Licensing regulations and less than perfect audio quality have long hindered the progress of music

publishing on the Web. But that's not to say the music

industry is Net-shy. Cyberspace resounds with samples from the Shamen to the Spice Girls, not to mention radio stations and online CD vendors. Liz Morrell looks at the Web as a marketing tool for the music industry and tunes in to the companies which are starting to see a profit.

The Internet is swamped by music. It ranges from an extension of a CD mail order catalogue to a broadcast medium for radio, concerts and DJ nights, to providing downloadable songs. But is anyone actually making any money out of it?

For Nick Pincott, partner of Music Stop, the answer is yes. Music Stop is a small independent music company with two stores in Bristol, but thanks to an Internet site set up 18 months ago the business now has a worldwide customer base.

The site, set up by Pincott for less than £1,000, offers a catalogue of 200 albums which can be ordered by email, fax, phone or Net, once the company moves to a secure server. 'It was a minuscule outlay for what we get out of it,' says Pincott. 'When we started, we decided not to pour lots of money into it but to put a little in and see if we got any response.' Now, the site contributes roughly two per cent of the business, generating £5,000 to £6,000 a year and recouping the initial outlay monthly.

Many sites use the Net as an extension of the mail order concept, including CDNow in America. And Dotmusic, the Internet arm of Miller Freeman, United News, publisher of Music Week, has been selling CDs on its site since September 1996.

'Take-up has been international though it isn't huge,' says Ian Nicolson, Dotmusic online editor and Webmaster. 'However, we were approached by the likes of CDNow and those services are also a long way from being profitable. We're making coffee money from it.'

The gung-ho approach

'The music industry was one of the first in 1995 to say en masse that we needed to get on the Internet,' explains Nicolson. 'It was driven by the artists rather than the accountants and it became a very fashionable thing to do in 1995. However, people then discovered that an Internet site was a lot of work. You had to give people a reason to come back and there was a sudden realisation that, having spent lots to set it up, it would cost even more to maintain. In the middle of 1995, the music industry interest levelled off and a lot of the gung-ho went out of the process.'

That interest was revived in the latter part of 1996. Concerts broadcast over the Net last year ranged from the Phoenix Festival to Oasis at Loch Lomond. In December, the biggest of them all, Dodgy's Christmas Party, extended beyond the physical boundaries of London's Brixton Academy to 30 Internet cafés throughout the UK and any other surfers who tuned in.

'We'd looked at the existing Webcasts, which had been successful up to a point,' says Sam King of Net design company Palace of Vision, which set up the Dodgy Xmas Nets Up event. 'But there had been no event yet which showed the difference between the Internet and radio. We wanted to move the concept of Internet broadcasting to the next level.' The site was created with a message port and video, and the Brixton party became an interactive online event.

The move to improve content on sites is triggering the biggest change so far. 'Events such as this represent the way the Net is heading. It's no longer acceptable just to put up pages with a few links and hope that someone comes - you've got to have function and content,' says King.

Few sites are truly commercial. Most are used for relationship marketing and the commercial benefits appear elsewhere. 'Bands' sites will continue to develop the relationship with fans rather than offer their latest music,' says King. 'By this time next year you will be able to buy any kind of music direct to your home. Record companies want it to be like CD but it isn't - it will be a parallel medium where people choose to buy instead of rather than as well as. However, until the Internet can deliver CD quality, no-one will pay a penny and it will have to be used as a marketing tool.'

Like a Virgin

Virgin Radio, which provided the audio streams for the Dodgy gig, has an Internet radio site which it uses primarily to extend the Virgin brand. John Ousby, Virgin Radio's financial controller, admits Virgin got involved because of the power of the event as a marketing aid. He says: 'If you wanted a three-month worldwide marketing campaign you would pay a lot more. It's an effective tool for marketing now and commercial reality later.'

The Shamen operates an equally interactive Web site, Nemeton, which contains news, information and samples of the band's current and past work. The Shamen's Mr C is a fan of the Internet as a promotion tool and was involved in broadcasting regular dance events in 1996 through the formation of the DJ site, Gaia Live.

He explains: 'Gaia is the missing link between music made by computers and music promoted by computers. It's always been promoted by conventional means, which are fast becoming obsolete.'

Most people who are involved with Net-based music agree that the only way to make money from it is to maintain the quality of content that keeps users coming back for more. Then, either they will be willing to pay for access, or advertisers and sponsors will be attracted to support the site. According to David Price, director and presenter of Internet station Cyberville Radio (see case studies, Internet World launch issue), the advertising side has yet to flourish and money comes both from being a showcase site and from developing content for other people. Cyberville differs from Virgin, Capital and Radio One in that it is purely an Internet-based radio station.

