The Digital Music Revolution Hits a High Note

LOS ANGELES, Nov. 15, 1999 — As more consumers embrace the ability to purchase and hear music in digital form, leaders in the music and technology industries are working furiously to meet the needs of this expanding market. But while growing consumer interest in digital music offers industry leaders exciting new opportunities, it also presents them with new challenges, such as shifting business models and piracy concerns.

To address these issues and explore digital music’s vast potential, the music industry this week gathered in Los Angeles for Webnoize ’99, where Microsoft shared its “up-tempo” vision of the future of digital music.

Microsoft’s strategy is to provide the music industry with a solid platform that allows consumers to access higher quality content from a wide range of devices. In his keynote address, Microsoft Streaming Media Group vice president Anthony Bay predicted that Windows Media Technologies will help the industry bring better products to market faster, benefiting businesses and consumers alike.

“Digital distribution of music represents a huge opportunity for the industry to reach consumers in new ways,” Bay said. “Microsoft’s strategy is to provide the most innovative platform that enables a rapidly growing music market.”

The Beat Goes On – Everywhere

Microsoft’s strategy is to provide the industry with a solid platform for audio and video, with rights management solutions that allow artists and businesses to retain control of their content. Using this platform, consumers can listen to digital music any time, any place and from a wide variety of devices. As an example, Microsoft recently announced the Windows Media Device Manager (WMDM) to give manufacturers and developers a standard way to transfer secure digital media from the Web onto portable music devices such as the Diamond Multimedia’s Rio and other portable music players. WMDM, a Windows technology, reduces time and development costs for hardware manufacturers and software developers to create applications and devices that are compatible with the Secure Digital Music Initiative (SDMI).

At Webnoize today, Microsoft demonstrated the first product to show the benefits of the new Windows Media Device Manager technology. Using protected content downloaded from the Web and played on a Rio portable music player, the demonstration showed the end-to-end transfer of digital music that enables consumers to take their music with them – while allowing artists to protect their intellectual property.

200 Million Music Fans Are Listening

The broad popularity of the PC opens up a vast new audience for the music industry. Nearly 200 million PCs currently have the potential to download and play music, and consumers can choose from a vast array of new products and technologies, including jukebox software such as MusicMatch Jukebox that allows PC users to build and organize a collection of CD-quality digital music from a variety of sources, including the Web. According to the market research firm PC Data, 41 percent of Internet users use some kind of media player, and most use more than one. In addition, the research found that 6 out of 10 people are currently using the Windows Media player — more than 50 million copies have been downloaded since its introduction.

“Demand for Windows Media continues to grow,” said Kevin Unangst, lead product manager in the Streaming Media Division at Microsoft. “Windows is digital music ready today and we expect 120 million people to be using Windows Media by the middle of next year.” Unangst says that this provides the broadest opportunity for music labels, musicians and other industry partners to reach an active marketplace.

Flexible, Proven Business Models Help Expand Market

The industry has evolved rapidly to include a variety of new ways to play. When a record label launches a new CD, it can feature a live concert via pay-per-view, preview a new music video, provide a free trial of a hit song and sell the new CD — all over the Web. Top music labels, including Sony, BMG, Warner and EMI, are embracing Microsoft technology to reach music fans worldwide with an unprecedented amount of content: a combined total of 5,000 music videos, 100,000 singles, over 100 complete albums and more than 500,000 music previews. According to the Record Industry Association of America (RIAA), of the $38 billion in global record sales in 1997, the number of annual online purchases tripled to 1.1 percent in 1998. This fast-growing percentage represents a huge opportunity for online purchases in a growing music industry.

Protecting the Music

The ability to store and distribute music in digital form has raised industry concern over protection of intellectual property. In order to create a framework that promotes broad distribution of music while protecting artist’s rights, 120 industry leaders — including representatives from the music industry and technology companies like Microsoft — are working together to support the Secure Digital Music Initiative (SDMI). According to RIAA, “SDMI will provide an open and voluntary set of ground rules for any technology company that wants to develop a way to play or store digital music and any artist or music company that wants to distribute digital music.”

As the digital music industry continues to evolve, Microsoft is in a unique position to provide the leading platform for future digital music innovation. The sheer number of Windows users provides the industry with a huge market opportunity, and the family of Windows Media technologies will continue to provide the best foundation for the creation and distribution of digital music on a wide range of devices. “This is an extremely exciting time for Microsoft, the music industry and music fans,” Unangst said. “Stay tuned.”

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