Music Industry Giants Team Up Online

If you can't beat 'em, join 'em. Two music-industry giants---Bertelsmann Music Group and Seagram Ltd.'s Universal Music---have agreed to pool their resources in a joint Internet venture. GetMusic, as the website will be known, will sell compact discs in direct competition against traditional retailers, other Internet music services, and mail-order music clubs.

BMG already operates one of the most successful music clubs, competing head to head with Columbia House, an enterprise backed by Time Warner and Sony Corporation. Amazon.com and CDnow are two of the most successful online music outlets. All are discount mail-order operations, as opposed to digital distributors like LiquidAudio and MP3.com.

Universal and BMG together control about 45% of the music market in the US, according to the Wall Street Journal. A mere five multinational conglomerates dominate the worldwide music market, estimated at more than $12 billion annually. Traditional retailers hadn't felt the pressure from the Internet as recently as last year, when only about 1% of music sales took place online. That percentage may have already risen to 5% among the young, who are the first to embrace new trends. National Public Radio's Michelle Breyer reported last week that "Music retail purchases by young people have already begun to decline."

The move by Universal and BMG is an acknowledgment of the growing power of the Internet. GetMusic will attempt to generate sales by "channeling" customers into "online communities" of like-minded music lovers, such as Peeps Republic for urban tunes, Bugjuice for alternative rock, and Twangthis! for country fans. Music from non-BMG and non-Universal labels will be available, but won't be promoted.

One marketing lever BMG will bring to the party is a database of more than 500,000 music fans, who will receive e-mail updates on recent releases by their favorite artists. The announcement of the Internet sales venture was made at a press conference April 7 in New York by Seagram CEO Edgar Bronfman, Jr. and Bertelsmann chief Thomas Middelhoff.

Music retailers may perceive the move as another nail in their coffin. On hearing the news, one store owner, who has long believed music clubs to be "the work of the Devil," characterized the BMG/Universal alliance as "further proof that the majors don't care squat about retailers. They're only in it for their own profit." That, indeed, is what most businesses are all about.

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