How Will The AOL-Time Warner Merger Affect The World Of Net Music?
In the aftermath of America Online's announcement on Monday (1/10) that it will buy media conglomerate Time Warner in a $165 billion stock deal, the two companies must now craft an overall Net music strategy for the Warner Music Group.
The new company's strategy must address five main areas: Warner's need to prepare its catalog for digital distribution; the integration of AOL's Net music sites and Warner's promotional download site; AOL's embrace or rejection of the MP3 phenomenon; the fate of non-mainstream music on AOL; and the expansion of cable Internet service to AOL subscribers.
Successful digital distribution is the big-picture issue for the Warner Group, whose labels include Warner, Elektra, Atlantic, Sire, Rhino and Reprise. Once AOL owns the labels, it will likely attempt to steer Net users into purchasing recordings from them. The music group's market share fell from 18.2% in 1998 to 15.77% percent in 1999, so AOL's promise to become a ''premiere music destination'' should come as good news to the fourth-place music conglomerate.
But before those labels can deliver music through AOL, the group has to digitize and secure its complete catalog, as leader EMI has already started to do. Warner has not led the race toward digital distribution by racking up partnerships and licensing agreements and building a distribution infrastructure, and the outcome of that race will make or break the company.
''The music industry is the one industry-- the only one, really-- that is being directly affected by Internet technology,'' said Robert McChesney, author of Rich Media, Poor Democracy and associate professor at the Institute of Communications Research at the University of Illinois.
''When you can start transferring digital music, it changes the whole logic that the music industry has operated on for the last forty years. That's the real issue for WEA [the Warner Group]. AOL is small potatoes. If they sort music distribution out, AOL's great. If they can't sort it out, AOL can't help them.''
AOL's second challenge is to determine how its main Web music properties will operate once Warner content is in the family fold.
Warner's vehicle for Net music is Previewtunes.com, a relatively small-scale site that offers preview tracks from about two dozen Warner Group acts, including Tom Petty and the Flaming Lips. AOL's central music properties, Spinner.com and Winamp.com, currently promote the music of many labels. AOL will have to decide how to integrate Previewtunes.com and its artists, and to determine whether Warner artists will automatically get higher billing than non-Warner artists.
AOL's third crucial music issue is the MP3 phenomenon: the popularity of the unprotected file format and the explosion of undiscovered artists who use the Net to distribute their music. Selling major label music is a profit-making enterprise, but so far, the world of 50,000 unsigned artists has not been.
AOL showed interest in the still-unplundered world of unsigned bands by investing in Riffage.com just last December. The unsigned-band site, which pioneered a filtering system that provides music according to listeners' tastes, received $21 million from AOL, BMG and two other investment firms.
Riffage.com CEO Ken Wirt did not think the proposed AOL-Time Warner entity would leave his site in the cold.
''With BMG, we had one of the 'Big Five,''' he said. ''Now we have two of the 'Big Five.' I'm sure we'll be able to call them and say, 'Here are some ideas we've got.'''
Wirt speculated that Riffage could give Warner labels information about Riffage listeners' demographics and music preferences; the labels would better understand what audiences wanted. Further, Riffage could serve as a ''farm club'' site for the majors. He also said that Warner could use his site's ''one-on-one communication between artists and fans'' as a direct marketing tool, as music network Artistdirect.com is trying to do with its band and concert info, merchandise, downloads and mailing lists.
The fate of non-mainstream artists versus Warner artists is the fourth issue which AOL and the Warner group will confront. The problem is important to music listeners, who have shown that they will search the corners of the Net to find music that fits their tastes. The AOL desktop (and possibly AOL interactive TV) could be a gateway to new music, but AOL would likely present Warner acts front-and-center because they drive more profits.
Riffage's Wirt did not believe that AOL's acquisition would narrow the range of music available to listeners, however. Desktop publishing and the Net have led to niche publications and websites for every taste, he said, and Time Warner media properties such as CNN, the Weather Channel and the Cartoon Network succeeded with specific audiences. Although sub-genres of music have small audiences, the Net will propel them into the mainstream space, he said.
''The music business will probably be twice as big,'' Wirt predicted, ''but half of the twice-as-big music business is going to be niche stuff that doesn't really exist today, because there's no way to listen to it and there's no way to buy it.''
AOL's final music issue is the speed at which it can expand Time Warner's Road Runner cable network to AOL's 20 million users, hastening music and video distribution over the Net. If AOL can expand the cable infrastructure throughout North America and lower the $50/month charge to dial-up ISP prices, then AOL users would drastically enlarge the ranks of Net music users.
High-speed access through AOL could then complete the circle for Warner: a massive network to distribute its music and the means to do it efficiently. But the other four areas must be worked out simultaneously, and those decisions will ultimately determine the scope of music on AOL and Warner's success or failure in digital music distribution.
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