Cable Operators

Money To Their Ears

3/02/2007 7:00 PM Eastern

MP3 players seem to be on every hip and in every cell phone. For every illegal music-sharing site that's shut down, two more seem to pop up. All of that suggests that multichannel operators and networks should vie for a share of the music download market, right?

Not so fast. Although music downloads keep increasing, not everyone involved is making money. About 3% of online U.S. households purchased at least one song from Apple's iTunes service in 2006, according to a Forrester Research study. And although iTunes sold its 1 billionth song one year ago, the number of songs sold per iPod has been stuck at about 20, the study said. Forrester's conclusion: Most consumers still aren't sold on the value of digital music.

Neither are many multichannel operators and networks, who don't see enough revenue opportunity to make a case for selling song and music video downloads. “The music business has gotten to a point where it's a commoditized industry,” Music Choice president and CEO David Del Beccaro said. “The margins are just so slim that it's not very interesting.”

SOLD FOR A SONG

Charter Communications is one of the few operators offering a music download services. Its $9.99-per-month “Music To-Go” service, launched in January 2006, allows users to download unlimited songs to an MP3 player. The service also includes “Music to Burn,” which lets subscribers burn music to a CD for 99 cents per song.

If Charter is turning a profit on song downloads, it's not saying. (The company declined an interview request because it's about to announce more music initiatives.)

In a February 2006 interview with Multichannel News, Charter corporate vice president of high-speed Internet product management Himesh Bhise said that music sales are “a relatively small portion” of its revenue. “It's more about building value for the high-speed connection.”

Translation: Broadband provides the best user experience for song and music video download services, so telco TV providers and cable operators can leverage consumer interest in digital music as another way to sell digital-subscriber-line and cable-modem service. Some multichannel operators also use music as part of their wireless and home networking plays.

“Our Verizon Wireless customers can download to own [music] on their V Cast phones,” said Tricia Lynch, director of FiOS TV programming at Verizon Communications. “In the home, the FiOS broadband and television installation includes a home network, and with Media Manager, customers can access and play the MP3 songs stored on their computers on the television.”

One scenario that's been bandied about the past few years is enabling music sales via set-top boxes. For example, a consumer hears a song in a show and wants to download it. Currently, the viewer would have to go to the PC, where the operator and network probably wouldn't get a cut of the sale because few sell music through their Web sites.

But in the future, the customer could press a button on the remote control to buy the song, with the programmer and operator getting a cut. Or at least that's how it's supposed to work.

“No. 1, television is quite a bit away from doing that, except on a very experimental basis,” Music Choice's Del Beccaro said. “That's more likely in five years than two. No. 2, nobody makes money from retailing music except for the record company and the artist.”

That view is shared by Gospel Music Channel senior director of Internet and new media Justin Williams. “The model has been tested and retested and replatformed for almost a decade. It's a difficult model to get out there.”

Nevertheless, some record label executives would like to see it become reality.

“Purchasing albums and songs via TV remotes is certainly interesting and something we explore all the time,” Roadrunner Records vice president of promotion Elias Chios said. “With consumers able to purchase or get music from so many outlets, any way to actually see sales for us is a good thing.”

EMI Gospel has a similar view.

“It would be nice to satisfy instant gratification by ultimately allowing the consumer to purchase music and videos directly from TV,” said Larry Blackwell, the label's vice president and general manager. “I don't know how soon we'll get there but I'm sure we will. I believe Gospel Music Channel could be a part of that mix.”

The programmer-as-broker model is something that could work for video-on-demand service BlueHighways TV, which focuses on “roots music” such as bluegrass. The network currently offers downloads of original programming via AOL, Brightcove and Narrowstep, and it's open to serving as an outlet for viewers to purchase music.

“It's a new frontier, and we're just getting into it,” BlueHighways vice president of entertainment industry relations Ronnie Reno said. “I think it's going to go back to singles and compilations, where you take a song you like and 10 or 11 others and make your own compilations. I think we'd use BlueHighways as a broker for putting all these things together.”

LOOKING FOR OPPORTUNITIES

Despite their skepticism, networks and operators still see opportunities to monetize music. One example is MTV Networks: In May 2006, it launched subscription-based service Urge, which lets users purchase individual tracks and albums.

“We are very happy with the initial success of Urge, and we are currently exploring multiplatform extensions for the brand,” MTVN executive vice president of affiliate sales and marketing Denise Dahldorf said.

Another possibility is producing videos for lesser-known artists and labels that don't have the budget to create them on their own.

“We do that a lot for artists,” Gospel Music Channel vice chairman Brad Siegel said. “There's a real opportunity at a higher price for us to begin to recoup our costs for the video, and the label still gets to sell the song for 99 cents. There are a lot of opportunities, and more and more we'll be able to monetize those.”

For Music Choice, one of those opportunities is an ad-based model. “When you pull up the video, you'll see an ad before it, and that's your price of entry, and that's how we'd recover the investment,” Del Beccaro said. “Our model basically is to make it free so the potential audience is as large as possible, get as much volume as possible, and therefore have enough volume for an ad model.”

Music Choice currently dabbles in indirect album sales: On its Web site, users click on a CD to buy it, but the transaction occurs on Amazon.com. “This summer, instead of having it go to Amazon, you'll be able to download stuff immediately, whether it's the video, the ringtone or the song,” Del Beccaro said.

Even so, Music Choice sees those types of offerings as the price of being in the music business. “We'll get a small commission on it,” Del Beccaro said. “But for a return on investment or an improvement in the company's bottom line, it's basically worthless to us. Everybody else is in the same boat.”

Except for record labels, which have the most to gain by using TV providers as another sales channel.

“The ability to open up additional monetized digital worlds would be a win-win,” Koch Records senior vice president of marketing John Franck said. “The digital world is still very much the wild, wild West, and labels are trying to figure out each and every day how to monetize what they have and reconnect with their consumer.”

September