Music Industry Drums Up Net Gains

The Age

Saturday June 26, 2004

Garry Barker, Technology Editor

Music now looks like the biggest business thing on the internet, growing faster than pornography, the previous online revenue champion.

So far, nearly 90 million tracks, at US99 ? ($A1.40) each, have been downloaded from Apple's iTunes Music Store, a sales total boosted last week with the long-awaited extension of the service to France and Britain.

Music fans flocked to the website and in the first few days bought more than 800,000 tracks, 450,000 of them in Britain, 16 times the sales volume achieved by musician Peter Gabriel's On Demand Distribution (known as OD2), previously the leader in Europe.

Competition in the industry is brutal and Apple's entry to the European market may have been a big factor in the takeover of OD2 this week by US-based Loudeye Inc, for an initial $US38.2 million in cash and stock. Depending on performance, a further $US18.8 million could be paid to Gabriel over the next 30 months.

Bristol-based OD2 was still suffering losses but with Loudeye's muscle expected to move into profit, said co-founder Charles Grimsdale.

The company will advance into download services for mobile phones, potentially a huge market as 3G mobile broadband rolls out in Europe.

European music executives, facing a steep decline in CD sales they blame on peer-to-peer piracy through software such as Australian-owned KaZaAcapitals are correct, hope that iTunes, German company Roxio's now legal Napster, Wippit and OD2 will convert the pirates into customers.

Loudeye hosts music download sites for more than 200 companies, including Australia's ninemsn.

Martin Hoffman, managing director of ninemsn, which draws its music and licensing rights from OD2, said the deal was potentially a boost for Australian online music sales. "It's early days in the Australian market for ourselves and the others but we are on track," he said.

© 2004 The Age

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