LOS ANGELES, April 5 (Reuters) -
Celine Dion's newalbum this week gave record giant Sony Music reason to both cheerand weep. The CD topped sales charts but also infuriated fans inEurope when the disc's copyright protection technology sentcomputers crashing.
Sony's dilemma reflected the complicated state of today's musicindustry where companies must both create hits and find ways toelude an ever-growing base of tech-savvy fans who use CD burners topirate music rather than purchase it.
But industry watchers said efforts by record companies to stempiracy puts them at risk of alienating the newest generation ofmusic consumers they need to succeed in their online ventures,MusicNet and Pressplay.
"If the labels are trying to cozy up to their online fan base,the worst way they could do it is to introduce a product that cancrash computers," said Aram Sinnreich, analyst with Jupiter MediaMetrix.
"It's guaranteed to tick off their online fan base, the peoplethey so desperately need to kick off sales," he said.
Sony released Dion's "A New Day Has Come" embedded with copyprotection technology in Germany and several other Europeancountries, where burning is rampant. The technology prevents the CDfrom playing on computer CD drives.
A Sony spokeswoman said the CD was clearly labeled to show itwill not play on a PC or a Mac. "The CD will possibly cause asystem to crash, but it will not alter anything. It also won'teject properly ... because the computer has crashed."
Thanks to copying, the industry's worst nightmare came true lastyear when U.S. shipments fell 10.3 percent to 968.6 million units.When the Recording Industry Association of America released thedata in February, it said 23 percent of surveyed music consumerssaid they were not buying music because they are downloading orcopying music for free.
Millions of fans stopped paying for music with the emergence ofservices like Napster, which allowed them to swap music filesonline for free. Even though Napster has been hobbled by legalaction, plenty of more powerful successors such as Morpheus andKazaa have filled the void.
BIG LABELS, BIG PROBLEMS
Late last year, the big labels -- including AOL Time Warner Inc , Sony Corp , VivendiUniversal , Bertelsmann AG andEMI Group Plc -- launched Pressplay and MusicNet totry to capture the huge audience that had flocked to Napster.
But with fees and limits on which music can be downloaded,streamed or, in Pressplay's case, burned onto CDs, these serviceshave a long uphill battle in luring fans away from the freeservices that have proliferated in Napster's wake.
"The free sites still are the dominant way that consumers go intheir search for online content," said Ryan Jones, analyst withYankee Group, a research firm that estimates there are 100,000subscribers to Rhapsody, another online subscription service,MusicNet and Pressplay services.
"There's a significant rift between paying music subscribers andthe estimated 26 million households which are downloading freemusic," said Jones.
But Jones and others believe the tide will turn as litigationcontinues to impede the free services and the paid services improvetheir offerings.
"As you get out of 2003 and 2004, the pirate sites will get lessand less user-friendly and the legitimates will be more and moreuser-friendly. That's what will determine winners from losers," hesaid.
Officials from MusicNet and Pressplay have always maintained thefirst year would be a learning experience.
"We know this is going to be an evolution and that its going totake time," said a spokeswoman for MusicNet.
Andy Schuon, president and chief executive officer of
Pressplay, a Sony/Universal venture, expects to launch an
upgrade to the service later this year, with improved features andmore music, hopefully from Warner and BMG.
"We intend to get the majority of the world's music content intothe Pressplay service sooner rather than later and we continue totalk to all the music companies about offering the most flexiblerights possible for the content," he said.