process from the beginning of striking content deals with the major suppliers of music, and then talking to artists if they have an issue, and publishing all that stuff to your server, it's going to take a long time--it's literally going to be years. But eventually, we'll get to a point that most, if not all, material will be available.

Is that where the bulk of the work is, going through the grueling process of clearing all these records?

People were looking at Napster and saying, well, they had it all. Well, of course they did--they stole it.
That's one big piece. If somebody comes to our service and is looking for a song and they can't find it, the likely result is not going to be that they're going to turn off their computer, get in their car, drive to the record store and buy the CD. The likely result is they will now be forced off to a peer-to-peer site. And then you get no remuneration for your music. So, (artists) need to participate. And this is what we're doing to protect copyright.

Getting music for free on the Internet is still a very easy thing to do. How do you compete?
Well, I don't think you compete, but you do create a service that has its own value. And I always point back to my experience in the cable television business. I remember reporters writing, 'Cable television as a business will totally fail because no one will ever pay for TV--it just won't happen; it's not realistic to think people will pay for TV because TV's free.' And in the early days, let's face it, everybody pirated cable. I didn't know anybody who actually paid for it. They all sort of snuck up poles at night and ran it into their house. And there wasn't very sophisticated encryption, so it was relatively easy to do.
And over time, two things happened. First, the quality got better. It became more convenient. And at the same time, there were defensive measures, too. The encryption became more sophisticated. And now there are still probably pirates, but it's really been marginalized. Most people when they move into a house will hook up cable and pay for it, right?

You believe the cable analogy will apply to music downloads?
I could see a similar thing happening in the music space. What's the business model of Kazaa or Morpheus? How will they make money to support being around long term if the idea is to steal it and give it away for free? And for the average person, you see more spoofing where files were named the same thing, but it wasn't an actual Eminem song, or it was just a couple seconds of it. And the file quality isn't consistent, the directories sometimes are wrong, you get viruses. If we actually offer a product that is extremely convenient, seamless to use, the file quality is guaranteed, the download times are optimized, and it comes with lots of other unique features that make a seamless experience. Would people be willing to pay for that? Absolutely. Over time will it marginalize pirate services? I think so.

But right now they're offering more than you can offer. Let's forget about the size of the catalogs. You can put files downloaded off Kazaa or any of those companies on a MP3 player or record onto a CD. How far are you willing to go to offer legal music that can be transferred onto many different devices?
Those are all things we have to do. But like I said, it's an evolution. You have to be able to download files permanently, burn them to CDs, transfer them to devices, use them on several computers, or else transfer them to other devices that can store and play back music. All those things will have to be part of that process. And if I was just going to steal all the content I could do it tomorrow.

But how far do you go?
MP3 files can be easily copied if they're not wrapped with any digital rights management. But if you have a DRM wrapper on an MP3 file, it wouldn't be readily accessible. It would have some restrictions in its use. You have streaming--what we call tethered downloads--which do have a DRM wrapper. So while you can download a file and listen to it, you'll be able to do various things with it. It'll still be somewhat restrictive use because if you don't remain a subscriber, the music won't continue to be available. And then you have what we call permanent downloads. In that case, you've actually purchased a track. Even if you no longer are a subscriber you can continue to use the music as you want because you purchased it.

How do you differentiate between what becomes tethered and what becomes permanent in terms of downloads?
You pay more. You pay an additional fee either in the package of permanent downloads, or on an a la carte basis, where you buy one track at a time. But that's the direction it's going.

So a la carte would be on top of the subscription?
It could be. We don't know the definitive model either because there's no business history.

Some of your partners--AOL Time Warner among them--have recently started selling individual downloads of songs.
They're experimenting with that, as are others. And this has become a much more active conversation now about how to sell single tracks or entire albums online.

But I mean they're selling MP3s. They're selling files that aren't tethered at all for 99 cents a download.
Right, that's a permanent download.

So, it seems like some labels are at least warming up to the idea of doing it a la carte.
They're moving towards that.

Where does that put you guys?
I was saying that that's one of the models that we'll be working with--streaming and tethered downloads within the service, and then permanent downloads either as part of the package or a la carte. There's no definitive history of use.

What's your time line for making this service a success?
It's years.

But do you have years, though?
Sure...If we can show forward momentum and steady progress and continue to do all the things that I've been describing as part of what our responsibility is, then, yes, we do have some time. Time is required to build a long term, sustainable business and become mass market with online distribution of music in a legal way.

How many subscribers do you hope to have in a year?
I don't give out subscription numbers.

How about general goals in terms of a number?
I want millions. We don't want tens of thousands or hundreds of thousands. We want to be an impact player.