by Charlie Morris

Online music distribution is going to do to the record companies what the Interstate highway system did to the railroads. Any nostalgic feelings about RCA, Atlantic and the rest? They're toast, my friends. That is, unless they decide to embrace the future instead of trying to fight against it. In the past, however, they've always opted for the latter, even when it was clearly against their best interests. Fortunately for music fans (and for democracy), Congress has always given short shrift to the self-interested Luddism of the "majors," as they lobbied to ban every advance in music technology, including cassettes, CDs, DATs, and most recently MP3.
May 1999

Musicians will be able to record their original songs easily and cheaply, and market them to a worldwide market of fans. This means that artists who work in less-popular specialty genres, like bluegrass or ethnic music, will be able to make a living from their music for the first time in Human history. This will cause an even greater explosion of available material. Of course, the new technologies will do nothing to improve the average musician's playing or songwriting skills, so, just as is the case today, 99% of the music out there will be utter crap. This is human nature, and perfectly normal.

As everyone knows, Internet bandwidth will need to make several quantum leaps before online music distribution becomes really popular, but I think we can reasonably expect that to happen within the next few years. However, there are a couple of other sticky problems that need to be sorted out, namely copyright protection and payment of royalties. As always, of course, the answers lie not in banning certain technologies, or imposing inconvenient and kludgy copy-protection schemes, but in simply finding new business models that allow both artists and fans to get their due.

Liquid Audio (http://www.liquidaudio.com/) is a company that has developed a new way to deliver music online, which purports to address the copyright and royalty issues, and has become quite popular. They have a proprietary encoding system called the "Liquifier," which a record label or artist can use to encode their music at (supposedly) near-CD quality. The companion Liquid MusicServer makes the music available for download from a Web site. Visitors can either listen to streaming audio files through the Liquid MusicPlayer, or they can download the files for a fee. Text and graphics, such as lyrics, album covers or whatever, can also be displayed by the MusicPlayer.

Liquid Audio touts a "complete end-to-end solution." The MusicServer can integrate with e-commerce packages like CyberCash and Merchant Server, and incorporates watermarking and copy protection to prevent unauthorized copying of copyrighted material. The system also records and reports relevant commercial transactions to all known copyright holders. Since Liquid Audio incorporates not only the recording and serving of the music, but also the legal and financial aspects, it seems to be an easy and painless way for both sellers and buyers of music to get into Internet distribution.

As interesting as Liquid Audio is, it's just a version of the same old business model. The customer pays, the distributor collects the money and sends a cut to the artist. The Audio Diner, however, is an attempt to establish a new business model, and bears watching closely.

The Audio Diner (http://www.audiodiner.com) is as simple as can be. Artists or record companies post their music on the Audio Diner site, and visitors can download it free. That's right, free. The artists get paid from advertising revenue. Advertising is already firmly established as the dominant revenue model for content-based Web sites, and it's easy to imagine people flocking to a site that offers hundreds of audio files free. So this is it, right? A win-win situation for everybody. The artists get paid, the fans get free music, advertisers can reach a targeted market, and the owners of the site get rich, Rich, RICH!

Ah, but there are a couple of flies in the ointment. Record companies (small ones, not any of the "majors") and bands are already selling CDs and downloadable files over the Web, and some of them are doing fairly well. No one is going to allow the Audio Diner to give away what they're trying to sell on their own sites. Few popular artists are going to sign up, at least until the Audio Diner has some hard revenue numbers to point to. Until the glad day when the Audio Diner can prove that artists are making substantial money by offering their wares there, the only artists that will sign up will be lamesters who literally can't give their music away.

Also, the piracy issue is still there. Whatever popular songs are available on the Audio Diner will be copied by pirates and offered on their own shady sites. Of course, since the tunes are free anyway, there's no huge incentive for anyone to patronize these pirate sites, but the fact is that free content sites are copied and repackaged by Web buccaneers every day, and the Audio Diner will be forced to patrol the cyber-seas for these outlaws.

The other obvious question is, do the numbers add up? Musicians want to be paid for their products, and some big names want to be paid rather a lot. Can they sell enough ads to keep the artists happy and still make their nut? The Audio Diner will not be the only opportunity for artists to distribute online (not by a long chalk), and they'll have to offer a good deal to both artists and advertisers, which may shave their margins to a sliver.

In the end, the success of the Audio Diner, like that of most businesses, will probably depend on how skillful they are at building and marketing their brand. But one thing's for sure - even if the Audio Diner tanks, the business model they're promoting is here to stay. Advertising-supported free music sites could become huge, just as advertising-supported online magazines are today. It's quite a time to be a musician, a fan, or both!

What's your opinion on the online music distribution revolution? Or perhaps you have a question. Express yourself on our Online Music Discussion List.