iLounge

Warner Music Group is planning to release music albums on DVD discs that will include extras such as videos, ring tones, photos and pre-ripped digital music files. The Wall Street Journal reports [paid sub. req.]: “People familiar with the situation say Warner is close to a deal with Apple that would make the digital tracks essentially identical to those the computer company sells through its iTunes Music Store—something that has proved elusive for others in the music industry, since Apple has been unwilling to license its proprietary copy-protection software to outsiders. People briefed on the talks said a likely solution would involve Apple creating the digital tracks and Warner putting them on DVDs.” Warner plans to introduce the discs with “a handful of titles” in October, with a “full-blown launch” planned for early next year.

Napster said yeterday that it wouldn’t rule out a sale of the company after reporting that the subscriber base for its online music service had fallen 7 percent. “We do not have our heads in the sand regarding an M&A (merger and acquisition) transaction. We continue to receive a lot of interest in the company. We will always carefully weigh any valuation alternative against the opportunity and risk associated with continuing as a standalone company,” Napster CEO Chris Gorog told analysts on a conference call. Napster reported a net loss of $9.8 million for its first fiscal quarter. The company’s total paid subscriber base as of June 30 was 512,000, including 4,000 university-paid subscriptions.

The popularity of the iPod and eMusic’s unprotected MP3 files have helped the company quietly move into second place behind iTunes in digital music sales. Even though eMusic lacks hits from the four major labels and only offers independent music, the company is beating rivals thanks to its ability to sell DRM-free, iPod-compatible songs. “There’s no question the iPod success has worked in our favor,” said eMusic CEO David Pakman. “The consumer confusion over interoperable formats gives us a great advantage.” Napster, Real Rhapsody, and Yahoo Music have floundered in part because of the iPod-incompatible copy-protection technology used on their songs. According to data from the NPD Group, iTunes leads the market with 67%, followed by eMusic with 11%, Real Rhapsody with 4%, Napster with 4% and MSN Music 3%.

Microsoft says that its upcoming Zune media player will require “hundreds of millions” of dollars to develop and market, but that the investment will not pay off immediately for the company. “It is something that is going to take time,” said Robbie Bach, president of Microsoft’s entertainment and devices group. “This is not a six-month investment time horizon,” he said, adding that it may take three, four or five years for the project to succeed. Bach also said that his Microsoft group—which includes the Xbox, smartphones and Zune products—sees at least another year of losses. “Fiscal ‘07 will be a loss. We think that turns to profit in 08,” said Bach.

Online music community GarageBand.com today announced that it will soon launch iLike, a new social music discovery service “targeted at the iPod and MySpace generation.” The iLike service will “expand the company’s existing services by including mainstream artists and incorporating links among friends.” iLike will also include software for iTunes users, according to the company. “These new services, to be offered at iLike.com, will include a companion app for iTunes that allows consumers to organize their digital music libraries and discover new artists based on their listening habits. iLike will help consumers discover music based on what they and their friends like.”

Amazon’s video download service will reportedly launch in mid-August, offering a subscription service and a la carte movies and TV shows. Advertising Age reports that because of Apple’s digital music dominance, Amazon chose to drop music and focus on video. “The service, which is referred to as Amazon Digital Video—or Amazon ‘DV’—has evolved over the past year from a music-themed offering to a video-centric one, according to production-studio and TV-network executives briefed on the plans. The reason? Apple already commands such a large share of digital-music sales that Amazon felt it would be too difficult to break into the market.” Amazon’s service will require users to install software to buy videos individually, “likely as part of a download-to-own model, or subscribe to them, like a digital version of Netflix’s rental model.”

Following months of rumors and speculation, Microsoft has finally confirmed the existence of its “Zune” project, which will spawn products to compete with the iPod and iTunes head-on.

Microsoft executives said today that the company will later this year launch the Zune umbrella brand, which it calls “a family of hardware and software products” targeting various digital entertainment services. As expected, the first Zune offerings will be a portable audio player and a digital music service, both of which will be released before the end of 2006. Microsoft said additional Zune-branded devices will follow, including a portable video player and possibly a portable gaming device. The company also confirmed the rumored Wi-Fi connectivity features.

Microsoft has also launched a new ”Coming Zune” website and a new ”Zune Insider” blog. The company said it will support the Zune launch later this year with a “massive advertising and marketing campaign expected to be heavily artist-centric, including several live performances nationwide.”

