Music sites attempt to create business models that work

The Digital Music Forum, which took place in New York recently, attracted a number of companies that have set their sights on selling music services. Industry analysts who spoke at the event said that in the future, cable and satellite networks could overtake online music subscription services in the bid to compete with free file trading networks.

The keynote address at the forum was delivered by Chris Gorog, CEO of Roxio, which last year bought Napster’s remaining assets. Roxio says it has big plans to enter the online music business, but acknowledged that it was critical to find the right model and pitch to prospective customers.

Gorog didn’t say much about Roxio’s specific strategy. Instead, he dwelled on a few promising signs from companies that are selling music licensed from record companies. Gorog acknowledged that the most successful services allow users to not only download music, but burn it onto CDs. Services that let customers pay for one song at a time instead of forcing them to pay a fee for a certain number of downloads, also appeal to users.

Some companies are combining subscription with single download models. Listen.com, for example, requires that users sign up for its $9.95 Rhapsody All Access subscription services which allows users to listen to as much music as they like. But customers still have to pay 99 cents for each music download, a fee that the company has dropped this month to 49 cents for a limited time to attract users. For companies trying to compete with file trading sites, this seems unwieldy.

A more streamlined approach to this model is Listen.com’s new partnerships with broadband providers that plan to bundle music subscription into Internet access services. In theory, customers can pay for as much music as they want to download.

The problem with this system is that ISPs are already unhappy about being asked to police the alleged copyright infractions of their users. If they had licensing agreements with the record industry, it would be even more difficult for them to duck this demand.

Will there really be a market for music delivery over cable or satellite providers via set-top boxes? Considering that it would require an entire installation to achieve this, the promise of such alternative “platforms” appears to have higher barriers than offering music over a Web-based service.

But companies such as Music Choice are allowing users of DirecTV to pay for songs online, and are optimistic about this model. The company believes that many music downloaders will eventually access this service over package deals from their cable or satellite services.

Could such package deals offer access to music that is actually in demand? If they didn’t they wouldn’t be able to compete with P2P sites, especially if they did not allow full recording options on to any device. Users of any paid music service must have the ability to download and play the music on any piece of equipment.

Any digital rights management system that prevents this is doomed to be defeated – or ignored, by frustrated users.

Roxio says it doesn’t want to punish people for swapping allegedly copyrighted music, it just wants to offer users better options in paid services. It’s a good approach and we’ll see how well Roxio executes it.