Heard the story about the monopolistic record industry? It goes like this: There are five major record labels controlling the music biz today. They dictate, to some degree, what CDs are on store shelves and how much we pay for them. That's been the gist of the story for half a century. Then the Web came along and struck up a new hero role; the script called for it to be the alternative, the place where indie labels and artists could hock their wares. In recent weeks, however -- with the announcements of several mergers, acquisitions and distribution deals -- Webby music now seems fated for consolidation too. Which could mean we're going back to a version of the old script.

In recent weeks, big online music fish have been rapidly devouring smaller ones. Emusic.com purchased Tunes.com for about $130 million (full disclosure: Tunes operates RollingStone.com and Downbeatjazz.com) and CDuctive.com for about $38 million. AOL and Riffage.com announced a comprehensive digital music distribution agreement (AOL also bought Web-based music companies Spinner.com and Nullsoft/Winamp earlier this year). Even indies are playing the consolidation game, with Internet outfit Atomic Pop (atomicpop.com) recently inking a distribution deals with labels like Fire Records, 4AD, RuffLife and Goodvibe.

So, what does all this mean to us music devourers? Will consolidation limit what we hear, elevate the prices, or worse?

"Right now this is about as far away from being a business that's set in concrete, [so we're] not even close [to seeing monopolistic practices]," says Ted Leonsis, president and COO of AOL. "There are gonna be lots of deals in this space. There's a lot of money coming into the market, lots of great ideas."

Even if the emphasis is on money -- as opposed to the interests of Web-surfing music fans -- so far consolidation is actually yielding some benefits. Because companies like AOL, Emusic, and Atomic Pop ultimately have to keep customers happy, they've become aggregators; they don't care whether they sell any particular songs or artists or labels -- they just want to sell some of what they aggregate. And since they're competing with record stores online and off, they not only offer what you want, but they do so at decent prices. If you believe Emusic's president and CEO Gene Hoffman, you can thank acquisitions for his company's better selection and lower prices.

"We can make Downbeat Jazz interactive in a way that it couldn't be before," says Hoffman. "Because we have such a great reach into Concord and a couple of other major jazz catalogs, we can put sixty or seventy percent of the jazz that's important these days right in front of customers in ways that they haven't been able to find before. We can make a lot of under-served genres much easier to find and explore for consumers."

Hoffman purchased CDuctive to beef up Emusic's indie catalog. "One of the big things that CDuctive brought to us was a large underground and new urban hip-hop selection and the other half of the electronic and dance scene that we didn't have," he says. Like all Web sites, the company can post/sell/market as much as it likes, because it doesn't have to worry about limited shelf space or warehousing boxes of unwanted music. "The costs to put up any individual album is really low compared to what it costs to take any individual album and put it into physical distribution," explains Hoffman.

"And once we put it up, we leave it up. It's not worth our time to take it down. So we can take blues records that sell just 10,000 units a year that are really cool -- like Charles Brown or Lightning Hopkins -- and make those available from now until [whenever]." Still, it will be interesting to see if the more obscure releases will continue to be featured as prominently on sites like CDuctive now that bigger sellers are available.

As the sites add to their empires, CD price may indeed go down. "We're taking a lot of the inefficiencies out of the system," says Hoffman. "Already today were passing all of those savings to the consumer by charging only $9 for an album and a buck for a song... because we're getting larger and larger we can actually lower our costs to sell music, and I'd like to take our actual cost of music sales down." Don't hold your breath though; marketing costs alone will keep most CD prices -- especially at major chains -- where they are for a while. Everyone, including Hoffman, agrees on that point.

It's all so new that the players are jockeying for position and experimenting with business models. Expect to see more announcements early next year -- even music companies wind down for the holidays. Emusic claims it doesn't plan any more acquisitions for a while ("We're in a digest-what-we've-already-eaten mentality" says Hoffman), but it will continue to add new partners and delve into other audio/video ventures like music videos and, more immediately, downloadable audio-books (yes, the company already owns Evideo.com). Keep your eyes on AOL, Atomic Pop, and a few others too. And don't be surprised if a handful of companies soon own all the online audio-video content.

JAMES OLIVER CURY
(December 17, 1999)