NEW YORK (CNN/Money) -
Like so many CEOs these days, I have to confess to some wrongdoing. No, I didn't overstate my net worth by billions of dollars or cook my checkbooks. My crime? I wrote off Listen.com -- the online subscription service for digital music.
Since the day it started, I gave Listen short shrift, convinced that any firm that aligned itself with the record labels was signing its own death certificate in the digital music world.
I stand corrected: Things are beginning to change, as evidenced by the fact that Listen recently secured licensing rights to Universal Music Group's catalog. With the Universal agreement, Listen became the first digital music company to secure deep catalog rights from all five of the major music labels.
For $9.95 per month, Listen offers unlimited streaming access to more than 170,000 songs on its site. No downloads or CD burns are available (except in the classical music and show tunes categories, where some of the copyrights have expired and recordings have entered the public domain), but a company spokesperson said a CD-burning option should appear in the third quarter of this year.
Listen's all-you-can-stream approach is markedly different from that of competing services MusicNet and Pressplay -- both jointly owned by record labels -- which offer limited downloads that disappear if the monthly bill goes unpaid. "MusicNet and Pressplay are like trust-fund babies," says Phil Leigh, vice president for digital media at Raymond James & Associates. "They have huge funds given to them and they don't have to work too hard."
I'm still not convinced, however, that the major labels -- BMG, EMI, Sony, Universal, and Warner (owned by AOL Time Warner (AOL: down $0.87 to $11.58, Research, Estimates), which also owns this Web site) -- are out of the woods yet. So far, Listen's subscriber numbers amount to little more than a rounding error for the Kazaas of the world. But Listen is on the right track, partly because of its steadfast belief in partnering with the labels (or, put another way, never aligning with the pirates). The company has also benefited from the fact that the labels needed an "independent" partner to defuse the Department of Justice's antitrust investigation into their own music offerings.
The Listen licensing coup signals an important shift in the world of online music: The primary problem for legitimate online music services is slowly evolving from a lack of tunes in their catalogs to a lack of customers. Arguably, given the record labels' obstinate ways, the latter issue will be easier to resolve.
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Partnering with Internet service providers will create an inexpensive way for Listen to combat this lack of awareness. More than 90 percent of the company's customers are broadband subscribers, making it a logical content partner for high-speed Internet companies such as Earthlink and Time Warner Cable's Roadrunner (which is also owned by the parent company of this Web site).
"I can guarantee you'll see broadband ISP [partnerships] this summer," says Sean Ryan, Listen's CEO. Recruiting ISPs to send their subscribers e-mail about Listen's music offerings is much cheaper than buying traditional ads. It helps the ISPs as well: A Jupiter Media Metrix (JMXI: down $0.01 to $0.17, Research, Estimates) study to be released next week reveals that music is one of the prime drivers of home networking, providing dial-up customers with a significant incentive to migrate to broadband.
Of course, none of these changes came about because the labels suddenly "got it." With sales in a continued decline and the CD format languishing, the five major labels were forced to try a different approach. "Unless you provide a legitimate alternative to Napster, it will never go away," says Raymond James's Leigh. "If done correctly, digital distribution can be an important profit center." Perhaps the recording industry is starting to Listen.
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