New Song-Sharing Services to Put Honor System to the Test

The phenomenal growth of online song-sharing services has led many music industry executives to an ugly conclusion: Within every consumer lurks a shoplifter who would, if given the opportunity, accumulate an entire collection of songs by theft.

Over the next few months, that grim hypothesis finally will be put to the test. Consumers are beginning to see some legitimate alternatives online to Napster et al, services that will let them listen to or download a wide array of songs for a flat monthly fee. Even Napster, battered into submission by industry lawsuits, plans to reinvent itself as a fee-based venture that pays artists and songwriters for their works.

But each of the new services is limited in significant ways that may turn off consumers. Those limits trace back to the industry’s suspicion that customers can’t be trusted to do the right thing, combined with the record companies’ resistance to radical changes in music economics.

Two of the first to launch are Dallas-based Streamwaves, which offers an online jukebox of Christian music called Higherwaves, and London’s Real World Records, which is selling a world-music sampling service called the Womad Digital Channel. Software maker MusicMatch also sells a premium radio service that offers customized stations whose playlists reflect listeners’ tastes.

Many more subscription services are expected to pop up online in the coming months. These range from controlled file-sharing from the likes of Napster, Centerspan and Britain-based Wippit to the major-label-backed offerings from RealNetworks, MP3.com, America Online and Yahoo.

None of the new offerings approaches the variety and breadth of material that Napster provided in its heyday. That’s true partly because the major record labels have split into competing camps and partly because the labels don’t hold the rights needed to make every song in their catalog available online.

Given those issues, several of the upstarts have opted for specialty services that stick to a single type of music. Streamwaves started with a $14-per-month service focused on Christian music because the company was able to win the rights to much of the music in that genre, Chief Executive Jeff Tribble said. The company has done the same in the field of country music, and it expects to launch an online country jukebox service soon.

The same rationale is behind the Womad Digital Channel, the first service powered by On Demand Distribution (better known in Britain as OD2). For about $7.50 per month, subscribers can download about three CDs worth of songs from various world-music genres, either in a prepackaged playlist or a combination they assemble themselves.

The songs remain playable for one month only, unless the subscriber pays an additional sum--between $1.50 and $3 per track--for a permanent copy.

OD2, which was co-founded by rocker Peter Gabriel, also plans a series of even more tightly focused services that let consumers subscribe to music from individual artists. Those ventures will offer rarities, outtakes and other unreleased exclusives that aren’t available through the pirate file-sharing sites, said Ed Averdieck, director of sales and marketing for OD2.

Eventually, OD2 wants to offer a wide-ranging service that caters to the mass market with major-label music. But it won’t do so, Averdieck said, until the labels make much more music available.

“For a significant period of time, we’re going to be on the back foot versus illegal services. There’s nothing you can really do about that,” Averdieck said. “Everyone can try and pretend there will be reasons why people should pay for tracks [instead of pirating them for free on a file-sharing service]. The fact is, until a much broader range of repertoire comes out, I think we’re pretty realistic that it’s going to have limited consumer appeal.”

The new crop of online services will try to compensate for their limited selection by guaranteeing the quality of the song files and providing a host of downloadable add-ons, such as album art, liner notes or even music videos. But Averdieck noted that consumers also want to be able to take their music with them wherever they go, and that poses another problem for the labels.

Today, the only way to achieve that kind of portability is to let them record songs onto CDs. “We can’t do that right now because the labels aren’t allowing it. It’s as simple as that,” Averdieck said. “And the labels aren’t allowing it because it makes a complete mockery of rental.”

Only EMusic--a financially troubled company that Universal Music Group bought for a fire-sale price--has allowed consumers to make permanent copies of the songs they obtained through a monthly subscription service. The vast majority of EMusic’s catalog is from obscure artists on independent labels.

The major labels’ refusal to permit permanent copies has a simple rationale. To be appealing, industry executives believe, the new services have to cost less than a CD but provide more songs. And if consumers can take all those songs and convert them into CDs, the effect is simply to reduce the price of CDs for anyone who owns a CD recorder.

Of course, consumers expect to pay less for song files than they pay for CDs because there’s no packaging.

That expectation will be hard for the labels to overcome, even if delivering a song digitally carries significant costs of its own.

The music industry and electronics manufacturers may eventually agree on a technology that makes rental copies of songs portable yet impermanent. That portability would remove one of the biggest shortcomings of subscription services, but it won’t necessarily persuade consumers to shift from buying music to renting it.

The single biggest challenge for the new services, said analyst P.J. McNealy of the GartnerG2 research firm, is “changing consumer behavior from consuming music as a product to consuming music as a service.” That’s a more fundamental shift than anything consumers have experienced before, McNealy said.

The good news for the music industry, he said, is that Napster has taught tens of millions of consumers about the benefits of online music services, including the ability to sample a wide range of music and assemble collections based on single songs.

“The bad news is, they think it’s free,” McNealy said. “So now it’s up to the music industry to finish off that education.”

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Times staff writer Jon Healey covers the convergence of technology and entertainment.