Network: The beat goes online

Digital music distribution is nearly here. Goodbye record shops

In five years' time you won't be able to wander into your local record shop to pick up the latest release from the last remaining Spice Girl: there won't be any record shops. Anywhere. At the same time, the big record companies will have been brought to their knees, desperately strip-mining their back catalogues because they have no new music to release. And all because of digital music distribution.

If you believe that scenario, you're touchingly uncorrupted by Net cynicism, brought on by the regular, wild predictions of cyberspace doomsayers who trumpet the death of this or that commercial dinosaur. Yet if you take a walk through the halls of the music industry multinationals, there is unmistakable anxiety etched on the faces of many top executives.

The big record companies have always known that the development of cyberspace is going to change completely the way they operate. But now, new advances in the digital delivery of music have sent things spinning out of their control.

Typically, it's the smaller, more streamlined record companies that are leading the way, with US label Twin/Tone at the head of the pack. After 21 years launching bands such as Babes in Toyland and the Replacements, for the Minneapolis-based company the CD has already gone the way of vinyl. All its product will now be sold over the Web as CD-quality sound files, downloaded into the machines of fans and paid for (very cheaply) by credit card. At their Web site, you can try out the music before you buy it in the online equivalent of those booths they used to have in Fifties' record stores. And this way they can boost the number of bands they sign - at least 1,000 by the end of the year.

Twin/Tone's revolution has been made possible by a new delivery system called Liquid Audio. It used to take hours to download a single track. Liquid Audio does it in less than 10 minutes, with Dolby Digital technology providing CD-quality sound. The software is free, downloadable from the Liquid Audio site, and if you're up to date with your music technology, and have a CD recorder, with Liquid Audio you can "burn" your own CD, with tracks of your choosing in the order you want to hear them. Half the fun of buying a CD is getting the sleeve and album information, but with Liquid Audio you get those too - album graphics, lyrics and liner notes.

Paul Stark, Twin/Tone's boss, is adamant that he has chosen the right way forward: "The present distribution chain is too inefficient for getting music in the hands, or ears, of the music fans. For indie labels, as well as new bands on majors, this antiquated system can eat up over 70 per cent of the selling price of each CD sold. "When the industry gets to the point when it can deliver movies and other full screen-motion videos in real time, via home delivery over the Internet, there will be no need for home storage of video tapes, CDs, DVDs etc. It's the future and it's coming sooner than anyone imagines."

The advantage of Liquid Audio over other delivery systems, such as A2B, MPG-3 and Real Audio, is that it allows encryption and watermarking, vital security measures to prevent bootlegging. When a track is downloaded, the buyer's credit card number is encrypted within it, allowing the producers to trace any bootlegged track back to the source.

But the multinationals, naturally, plan to go their own way. IBM is currently in secret negotiations with Warner Music and Sony to launch a digital music distribution system with the Mission:Impossible-style code name, The Madison Project. Few details have emerged, but the software is believed to have cost around pounds 12 million to develop.

The level of secrecy surrounding the project shows how seriously digital delivery is being taken by the multinationals. Any call about it results in an uneasy silence and then a sudden passing of the buck to the next level of the executive ladder. Five calls wended a trail back and forth across the Atlantic until Patricia Keel, Sony's US vice-president of corporate communications, finally said, "We're not making any comment whatsoever at the moment about the Madison Project. I think you'll find that no other companies will comment either." Warners and IBM backed her up on that front.

At the same time, Sony, Warner and BSkyB have become partners in Music Choice, which will provide 44 channels of DJ-free music, from opera and Sounds of India to love songs and "generation rock", as part of Sky's new digital TV system. Sky's system can be routed through music systems and PCs as well as TVs, although Simon Bazalgette, Music Choice's sales and marketing director, was adamant the technology wasn't there "at the moment". "The experience of downloading from the Web is pretty poor at the moment," he says. "And the consumer demand and marketing isn't there yet, but that can be developed over time.

"Right now, we are trying to build up a core music service. Sony and Warners are well aware that if more people listen to more music they will buy more music." The sudden urgency exhibited by the multinationals is fired by the knowledge that some of their biggest-earning artists are already investigating digital delivery systems. There would be nothing to prevent bands of the calibre of REM or U2, with a well-established, techno-smart fan base, from cutting out the record companies completely. In the long term, bands could show New Labour a thing or two about reaping the fruits of their labours.

Twin/Tone's Paul Stark agrees. "For some groups, there will be no need for major labels. Majors won't go away, but the landscape will really change. Most majors are connected to television, movie and game companies. I would guess that the record divisions will turn into promotional wings for the other divisions, using sound tracks and albums to promote other products.

"For the big groups, the money is in touring and merchandising. Record labels are used as marketing companies. Groups who can have their own staff will soon ask why they are giving up so much of the profits to their label."

Stark is taking the long view, which is always a healthy sign where technology is concerned. But whether the multinationals find some way to make digital delivery work for them or not, there's barely a glimmer of hope for record stores. Artists with the commercial clout of All Saints, the Spice Girls or Boyzone don't come along very often, and their phenomenal success over the last couple of years masks the fact that the music industry is already in crisis. Record sales are generally falling year-on-year - down 7 per cent in the US last year, despite almost twice as many releases as the year before. Record shops are cutting back on the number of titles they stock and supermarkets and chain stores are cutting the amount of shelf space they have for CDs (cassettes are almost gone). To lose even more sales to digital delivery would be a blow too much.

The time scale of all this is still open to debate, but with the potential (big) losers identified, who will actually gain? Certainly the bands, who will directly reap the financial benefits of their own music. But most of all, it will be the fans - or at least the fans who are wired. They'll get the music cheaply, easily, and without any interference from the record company executives who think they know better than the artists about what makes a good song.

Besides, there's not a lot of sympathy left among music fans for the overbearing, multinational record companies. Anger at the allegedly artificially inflated prices of CDs has been simmering for years, and it's hard to shake the feeling that each new format, CD, DAT or Mini-disc, is designed to put more cash in the coffers of big business rather than for the benefit of the financially strapped music lover. As in many other areas in the development of cyberspace, power is gradually shifting away from the big corporations to the people who deserve it.

And that will be music to most people's ears.

Twin/Tone: http://www.tt.net

Liquid Audio: http://www.liquidaudio.com