Platinum Entertainment Gives It Away Online

Old joke: "We lose money on every sale, but we make it up in volume." A similar concept seems to be at the heart of the free download phenomenon sweeping through the Internet music industry: give it away as a lo-rez MP3, and customers will come back to buy the CD.

The biggest independent label in the US has decided to do just that. Platinum Entertainment has announced that it will soon make its entire catalog available online for free downloading in MP3, Liquid Audio, and Microsoft formats. The tunes will be available on the company's new website, HeardOn.com.

Platinum's intention is to boost traffic to its site and, thereby, revenue from banner advertising. The concept is similar to commercial radio: attract a semi-captive audience by offering free music, and saturate them with ads. "The free giveaway of our music on the Internet will immediately result in a busy advertiser-supported website," says Platinum CEO Steve Devick. "At the same time, these free downloads will promote the sale of our records through retail." Devick claims that Platinum will have archived over 15,000 songs for downloading by the end of January.

Like many music-business executives, Devick is betting heavily on the current wisdom that offering "teasers" in free, lo-rez formats will prompt customers to buy CDs. There is no historical evidence to support this assumption, and even if customers do get excited enough by some music to buy the disc, there is no guarantee that they will buy it from the download site. More likely, they will seek it where it is cheapest—from an online competitor, a mass-market merchandiser, or a local hole-in-the-wall used-record store. Some market researchers believe that Internet users, especially younger ones, have very little brand loyalty.

Even some of Devick's colleagues think Platinum may be going too far with the freebies. "If they're going to give away a free open MP3 of every song, I'm wondering if they're not giving away a third of their potential revenue stream of digital songs sales," said Andrew de Vries, VP of marketing at MJuice.com, another music site.

Platinum Entertainment is not only going to give it all away. The company is also planning to pay the artists on its roster every time a song is downloaded—presumably, whether a download results in a sale or not. "If someone downloads a song," Devick said, "we will pay the artist and we will also offer our artists stock options in the company." Such largesse is to be applauded, but time—and not much of it—will tell whether this is a working business model or not.

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