EXHIBIT 1008
`
`
`
`TO PETITIONER GOOGLE INC.’S
`PETITION FOR COVERED BUSINESS
`METHOD REVIEW OF
`U.S. PATENT NO. 8,794,516
`
`
`
`
`
`
`
`

`
`Music on the Net
`A Topographic Tour of
`the Online Music World
`
`Produced by:
`
`
`
`
`
`
`
`ICONOCASTICONOCASTICONOCASTICONOCASTICONOCASTICONOCASTICONOCAST
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`Google Exhibit 1008 Page 00001
`
`

`
`T A B L E O F
`
`C O N T E N T S
`
`Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
`
`The Internet
`Market Dimensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
`Media Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
`Market Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
`Market Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
`Usage Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
`Electronic Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
`
`The Music Business
`Changing Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
`Long-playing Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
`Compact Discs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
`Music Videos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
`Music Market Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
`Traditional Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
`Record Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
`Record Distributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
`Record Clubs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
`Record Retail Outlets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
`Public Performing Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
`Organization Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
`
`Online Music Market
`Music Meets The Web . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
`Promoting Music on the Web . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
`The New Press: Online “Zines” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
`Genre Sites and Music Guides . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
`Selling Music On The Web . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
`Online Music Stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
`Record Clubs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
`Digital Performance Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
`Internet Music Delivery, Unplugged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
`Music Delivery Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
`Digital watermarking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
`The Future: Music on Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
`
`Resources/URLs
`Key Players, Market Research, Trade Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
`
`2
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`Page 000002
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`

`
`P R E F A C E
`
`From Latin chants to baroque music to the Charleston, music has been an
`uncanny reflection of contemporary society. While archaeologists have discovered
`musical instruments dating back almost 30,000 years, the earliest recorded
`reference comes from a Greek philosopher, Aristoxenes, who theorized about the
`essence of music three centuries before the birth of Christ.
`How would Aristoxenes have
`reacted, if he were to stumble
`across the Rolling Stones’ popular
`Web site for their 1994 Voodoo
`Lounge tour?
`That site, one of the Web’s first
`music destinations, attracted more
`than 100,000 visits (note “caller
`number 0135253” on the Voodoo
`Lounge home-page screen,
`captured circa Dec. 4, 1994, three
`weeks after their famous Nov. 18
`“cybercast”) in its first few weeks.
`Since the Stones’ debut, more
`than 32,000 music-related sites
`have appeared in cyberspace. The
`impact of Web music delivery is
`already rippling throughout the music industry. By some estimates, the Net will be
`responsible for as much as 15 percent of music sales by the year 2002. By that
`time, if current growth rates continue, more than 90,000 music Web sites will be
`peddling their wares direct to consumers throughout the world.
`Need more evidence? Please, allow me to introduce myself, I’m a world of
`wealth and fame…
`
`Source: 1980 The Concise Oxford History of Music
`
`Medieval Music
`c. 500 – 1500
`
`Renaissance Music
`c. 1450-1600
`
`Baroque Music
`c. 1600-1750
`
`Classical Music
`c. 1750-1825
`
`Romanticism
`c. 1830-1910
`
`3
`
`Page 000003
`
`

`
`F O L I O
`
`L e g e n d
`
`The Topographic Tour uses a a “linked” convention to indicate a research source or company that
`is listed in the Resources section, starting on page 22.
`
`Acknowledgements. The author thanks the following individuals who contributed to this report:
`
`John Atkinson – Editor, Stereophile
`Nicholas Butterworth – President/Editor-in-Chief, SonicNet
`Wilson Chan – Harmony Central
`Tom Clynes – President, Festival Finder
`Jason Hirschhorn – President, Mischief New Media
`David Hyman – Vice President of Sales, Addicted to Noise
`Jerry Lazar – The Gigaplex
`Michael Lipson – President, TeamNet Technologies
`Mike Mannix – Director, Streetsound
`Brent Marcus – President, Virtual Radio
`Joanne Marino – Editor-in-Chief, Webnoize
`Chris McBride – President, WILMA
`Lawrence Peryer – Director of Business Development, CD Universe
`Steve Rogers – Vice President/Online Services, The Ultimate Band List
`David Samuel – President, The DJ
`
`When asked what year
`music delivery systems
`would be handling real-
`life transactions, the
`majority of contributors
`voted for 1997 or 1998.
