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Online music's European vacation
Four U.S.-based online music companies prepare to invade Europe. What lies in wait for them?
April 12, 2004: 3:21 PM EDT
By Eric Hellweg, CNN/Money contributing columnist

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SAN FRANCISCO (CNN/Money) - Seeing a barely tapped market just lying there, waiting, Napster is heading to Europe. And it won't be alone.

In fact, when RealNetworks (RNWK: Research, Estimates) CEO Rob Glaser told the German edition of the Financial Times last week that his company also plans to open European operations, Real became the fourth of the major players in the nascent legitimate online music market that will soon have European operations.

Of the four, Napster is the only one with a semi-firm, publicly stated time frame for its launch: the end of summer. Napster and MusicNet have already opened U.K. offices.

Neither Apple (AAPL: Research, Estimates) nor Real has committed to a launch date, but both are very resolved in their ocean-hopping plans. Apple says it'll be in Europe by the end of the year, and Glaser told the Financial Times that "six months to a year from now is realistic."

Following in the RIAA's footsteps

An extraordinary confluence of events has made the expansion possible. First, of course, are the signs of success seen in the stateside digital-music market, making it feasible to consider expansion.

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Second, the International Federation of the Phonographic Industry -- the international version of the Recording Industry Association of America -- recently started suing individual illicit music users in Europe. Given those tactics, it needs to make sure several legitimate music alternatives exist, if only for PR reasons.

Third, related to the crackdown, are the renewed discussions in the European Union to make licensing digital music across the continent easier. Currently, companies must negotiate licenses in each individual country, which is a time- and budget-consuming task.

"[The music services] have been anxious to [expand to Europe]," says Phil Leigh, an analyst with Inside Digital Media. "It's been the labels dragging their feet. The cloud cover is that there are a lot of different licensing authorities and things are fragmented over there. But when it gets to be important, the labels can get people in line."

For their part, investors appear bullish on downloading. This was most clearly evidenced when Apple's stock shot up more than 11 percent a year ago after the company announced that its iTunes Music Store had sold a million songs in its first week.

More recently, Roxio (Napster's parent) saw its stock price increase by 16 percent on trading levels five times the average volume when the company upped its revenue forecasts for Napster on March 15.

Challenges ahead

So should investors expect similar pent-up demand in Europe? Not necessarily. While the music market outside the United States is twice the size of the U.S. market, file sharing is rampant, and companies already exist to serve various European markets.

OD2, co-founded in 1999 by musician Peter Gabriel, runs the efforts for MyCokeMusic.com (a site sponsored by Coca-Cola) and other music sites in nine European countries.

According to Azeem Azhar, a media analyst in the United Kingdom, OD2 sold about a million downloads in the first quarter of this year.

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"Europe is still behind on legal file sharing. MyCokeMusic has been the real success, but it's still limited compared to iTunes," Azhar wrote in an e-mail. "In many respects, our market is well behind the U.S. because of the slow uptake of broadband services."

Despite the challenges involved in entering Europe, the combination of lawsuits against file sharers, possible licensing reform, and the arrival of buzz-rich legitimate music services could lead to success.

Brad Duea, president of Napster, certainly thinks so. "There seems to be a great appetite for these services," he says. "Services have already launched over there, but they're waiting for the big players."


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.