Yahoo wants to offer music downloads without copy protection, according to recent comments made by company executives. “We’ve been publicly trying to convince record labels that they should be selling MP3s for a while now,” Ian Rogers, a director of product management at Yahoo, said on the official Yahoo Music blog this week. “Our position is simple: DRM (digital rights management) doesn’t add any value for the artist, label (who are selling DRM-free music every day—the Compact Disc), or consumer, the only people it adds value to are the technology companies who are interested in locking consumers to a particular technology platform.” Rogers’ comments on DRM come in an announcement for a new Jessica Simpson song that can be personalized with your own name. The song costs $1.99 and is an unrestricted MP3 file when purchased and downloaded.

Although U.S. album sales were down 4.2 percent in the first half of the year, digital music sales skyrocketed 77 percent, according to Nielsen SoundScan figures. “Nearly 281 million digital singles were purchased through July 2, compared to 158.8 million in the time frame last year,” reports AP. “More than 14 million full-album downloads were purchased in the first six months of this year, more than double the 6.5 million bought in the first half of 2005. The growth of online music purchases is a mixed blessing for recording companies, however. Such sales often come at the expense of more profitable album sales as music fans opt to cherry pick a few songs online instead of purchasing a whole album.”

MusicGremlin today launched an innovative new wireless digital audio player and music download service. The company’s $300 Gremlin device can connect to nearly any Wi-Fi network and download songs from MusicGremlin’s store directly to the player—without the use of a computer. Like iTunes, individual tracks are priced at 99 cents each. The company also offers a subscription plan, which lets customers download an unlimited number of MusicGremlin’s 2 million songs for $15 per month. In addition, two Gremlin owners can share music wirelessly if they are both subscribers. The Gremlin player features an 8GB hard drive, FM receiver, 2-inch color LCD screen, and up to 10 hours of battery life.

MTV plans to launch a public beta version of its URGE digital music store this week. URGE will be integrated into the next update of Microsoft’s Windows Media Player, and will sell no songs that are compatible with the iPod. “At launch, URGE will have more than 2 million tracks, which can be purchased individually at 99 cents or as full albums starting at around $9.95,” reports the AP. “The service also will offer unlimited downloads at a monthly rate of $9.95, or $14.95 for the ability to transfer songs to any of more than 100 compatible portable music players. Initially, URGE will also feature streaming videos, with video downloads becoming available for purchase later this year.” MTV is expected to heavily promote URGE on air, and will also offer exclusive tracks such as live performances from “TRL” and “MTV Unplugged.”

Sony has announced that it will support the AAC audio format used by Apple in the next version of Sonic Stage, its digital music management software. While the application will not be able to play copy-protected songs from the iTunes Music Store, Sonic Stage will play music encoded with iTunes in AAC format. Sony already supports AAC in its PSP gaming device and select mobile phones, and it appears Sony plans to soon do the same with its line of Walkman digital music players. “Sony’s latest strategy is taken as an open acknowledgment that it can no longer ignore iPod’s dominant lead,” says one report on Sony’s announcement.

Facing Apple’s increasing dominance in the digital music world, Napster has shifted to an advertising-supported model that allows visitors to its website to listen to any of the 2 million songs in its catalog for free. But unlike the original Napster, which famously offered unauthorized song downloads, visitors can currently only listen to a song five times—after that, the track must be purchased for 99 cents or visitors must sign up for a subscription plan ($10-$15/month). “Napster clearly had to find something different,” says American Technology Research analyst P.J. McNealy. “But until the device market for non-iPods picks up, Napster faces an uphill battle.”

The Beatles are preparing to make their albums available through online music services after years of refusing to embrace digital music. During the Apple Corps vs. Apple Computer trademark lawsuit last week, Neil Aspinall, a former Beatles road manager and managing director of Apple Corps, said that the company was digitally remastering the entire Beatles catalog in preparation of selling it online. “I think it would be wrong to offer downloads of the old masters when I am making new masters,” he said. “It would be better to wait and try to do them both simultaneously so that you then get the publicity of the new masters and the downloading, rather than just doing it ad hoc.” A spokeswoman for Apple Corps confirmed Aspinall’s statement.

Sonos today announced the Sonos ZonePlayer 80 Bundle, the latest addition to its line of wireless multi-room digital music systems. The $999 bundle includes two Sonos ZonePlayer 80s and a Sonos Controller. “The brand new ZP80 Bundle lets you play all your digital music, all over your house, on all your current audio equipment—your home theater, stereo, powered speakers, premium table top radio and more,” says Sonos. “By simply connecting a ZP80 to any amplified audio device in any room, that device is instantly and seamlessly part of a wireless, multi-room digital music system. Plus, you can wirelessly control all your music from the palm of your hand with the industry’s only full-color wireless Controller.”