`
`Legal Notice. While ICONOCAST and its agents used their best efforts in collecting and preparing
`the information published herein, ICONOCAST does not assume, and hereby disclaims, any
`liability for any loss or damage caused by errors, omissions, whether such errors or omissions
`resulted from negligence, accident or other causes. All registered and unregistered trademarks are
`the property of their respective owners.
`
`Copyright. © 1997 Liquid Audio Inc. All rights reserved.
`
`Additional Copies. Please visit the Liquid Audio Web site (http://www.liquidaudio.com) to
`download a PDF version of this file. Members of the press can obtain a printed copy by contacting:
`
`Bill Woods
`Liquid Audio
`2421 Broadway, 2nd floor
`Redwood City, CA 94063
`415 569 3778 fax: 415 562 0899
`
`4
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`Page 000004
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`

`
`T H E
`
`I N T E R N E T
`
`M a r k e t D i m e n s i o n s
`
`More than one million publicly-visible sites dot the World Wide Web today, according to Netcraft
`(see chart, right) — up from just 50 in January 1993, less than five years ago. This spectacular
`growth is matched by the 51-million plus North Americans who
`now roam the Internet according to Nielsen Media Research.
`Media Migration. Energized by the very broad range of
`content these one million-plus sites provide, it’s not surprising
`that the Internet is quickly elbowing its ways to the front ranks of
`popular media.
`The May 1997 GVU7 Web user survey reports that 35
`percent of respondents say they use the Web instead of
`watching TV on a daily basis. A recent Nielsen survey found the
`same to be true among America Online households who watch
`15 percent less television per week than the national average.
`While the TV-watching is still considerably higher than
`Internet and online usage, the sheer speed at which the Web is
`making inroads is having a profound impact on other media. According to a Young & Rubicam,
`San Francisco research report, the Internet will likely displace magazines as the fifth most popular
`medium by the year 2001 (see table, left).
`Market Forecast. As content providers respond to the market’s
`enthusiasm, the Web is fueled by a propitious cycle of increasing content
`driving ever more usage and vice versa.
`According to Jupiter Communications, 67 million households will be
`online worldwide by the year 2000 (see table, right), a veritable bonanza
`for cyberspace marketers. Online users tend to be better educated and
`better-off than other consumers, and can be efficiently reached via the
`Internet medium itself. As a result, an estimated $267 million worth of Web
`advertising was placed in 1996 according to the Internet Advertising Bureau
`(http://www.iab.net). This is expected to soar to $2.5
`billion by 2000 says Simba. By then, advertisers will
`be able to reach as many as 340 million eyeballs (170 million Internet
`users) glued to Web tube estimates International Data Corp. (IDC).
`If current growth rates continue, year 2000 surfers will have a choice of
`more than 4 million sites spanning the globe. The instantaneous, cross-
`cultural nature of the Internet will be an irresistible proving ground for all
`kinds of music. On any given day, at the beginning of the next decade,
`more than 80 million consumers will be cruising the Web, a ready target
`audience for the next big thing in music.
