Making a Ruckus in the Music Business

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"That makes not only iTunes but also traditional CD sales look like an also-ran business," says Garland.

Weaning Users Off Piracy

Some subscription services that depend all or in part on advertising, such as the soon-to-debut SpiralFrog, hope to lure users from peer-to-peer services by making music feel free in the same way network TV makes its content available (see BusinessWeek.com, 9/5/06, "Meet the iTunes Wannabes").

With Ruckus, college consumers "pay" by viewing ads targeted to young adults and students while they surf around for music and participate in social networks. Bebel says audio ads are not appended to songs and there is no advertising that must be viewed before a song downloads. SpiralFrog users are encouraged to surf around the site and view advertising while waiting for songs to download.

Garland thinks such services have a shot at success, provided that they can offer music labels' full catalogs. "People want everything, they want their music on demand, they want it in an unrestricted MP3 format," says Garland. "And if it is not that, they don't want to pay for it."

As evidence, Garland cites the success of eMusic, the second most popular music download service after iTunes. While iTunes has largely been buoyed by the popular iPod media player and the copyright-protection software that prevents songs from other services from being played hassle-free on the iPod, eMusic lets customers buy subscriptions and download songs in a format that works with all music players. Trouble is, major labels have not licensed their material to the service in part because of the lack of desired digital rights management (DRM) software that encodes restrictions such as the number of times a song can be copied (see BusinessWeek.com, 1/5/07, "Music Fans: Dismantle DRM").

In Garland's view, an ad-supported service such as Ruckus answers some key consumer demands: It has a large catalog, feels free, and even has some of the social components that consumers use to find new music.

Eliminating DRM

Still, it lacks the interoperability that consumers also demand. And that may be its biggest drawback. In Bebel's ideal world, this issue would be resolved and the service wouldn't need to have restricted files in order to offer major-label releases. However, the industry has been unwilling to abandon DRM altogether. Companies such as Apple and Microsoft (MSFT) also favor the technology, arguing that their own proprietary DRM software is necessary to ensure a seamless experience between their players and music stores.

NPD's Crupnick believes the recording industry will eventually be forced to abandon DRM in order to compete in a digital marketplace that has free, albeit illegal, alternatives. "Consumers want to own music," says Crupnick. "If they cannot make a copy to put in their car or they can't get it onto their portable player to take to the gym, it ticks them off." And the alternatives—not all of them legal—can look plenty appealing to an angry consumer.

Holahan is a writer for BusinessWeek.com in New York.