Following a similar investigation by New York Attorney General Eliot Spitzer, the Department of Justice is now investigating the major music labels for possible anti-competitive pricing of digital music downloads.

“One music industry source said that some subpoenas may have been issued already in connection with the probe, while other labels had been tipped off that subpoenas would likely be coming in the next few days,” reports Reuters. “The two music industry sources said Thursday the DOJ’s probe appeared to be focused on the same issues—whether the labels colluded to set wholesale pricing for song downloads. The investigation also could be related to licensing renegotiations with Apple, maker of the wildly popular iPod digital music player, for its iTunes music store.”

Amazon.com is planning to launch a digital music service and Amazon-branded MP3 players, according to a report by the Wall Street Journal. The online retailer is currently finalizing deals with the major music companies and could launch the service and portable devices as soon as this summer.

“Amazon is in advanced talks with the four global music companies about a digital-music service with a range of features designed to set it apart,” reports the Journal. “Among them: Amazon-branded portable music players, designed and built for the retailer, and a subscription service that would deeply discount and preload those devices with songs, not unlike mobile phones that are included with subscription plans as part of the deal.”

The article claims that music executives “privately welcome Amazon’s plans, which they see as one of the only credible challenges to Apple’s hegemony in both digital music and portable players. Now the question is whether Amazon’s massive customer base is enough to offset a long delay in entering the online music business.”

“Amazon’s online music plans would take advantage of the company’s strong position in selling CDs and portable music players,” the Journal notes. “The online retailer sells an estimated 10% of digital music players in the U.S., including iPods, and the pending deal could hurt its relationship with Apple. If Amazon’s competing offering presented enough of a threat, Apple could even stop selling iPods on the site.”

Flash memory card company SanDisk has quietly become the No. 2 seller of digital music players in America. “We want to be a strong No. 2 in the MP3 space,” said Eric Bone, SanDisk’s director of consumer product marketing. “There are people who, no matter what, will buy an iPod. All I want is for people to think there is an alternative.”

SanDisk, which began selling MP3 players in November 2004, used its strong presence at retailers across the U.S. to sell one million players during the recent holiday quarter. The company also reported a record $2.3 billion in revenues for 2005. “We already have the channels. We have the brand,” SanDisk Chief Executive Eli Harari said. “We are not Apple. We are not an iPod. But we have a highly respected brand.”

Through key patent holdings and a partnership with Toshiba, SanDisk gets its own source of flash chips at wholesale prices, allowing the company to sells its players at lower prices than other companies. SanDisk’s strategy is to sell MP3 players to those “beyond the middle class,” Harari said. “Our passion is to bring the cost of these devices down. It’s basically about creating new markets in which people can afford a product.”

The company’s current line of players range in price from $79 to $149 with capacities from 256MB to 2GB. SanDisk will release its new Sansa line next week, which consists of 2GB, 4GB and 6GB players and prices from $120 to $300. The high end model, the Sansa e200, will feature an iPod nano-like design, 1.8” TFT color screen, video and image playback, and a replaceable lithium ion battery. The player also supports Rhapsody, Napster and Yahoo Music.

The Washington Post reports that digital music single sales grew by 150 percent last year, but may have resulted in fewer CD album sales in stores.

“As iPods and other MP3 players outsell CD players, sales of downloaded singles are booming accordingly,” the publication says. “Though sales of full-length albums were down 7.2 percent last year, the digital singles market grew by 150 percent, with 352.7 million individual songs sold online, according to Nielsen SoundScan. It was by far the highest figure for singles sales in any format since 1973, the first year for which Recording Industry Association of America shipment data are available for singles.”

“In late December 2005, weekly singles sales topped CD sales for the first time, as American consumers—many of them flush with holiday gift cards and loading new MP3 players—purchased 19.9 million digital tracks but just 16.8 million albums, according to Nielsen SoundScan.”

Google has denied reports that it plans to acquire Napster or launch its own digital music store. The New York Post, citing anonymous sources, claimed yesterday that Google was considering an extensive alliance with Napster or an “outright acquisition” of company. Robert Peck of Bear Stearns predicted last week that Google will launch ”Google Tunes” within the next six months.

The internet search giant said the published report was untrue and that it will not roll out a music service in the foreseeable future. “We have no plans to acquire Napster, nor do we have plans to develop a music store at this time,” Google spokeswoman Sonya Boralv said in a statement. She noted that Google recently introduced a new search feature that offers users faster access to music-related information.