`
`U.S. Media Time Patterns
`
`Top Five Media Ranked by Daily Usage
`
`Medium
`
`Television watching
`
`Radio listening
`
`Newspaper reading
`
`Magazine reading
`
`Internet usage (Web, e-mail)
`
`1996
`
`2001
`
`3:76
`
`3:15
`
`0:54
`
`0:15
`
`0:15
`
`3:68
`
`3:31
`
`0:52
`
`0:31
`
`0:31
`
`Source: November 1996 Young & Rubicam, San Francisco
`
`Source: 1997 Nielsen Media Research, IntelliQuest
`
`Growth of Web Sites
`
`1,203,100
`
`646,162
`
`Jan-97
`
`Jul-97
`
`462,047
`
`299,403
`
`150,295
`
`74,709
`
`00
`
`Jan-96
`
`Apr-96
`
`Jul-96
`
`Oct-96
`
`Source: July 1997 Netcraft Ltd. (http://www.netcraft.co.uk/Survey)
`
`Online Household Forecast
`
`Worldwide Distribution by Region
`
`Region
`
`North America
`
`Europe
`
`Asia/Pacific Rim
`
`Other
`
`Total
`
`1996
`
`15.4M
`
`2001
`
`38.2M
`
`3.7
`
`3.4
`
`0.9
`
`22.5
`
`16.5
`
`10.0
`
`1.9
`
`66.6
`
`Source: November 1996 Jupiter Communications
`
`1 million Internet users
`1988
`
`23 million Internet users
`August 1995
`
`35 million Internet users
`March 1996
`
`51 million Internet users
`January 1997
`
`170 million Internet users
`2000
`
`5
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`Page 000005
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`

`
`T H E
`
`I N T E R N E T
`
`M a r k e t D e m o g r a p h i c s
`
`What makes the Web such an ideal medium for music is a very desirable demographic profile.
`IntelliQuest reports that of all age segments, the vital 25–34 year old group has grown the quickest
`and now represents 30 percent of the online population. The online gender
`gap is also shrinking rapidly with women now making up 42 percent of the
`online population according to both Mediamark Research Inc. (MRI) and
`Nielsen Media Research (see table, right).
`In terms of education and household income, the Web demonstrates its
`upscale appeal. MRI reports that 34 percent of all Internet users have a
`household income of between $75,000 and $149,000, 124 percent above
`the national average. Eighty-six percent have either attended or graduated
`from college, or 81 percent above average.
`Usage Patterns. NPD found that many users access the Internet from
`home and office, followed by people
`who access it only from home (see chart, left). FIND/SVP
`reports that while mixed use is most common, more people
`overall use the Internet for personal purposes than for work (88
`vs. 56 percent).
`People are attracted to the
`Internet by its ability to
`entertain and inform, the
`leading applications of the
`Web. An A.C. Nielsen study
`reports that more than half of
`all Internet users cite
`entertainment as the leading
`reason for using the Internet
`
`Internet Demographics
`
`Age and Gender User Profile
`
`Sex
`
`Men
`
`Women
`
`Age
`
`18-34
`
`35-54
`
`%
`
`58
`
`42
`
`45
`
`47
`
`Index*
`
`122
`
`80
`
`129
`
`124
`
`Source: Spring 1997 MediaMark Research. * 100 index is average.
`
`Top Reasons For Using The Internet
`
`51%
`
`49%
`
`41%
`
`60%
`
`30%
`
`Where Users Access The Internet From
`
`Work only
`18%
`
`Home only
`36%
`
`Home and
`Work
`38%
`
`School/Other
`8%
`
`Source: April 1997 NPD Inc. (base: Web panel of 1,527 respondents)
`
`30%
`
`26%
`
`Travel
`
`Financial
`information
`
`Nielsen Media Research
`reports that, among
`online buyers, 2% (or
`148,500) bought music
`products the last time
`they shopped online.
`
`Source: 1996 A.C. Nielsen Worldwide Consumer Panel Services
`
`0%0%
`
`Entertain-
`ment
`
`News
`
`Computer
`products
`
`(see chart, right).
`Electronic Commerce. More important to the budding Web
`music distribution industry is the fact that 15 percent of Internet
`users have recently used the Web to purchase a product or service (according to both IntelliQuest
`and Nielsen Media Research).
`There is no question that the Web will revolutionize the music business and create
`captivating new opportunities in distribution, listener marketing, music fan research and CD
`sales. Before that can happen, a few short-term obstacles must be overcome. For one, 79
`percent still use 28.8-Kpbs modems. But as technology has demonstrated over and over again,
`speed issues are merely a matter of time. The Web’s instantaneous, interactive and global
`nature has already recast the music business, as the following pages will vividly show.
