Companies Clamor to Fill Napster Void

With the end of the free music-swapping service from Napster Inc. looming, the race is on to develop appealing alternatives. The current favorite: subscription services that give users access to giant electronic jukeboxes for a monthly fee.

A line is forming to offer these services. Music conglomerates such as Vivendi Universal and AOL Time Warner plan subscription services along with upstarts that have no customers, such as Streamwaves and FullAudio.

This week’s court ruling against Napster won’t end online music piracy, recording industry attorneys agreed, noting that other free music services are emerging. But now that the largest source is in jeopardy, the field is open for developing fee-based alternatives.

The long-term solution, industry insiders say, is to offer comparable services that compensate artists, songwriters and labels. But music companies have been slow to grant online rights to their music. And prospects for online profits seemed dim as long as Napster provided music for free.

As a result, none of the online ventures can duplicate Napster’s ability to offer consumers most of the songs they crave.

Redwood City, Calif.-based Napster enables users to search for and copy digital music files from one another’s computers. On Monday, a three-judge panel at the 9th Circuit Court of Appeals in San Francisco ruled that this kind of copying violated the labels’ and music publishers’ copyrights.

The panel directed a lower-court judge to craft a preliminary injunction barring Napster from helping users download copyrighted song files, once those files have been identified by the labels and publishers. Although Napster plans to appeal the ruling, the injunction could force it to block access to most music on the system today--including virtually all of the most popular songs.

“Napster was very important because it showed the world . . . there is a massive market of consumers who want to be able to access and listen to their music using digital technologies,” said Michael Downing of San Francisco-based Musicbank, an online music storage company. “Up to that point, it was believed, generally, that the digital music movement was a niche movement.”

Industry insiders say Napster has prodded the labels to take the Internet seriously. But the labels’ focus has shifted from one strategy to another over the last year, and no one has been able to bring all of them together on a single project.

Mark Hall of RealNetworks, a leading supplier of software to distribute and play online music and video, predicted that each of the five major label groups “is going to dabble in their own subscription offerings.” If Napster is sidelined, he said, “I don’t know that there will be another single source where consumers will be able to go get that programming and content right away.”

One reason is the labels’ fear of creating a new middleman for the digital era, one whose business they will support but not profit from. Another, Hall said, is “the deep, fundamental transformation of how they do business” that the Internet presents.

Still, at least half a dozen subscription services are expected to launch this year, four of them with support of one or two of the major label groups. The roster includes:

* Universal Music Group’s subscription-based online jukebox and, possibly, download service. Universal has lined up Sony for this effort, which is expected to launch by the end of the year, and it is in talks with the other major labels.

The company started testing a preliminary version of the service last year on its Farmclub.com Web site. That service quickly drew a lawsuit from major music publishers, who argued that Universal was violating their copyrights.

* AOL Time Warner’s as-yet-undisclosed subscription service, which it plans to start this year. The service, which analysts expect to be a form of online jukebox, almost certainly will feature music from artists on Warner Music Group labels, which AOL owns. But AOL also is seeking licenses from other major labels.

* The new copyright-friendly version of Napster being developed in partnership with Bertelsmann, parent company of the BMG labels. This membership-based song-swapping service is expected to charge a sliding scale of monthly fees tied to the amount of music downloaded.

BMG and TVT Records, the largest independent, say they will participate, and negotiations are continuing with the other major labels. Bertelsmann officials have said they want to have the service running by July.

* A playlist-based online jukebox from Streamwaves of Dallas, focusing on older music from established artists. Streamwaves is expected to start its service this month, although it has announced a licensing deal with only one label group, EMI.

* A file-swapping service from Centerspan Communications Corp. of Hillsboro, Ore., that will let users make authorized copies of songs and videos from one another’s computers. Centerspan is using a modified version of the technology it bought from bankrupt Scour, a Napster-like service based in Beverly Hills that ran out of money after the labels and movie studios slapped it with a copyright lawsuit.

Keith Halasy, marketing director of Centerspan, said a test version of the service will launch by the end of March, using songs from undisclosed labels. “Only legal content will be put into the network,” he said.

One hurdle for the subscription services is the need to prevent pirates from copying, keeping and distributing the songs provided. The major labels have made it clear they will not let their songs be used without this kind of protection, but they disagree on which approach to use.

Nor has anyone demonstrated a secure system that matches the ease of Napster. And although security companies have developed powerful encryption software to deter copying, Larry Miller of Reciprocal Music, a company that helps deliver music securely over the Internet, said there’s one remaining key piece to be tested: technology to identify and trace the files that have been authorized for distribution.

One entrant in the latter field is Cantametrix Inc. of Bellevue, Wash., whose technology develops a digital fingerprint of a song file based on its acoustic properties, said Max Wells, chief technical officer and co-founder. Wells said his company would announce three or four deals with the new copyright-friendly Napster services shortly, adding that he expects to see that kind of service hit the market by May.

Miller said the Napster ruling gives the industry an opportunity to establish subscription services, but that opportunity won’t last long--”a few months to maybe the rest of this year, but that’s it,” he said. In the meantime, Napster users are discovering other sources on the Web. “In the time it takes you to read this e-mail, I’ve already downloaded two other services that are almost identical to Napster,” wrote a Napster user from Irvine, identified only as David. “The record labels and artists have done nothing more than make one grain of sand on the beach unavailable for free use. Good luck chasing down all the other grains.”

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Exploding Popularity

Napster’s rapid growth illustrates the growing demand for an easy, universal online music service. Paying for the service won’t chase everyone away.

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Home Napster users (in millions)

December: 9.1 million

Source: Jupiter Media Metrix