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JUNE 2, 2005
By Peter Burrows Is This Digital Music's Future? [Page 2 of 2] "AHEAD OF ITS TIME." That's why MusicGiants plans to sell a $9,500, 400-gigabyte device called the SoundVault that would sit in the stereo cabinet, just like a CD-player or receiver. (The package includes hardware, a high-end sound processing card, and networking gear.) That way, MusicGiants' customers could bypass their PCs and load songs directly into their living room stereo. "It's hard to sell gas, if no one has a car," says Bahneman, who hopes to get out of the hardware business as soon as other gear starts to appear. The hardware requirements will limit MusicGiants' market to a small niche of the $700 million digital music market, expected to grow to $4.6 billion by 2008, according to Forrester Research. To grab a larger slice of the overall market, the company must convince mainstream music consumers -- still cooing over their iPods -- that they're missing out on something even better. Says Forrester analyst Josh Bernoff: "The idea of a higher quality music service is probably a little bit ahead of its time." Still, MusicGiants' efforts are being closely watched. Besides the 2 million or so audiophiles out there, Bahneman is trying to build a distribution network with high-end home builders and home-theater installers. "MusicGiants is going to attract a lot of interest from [leading edge] consumers -- and once that happens, other people are going to begin hearing about it," says Dave Fester, general manager of Microsoft's digital media division. SOUNDS FOR SYSTEMS. If the service, which works with Microsoft's Windows Media Player 10 software and uses Microsoft's digital-rights management, does well, larger players could be compelled to follow suit. "As people get more comfortable with digital music, they're going to realize that they want the best sound quality," says Fester. Gartner G2 analyst Mike McGuire thinks all digital music service providers will end up following MusicGiants' lead. "It could take years. But ultimately, I think CD-quality will have to become an option on all of the online services." Indeed, some experts envision a future in which consumers download a CD-quality "master" copy of songs, which can then be compressed to a size that's appropriate to various playback devices -- say, a near CD-quality version for the big hard-drive in the car of the future or a lower-quality one for tomorrow's music-playing cell-phones. That way, consumers wouldn't have to worry about buying multiple versions of the same songs. "In an ideal world, you'd have your complete library of songs stored somewhere in uncompressed form, so you could use whatever levels you wished," says John McFarlane, chief executive of Sonos, which makes a home networking system for playing digital music in up to 32 rooms. RISING TIDE. That vision could take years to materialize. The giants of digital music are hardly racing to embrace a high-fidelity future. Apple, Napster, and others say their customers are happy with current compression standards, and many industry executives argue that the human ear can't distinguish between CD-quality and bit rates of more than 192 kbps. Yet, online music providers are inching higher on the fidelity scale. Most services offer lossless ways for customers to rip their own CDs into their PCs. And others are increasing their bit rates to offer higher quality downloads. In April, for example, RealNetworks upgraded its Rhapsody subscription service to 192 kbps, from 128 kbps. If MusicGiants makes a splash with its new "high-definition music" service, it may force the industry to deal with its fidelity issues sooner rather than later.
 Burrows is Computer editor in BusinessWeek's Silicon Valley bureau Edited by Ira Sager
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