`
`Females on Net: 5%
`January 1994
`
`Females on Net: 10%
`October 1994
`
`Females on Net: 16%
`April 1995
`
`Females on Net: 32%
`April 1996
`
`Females on Net: 42%
`January 1997
`
`Source: 1997 Nielsen Media Research, GVU
`
`6
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`Page 000006
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`

`
`T H E M U S I C B U
`
`S I N E S S
`
`C h a n g i n g S t a n d a r d s
`
`A Comparison of CD and Album Unit Sales Growth
`
`The appearance of the 10-inch 78, named after its rotational speed of 78 RPM, in 1901 marked a
`major turning point in modern music history. For the first time, music could be enjoyed, on
`demand, in the privacy of one’s own home. But it wasn’t until 1938 when Al Jolson recorded his
`first talkie, that modern music began its meteoric rise. Jolson’s recording of Swanee vaulted the
`RCA Victrola into the imagination of the common American household.
`Long-playing Records. A second milestone, was CBS Records‘ 1948 release of the first stereo-
`capable long-playing record (dubbed LP, 33 or “album”). That marked the beginning of the high-
`fidelity (Hi-Fi) era that lasted well into the sixties. In 1964, Philips of the Netherlands introduced the
`audio cassette, a format that together with the LP would dominate the music scene until the mid-
`eighties. Sales of record albums peaked in 1978 and began a gradual decline that accelerated once
`compact discs were introduced in the early 80s. Spurred by car stereo sales, the cassette became
`the delivery mechanism of choice by 1983 and sales peaked in 1988, with 473 million units
`shipped in the U.S.
`Compact Discs. The most dramatic change in music delivery was the 1983 introduction of the
`compact disc (CD) player. Its digital recording technique, using 0
`and 1 data bits, virtually eliminated the pesky quality-control
`problems of vinyl records, which were frequently plagued by
`annoying pops, clicks, hiss, and turntable wow and flutter.
`While early compact disc protagonists, Philips and Sony,
`struggled at first due to a lack of software, it took the CD only
`five years to overtake album sales (see chart, left). In the mid
`90s, album sales are making a very slight comeback, thanks
`mainly to “golden-ear” stereophiles who, to this day, consider
`the sound of CDs “too shrill.” But the clearly discernable
`improvement offered by CDs set in motion a wholesale
`conversion of record collections, that energized the entire music
`business well into the 90s.
`Music Videos. While MTV is often credited with pioneering music video, it was the USA
`Network that made the first video foray when it introduced Night Flight, a weekend program
`featuring music videos in June 1981. Two months later, Warner Amex Satellite Entertainment
`Company launched Music Television, or MTV, the world’s first 24-hour music video channel.
`MTV clearly patterned itself after Top-40 radio, applying the same nonlinear, “short take”
`format that attracts teenagers and young adults. Its on-air announcers, dubbed “VJs,” (video
`jockeys), hyped elaborate contests and promotions and developed playlists that showed great
`ingenuity in the manipulation of audience mood. MTV soon was recognized as an effective way to
`promote record sales and as a powerful medium for exposing new artists, such new artists as
`Duran Duran, Cyndi Lauper, Madonna and Men At Work.
`
`779 million
`
`2.9 million
`
`1988
`
`1990
`
`1992
`
`1994
`
`1996
`
`800
`
`400
`
`244 million
`albums
`
`0
`CDs
`
`00
`
`1982
`
`1984
`
`1986
`
`Source: 1997 ICONOCAST
`
`Source: June 1997 RIAA
`
`Recording system shown
`1886
`
`Bell Labs demos stereo
`1932
`
`LP debuts
`1948
`
`MTV launched
`1981
`
`CD player unveiled
`1983
`
`7
`
`Page 000007
`
`

`
`T H E M U S I C B U S I N E S S
`
`M u s i c M a r k e t G r o w t h
`
`Growth of CD Sales and Other Recorded Music
`
`$12.1B
`
`$12.3B
`
`$12.5B
`
`1994
`
`1995
`
`1996
`
`16
`
`8
`
`00
`
`$10.0B
`
`$9.0B
`
`1992
`
`1993
`
`An estimated 2,500
`new CDs hit the
`shelves of America’s
`more than 9,000
`record outlets each
`month.
