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Sony/Universal to Offer Discounted Downloads, Burning

Underscoring the lukewarm reception digital music subscription services have so far received from the online music community, Sony Music Entertainment and Universal Music Group made heads turn this week.

The two music giants unveiled a strategy intended to cool the fire for digital piracy and make discounted burnable music tracks available to online music retailers like Amazon.com, BestBuy.com, CDNow, Sam Goody, Barnes & Noble, and Sony Music Club.

By mid-summer, consumers will be able to purchase digital singles or entire albums, including new releases, from Universal's music catalog for less than a dollar per downloaded track through its partnership with LiquidAudio, an online distribution firm. Entire albums from the Universal label can be snatched up for as little as $10.00. Downloads will be playable only through Liquid's proprietary player and can also be burned onto CD and transferred to portable devices.

Likewise, Sony has conceded to drop its price for single track downloads to $1.49 per song and will offer CD burning capabilities through its ongoing partnership with RioPort, a music application service provider that is partners with many of the music industry's heavy hitters, including other members of the Big Five.

The Sony/Universal move is not only an attempt to overshadow free file-swapping services such as Grokster, Kazaa, and Morpheus that propagate illegal file-swapping and CD-burning practices, but to increase the distribution blood flow between the Big Five music labels and the average online music consumer still willing to pay for music.

Collectively the most powerful force in the music industry, the Big Five represent the controlling members of the Recording Industry Association of America (RIAA) and include EMI Records, Vivendi Universal, Sony Music Entertainment, Warner Music Group, and BMG, the music division of Bertelsmann AG.

This past year, the five major record labels have seen a significant percentage of their bottom line drained off by the popularity of file swapping services, and have so far failed to establish a successful business model that can tap into the enormous online demand for digital music content.

Many industry analysts are saying that in order for the Big Five to stay king of the log, they must branch out, find multiple sources of online music revenue, and not rely entirely on a dated business model that clearly cannot survive in the digital age. There is industry speculation that Sony and Universal may in fact strike gold with this new approach to online music retailing, or at the very least serve as the litmus test for an entirely new digital distribution approach for record labels to explore in the near future.

Sony/Universal's distribution moxie has been lauded by music fans, music artists, and retailers as a bold step toward providing music consumers with what they really want: the ability to pick and choose specific tracks without getting saddled with the entire album, burn them onto CD, and transfer customized playlists onto portable devices. Although this new distribution venture could also pose a threat to traditional retailers who will now be forced to compete with lower prices and the increased flexibility consumers can get from purchasing content directly online from the labels themselves.

"The main thing that's changed is the peer-to-peer problem," Larry Kenswil, president of Universal Music's eLabs, told Reuters. "This has forced us to reevaluate what it takes to get people to buy music on the Internet. Basically, it takes aggressive pricing and to offer as much of our catalog that can be cleared."

The Sony/Universal announcement is a separate initiative from licensing agreements members of the Big Five record labels have secured with the handful of online music subscription services like Listen.com, which is backed by BMG, Sony Music Entertainment, EMI Recorded Music, and Warner Music Group; Pressplay, a joint venture between Sony and Vivendi Universal; and MusicNet, which is backed by AOL Time Warner, Bertelsmann, and EMI Recorded Music.

The success of these subscription services has so far hinged on fairly restricted licensing agreements with the Big Five, including an ongoing battle to secure additional burning rights, which to date have only been granted to Listen.com and Pressplay, but with extreme limitations.

The hope for subscription services in light of this week's Sony/Universal announcement is that the Big Five might finally be willing to loosen the belt straps and let the bulk of their music catalogs flow more freely into the hands of eager consumers.

"We hope that the Sony/Universal announcements are indicators that those same types of licensing rights, whether for downloads or burning, will be made available to Rhapsody and other online services," said Matt Graves, a spokesman for Listen.com.

And while the announcement from Sony and Universal has given the music community quite a stir, it seems that the greatest reception has come from musical artists themselves who would receive a significant increase in royalty payments compared to current deals under the traditional CD model. Under the current Sony/Universal proposal, an artist with an 18 percent royalty payment rate would get 18 cents on the dollar for every track that is downloaded.

"This is absolutely a step in the right direction," said Bruce Forest, an independent media consultant. "It's not going to cure anything, but it shows the guys at Sony and Universal are listening to their users and customers and it certainly will lure more people towards legitimate services."