Music companies still looking for online hit

LOS ANGELES - Celine Dion new album this week gave record giant Sony Music reason to both cheer and weep. The CD topped sales charts but also infuriated fans in Europe when the disc's copyright protection technology sent computers crashing.

Sony's dilemma reflected the complicated state of today's music industry where companies must both create hits and find ways to elude an ever-growing base of tech-savvy fans who use CD burners to pirate music rather than purchase it.

But industry watchers said efforts by record companies to stem piracy puts them at risk of alienating the newest generation of music consumers they need to succeed in their online ventures, MusicNet and Pressplay.

"If the labels are trying to cozy up to their online fan base, the worst way they could do it is to introduce a product that can crash computers," said Aram Sinnreich, analyst with Jupiter Media Metrix.

"It's guaranteed to tick off their online fan base, the people they so desperately need to kick off sales," he said.

Sony released Dion's "A New Day Has Come" embedded with copy protection technology in Germany and several other European countries, where burning is rampant. The technology prevents the CD from playing on computer CD drives.

A Sony spokeswoman said the CD was clearly labelled to show it will not play on a PC or a Mac. "The CD will possibly cause a system to crash, but it will not alter anything. It also won't eject properly ... because the computer has crashed."

Thanks to copying, the industry's worst nightmare came true last year when US shipments fell 10.3 per cent to 968.6 million units. When the Recording Industry Association of America released the data in February, it said 23 per cent of surveyed music consumers said they were not buying music because they are downloading or copying music for free.

Millions of fans stopped paying for music with the emergence of services like Napster which allowed them to swap music files online for free. Even though Napster has been hobbled by legal action, plenty of more powerful successors such as Morpheus and Kazaa have filled the void.

Late last year, the big labels -- including AOL Time Warner, Sony Corp, Vivendi Universal, Bertelsmann AG and EMI Group Plc -- launched Pressplay and MusicNet to try to capture the huge audience that had flocked to Napster.

But with fees and limits on which music can be downloaded, streamed or, in Pressplay's case, burned onto CDs, these services have a long uphill battle in luring fans away from the free services that have proliferated in Napster's wake.

"The free sites still are the dominant way that consumers go in their search for online content," said Ryan Jones, analyst with Yankee Group, a research firm that estimates there are 100,000 subscribers to Rhapsody, another online subscription service, MusicNet and Pressplay services.

"There's a significant rift between paying music subscribers and the estimated 26 million households which are downloading free music," said Jones.

But Jones and others believe the tide will turn as litigation continues to impede the free services and the paid services improve their offerings.

"As you get out of 2003 and 2004, the pirate sites will get less and less user-friendly and the legitimates will be more and more user-friendly. That's what will determine winners from losers," he said.

Officials from MusicNet and Pressplay have always maintained the first year would be a learning experience.

"We know this is going to be an evolution and that its going to take time," said a spokeswoman for MusicNet.

Andy Schuon, president and chief executive officer of Pressplay, a Sony/Universal venture, expects to launch an upgrade to the service later this year, with improved features and more music, hopefully from Warner and BMG.

"We intend to get the majority of the world's music content into the Pressplay service sooner rather than later and we continue to talk to all the music companies about offering the most flexible rights possible for the content," he said.