`
`Source: February 1996 RIAA
`
`Chart Busters
`
`Top 10 All-Time Best-Selling Albums
`Ranked by Worldwide Sales
`
`In 1996 , the U.S. music business recorded $12.5 billion in annual sales, up less than 2 percent
`over 1995’s $12.3 billion (see chart, left). According to the IFPI,
`the International Federation of the Phonographic Industry, the
`global music business was worth about $40 billion in 1995. This
`suggests that the U.S., with a population of roughly 267 million,
`accounts for 30 percent of the world’s total music volume.
`In contrast, between 1986 and 1994, recording industry sales
`more than doubled, from $4.6 billion to $12.1 billion according
`to the Recording Industry Association of America (RIAA). This
`made the sudden leveling in 1995 seem all the more
`pronounced. Some industry watchers blame the decline on the
`waning popularity of alternative rock, which fueled a good deal
`of the industry’s growth at the beginning of this decade. The
`answer, however, may be more complex. It’s more likely that
`sales are flat due to a combination of factors:
`쐃 Conversion Complete – The compact disc’s 1983 appearance, fueled a CD
`replacement boom. Once consumers finished converting their LP collections
`to CD, growth declined.
`쐇 Aging Boomers – The 67 million baby boomers are reaching middle age.
`While this generation stubbornly clings to its Grateful Dead bootlegs and
`Calvin Klein jeans, the fact is that 64 percent of all music in the
`U.S. is purchased by people under age 35.
`쐋 Lack of Innovation – The all-time best-sellers list clearly shows
`the strong influence of aging baby boomers (see table, right),
`with seven out of 10 positions occupied by such 70s and 80s
`stalwarts as Michael Jackson, The Eagles, Fleetwood Mac, Led
`Zeppelin, Boston and Bruce Springsteen.
`쐏 The Web – The Internet has become an important pastime for
`the core music-buying demographic. This sudden phenomenon
`became extremely popular at the same time the music business
`began its decline. Coincidence? Perhaps, but there’s no denying
`that the disposable income of the primary music-buying segment
`is under attack from this new diversion.
`The RIAA provides additional evidence supporting these theories with a
`report that, while there were 14 percent more gold records (constituting
`sales of more than 500,000) awarded in 1996 than in 1995, platinum records (one million) were
`down 17 percent. And multi-platinum titles were down 20 percent.
`
`Rank Album/Artist
`
`Thriller, Michael Jackson
`
`Their Greatest Hits, Eagles
`
`Rumours, Fleetwood Mac
`
`Untitled (IV), Led Zeppelin
`
`Sold (mill.)
`
`24
`
`24
`
`17
`
`16
`
`1.
`
`2.
`
`3.
`
`4.
`
`5.
`
`6.
`
`7.
`
`8.
`
`9.
`
`The Bodyguard, Whitney Houston… 16
`
`Boston, Boston
`
`Born in the U.S.A., Bruce Springsteen
`
`Cracked Rear View, Hootie & the… 15
`
`Jagged Little Pill, Alanis Morissette
`
`16
`
`15
`
`15
`
`14
`
`10.
`
`Hotel California, Eagles
`
`Source: June 1997 RIAA
`
`Music Sales: $2 billion
`1970
`
`Music Sales: $4 billion
`1978
`
`Music Sales: $4.6 billion
`1986
`
`Music Sales: $7.5 billion
`1990
`
`Music Sales: $12.5 billion
`1996
`
`Source: 1997 RIAA
`
`8
`
`Page 000008
`
`

`
`T H E M U S I C B U S I N E S S
`
`T r a d i t i o n a l D i s t r i b u t i o n
`
`Record Manufacturer
`
`The U.S. Department of Labor reports that 252,000 people are employed in the music industry. By
`comparison, an estimated 62 million amateurs practice music in the U.S. alone. Once a budding
`artist has convinced an A&R (artist and repertoire) executive or record producer to create a CD,
`the recording begins its long journey to the consumer.
