Record industry finally accepting Net music

Back in May of 1998, the announcement sounded like awinner. Ed Bennett, former CEO of Prodigy, was launchinga big site called MY-CD, which would offer users theability to create their own CDs, selling for $16.95 froma huge catalog of 165,000 songs the startup had licensed.And the company had an air of inevitability about it,being backed by the Japanese powerhouse Bandai Co., Ltd.,creators of the "Mighty Morphin Power Rangers."

But only a few months later, the whole pile of cards camecrashing down. Bandai pulled its funding, 30 employeeswere dismissed, and chaos ensued. Denise Shapiro, MY-CD'schief marketing officer, told ZDNet News on Sept. 2 oflast year that Bandai had decided to pull the plug,stymied by a lack of good product from the major labels.

A little over a year later, MY-CD is as much yesterday'snews as the Power Rangers. Go to MY-CD now, and all yousee is a forlorn-looking site that seems to be barelyalive. So how to explain the recent announcement that acompany called musicmaker.com is guaranteeing AOL some$20 million in a three-year distribution deal, to jointlyoffer, you guessed it, custom CDs and digital downloadsto AOL's 18 million members?

What changed in a year? Plenty. It may be too late forMY-CD, but the rise of musicmaker.com, which didn'tattract all that much attention at first, is a sign that therecord industry is getting serious about custom CDs anddigital downloads -- key components of the musicmaker.combusiness. That won't insure that musicmaker's high-levelcoterie of former biz "hit men" won't lose their shirts,but it is an indication that things have changed fast,in a fast-changing industry.

Musicmaker.com was founded by a trio of execs withserious experience in the record and software business,including Robert Bernardi, co-founder of PictureTel andTranSwitch, Raju Puthukarai, former President of RCA/BMGMusic and Video Club and President of Warner Music Media and Irwin H.Steinberg, former chairmanand CEO of PolyGram Records, USA. The management teamincludes William Crowley, former vice president forWarner Music Enterprises, and Larry Lieberman, whoformerly ran the Comedy Central Web site and was incharge of licensing at MTV Networks. The third-largestmusic conglomerate, the British-based EMI, now owns 40percent of musicmaker. If these guys think this is a goodway to invest $20 million, you have to at least payattention.

"MY-CD couldn't get access to the repertoire, and that'swhat led to their demise," notes musicmaker's LarryLieberman. "This is a repertoire-driven business. Bandaisaw the frustration in acquiring music, and they choseto fold rather than fight. As time has passed, we've beenable to do business on terms that the record companiescould accept. The worlds [of Internet and recordcompanies] are coming closer. The music industry is eagerto explore this area." Lieberman says that musicmaker israpidly digitizing the EMI library, including the hotLatin and international repertoire, to eventually offerabout half a million songs online, by far the largestgroup of established artists available for digitaldownload or custom CD available anywhere.

But it's not only a matter of how many songs forcompiling purposes, but the prominence of the artistsinvolved. MY-CD had a bunch of smaller labels undercontract, including jazz indie 32 Records, bluesspecialist Alligator Records, American Gramophone, BarNone, Clarity Records, Drive Entertainment, LyraProductions, Nine Bar Records, Qbadisc, TKO-Magnum, andWarlock Records. None of these have regular chartrecords, unless we're talking about the jazz or bluescharts. Users who tried to put CDs together with MY-CDwere looking at a sea of unfamiliar names.

EMI is the third-largest label group, including such USgiants as Capitol Records, and has Garth Brooks, PinkFloyd, The Rolling Stones and The Beatles on theirroster. Musicmaker is also distributing music from ZombaRecords, which has the Backstreet Boys and BritneySpears, and announced this week that it will alsodistribute digital downloads from David Bowie and PeteTownsend of the Who. The music is offered for CDcompilation or as a $1 digital download.

You might note that all of this sounds vaguely familiar.A couple of years ago, N2K's Larry Rosen was boasting atindustry confabs that he would take over the musicindustry by offering low-priced digital downloads by,yes, David Bowie and others. It was Rosen who was theimpetus behind Bowie's move into digital distribution.DavidBowie.com was housed with other N2K properties, allof which were folded into CDNow, which itself wasswallowed up by Columbia House. I recall Rosen crowingthat over 300,000 people had downloaded a Bowie single inone day. That might have sounded impressive at the time,but N2K wasn't charging for that single, and all Rosenended up demonstrating was that he was ahead of his time;admirable, but not something you can take to the bank.

By musicmaker's own reckoning, things are going a littleslower than expected. Back in October 1997, whenMusicmaker launched as a spinoff from something calledThe Music Connection, the claim was, in the company's ownpress release, that it would be offering "over 1 milliontracks within the next two years." Obviously, thingshaven't quite worked out that way, in that musicmaker nowhas less than one-fifth that many available online now,two years later. But promises aside, the siteis now claiming one million visitors per month, withabout 80 percent of those being unique. They're notreleasing data on the number of custom CDs and downloadsfrom these visitors, although Lieberman does note, "Oneof our goals is to increase the ratio of visitors toorders."

I think musicmaker has a shot. $20 million is a lot toinvest in a music deal with AOL. CDNow vets can tell youthat their expensive portal deals are what drove thecompany into the insolvency that made them capitulate toTime Warner. But things are changing rapidly in this gameof musical chairs, and it might very well be that thecompany in place when the music stops just might be inthe strongest position. Let me know what you think about music on the Net in the talkback below.