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While numerous observers insist digital distribution and other online music services can be part of a flourishing new music business, there’s little agreement about when that upturn will happen.
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When the short-lived era of jackpot IPOs and crazy-ass VC plummeted to earth, a new era began: the age of new-media "reality."

Even the most promising online players have struggled of late. So you can imagine how rough it's been for the gerbil-powered hitsdailydouble.com

The mighty Amazon.com, for example, let go 1,300 workers late last month, while Bertelsmann-owned competitor CDNOW let go 55 staffers—some 12% of its staff—and reorganized into commerce and promotions divisions. Given Bertie's embrace of Napster and digital distribution, the long-term survival of the online disc vendor is subject to rampant speculation.

However embattled, these businesses have something tangible to sell. Similarly, dot-coms with multiple revenue streams have managed, at the least, to stay afloat. RealNetworks, for example, has retained dominance in the digital music player sweepstakes and built a huge network of B2B alliances. Even so, Real—once priced at $96 share—currently trades in the $8 range.

Another case in point: MP3.com, which has kept its stock above $4 a share (though its year high was $33.50) by throwing dozens of initiatives at the wall. The company's reported Q4 losses were lower than most market soothsayers had predicted, and revenues were up substantially—though reported losses didn't reflect its massive payouts to record labels to settle the My.MP3.com lawsuit.

The graph on Liquid Audio's fortunes has been similar, with stock settling in the $3 range lately (from a 52-week peak of $34.50). "I think the players that are in it for the long term—and there's a handful of us—are all fairly stable," asserts VP of Music Services Paul Stark. "There's some weeding out going on of those who are more smoke and mirrors, as opposed to those with a technical background."

The tech downturn has been hardest on companies primarily dedicated to selling digital content directly to consumers.

"You certainly don't have a well-developed market yet," admits Steve Grady, Sr. VP of Marketing at EMusic, which began by selling digital singles in MP3 and switched to an all-you-can-eat subscription model this year. The company has seen its stock tumble to 50 cents from a year-high of $9.25 per share. Grady believes that when MP3-friendly gizmos are widely available, the dot-com's fortunes will improve. "The value in the music," he notes, "comes with your ability to use it."

MP3 vendors are getting killed because, while content may be king, you can get most of it for free with Napster. That may change if Bertelsmann's plans succeed, but free music will most likely remain a problem for the dot-coms.

In the short term content "security" businesses like Intertrust and Reciprocal are benefiting from this phenomenon, though some observers liken fighting peer-to-peer and other unofficial means of digital distribution with encryption, watermarking and other content protection to an endless game of whack-a-mole.

While numerous observers insist digital distribution and other online music services can be part of a flourishing new music business, there's little agreement about when that upturn will happen. Some say two years, while others save five to seven.

In the meantime, those of us with jobs will be kissing the ratty carpet beneath our feet.

 

 

 

 

 

 

 

 

 

 

 

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