The online music scene has changed drastically in the past year. In 2002 the only legal online music services were expensive, offered little selection and seriously limited users listening options, leading to an explosion in peer to peer file-sharing services. 2003 ushered in a new era for music lovers and it all started with Apple.

Record labels have attempted in the past to put out a viable online service but consumers shunned these services for being too restrictive and expensive. The blame for these failures, however, was placed squarely on the shoulders of file-sharers rather than looking at their own business model. Sensing a new market, something Steve Jobs has an uncanny knack for, Apple pulled the rug out from underneath the recording industry.

Apple’s iTunes Music Store, while not perfect, has given the consumer back a lot of the convenience they have grown accustomed to. They can burn music they purchase, they can listen to it on their iPod and they can even copy it to another computer. All this for $0.99 per track. Monthly service charges? Not here. However, the service was only available to Mac users but even then it was a hit and it sold well over 15,000,000 songs. Thankfully Windows users can now use the service.

Apple proved it was possible to please both sides. The recording industry was somewhat pleased as was the consumer. Bring in the copycats.

Buymusic.com opened up shortly afterwards with a service that is perhaps somewhat friendlier to the recording industry. The rights granted to a user vary from song to song with some allowing unlimited burns and others limited to just a few. Growing pains affected the service as well. Numerous complaints (http://music.tinfoil.net/modules.php?name=News&file=article&sid=732) surfaced regarding the stability of the service and its accompanying software.

MusicMatch has also introduced an online store similar to Apple’s iTMS. Using the company’s MusicMatch JukeBox software, users can purchase any of approximately 250,000 songs online, download them and burn them. However, software problems have plagued the service from the beginning.

Roxio just recently launched Napster 2.0. Capitalizing on the name, Roxio feels they have a hit with the new service. It offers over 450,000 songs, larger than any other service, with an additional 40,000 that can be listened to online providing the user pays the $9.95 monthly fee. Sharing between friends also requires the user to pay the same monthly fee. Roxio, true to form, released the software far too soon and it too has been plagued with problems.

Certainly it is a welcome addition to see these new and legitimate avenues for consumers to purchase music online. It proves that consumers are not the dishonest people that the entertainment industry thinks they are. It proves that the average consumer, when presented with a choice, will choose to obey the rules even if it does cost them a small but reasonable amount.

There is trouble though. Both iTMS and Napster have exclusive deals with artists, requiring consumers to sign up to both services and use both software packages. This adds a level of complexity that the consumer may be unwilling to deal with.

Online music services are the future record stores. I can walk into a record store and buy any CD I want. HMV has no exclusive distribution rights to any given artist that would prevent me from buying a CD at my local AVE. I should be able to get a song I want on my favorite online site as well. I certainly don’t want to have to deal with MusicMatch’s poorly designed software just so I can buy a couple songs from a particular artist they may have an exclusive deal with.

Exclusivity also adds to the price of music. Apple most certainly paid extra to have exclusive rights to The Eagles or the Grateful Dead, and this will eventually filter into the cost of a track. Apple will have to pay more for these rights and rather than cut into their bottom line, they will likely build it into the cost of future music. Exclusivity also guarantees price increases due to the fact that the one and only source for the product can charge more as there is no competition for the product.

Fragmentation will lead to increased complexity in portable music devices like the iPod. iTMS tunes can play on the iPod, but not Napster tracks. Napster tracks can play in the newly released Samsung Napster YP-910GS but surely not on the iPod. Not only will I have to use Roxio’s Napster software to listen to their exclusives, but I will also have to use something other than my beloved iPod. This will cause any number of things to occur in the personal music device market.

The first possibility is that sales will taper off as consumers decide against effectively signing a contract with any given service when purchasing their next device. The second possibility is that the devices will become more complex as they have to deal with multiple forms of digital rights management. Both scenarios will lead to increased costs for both the manufacturer and the consumer.

As alternate operating systems cut into Microsoft’s share of the market, more and more consumers will be experimenting with these new choices. Certainly not all online music stores will create client software for all of the alternatives but someone surely will. Will a software package created for, say, Linux have less music because the parent company can’t afford to pay for exclusive rights due to a smaller user base? Or, perhaps this will limit supported operating systems.

Clearly the presence of online music stores is a giant leap forward. It is tremendous progress. Royalties from such services was the major hurdle in this battle and the rest of the issues seem miniscule in comparison but fragmentation is not insignificant. Consumers want choice and fragmentation takes that away from them. It creates mini monopolies that will expand in the future, leading to piracy. It is a vicious circle and needs to be stopped right now.

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