Price claims the station, launched in December 1996, has now had 3.5 million hits. 'It might not sound as good as your hi-fi but you can do so much more,' he says. 'Listening at home is passive - we feel we're freed up by the Internet.' In addition to two daily shows, the user can access themed shows which play in the background while you leave the site and surf elsewhere.

Rules and regulatory bodies

Many site developers are now adding music to their pages, either as a primary function or an extra feature. But the very nature of the medium means it has yet to be properly regulated. The danger is that when that happens, the Internet music industry could collapse before it has had a fair chance of generating revenue.

'The question is what you can get away with while the licensing departments and record companies work out what they are doing,' says Price. He says he avoids problems with bodies like the Performing Rights Society (PRS), which collects royalties for artists, composers and publishers, by being on friendly terms and not relying totally on the site's music content.

'If you are trying to put something serious together the regulatory bodies will let you,' he says. 'They're being quite good by allowing the market to establish itself before stamping them all out.'

No room for the little guys

There isn't much money to be made yet, Price says: 'We're having to make our hay while the sun shines. The Internet is not a particularly big goldmine and once the bodies start stepping down on the activity it will be the big guys who are left.'

Everyone is nervous about the impact of licensing regulations. 'They will have to start making massive examples of people,' says Price. King adds: 'No-one wants to be the first person to be in the test case. It will take up lots of money and it will take years.

'We're saying to the likes of PRS that we're trying to develop a market before we can give them any money. Record companies and licensing companies are confused because they are up against a huge number of people and can't keep track of everything.'

Andrew Beck, broadcasting technology officer at PRS, is responsible for tracking music activity on the Internet. 'My job is to go out and see what's there,' he says. 'I spend my whole day looking to find what music sites there are and note them down for future reference when we have worked out licensing regulations.

'At the moment, we are still looking into licensing music on the Internet. It is covered under current legislation, under Cable Programme Services in the Copyright & Patents Act 1988. People who don't have a licence are in theory breaking the law but no-one has been taken to court and sued yet. It's also difficult to trace where the site is because we can't license servers outside the UK, although we have associated bodies elsewhere.'

PRS is also talking to service providers about paying the licence fee and the body has approached Demon Internet, an established music content host. Demon currently offers two free RealAudio streams to all its £10 per month customers to enhance their pages.

The next step is digital distribution. Many sites have sound files or samples which can be downloaded for free but those such as the Cerberus Digital Jukebox (see page 28) will download a track for around 60p. The company isn't making much profit yet but it expects the market to take off in the next couple of years and has licensing agreements prepared.

Record companies may move the same way. 'A lot of record companies are already setting up their own sites and offering their music over the Web and that could be our biggest threat,' says Music Stop's Pincott. 'But they won't push it too far because it would upset too many record shops and they'd restrict shop space.'

Internet music may be restricted to marketing for now, but the industry looks set to blossom when the quality of audio over the Internet improves. Licensing issues are the cloud on the horizon but the potential for profit over the next two years is there - and that will be music to everyone's ears. l

_One of the most ambitious music sites comes from Cerberus Central, a company which is attempting to transform the future of music through its Internet-based hi-fi system.

The Cerberus Digital Jukebox aims to replace CD mail order systems with digital distribution, which allows users to purchase CD-quality audio online. When a customer logs on, snippets of songs can be obtained for free. A full song requires registration.

Users send the Jukebox their personal details and credit card number via a piece of software called Cercure ATM. The Jukebox then creates a unique player including the customer's personal details. When customers want to order a song, their details are typed in. Cercure ATM finds the nearest Jukebox server, retrieves and encodes the audio file and copies it onto the customer's hard drive.

John Richardson, company secretary at Cerberus, explains: 'The company was set up in 1994 to form an Internet system for music distribution. We then spent a year and a half collecting royalty licences for the likes of the Performing Rights Society and the Mechanical Copyright Protection Society (MCPS) as well as other licensing bodies worldwide.'

The market has yet to establish itself but Richardson says the company has made a profit and, by offering tracks for around 60p, looks set to make more. 'We've been self-financing for the last two years and have made money by licensing out the jukebox,' he says. 'In two years, the music industry has turned around and record labels are now coming to us. In my opinion, digital distribution will be on a par with CD sales in two years.'

Whether Cerberus has ideas above its station remains to be seen. Many sites offer downloadable samples and songs but the very nature of downloading music to a PC restricts its mobility - who wants to lug a PC around under their arm in place of a personal stereo?