Online Music Standards Presented by Team: “We see each other more than we see our spouses” Heather Muir John Mullinax Ginny Strang Nancy Uy

Agenda Purpose: Frame the Battle for Online Music Standards Traditional Industry Value Chain The New Value Chain Forces for Change Online Distribution Process: The Categories & Players Standards: One or Many? What does it take to be a standards leader? Framing the Game: The moves by the players Evolving Issues

Traditional Music Industry Value Chain Artist Record Labels Distributors Wholesalers Retailers Consumer

Driving Forces for Change Music Content Record Labels Artists Copyrights Distribution Music Sites Retailers Search Technology Bandwidth Devices Standards Audience Behavior Soft/Hard-ware

New Value Chain ? Internet Artist Site beastieboys.com Artists Can Go Direct... Artist Site beastieboys.com publicenemy.com Retail Site Amazon.Com Cdnow Tower Records Download Sites mp3.com GoodNoise a2b music Liquid Audio Through traditional label... Record Labels Consumers ...Or through a new web virtual label Virtual Labels ?

Online Technical Distribution Process Categories and Players Step 1: Standards-Encoding into Digital Format MP3, ATRAC3 (Sony) Step 2: Distribution-Digital Rights Mgmt. Sys. Liquid Audio, a2bmusic, Loudeye, MP3 Watermark encoding prevents copy (Secure Music Digital Initiative - SDMI) Step 3: Delivery-To Customer on Computer Real Jukebox, Microsoft Media Player Step 4: Listening Devices Diamond Rio, Creative Labs, Dynamic Naked Audio

Standards: One or Many? Verdict is still out MP3 vs SDMI: Philosophical Differences Possibility multiple formats will coexist Cell Phones: GSM, TDMA and CDMA all interact Consumer may not have to make a choice

Players Taking Sides MP3 SDMI Winamp (Nullsoft) a2b music (AT&T) RCA Thompson (Nomad)* Diamond Multimedia (Rio)* Creative Labs Internet Underground SpinArt Records Liquid Audio* Microsoft (Media Player) Recording Industry Association of America Matsushita Electronics Deutsche Telecom Dolby Laboratories AOL Toshiba

The Matrix: Being a Standards Leader

Growth of MP3.Com

? ? ? ? ? Moves in the Game MSFT Supports SDMI MP3 Invented MP3.Com IPO San Disk w/ SDMI Diamond’s Rio Labels Deal w/ Loudeye ? Tom Petty Allows Free Song Real Juke Box SDMI CompuServe Sued ? MSFT MediaPlayer ?

Evolving Issues Interesting shifts in distribution power: Was labels, retail, MTV Now technology providers/standard creators Who will regain power? Who will establish new brands? Where will value lie in this New Marketplace for Music? Consumer vs Labels vs Artists So who will the winners be? Who will decide? Are we entering a new era in Online Music? Piracy, Promotion, Commerce

Questions? ? ? ? ? ?

Sources and Interviews Mergers of Music Giants. New York Times, January 26, 2000. Protection for Internet Music. The Seattle Post-Intelligencer, January 21, 2000. Playing Cards. Business 2.0, November 1999. MP3.com, Now What. Business 2.0, November 1999. Musical Discord. Business 2.0, September 1999. Prodigal Song. Business 2.0, June 1999. Virtual Music Rocks. The Forrester Report, March 1999. Real Networks. Kotha & Johnston 1998. Information Rules. Shapiro and Varian, 1998 Net Gain: Expanding Markets Through Virtual Communities, Hagel and Armstrong. C1997 by McKinsey & Co. Inc. Interview with M.Y. Jaisimha, Group Program Manager, Music Group, Real Networks. Interview with Kim Harris, Owner, Easy Street CD's & Tapes and former promoter for Queensryche

The Categories and the Players Standard Makers MP3 SDMI Others Distributors Liquid Audio Loudeye MP3.com a2b Music Music Juice Delivery Real Network-- Jukebox Microsoft Media Players Listening Devices Diamond Rio Creative Labs RCA/Thomson Dynamic Naked Audio