Legit Online Subscription Services Having a Tough Go

Though there have been many recent improvements, especially in the area of selection, the fee-based online subscription services are still being dwarfed by free P2P services like Kazaa, Dawn C. Chmielewski writes in the Mercury News:

In the 12 months since MusicNet and the other subscription music services were launched to counter the file-swapping frenzy that Napster ignited, none has managed to attract more than 100,000 paying subscribers, label sources and analysts say.

Meanwhile, unauthorized music and movie swapping continues to flourish. Despite the recording industry’s best legal and technological efforts, the free file-swapping service Kazaa remains the most popular music destination on the Internet in the wake of Napster’s collapse, attracting nearly 13.7 million visitors a month from the United States alone.

And as testament to the allure of getting something for nothing, Kazaa’s audience is growing 324 percent annually, according to Nielsen/NetRatings, an audience measurement firm in Milpitas.

The fundamental problem for the paid subscription services: a lack of music selection, caused by big-name artists and niche labels refusing to license their songs and actions by some big labels to reserve popular content for their own online ventures.

….“We’re entering a new era,” said Matt Kleinschmit, senior research manager for Ipsos-Reid, a research firm in Minneapolis. “The first eight months of these services were kind of preseason. Now, they’re giving consumers more of what they want.”

To be sure, the pay services have evolved since they began. Listen.com’s streaming music service Rhapsody allows subscribers to burn favorite tracks to CD. And Pressplay ditched its earlier count-the-downloads turnstile mentality this summer, allowing its subscribers to freely stream and download as many songs as they want, buy individual tracks and burn their music to a CD or download to a portable player.

….The more daunting question is whether paid services will ever catch on with consumers. The most successful industry-supported sites, America Online’s AOL Music and Yahoo’s Launch, are free. Launch, which attracts 7.9 million people a month, uses advertising to subsidize its free radio, music videos and artist spotlights.

AOL Music — which garners the largest audience of the legitimate online offerings, with 10.8 million listeners a month — embraces the cable model, bundling the cost of its programming into the customer’s monthly bill.

Indeed, the subscription services may never amount to anything but a niche business.

What could save the nascent industry — at least in the estimation of researchers such as Forrester and Ipsos-Reid — will be individual music downloads.

The ability to buy tracks or entire albums on impulse online — through Amazon.com, Borders or Virgin — will both revitalize the moribund (and traditionally money-losing) singles business, and generate an estimated $2.1 billion by 2007, researchers estimate.

Impulse buying is the American way – it’s going to be tough in the meantime, though.