`The music distribution channel has grown considerably more complex since its inception in
`the 30s (see chart, below). The emergence of consumer electronics chains (Best Buys, Circuit
`City, etc.), discount clubs (Costco/Priceclub, etc.) and mass merchandisers (Target, Walmart,
`etc.) has added a unique buying system for each channel, typically managed by a chainstore
`buying service. At the top of the food chain are:
`Record Manufacturers. Six major record labels, Bertelsmann Music Group, EMI-Capitol Music
`Group North America, MCA Music Entertainment, PolyGram Holding Inc., Sony Music
`Entertainment and Warner Music Group control 85 percent of the
`market: Besides manufacturing plants, these major labels also own
`distribution companies. Labels works with independent record
`producers who are responsible for managing costs, talent and
`recordings.
`Record Distributors. Next are record distributors, such as
`Valley Record Distributors, who work behind the scenes to fill
`music store shelves.
`Record Clubs. Nearly 17 million Americans belong to a record
`club. These clubs generate $1.5 billion worth of sales annually, 80
`percent of which is directly related to music. According to a recent
`survey by Strategic Record Research, 3 percent of consumers buy
`their music exclusively from record clubs. Another 14 percent buy
`from record clubs and stores. After a seven-year growth streak,
`record clubs saw their sales share decline to 15 percent in 1996
`from 17 percent in 1995, according to RIAA data. The two largest
`outfits are Columbia House (8.5 million members), jointly owned
`by Sony Music Entertainment and Warner Music Group and BMG
`Music Service (8 million members), owned by Bertelsmann.
`Record Retail Outlets. “Active buyers” (those who have purchased at least three albums in
`the past six months) buy 45 percent of their recorded music from retailers, including Musicland,
`Tower Records, Virgin Records and Wherehouse. Flat music sales led Minneapolis-based Musicland
`Group to lose $194 million, while Dallas-based Blockbuster Entertainment is quietly converting
`most of its CD outlets to video-rental stores.
`
`Record Distributor
`
`Record Retail Outlet
`
`Consumer
`
`The Atlantic Group is
`the music industry’s
`leading label with 11%
`unit market share in
`first quarter, according
`to SoundScan.
`
`Record Club
`
`Source: 1997 RIAA
`
`Record Store Share: 69%
`1988
`
`Record Store Share: 70%
`1990
`
`Record Store Share: 60%
`1992
`
`Record Store Share: 53%
`1994
`
`Record Store Share: 50%
`1996
`
`9
`
`Page 000009
`
`

`
`T H E M U S I C B U S I N E S S
`
`P u b l i c P e r f o r m a n c e R i g h t s
`
`Performance Rights Collections Growth
`
`1000
`
`500
`
`00
`
`On February 26, 1941, the United States filed a suit against the American Society of Composers,
`Authors and Publishers (ASCAP). The complaint listed as cause of action Section 1 of the Act of
`Congress of July 2, 1890, entitled “An Act to Protect Trade and Commerce Against Unlawful
`Restraints and Monopolies,” more commonly know as the Sherman (antitrust) Act.
`This legal maneuver demonstrated the importance of public performance payments, which are
`one of the largest revenue sources in the music industry. In 1994, ASCAP collected $423 million in
`performance fees from broadcasters and other sources. Broadcast Music Inc. (BMI) was second
`with $340 million that year. Both organizations collect royalties for publishers and songwriters by
`surveying and statistically sampling actual broadcasts to determine royalty payments. ASCAP
`signed a consent degree on March 14, 1950, admitting no
`wrongdoing, that established two types of royalty collections (in
`1966, BMI agreed to a similar decree):
`쐃 Per Program – This type of arrangement requires
`licensees to pay ASCAP a pre-determined fee for each
`song used.
`쐇 Blanket License – Under this program, the licensee
`pays ASCAP a percentage of gross revenue.
