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Buy.com Provides Music Industry With Rare Online Ally

Buy.com Provides Music Industry With Rare Online Ally

By ANDREW SIMONS

Orange County Business Journal

It’s hard to find a friend of the recording industry these days. But you can count Buy.com Inc. among the few.

The Aliso Viejo-based online retailer saw Internet traffic to its music-selling service, BuyMusic.com, jump 30 percent in the week after the Recording Industry Association of America started filing lawsuits against people suspected of trading music illegally online through peer-to-peer networks such as Kazaa and Morpheus.

“When you look at the charts, the drop in Kazaa usage corresponds to an increase in our site,” said Elizabeth Brooks, vice president of business development for BuyMusic.

BuyMusic sells music to Internet users on an individual song or entire album basis. A customer signs up for a free membership and maintains credit card information on file with the service. Buyers can browse the site, preview songs and download files.

It is, along with Apple Computer Inc.’s iTunes service, one of several online music stores that are trying to sell music legitimately in the wake of the recording industry’s crackdown on illegal downloaders.

Apple launched its service in April, and BuyMusic followed in July, quickly becoming the biggest seller for PC operating systems. Apple plans to offer a PC-download service by the end of the year.

With Apple claiming 500,000 downloads at 99 cents each per week, it could prove a significant challenge to privately held Buy.com. The company wouldn’t give its download numbers, though it said it’s seeing “hundreds of thousands” of downloads a week for from 79 cents to $1.20 each, according to Brooks.

Larger competitors

BuyMusic might be off to good start, but the model is about to get some big-time competition. In addition to Apple’s foray into the PC operating system, Amazon.com Inc. and AOL Time Warner Inc.’s America Online service are readying their own music download services. And Microsoft Corp. is believed to be planning one, too.

Buy.com has had larger competitors in the past. Last summer, its ongoing battle with Amazon.com heated up when Buy.com offered to beat Amazon’s book prices by 10 percent. And when Amazon.com announced free shipping for customers who spend $49 or more, Buy.com countered a day later, offering free shipping for all products, with no minimum required.

It’s unclear just how big the online music market will turn out to be. Jupiter Research projects that spending on online music will grow from less than $1 billion in 2003 to $3.3 billion in 2008, although the research firm has ratcheted back its earlier predictions.

Also unclear is whether more than just tech-savvy consumers will sign on for the download services, which have their share of restrictions.

For one, each song available for download on BuyMusic’s Web site has strict licensing limitations. A track from John Mayer’s new album, for example, can only be downloaded once, transferred three times to different computers owned by the buyer (and registered with BuyMusic), transferred five times to “authorized” music devices and burned to disk five times.

“Absolutely there are varying usage restrictions,” Brooks said.

Record labels played a big part in how BuyMusic was built, she said. Some labels allow users to transfer music to a digital media player three times, while others allow an unlimited number of transfers.

In fact, BuyMusic’s service has been criticized for not having common licensing rules for all songs. (Apple’s iTunes service negotiated a uniform licensing deal with all the major labels, with no download restrictions attached.)

“When we built it we faced a choice,” said Brooks. “The ones that have the tightest, most restrictive rules aren’t selling as well. It’s up to them to change it.”

Television venture

Like other legal online music services, BuyMusic’s service sells many popular songs, but some say it doesn’t offer enough from independent labels. Buy.com has 330,000 songs in its computers from 30 different labels, and wants to build the catalog to 500,000 songs in a year. Apple, meanwhile, has 200,000 songs for sale.

The service is the latest brainchild of Buy.com owner Scott Blum, who paid $24 million to take the business private in 2002 after it bombed as a public company. Among other media ventures being fiddled with: a television show, BuyTV, which is expected to be part of Blum’s “direct response marketing” scheme in which viewers order products via phone or the Web for delivery within 24 hours. BuyTV is expected to launch this fall.

“Impulse purchases I hear, I want, I buy will make the download business work,” Josh Bernoff, an analyst with Forrester Research, wrote in a report.

Buy.com’s advisory board for the network includes Frank Biondi, former chief executive of Universal Studios Inc. and Viacom Inc., and Jeffrey Berg, chief executive of talent agency International Creative Management Inc.

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