Napster sputters before us as a current example of how not to build a sustainable digital-music business on the Net. Boston-based ETC Music is coming at the problem from a different compass heading--fitting into the music industry's ecology instead of trying to replace it overnight with a Net-based paradigm.
ETC Music makes a kiosk called the MusicTeller, which it hopes to place in locales such as record stores, airports, campus bookstores, electronics retailers, health clubs, and supermarkets across the nation, similar to an ATM that dispenses music instead of cash.
However, this analogy is inexact in three particulars. First, the MusicTeller's supply of tunes, unlike an ATM's cash, is stored on a network server rather than locally. Second, the output of the MusicTeller goes not into your wallet, but into your portable MP3 player. And, finally, a MusicTeller bears about the same physical resemblance to an ATM as Ja Rule does to Alan Greenspan.
"We want to be a noun, like ATM," said ETC Music's marketing director Sean O'Connell. "We want people to see a sign, 'MusicTeller Inside,' and know they can go in there and get music."
ETC Music fits into the music business as a distributor. The company is staffed with music-industry veterans who know how to woo record-store chains, consumer electronics companies, record labels, promoters, and all of the other players in the complex world of modern music. Getting deals cemented with record labels won't be simple, or cheap, but ETC Music says it is currently in negotiations with three of the major record labels, and optimistically expects to have agreements in place with all the majors in time to launch the MusicTeller service later this year. (Think how much trouble Napster could have saved if it had chosen to negotiate in advance instead of presenting the Recording Industry Association of America with a fait accompli.)
Assuming ETC Music surmounts the obstacles ahead of it, here's how the service might work. You obtain a MusicTeller card, which you may get as a promotion, good for five free downloads, bundled with your new MP3 player. Someday you might buy a $15 download card at a Nike store or at Burger King. The cards will be printed in full-bleed color to support the promotional campaigns of sponsoring companies. You can use these cash or promotional cards, in full anonymity, at MusicTeller kiosks and at musicteller.com. You can choose to become a MusicTeller member at any time--putting you in line for more promotional deals, such as drawings for concert tickets--by giving an e-mail address at the website. You can also store value in your MusicTeller account by providing your credit-card number and other contact information at the site. (Thus, a MusicTeller card can act like an EasyPass transponder: You store cash value in the card's account, and the value resides in an ETC Music server, not in the card you carry.)
Once you've got your MusicTeller card, you visit a MusicTeller kiosk and swipe your card through a reader. The MusicTeller will present you with choices of music to download. Depending on your past visits, and on preferences you set up at MusicTeller.com, the music that's featured for your inspection will be more or less targeted to your tastes. You'll make your selections and plug in your MP3 player. The kiosks are connected to a fast private network, so downloading half a dozen songs to your player's memory should take only about a minute or so. While you browse and download, the MusicTeller may present advertisements from record companies, or from the retail establishment hosting the MusicTeller.
Yes, promotions aside, you'll pay for the music you download. How much? ETC Music is not yet sure, but O'Connell believes the price per song will settle at a level that will strike many music fans as reasonable. And you'll only pay once. A unique aspect to ETC Music's plan is the "sideload": every piece of music you download to your portable player also gets copied into a personal "locker" area, corresponding to the card's ID, on MusicTeller.com. Music companies doing promotions can also sideload free selections into your locker. Anything in this locker is yours to download, from the website or from any kiosk, as many times as you want.
The sideload feature spotlights an advantage to ETC Music's conservative, negotiate-first approach to bringing the music business into the digital age. Should record companies be paid a little something each time you download a song? That's what they'd like, but the American tradition of fair use runs counter to the labels' desires. During negotiations, ETC Music can point out to the major labels that the sideload offers new opportunities to sell more music--each time the customer visits her locker to re-download a song she has paid for, the labels have another opportunity to promote, to cross-sell, and to polish their brand. These complicated issues are better resolved up front, ETC Music believes, than in the courts later on down the road.
The advent of MusicTeller should be music to the ears of record stores. According to statistics posted on the RIAA's website, the share of music purchased in record stores fell from almost 70 percent in 1990 to less than 45 percent in 1999. The biggest gainer was not, as you might expect, the Internet--that channel gained only 2.5 percent. It was "other stores," whose share rose nearly 20 percent. ETC Music's O'Connell contends that record stores have essentially lost the business of the generation that is now 25 to 35 years old, because in their busy lives they never cross the thresholds of Tower Records or Best Buy anymore. If Tower Records has the opportunity to place branded MusicTellers in the local hair salon, the health club, and the supermarket down the street, they have a chance to recapture the business of an entire demographic that has been lost to them.
Will teenagers who have been getting their MP3s free for more than a year ever want to pay for music? Opinions vary, but even if they don't, O'Connell believes there is plenty of business to be had from people over 30, especially from the baby boomers. No one has yet tried to sell portable MP3 players to this demographic--it's pure upside.
ETC Music's sole investor to date is SONICblue, parent company of the maker of the Rio MP3 players. SONICblue invested $3 million in September 2000, and ETC Music is busy on the street looking for another round. Founder and CEO Mark Hardie has said that the company, by maintaining a low burn rate, is well positioned to ride out the current Napster-induced turbulence to build a music company with lasting value. Now all they've got to do is do it.