`Organization Overview. In addition to ASCAP and BMI, a
`third licensing organization, SESAC, collects royalty fees in the
`U.S. A brief overview of each organization follows below:
`쐃 ASCAP – Founded in 1914, ASCAP represents more
`than 40,000 composers and 18,000 publishers. ASCAP
`claims so have the oldest and largest repertoire, and adds about 100,000 new
`titles annually. ASCAP collects a $50 fee from publishers and a $10 fee from
`writers. In 1994, television licensing accounted for approximately 50 percent of
`ASCAP’s licensing revenues, radio 30 percent and other sources 20 percent.
`쐇 BMI – Established in 1940 by the broadcast industry as a means of lessening
`ASCAP’s bargaining power, BMI is owned by more than 300 broadcasters. The
`organization boasts a membership of more than 56,000 publishers and
`111,000 writers and has more than 2 million works registered. BMI charges
`publishers a one-time $100 application fee while writers can join for free.
`BMI’s performance collections are made up of television (45 percent), radio
`(30 percent) and other sources (24 percent).
`쐋 SESAC – This private organization, founded in 1930, represents about 1,000
`active publishers and 1,900 writers. SESAC offers its members profit-sharing.
`SESAC derives 55 percent of its revenue from radio, 32 percent from
`television and 13 percent from miscellaneous sources.
`
`$763M
`
`1994
`
`$323M
`
`1989
`
`Source: 1995 ASCAP, BMI company reports
`
`U.S. radios in use: 0.4M
`1922
`
`U.S. radios in use: 4.0M
`1925
`
`U.S. radios in use: 51M
`1940
`
`U.S. radios in use: 156M
`1960
`
`U.S. radios in use: 489M
`1985
`
`10
`
`Page 000010
`
`

`
`O N L I N E M U S I C M A R K E T
`
`M u s i c M e e t s T h e W e b
`
`IUMA’s positioning tag line sums it up nicely: “The Net’s first, free hi-fi music archive.
`
`In short order, more than 32,000
`Web sites devoted to music in one
`way or another have sprung up,
`making music one of the Web’s most
`most popular pastimes. A mind-
`boggling 24,517 artist sites alone
`compete vigorously to attract surfers
`with tour info, sweet, or acid, music
`sound clips and other artist minutiae.
`Whether cyber citizens are
`interested in world music (97 sites),
`karaoke (18 sites) or girl bands (19
`sites), there is a music site to fit their
`musical fancy.
`It all started in Fall 1993, when a
`Santa Cruz, Calif.-based outfit,
`Internet Underground Music Archive,
`or IUMA, created an FTP site where
`people from all over the world could
`download music files via the Internet.
`To reduce audio files to a manageable size, IUMA compressed them with MPEG and made a free
`decoder available for downloading.
`IUMA’s lofty goal was to revolutionize the
`music business with digital delivery that
`circumvented traditional pressing plants,
`distribution networks, shipping and record stores.
`And because a listing on IUMA was free, content
`poured in from all over the world. Their music
`trailblazing landed IUMA on the pages of the San
`Jose Mercury News in November 1993 and even
`a gig on CNN.
`The Mosaic browser allowed IUMA to
`spruce up its venue with graphics and quickly
`made the site one of the first destination
`points for music fans. Today, the seven-
`person company grosses nearly $1 million
`annually and features more than 1,000 bands.
`
`Sony was one of the first Internet music destinations as seen here in 1995.
`
`Based on the growth
`in Yahoo music listings,
`31 music Web sites are
`added daily, or about
`930 new Web sites
`each month.
`
`IUMA debuts FTP site
`Fall 1993
`
`SonicNet launches BBS
`June, 1994
`
`First real-time cybercast: Sky Cries Mary
`Nov. 10 1994
`
`Rolling Stones cybercast
`Nov. 18 1994
`
`Tibetan Freedom Concert draws 89,500
`June, 1997
`
`11
`
`Page 000011
`
`

`
`Yahoo’s Entertainment/Music directory lists 32,365 music sites, up 644 percent from the 4,348 sites
`listed in July 1995. The Yahoo directory divides music sites into 52 sub-
`Music on the Web? Yahoo!
