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Looking to Play a Different Tune

As the number of online music stores grows, carving out their own niches may get tougher

November 30, 2003|Jon Healey | Times Staff Writer

With 99-cent music downloads moving quickly from novelty to commodity, Full-Audio Corp. needed to set its online store apart.

So along with the standard layout of hit albums and popular songs, its MusicNow site features exclusive anthologies -- such as "Shaken, Not Stirred," a collection of songs from James Bond movies, and "Mullet Rock," featuring bands with bad '70s hairdos.

By contrast, audiolunchbox.com doesn't peddle any hits, or even any flops, from the major record companies; the founders couldn't afford the labels' licensing fees. Instead, the store stands out online by offering an array of tunes from independent labels, including Epitaph Records and Barsuk Records. And unlike all its competitors, it puts no limits on what shoppers can do with the songs they buy.

"We're very focused on differentiation," Audio Lunchbox Chief Executive Morgan Harris said. "For us to go head to head with somebody who has million-dollar advertising budgets doesn't make sense."

That's a common sentiment these days among companies racing to enter the downloadable music market.

At least eight online music stores have been launched this year, most of them by small firms like Audio Lunchbox of Manhattan Beach and FullAudio of Chicago. The number of stores is expected to double in the next few months, including from such commercial behemoths as Sony Corp., Microsoft Corp., Wal-Mart Stores Inc. and Viacom International Inc.'s MTV.

Getting music free -- and illegally -- has proved to be one of the most popular applications of the Internet Age. Now, as companies large and small launch their stores, they must persuade fans not only to buy music but also to buy it from them.

Analyst Phil Leigh of Inside Digital Media, a technology research firm, likened the situation to the early days of the Gold Rush. Most stores have been able to carve out promising niches, he said, but may not be able to hold on to them as more companies elbow their way into the market.

"When there's no more virgin streams to stake, people are going to be jumping each other's claims, and it's going to be ugly," Leigh said.

Most of the stores are expected to offer nearly the same selection of songs for about the same price, with the same restrictions on copying. That will make it difficult for companies to distinguish themselves, giving an immediate advantage to the players that already attract sizable numbers of music fans.

To make matters worse, small profit margins mean that online stores will need high volumes to succeed. Downloadable music sales have been minuscule in comparison to CD sales or illegal downloads.

The leading outlet for 99-cent downloads has been Apple Computer Inc.'s iTunes Music Store, which has sold more than 17 million tracks since opening April 28. That's less than 1% of the music industry's U.S. sales during the same period. (And it's a barely measurable fraction of the downloads on Kazaa, the biggest online file-sharing network.)

"Our focus isn't to get rich overnight with this thing," said Harris of Audio Lunchbox.

Harris said the idea for the store grew out of the work he and one of the store's co-founders, Joshua Forstot, do at Hyfn Inc., a Manhattan Beach technology company. Numerous record labels promote new bands or CDs by distributing free songs in Hyfn's music-playing software.

A Change of Plans

The original plan was to let people buy songs through Hyfn's players, Harris said, but the major record labels wanted advance money the self-funded company couldn't afford. Nor did Audio Lunchbox's crew agree with the labels' insistence that songs be wrapped in electronic locks to limit copying and deter piracy.

"It's hard enough to get people to purchase music digitally," Harris said. "They should be able to burn it and listen to it on as many computers or MP3 players as they want."

Hence the company's focus on independent labels, many of which have no qualms about using unlocked formats such as MP3 and Ogg Vorbis. The store launched last month with about 17,000 tracks from 36 labels, and it hopes to have more than 100,000 tracks from a wider lineup of partners by year's end.

That's a small catalog. Roxio Inc.'s Napster store has half a million tracks, and that total pales in comparison to the billions of tracks that have been released on CD.

For its part, FullAudio is counting on alliances with Microsoft and Best Buy Co. to introduce people to the MusicNow store and subscription service. Its software is an optional add-on to Microsoft's Windows Media Player (as is Roxio's), and the store is featured in Best Buy's retail outlets and on its Web site.

What sets MusicNow apart, though, are the compilations, or "track packs," its staff creates. Examples include collections of music from Looney Tunes cartoons, unfamiliar renditions of familiar songs and tracks nominated for this year's American Music Awards.

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