Mark Evans
Financial Post

The music industry’s strategy to resolve the troublesome piracy problem moved forward on several fronts yesterday, highlighted by new online services offered by Best Buy Co. and Comcast Corp., and new CD technology from Sony Corp.

The question, however, is whether the music industry’s shotgun approach to try everything and anything to attack illegal downloading will deter consumers from getting free music from peer-to-peer networks such as Kazaa and LimeWire.

The answer appears to be a resounding “maybe” if the music industry can learn from small victories it has achieved so far.

The industry’s most trumpeted success has been Apple Computer Inc.’s iTunes service, which has sold several million songs since its launch in April.

This has encouraged rivals such as Best Buy, Wal-Mart and Buymusic.com to get into the business. Best Buy followed in Wal-Mart’s footsteps yesterday by announcing it would offer customers the ability to download music from its Web site.

On the legal front, the Recording Industry Association of America has used lawsuits to spook many people from using Kazaa, et al.

The music industry deserves kudos for working to expand the number of online services. Competition will hopefully lead to better selection, services that cater to specific interests, and lower prices.

This may be enough to convince consumers it is better to pay for music than download it for free.

In the meantime, the music industry cannot afford to be complacent. If it believes the proliferation of online services is strategically sufficient, it’s in for a major surprise.

Some of the success enjoyed by services such as iTunes and Napster is grounded in their novelty. A lot of people are experimenting with the pay-to-play format. But what happens after that? How many loyal customers will online services attract if they stick with the status quo? The biggest stumbling block is still price.

At 99¢ a song, online services are expensive considering all you get is the music. There are no lyrics, cover art or value-added goodies such as priority access to concert tickets or exclusive Webcasts. The music industry gets to reduce its distribution, marketing and sales costs, while consumers receive the “privilege” of downloading music.

Whoever decided that 99¢ was the cost of an online song did not understand that consumer behaviour has changed dramatically.

All you have to do is look at Roxio Inc.’s stock price, which dropped again yesterday in the wake of news that its Napster service only had 300,000 songs downloaded since its launch last week. Roxio missed the boat because it forces consumers to pay an additional fee if they want to transfer music from their personal computers to other devices such as MP3 players.

The peer-to-peer network world, while wounded, seems to be far from dead. According to Download.com, there were more than 2.1 million downloads of Kazaa software last week, 280,904 of Morpheus and 127,581 of LimeWire. Clearly, there are plenty of music lovers who have not been scared by the RIAA or attracted by iTunes, Napster and other services. As a result, the music industry is forced to throw everything but the kitchen sink at the downloading problem.

Sony said yesterday it will introduce new CD technology in Germany that stops users from copying songs to file-sharing sites, but lets them make copies for personal use. This is a step in the right direction but it only addresses a small symptom of the problem rather than providing a solution. Then again, maybe piracy will be solved through small battles as opposed to a knockout blow.

If lower prices are a legitimate tool to get consumers on board maybe Sarah McLachlan is on to something. The popular Canadian singer insisted her new album sell for 20% less than regular retail prices in a bid to combat piracy. If more albums were sold for $10, like Sarah’s new disc, maybe the music industry’s unit sales and revenue would improve.

It is troubling that the music industry’s biggest innovator is probably Apple CEO Steve Jobs. Aside from lawsuits and ho-hum online services, there is not a lot of out of the box thinking by the major music labels. It is an industry that moves cautiously and slowly, and despite the flurry of news yesterday, there is no indication things will change soon.