US Report: Online music gets mixed welcome

Tuesday saw the launch of the first record company devoted to distributing its music over the Internet.

But while GoodNoise is targeting what would seem to be a growing audience - young people, mostly college students - observers say there's just one problem: that audience is used to getting stuff for free.

"Sure, there's a bunch of college kids out there, they'll surf to your site, and see your stuff but the business aspect is self-defeating," said Mark Hardie a senior analyst with Forrester Research. "You're dealing with a market niche where most of the activity is illegal."

But though an estimated 2 million users trade music online, the practice is condemned by the music industry. And analysts said record companies are certainly not about to license their valuable music properties to be dispersed royalty-free to half the college dormitories in the United States. Gene Hoffman, GoodNoise co-founder and CEO, downplays record industry concern about copyrights and royalties online. "There's always going to be a little bit of trading going on, just as you'd borrow a cassette from a friend who recorded it off a CD," he said. "But this is not as heavy as these music artists are afraid of. My friend might give me a copy of Eudora Pro, for example, and I'll use it, and if I like it, I'm probably going to buy the new version."

He added that GoodNoise will be distributing its own properties as well, partly to show that there's money to be made. The startup plans to have its first titles on the market by late summer.

Observers are less optimistic. There won't be a market for downloadable music until the record industry formulates a framework for royalties and copy protection, and that could be five years or more down the road.

"Although music exists digitally and transmission is logistically possible, CDs will not disappear anytime soon," concluded Jupiter Communications in a report on the potential of music online, which predicted digitally delivered music will constitute less than one percent of the music market in 2002.

"A myriad of issues must be addressed, such as transmission speeds ... storage capacity ... copyright issues ... and perhaps most importantly, the acceptance of the PC as a real entertainment device," the report stated.