The Ebb and Flow of Internet Music Distribution

Looks like it might be a while before a profitable formula jells for selling music over the Internet. News this week indicates that one of the largest music retailers, Tower Records, is finally ready to challenge the market, while online distribution pioneer N2K will be scaling back operations until things steady a bit.

Did these companies simply miss the beginning of the race, or are they the sure-footed tortoises just now coming within range of jackrabbits like CDNow and We'll know in the coming months, but Tower finally announced last week that their online retail operation is ready to compete. Long considered the world's largest independent music retailer (200 stores around the planet), the company has launched its website, making available their 600,000 titles, including music videos and books.

According to the announcment, an agreement between Tower Records and EIS/MusicNet will allow for easy access for the purchase of music and entertainment products in six languages and 150 different currencies, using a global distribution network from more than 40 locations. In a statement, the company said that by "breaking down language and currency barriers, whilst also integrating content from Tower publications around the world, including audio samples, reviews, track listings, and cover art, the site will be designed for the music lover, not just the consumer."

Within a day of the Tower announcement, N2K revealed that it will lay off several workers and refocus its business on fast-selling titles. N2K operates a record label, N2K Encoded Music (which distributes audio via file downloads), and an online retailer, Music Boulevard (which sells CDs via the mail).

Each month has so far brought bigger debt for the company, which reported $16 million in losses for its most recent financial quarter. N2K CEO Larry Rosen has stated, "We should be more focused on what people are buying on the Internet---as the Internet grows up more, we can be much more targeted, more cost-effective."

N2K does have a few tricks up its sleeve, however. The company will be releasing a Miles Davis tribute disc called Miles Ahead in September (see previous article), and has just announced that Dave Stewart (ex-Eurythmics guitarist) is the first act signed to their new Digital Arts label. Stewart's first CD for the label will be available both as bits (downloadable files) and atoms (physical discs).

But just like the online scramble for book sales, where companies that lose money every day see huge surges in their stock prices, this is only the first stage in a long journey---new competitors with their own online approaches are appearing each month. In the near future, watch for virtual shopping from traditional big labels such as Sony, Virgin, and others before online distribution's shape-shifting begins to settle down. (For more information on the future of online retailing, see previous article.)