It's An Internet Jungle Out There

According to a new comparison of online music business models and companies prepared by Red Herring Research, Napster simply cannot exist without the complete consent of the recording industry, and the company's recent attempts to appease the copyright infringement concerns of the industry have so far failed. The study also finds it highly unlikely that the company's peer-to-peer model will find success, given the history of its relationship with the recording industry, its declining membership, and impending competition from services like MusicNet and Duet.

Not good news for the fast-growing service that pioneered successful, albeit unfettered, music trading on the Internet. The report, titled "Online Music Tunes Up," also analyzes other online music companies and their formats for delivering music on the Internet, concluding that the only successful companies will be those which can license a database of digital music (recording industry sanctioned, of course), can successfully syndicate online music technology, or can develop a subscribership whose monthly remittances to the online music firm are great enough to cover both the demand for profits from the recording industry and music artists and the costs of operation.

Report author Matt Wells says that "all of the online music companies must test out some sort of subscription-based model. They must get users to pay for content and, as we know, there are very few Internet entities that have been able to make that successful. Online radio is definitely going to have to look at that as a source of revenues going forward."

The study finds that among the five companies scrutinized, RealNetworks maintains the strongest overall business model, revenue base, and growth prospects, making it best positioned to survive the impending shakeout of digital music. "That company was a pioneer in streaming audio and dominates the distribution and sales of the tools needed to stream audio and to play streaming audio files. In addition, RealNetworks has managed to adapt to the evolution of music on the Internet with the addition of other content-oriented services," says the report.

The research also concludes that MusicNet, though it has yet to deploy its syndication services, is off to a good start given its backers and game plan. According to the analysis, "Since music listening is such an issue, MusicNet's offering of a pre-licensed package to customers is an attractive one. With the record labels' support and a key distribution network in place, MusicNet is primed to become a viable delivery method of music over the Internet."

The study finds that MP3.com, "serves as an ideal marketplace" for amateur bands that are trying to establish a web presence and that the recent purchase of MP3.com by Vivendi Universal changes the online music playing field dramatically. "Historically at odds with the labels, MP3.com now serves as a key asset for one of the largest record labels, which must figure out how to effectively fold MP3.com into its existing business and leverage its key features," says the report.

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