`categories, the largest of which, with 76 percent of all listings, is the artists
`category (see table, right).
`The success of promotional music sites is best exemplified by N2K’s
`experience with David Bowie. In September 1996, Bowie made his new
`single, Telling Lies, freely available on the Bowie site (davidbowie.com) for
`one week. During that period, a total of 450,000 copies were
`downloaded to people in 87 countries. A spectacular success story
`considering that many users opted to download a 16-bit CD-quality file that
`took 45 minutes with a 28.8-Kbps modem.
`While it’s beyond the scope of this report to provide a guide to the
`Web’s hottest artist
`sites, a few typical
`examples are shown
`below.
`
`1.
`
`2.
`
`3.
`
`4.
`
`5.
`
`6.
`
`7.
`
`8.
`
`9.
`
`Artists
`
`Genres
`
`Instruments
`
`Computer generated
`
`Composition
`
`Awards
`
`Events
`
`Vocal
`
`Education
`
`Sites
`
`24,517
`
`2,775
`
`721
`
`609
`
`565
`
`493
`
`437
`
`408
`
`276
`
`150
`
`O N L I N E M U S I C M A R K E T
`
`P r o m o t i n g M u s i c o n t h e W e b
`
`Top 10 Music-Related Web Site
`Categories Listed on Yahoo!
`
`Rank
`
`Category
`
`When alternative rock
`group Korn began
`promoting itself on the
`Internet, the group
`sold 152,000 CDs in its
`first two weeks.
`
`10.
`
`Organizations
`
`Source: July 1997 Yahoo! (Base: 32,365 sites)
`
`This site shows the type of content
`that attracts fans (countingcrows.com).
`
`David Bowie’s Web success tells
`no lies (davidbowie.com).
`
`12
`
`Reba McEntire’s cyber outpost elegantly demonstrates that the Web is not for
`grunge fans only (reba.com).
`
`Page 000012
`
`

`
`O N L I N E M U S I C M A R K E T
`
`T h e N e w P r e s s : O n l i n e “ Z i n e s ”
`
`Pageview Data
`
`Top 10 Music-Related Web Sites
`Ranked by Monthly Traffic
`
`According to Yahoo, there are some 312 online music magazines. These content sites can be
`divided into two categories:
`쐃 Consumer – In December 1994, Michael Goldberg launched the Web’s first
`rock-and-roll magazine, or “zine” in Net jargon, Addicted To Noise. The site
`was recently purchased by Paradigm Music Entertainment Co. of New York,
`who also acquired SonicNet (sonicnet.com) in January 1997. Rolling
`Stone, the best-known rock publication, joined the fray last year,
`while another popular music magazine, SPIN, can be found on
`America Online.
`쐇 Business – For the music trade there’s Billboard Online
`(billboard.com) and Webnoize (webnoize.com).
`
`Traffic
`
`14.0M
`
`11.8 (impr.)
`
`8.4
`
`4.0
`
`3.7
`
`3.5
`
`3.1
`
`2.0 (impr.)
`
`1.7
`
`1.5 (visits)
`
`Rank Site
`
`Firefly
`
`DMN Media
`
`Ticketmaster Online
`
`Harmony Central
`
`iMusic
`
`1.
`
`2.
`
`3.
`
`4.
`
`5.
`
`6.
`
`7.
`
`8.
`
`Addicted to Noise/SonicNet
`
`The DJ
`
`CD Universe
`
`9. Music Boulevard
`
`10.
`
`CDNow
`
`Source: April 1997 Company Reports
`
`For Web music business
`and technology coverage,
`Webnoize can’t be beat
`(webnoize.com).
`
`The counterculture’s bible finally brought its
`innovative coverage of rock to the Web in
`October 1996 (rollingstone.com).
`
`Paradigm positions Addicted to Noise as a “great music magazine delivered
`through online media” (addict.com/atn).
`
`13
`
`Page 000013
`
`

`
`O N L I N E M U S I C M A R K E T
`
`G e n r e S i t e