Music Site Will Burn Profit to Lure Subscribers says it will sell songs below cost: 49 cents per download. But it faces many hurdles, including free file-sharing services.

February 13, 2003|Jon Healey | Times Staff Writer of San Francisco may have the songs, the technology and the distributors for a successful online music service, but it's still missing a key ingredient: the customers.

While millions of consumers are downloading songs for free from unauthorized services, Listen and its label-sanctioned competitors have managed to attract only a fraction of that audience.

To boost those numbers, is set to announce today that it is temporarily slashing the price of owning songs to an industry low of 49 cents per track. That's 50% less than what Listen charged previously for downloadable songs and far below what its competitors still charge.

Listen's six-week experiment is a sign of things to come. Although several online music ventures have amassed the licenses and technology to offer a comprehensive service, all are still searching for a way to lure the masses.

That's why Listen is dabbling with deep price cuts for its Rhapsody service, even when it means selling music below cost, as the company says it's doing. Other innovations to come from online services include programming tailored to individual users' tastes, novel approaches to searching for songs online and lower prices for older material.

Most subscription services charge $5 to $10 a month to listen to songs and, in some cases, download temporary copies. Permanent copies can cost an additional 99 cents or more.

Still, the services face steep hurdles, including major labels' insistence on restrictive music formats, which deter piracy but also make the online offerings hard to use -- particularly for those who'd rather listen to music in their cars or living rooms than at their computers. Another problem is a lack of public awareness, exacerbated by a dearth of marketing.

The biggest difficulty, though, is competition from dozens of unauthorized file-sharing services. Although the music and film industries have sued the leading file-sharing companies and may sue individual users, consumers continue to have access to a virtually unlimited storehouse of free music to copy from one another's computers. Chief Executive Sean Ryan believes consumers are willing to pay for music online if they're offered the right mix of price, features and programming. "What we need to do is carve out a better experience at the right price point for most of our users," he said.

But no one knows yet what the right price is, or the right package. The most popular labels only recently lowered their prices to the point at which online distributors could charge 99 cents per track, down from as much as $3.49 previously. And industry officials say there are not enough data to tell whether the lower prices will boost demand more than they shrink revenue.

A recent survey by Lee Black of Jupiter Research in New York found that cutting song prices below 99 cents didn't significantly boost demand, at least not among adults who were willing to pay for music. But Ryan said Listen's internal surveys showed a great deal of interest in 49-cent songs.

To test that price, Listen is teaming with Barcelona, Spain-based Terra Lycos to make the discounted music available to new subscribers who sign up for Rhapsody through Web sites operated by the two companies.

The point isn't really to sell more music, Ryan said; it's to sell more subscriptions to Rhapsody. Listen will cover the cost of offering the songs below their wholesale price, Ryan said.

"I think it's a great experiment," said analyst P.J. McNealy of GartnerG2, a tech research firm. "The best and the worst thing that happens is it's so overwhelmingly successful and popular that they almost can't afford to go back to 99 cents."

If that happens, Ryan said, he'd make the case to the labels to lower wholesale prices. "The labels are pretty basic: They want to make as much money as possible," he said. "If it turns out 49-cent downloads is the way to do that, they'll do it."

Ted Cohen, vice president of digital development and distribution at EMI Recorded Music, praised Listen's move but said he didn't think it would trigger a wave of change in online music. "This is a loss leader; this is a traffic builder," Cohen said. "I don't think it portends any more than that."

McNealy also noted that this is one of the first marketing campaigns he's seen for an authorized online music service, and it's being done by Lycos -- not Listen. At some point, he said, one of the online music companies is going to have to mount an ad blitz of its own.

The lack of marketing support also was noted by an executive at Vivendi Universal's Universal Music Group. "The main problem is getting people to try it," the executive said, adding, "It's a matter of creativity and just pure spending money on marketing."



Bought for a song

Online companies are experimenting with prices to see what consumers would be willing to pay to download songs or albums legally. Most charge monthly subscription fees to listen and additional fees for buying permanent copies.

*--* Download charge Company Monthly fee per song Rhapsody $9.95 $0.49 Pressplay 9.95 0.95-1.20* Liquid Audio None 0.99-1.98 FullAudio 4.95-9.95 NA** None 0.99-1.98


*Requires customers to buy songs in bulk.

**Not available. FullAudio plans to begin selling permanent downloads at the end of March.

Source: Times research

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