Online distribution in tune with reality

Digital distribution here to stay, Schmidt, Glaser say

See complete coverage of The Front Row.

NEW YORK — Even as the recording industry smelled victory in its long-running court battle against Napster, two new media luminaries at the Front Row conference unapologetically hailed online distribution as an idea whose time has come.

It didn’t hurt that one of them was Andreas Schmidt, chief exec of Napster’s partner, the Bertelsmann E Commerce Group. But Schmidt, along with RealNetworks topper Rob Glaser, maintained that digital distribution will become a crucial new window for media of all kinds — whether the creators of those media like it or not.

“If the industry doesn’t provide content in this format, then there will always be people who go around them,” Schmidt warned. “And there will be much bigger nightmares for them than right now.” He spoke on a panel called “Digital Future: Impact of Technology on Media” moderated by Booz Allen & Hamilton partner Michael Wolf.

The current media empires, including music/film giant Vivendi-Universal, are in fact making their own plans to exploit the new medium, and are understandably resistant to the idea of giving up any interest to outside players without making a go themselves, said RealNetworks’ Glaser.

Those companies are eager to exploit their massive libraries of content to ensure dominance of new markets, he argued.

Earlier in the conference, Vivendi-U. chief Jean Marie Messier himself sang the praises of scale, noting that “if you want to offer music, the one company you cannot start without is Universal.”

But Schmidt noted that the five major music labels were experimenting with as many as eight different standards for digital security and rights management for music downloading — a strategy that doesn’t lend itself to ease of use by the consumer.

Adding to the mix, Napster last week unveiled its own strategy for secure file transfer as part of its second-generation service. The company said the technology would restrict usage of the service depending on the subscription fees paid by users.

But the upstart service hasn’t had much luck in convincing the record labels to come on board — especially after an appeals court upheld an injunction which could shut down the service.

Still, both Napster, with its 60-million-strong membership and RealNetworks, with a user base of more than 170 million for its streaming media software, have demonstrated that there is substantial demand for content online.

“The format gets more and more irrelevant over time,” BeCG’s Schmidt said. “What counts is the consumer relationship. People have to get used to the idea that there are multiple distribution channels and that those channels will coexist.”

Glaser added that the film and TV industries may have more success in assimilating to the world of online distribution, because they’re already familiar with the concept of having several windows for the same piece of content. By that token, the Net is simply adding a new revenue stream that they can leverage with little new investment.

By comparison, “the most sophisticated ancillary window for the music industry is the greatest hits album,” he said.

In addition, film companies have already been through courtroom battles over intellectual property and unauthorized copying, most notably over VCRs in the 1980s. With that experience behind them, they may be in a better position to negotiate this time around, he said.

Despite their unabashed enthusiasm for the potential new media space, however, the two execs did acknowledge that it will be a while before any entirely new distribution network matures into a viable business — even on Internet time.

“This is a multi-decade phenomenon,” cautioned Glaser. “new media aren’t built overnight.”

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