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AUGUST 18, 2003

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NEWS ANALYSIS

The Stones' New Tune: Start Me Up, Digitally
In a breakthrough for pay-per-tune downloading, the band's entire catalog is now available online. Will other rock legends join the party?


For 40 years, the Rolling Stones have been the personification of sex, drugs, and rock 'n' roll. Now the group has officially entered the 21st century. On Aug. 18, the band's entire catalog became available through Real Network's (RNWK ) digital-music service, Rhapsody. Stones fans will be able to stream, download, or burn such classic tracks as Beast of Burden, Angie, Brown Sugar and, appropriately Start Me Up. (Pre-1971 tunes recorded on the ABKCO Record label will be available for streaming only.) More important, Rhapsody has also signed a distribution deal with consumer electronics giant Best Buy (BBY ) to sell its service at interactive kiosks in more than 560 stores nationwide.


It's another leap forward for legitimate online music -- and not a moment too soon. After nearly two years on the market, only some 350,000 or 400,000 people have signed on for monthly digital-music subscriptions. "This is the first all-encompassing strategy that uses digital media and physical stores and a top brand like the Rolling Stones to get people excited about online music," says Lee Black, a digital-music analyst at Jupiter Research. "We haven't seen anything like that."

APPLE'S EXAMPLE.  The move comes just as the Recording Industry Association of America (RIAA) is closing the noose around illegal file-traders' necks. Since June, the RIAA has issued a blizzard of subpoenas to request information on suspicious computer activity, much to the chagrin of parents, university administrators, and Internet service providers. The trade group plans to file hundreds of suits against users trading copyrighted music as early as next month (see BW Online, 6/23/03, "Play Taps for Music Pirates").

Until now, the nascent subscription services have leveraged their limited financial muscle toward developing slick technology and persuading the Big Five record labels -- Universal, Warner Music (AOL ), Sony (SNE ), BMG, and EMI -- to license the rights to the more than 80% of popular music that they control. Marketing was on hold, at least until the services passed critical muster.

 
Apple's marketing campaign paid off
 
That all changed when Apple Computer (AAPL ) entered the digital-music fray in April. Its iTunes Music Store sells digital downloads for 99 cents each, and every song can be burned to CD or transferred to a portable MP3 player. More important, however, was the characteristic big-bang marketing campaign that Apple launched to promote its new service. Apple bought prominent ads in newspapers, magazines, and even on television. At the end of the first week, more than 1 million songs had been downloaded. The lesson: Throw marketing dollars at digital music and it sells.

A July report from research firm NPD Group shows that 20% of consumers above the age of 13 were aware of Apple iTunes after just its first two months on the market. Among Macintosh users -- iTunes' initial target -- awareness was an impressive 46%. And NPD found that 6% of Mac users had paid for a song or album via iTunes.

Compare that to Pressplay, soon to be relaunched as Napster 2.0, and Rhapsody, both of which launched more than 18 months ago. According to NPD, only 14% of consumers said they were aware of those subscription services. Less than 1% reported downloading music from either or had any plans to do so in the future.

WHOLE LOTTA HOLDOUTS.  Rhapsody's push could change that. The interactive kiosks at Best Buy will allow customers to sample a subscription service before handing over their credit cards. And by bringing the Stones on board, digital-music execs hope other holdouts, including the Beatles, Led Zeppelin, Madonna, and Red Hot Chili Peppers might be convinced to support legitimate online-music services.

"There are only a few bands in the world that have such a huge audience. Bringing these catalogs online is very significant for subscription services that are trying to compete with the free world," says Jupiter's Black. With the Stones' catalog now online, here's hoping that paying online music fans can finally get some satisfaction.


By Jane Black in New York
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