Music Locker Services Going B2B

The promise is alluring — instant access to your digital music, anywhere you can connect to the Net. Music "lockers" give users unlimited, on-demand access to digital music files they already own. The concept has been successfully tested (if fraught with legal pitfalls) in the consumer arena by pioneers MyPlay and My.MP3.com. But (yes, you've heard it before) a way to make the consumer-targeted services profitable has thus far been elusive.

Here comes the next wave. Last week, MyPlay announced a business shift away from consumer services toward an application service provider (ASP) model. And San Francisco-based Musicbank ( www.musicbank.com) is gearing up for an official launch of its locker service at the end of February, with a decidedly B2B edge. Musicbank's launch comes after a year of highly publicized planning, which included the careful making of deals with all the major record labels, ostensibly to avoid the type of legal snafu faced by MP3.com with My.MP3.com. While maintaining a consumer presence, both companies are also looking to circumvent the dry consumer market by selling music locker services to other online companies.

Unlocking the Music

Music lockers come in two main flavors. MyPlay can be characterized as a "pure" locker service; it lets users upload digital music files to a remote storage server, where they can manage, share and play back their collections from any computer. Such services are generally free to the user, with revenue coming from marketing deals with the record labels.

Musicbank differs in that it already stores digital copies of CDs on its servers; users must simply prove they own a CD to enable unlimited, on-demand streaming from any Web-connected computer. This type of service includes all the bells and whistles of digital music, including management, the ability to create and save playlists, and more. And unlike the "pure" locker services, it doesn't require that you "rip" copies of CDs and upload them yourself.

Musicbank will offer two levels of locker service. The first will be a free account that lets users place an unlimited number of albums in their lockers, but allows listening for a limited amount of time (actual use time has yet to be determined). A subscription account will let users listen as much as they want. In both cases, customers will use the proprietary Bank-It software to prove that they own a CD; they'll be allowed to place the CD in their locker after verification.

Free to Be B2B

That sounds a lot like My.MP3.com. But Musicbank has other tricks up its sleeve: It wants to license its services to other companies. "We will drive it and supply it for companies like Yahoo!, Amazon or Virgin," said founder, president and chief executive officer, Michael Downing. "They'll take their logo and put it on top of it, but they don't have to spend $20 million building the infrastructure."

MyPlay's new focus is very similar. Instead of continuing to build a user base at MyPlay.com (www.myplay.com), the company will supply music locker infrastructure and technology to other sites.

Why shift from a consumer orientation to that of back-end provider? The reason is simple, according to analysts: It's the economy. "Acquiring consumers is expensive. Becoming a B2B cuts back on marketing dollars," says Ric Dube, an analyst with digital entertainment research firm Webnoize.

MyPlay co-founder David Pakman agrees. "In this capital market, to compete with companies that already have established consumer names on the Net, like Yahoo!, AOL or RealNetworks, requires $100 million at least," he said. "Unless you're funded to that level, which is increasingly difficult, we think that's a fruitless endeavor."

In an economic atmosphere that values profitability over potential, the move to a B2B focus looks to be the quickest way to getting in the black. Build it, say Musicbank and MyPlay, and let the marketers worry about who comes.

Subscribe Here

MyPlay plans to expand its B2B scope by providing its ASP customers with the ability to offer on-demand access to a large catalog of digital music on a subscription model.

Music subscription services aren't exactly uncharted territory: Napster and Bertlesmann are trying it; Sony and Universal are teaming for a service called Duet; and newcomer Streamwaves has signed a deal to provide subscription-based streams of EMI's digital catalog. But MyPlay's plan is to build a back-end service — providing the network, security and royalty payments — on which its ASP customers can base consumer subscription services.

"An ASP client would log in to define the terms of the offer, such as what the price is, is it streaming, is it download, what are the restrictions on the files if it is downloadable, is the offer valid for 30 days," said Pakman. "All these terms are dialed in by the partner, and we don't care what the terms are."

Playing By the Book

Concepts are important; business models, even more so. But quite simply, the winners of the music locker race will most likely be the companies that can get the most music licenses, and thus offer expansive music catalogs, legally. MP3.com's experience highlights the necessity of working above-board with the record labels and music publishers for rights to the content. (When MP3.com launched My.MP3.com, the Recording Industry Association of America (RIAA) sued over copyright violations, and won.) Both MyPlay and Musicbank say they have good relationships with the labels.

Musicbank, in particular, has taken great care to do everything by the books before making its service available. "We could have launched this thing and then let the record labels come to the table and we'd sit down and negotiate with them. Or we could be proactive and make them feel good about it, then launch," Downing said.

As for MyPlay, Pakman says, "We've worked hard at adhering to the laws of the land and also making sure that copyright holders are compensated when they need to be."

But MyPlay and Musicbank have other hurdles to clear in the form of formidable competition. Though MP3.com has had several run-ins with the labels, it also has superior name recognition. And if AOL decided to jump into the fray, it could prove a worthy challenger, given its relationship with Warner.

And with all the jockeying that's likely to take place in the next few months over licenses and subscription services, it still remains to be seen what kind of service users will want. Will they be willing to pay for streaming music, or do they want downloads? How much will they pay? As Pakman puts it, "The consumers will decide what the consumers want." The industry will have to follow.