The digital music leaders take different approaches to a hit market

The online music industry is one of the hot success stories in web-based retailing today. Apple Computer Inc.’s iTunes has sold 100 million songs in 15 months. Roxio Corp.’s Napster sold 300,000 songs in its first week of operation last November. And executives from both keynoted Days 1 and 2 of the eTail 2004 East conference in Fort Lauderdale, FL, this week.

In his keynote on Tuesday, Brad Duea, president of Napster, stressed Napster’s desire to become a multi-channel seller of digital music, citing the several deals Napster has worked out to develop its brand and sell its product in retail stores. “We’re trying to do everything with partners,” he said. “It’s critical to involve a multi-channel strategy.” And Duea stressed that Napster music is downloadable to different portable listening devices.

By contrast, Eddy Cue, vice president of applications and Internet services for Apple, stressed the online orientation of iTunes. While Target stores sell iTunes gift cards, Cue chose rather to stress the depth of iTunes selection and the fact that iTunes offers other digital audio content, such as audiobooks and free downloading of all the speeches at the Democratic convention. But, in a strategy that echoes Apple’s decision to reserve its superior computer operating system only for Apple computers, iTunes songs that aren’t stored and played back on a computer can only be used on an Apple iPod player. Apple’s strategy clearly is to offer content as a way to sell hardware. Cue reported that Apple has sold 4 million iPods, 52% of all digital playback devices.

On Day 1, Duea said that ever since Roxio Corp. took over the discredited Napster and tried to make it legitimate, the company has thought about a multi-channel approach. “From the word Go, we thought about how we could involve partners and drive retail and other sales,” he said. “We thought about ways that we could make a digital product physical.” Among the approaches: use retail outlets to sell pre-paid song cards that music fans can use to obtain songs at Naspter.com and to sell Napster-branded blank CDs for burning songs and Napster-branded CD carrying cases. Among the retail chains selling Napster products are Best Buy and Target stores. In addition, the cards give non-music retailers, such as Kroger, the opportunity to sell music with no investment and little space requirements.

Another way that Napster made a digital product physical, Duea said, is to work out bundling agreements with equipment manufacturers. It has such deals with Gateway, Toshiba and Samsung.

In his Day 2 keynote, Cue stressed that iTunes is the undisputed leader in digital music. 70% of legal music downloads are iTunes songs, he reported. In the first 15 months of iTunes’ existence, consumers downloaded 100 million songs. “When we started we had no idea what a big number was,” he said. “We asked the labels and they said that if we sell 1 million songs in any month within the first six months, we’ll have hit a home run.” ITunes sold 10 million songs in its first four months.

Cue also reported that iTunes is expanding its offerings with 8,000 audiobooks, including best sellers, classics and an audio version of Apple’s financial report.

Both Duea and Cue reported that their companies are offering a wireless service to communicate music from where it is stored on a computer to a stereo system for playback elsewhere in a house. In addition, Cue reported that iTunes has developed a playback device for BMW’s 3-series of automobiles that can be controlled from the steering wheel. “We’ve covered the major places you listen to music,” Cue said.

eTail 2004 East took place Tuesday and Wednesday at the Westin Diplomat Resort in Fort Lauderdale, FL.