Music Fans Starting to Tune In to Fee-Based Sites

Jim Goodall knew it was illegal. But when the occasional craving for music struck, the 37-year-old graduate student helped himself to free songs on Internet file-sharing networks.

Then friends introduced Goodall to Rhapsody, an online service authorized by the record labels. Now, Rhapsody is the main source of music in his Santa Monica home. And file sharing? “I don’t even think about it.”

For the music industry, that’s one down, 59,999,999 to go.

Goodall and about half a million other Americans pay $5 to $10 a month for services giving them access to a large online library of digital songs. By comparison, an estimated 60 million people in the United States tap Kazaa and other free file-sharing networks, which have mushroomed in popularity since they debuted in 1999.

That disparity, some critics say, shows how the recording industry blew its chance to capitalize on the online music revolution. As record labels and music publishers were releasing their works to fee-based services such as Rhapsody in fits and starts, people were moving at warp speed to unauthorized networks, including Napster and Kazaa, that let them copy songs free from other users’ computers.

Still, the slowly growing ranks of converts such as Goodall underscore a key point: The revolution isn’t solely about free songs. It’s also about having entree to a vast, reliable collection of recorded music that isn’t controlled by radio programmers, record-store stockers or major-label executives.

For Goodall, those benefits had more to do with his conversion from pirate to paying customer than moral qualms or fears about getting caught in the music industry’s legal dragnet. Simply put, he thinks Rhapsody is worth the $10 he pays each month.

“I didn’t find on the free services that they led me or tweaked my curiosity very much,” said Goodall, who is studying social welfare at UCLA. With Rhapsody, “I’m introducing myself to tons of music because it’s so easy.”

He often starts by navigating to the electronic-music section of Rhapsody and entering the portion devoted to a musical subgenre called downtempo. The Rhapsody software suggests a few artists and albums, and Goodall picks a song to sample. If he likes it, he follows the links provided to the whole album, that musical genre or a related radio station, which will lead him to other artists to explore.

That kind of experience is something more and more people are willing to pay for, despite the limitations of services such as RealNetworks Inc.’s Rhapsody, AOL Time Warner Inc.’s AOL MusicNet and Roxio Inc.’s Pressplay. For music fans who want to download songs without paying a monthly fee, a host of companies are preparing to sell individual tracks through online stores such as Apple Computer Inc.’s iTunes Music Store.

The music industry shouldn’t celebrate yet. Only lightly advertised, the authorized services are likely to generate less than $80 million in revenue this year, Jupiter Research has predicted. That’s less than 1% of what the record industry collected from CDs in 2002. And like file-sharing networks, subscription services are attracting consumers with a proposition -- an unlimited amount of music for a flat monthly fee -- that undermines the CD market, which has been the industry’s bread and butter.

But at the same time, the services are teaching the industry a valuable lesson. As they evolve and start building meaningful audiences, they are showing what it will take in the digital era to get music fans to part with their money.

The subscription services -- which also include MusicNow from FullAudio Corp., RadioMX Platinum from MusicMatch Inc. and Streamwaves from Streamwaves Inc. -- all take the same basic approach. Subscribers can listen to as many songs as they want from an enormous and steadily growing library of songs. In Rhapsody’s, there are more than 380,000 tracks from 28,000 albums on 180 record labels.

There are two significant restrictions. First, subscribers lose the ability to play those songs if they stop paying the monthly fees. And for now, at least, they can play them only on a computer, not on a car stereo or a portable device. If they want music that won’t expire after their subscription lapses, or if they want to move it to a portable player, they have to pay 79 cents or more per track.

File-sharing networks have the advantage of a wider selection, offering just about anything that has ever been on CD, a plethora of unreleased live and bootlegged recordings and a vast collection of older songs. None of those songs expire, and all can be copied freely to CDs or portable devices.

But file sharing isn’t a perfect way to obtain music either. When users search for files, they’re often presented with a disorganized jumble of tracks peppered with bogus or inaccurately labeled files and low-quality recordings.

There also is the legal problem: At least five federal courts have ruled that file sharing without the copyright holder’s permission is illegal. Eager to drive home that point, the major record labels sued 261 file sharers this month and are expected to sue thousands more.

Still, the chances of getting sued for file sharing seem about as remote as getting hit by lightning. So why would anyone pay for an online music service when free songs with fewer restrictions are available through file sharing?

The answer, according to Goodall and other subscribers, is that the fee-based services are better organized, more reliable and more fun. They also make it easy to discover new and unfamiliar music, something the file-sharing networks have yet to do.

Reflecting those strengths, the subscription services attract people with voracious appetites for music and expansive tastes.

Lane Schwark, a software developer in Alameda, Calif., uses Rhapsody to sample music before buying it -- the reason many people give for using file-sharing networks. But Rhapsody offers a better experience, Schwark said, in part because he doesn’t have to wait for a song to download to hear it. Instead, the music plays as it’s streaming to his computer.

“It’s something that I just didn’t have before: a good-quality streaming music service where I could choose what to play,” he said.

The subscription services are quite a departure from traditional ways of buying music -- too much so for some customers.

One former AOL MusicNet subscriber in Fresno, who asked that his name not be used, said he quit the service after two months. “If I were them, I would do away with the added monthly fees and make it as simple as going into a store and buying what you want for one price,” he said. “You don’t pay a monthly fee to go into Tower Records to buy music, so why should it be different online?”

That’s the approach taken by Apple’s iTunes Music Store, MusicRebellion.com Inc. and BuyMusic Inc., which sell downloadable songs for about $1. Several of the subscription services, including AOL’s, are expected to add downloads for non-subscribers within the next few months.

Other subscribers to the new services continue to download songs from file-sharing networks, either for portability or to fill gaps in the services’ offerings.

“I’m an iPod owner and big into the download scene, but I’ve kind of found that downloading isn’t my primary activity anymore as much as streaming,” said Ken Ruck, 34, who runs the e-commerce operations for two clothing companies in New York. That’s why he subscribes to AOL MusicNet and uses a free radio service from MusicMatch.

Those services have “taken over the way I’m exposed to music,” Ruck said. Instead of relying on suggestions from friends, he said, “I can go to a service and say, ‘I like that song from Travis or from Coldplay,’ ” and listen to a set of music in the same vein.

Jesse Hertzberg, a 31-year-old merger and acquisition executive in New York, said he used to download a fair amount of songs from file-sharing networks, storing them in his iPod portable music player to play at his desk. He had trouble seeing the value in a streaming service such as Rhapsody.

“Why would anyone want to pay for music if they couldn’t own it and put it on their iPod? I didn’t get it,” he said. Then he spent a night with friends in San Francisco playing with Rhapsody, and after seeing it in action, “it made a lot more sense to me.”

Now, Hertzberg said, he spends 10 or 15 minutes building a playlist around “whatever artists pop into my head,” then listens for hours while he works.

“I had pretty much stopped buying CDs and had pretty much stopped going to concerts,” he said. “Rhapsody has definitely increased significantly my listening hours and reinvigorated my interest.”

All the same, Hertzberg illustrates how subscription services can be a double-edged sword for the music industry.

The $100 or so he spends on annual subscription fees is far more than he once forked over for discs, Hertzberg said. But the only reason for him to buy CDs now is to have something he can listen to on the road.

New technology is in the works to let subscribers move songs to portable devices without requiring them to pay extra for permanent copies. Expected to arrive next year, it could eliminate the biggest shortcoming of Rhapsody and the other subscription services.

“If they do that, then they have me for life,” Hertzberg said. “But I’ll never buy a CD again.”