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Tuesday, January 19, 1999 Published at 09:07 GMT

Business: The Company File

Facing the music

Oasis have tried to stamp out Internet piracy

The Internet is set to change the face of the music industry forever. BBC News Online's Andrew Yates asks whether record companies could find themselves playing from the wrong song sheet.

"Its easy. All you have to do is download the tracks from thousands of sites and you are away - and it doesn't cost a thing!" a friend told me when I asked just how I would go about getting music from the Internet.

Soon I was whistling away to gospel singer Vicki Winans and rocking my head furiously to the techno beat of Atomic Dance Explosion - something my colleagues must have found quite disconcerting.

Until recently, music on the Internet either took too long to download or was of such poor quality that it wasn't worth the bother.

The development of MP3, which is a way of compressing CD-quality audio files to make them faster to retrieve, changed all that.

Dowloading tunes is still not a perfect science. The whole process is often pretty time consuming. Although a normal track could be retrieved in about four or five minutes, one song took more than 20 minutes to download. So it can prove quite costly, especially in the UK where users have to pay local call rates while online.

In the US, where local calls are free, the Internet has proved to be a hit with music lovers.

Tuning in

[ image: Public Enemy have made an enemy of the record industry]
Public Enemy have made an enemy of the record industry
But it is easy to see how the Internet has the potential to throw the record industry into a spin. The choice is tremendous, even if I hadn't personally heard of most of the artists, and the sound quality is almost as good as that from a traditional CD.

The real threat has come from the introduction of a clever piece of equipment called the Rio, a device that the music companies have tried - and so far failed - to get banned.

Smaller than a traditional Walkman it can be used to download tracks straight from your computer. For $200 (around £120), music fans can listen to tracks whenever and wherever they want.

US group Diamond Multimedia created the Rio and now major electronics groups like South Korea's Samsung are following its lead.

This technological breakthrough combined with the proliferation of unauthorised and illegal music web sites on the Internet is posing a huge headache for music companies.

An expensive hobby

The International Federation of the Phonographic Industry (IFPI), which represents the music industry, estimates that 3m songs are downloaded from the Internet everyday and that illegal retrievals cost companies and artists up to £1bn a year.

Paul Jessop, head of technology at the IFPI told BBC News Online: "People that replicate CD's and cassettes are doing that for commercial gain, whereas what we are seeing on the Internet at the moment is almost a hobby which is a form of piracy which is just as damaging. People are doing it to look good among their peer group. It is a 'cool and trendy' thing to do."

It may just be a hobby at the moment, but the growing threat has struck a chord with pop stars and music officials alike. Thousand of web sites regularly offer illegal downloads, and when one is shut down, another opens up somewhere else.

Oasis was the first band to try to stamp out the problem when it banned some sites from allowing its hits to be downloaded.

Now other pop stars and record industry officials are worried, fearing that the Internet could hit their earnings. They are lobbying the European Parliament for help in stamping out illegal music suppliers.

Difficult to sink the pirates

The industry is now working together to sink the pirates by producing a new secure way to sell tracks digitally over the Internet. The IFPI hopes that customers will be able to find the tracks they want from legitimate suppliers.

Whether this will succeed is debatable. As one music analyst put it; "They are trying to shut the stable door after the horse has bolted. CD prices are likely to come down as record companies try to cope with the growing piracy."

However it is not just illegal web sites which could leave a sour note for the record companies.

Enemy No 1

Some artists, who want to try out the new medium, or are simply disillusioned with record companies, are using the Internet to sell directly to the public.

Earlier this month Public Enemy, the best-selling rap group, posted their new single on their own web site. Chuck D of Public Enemy is using MP4, a more sophisticated version of MP3, to allow fans direct access to his band's music.

Fellow US pop stars the Beastie Boys tried a similar thing, only to be prevented doing so by their record label Capitol, owned by EMI.

Pop legends such as David Bowie and George Michael also have their own web sites.

Turning the tables

[ image: George Michael's record label has its own web site]
George Michael's record label has its own web site
Andy Saunders, director of communications at Creation Records, a company which believes the Internet will revolutionise the music industry in years to come, admits this could be a problem.

"Sales have not suffered yet, but with the Internet growing at a frightening pace, it could see a real impact. It is a threat to the industry. However, artists still need marketing and distribution skills."

The record companies are certainly taking the threat seriously.

Sony, whose stars include Mariah Carey, Celine Dion and Jamiroquai, wants their acts to sign a contract which includes extensive rights to use their music online.

However major record labels face an uphill struggle to maintain market share.

The worldwide computer network has spawned a number of independent web sites which offer digital duke boxes acting as showcases for new artists.

[ image: New bands have a chance to display their talents on the Intenet]
New bands have a chance to display their talents on the Intenet
One such web site, the Internet Underground Music Archive, (IUMA), predicts that the US market share of the big five worldwide music groups - Sony, Seagram, Warner, EMI and Bertelsmann - will fall from 78% to 64% by 2008.

It also predicts that within 10 years, 20% of all music will be sent directly to customer's computers.

Of course IUMA could just be blowing its own trumpet. But more competition to the established labels is emerging all the time.

And Mr Jessop of the IFPI endorses the view that the Internet will open up a whole new market of consumers who do not want to visit existing music retailers.

Creative problems

Some labels are determined to make their presence felt on the Internet. Creation Records wanted to put free singles on its web site, but the idea has been thwarted by Sony, which owns a big stake in the group.

Creation markets its own records in the UK, but Sony markets them around the globe and is concerned that fans will be able to download the singles from anywhere in the world.

Creation told BBC News Online that it has had to delay its plans until negotiations with Sony are completed.

Ragged retailers?

The Internet could also pose a dilemma for music retailers. Record labels could sell directly to the public and traditional retailers are already coming up against intense competition from a new breed of Internet brands which have emerged in the past 12 months.

With annual worldwide record sales, currently worth $38bn, expected to grow more slowly or even stagnate over the next few years, pop stars, record labels and music retailers cannot afford to do nothing.

Mr Saunders said: "MP3s are subversive and dangerous. As a record company we normally support that support that kind of thing and we respect the guys who set them up.

"If the record industry remains as luddite as it is then it will suffer.The Internet has an important role to play and we have to embrace the new technology."

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