While the music industry continues its court battle with Napster, record executives must quickly embrace a new digital distribution model that supports single-track purchases to succeed in the ever-changing Internet market, according to Gartner Group ...The record companies must have a model that utilizes effective Digital Rights Management (DRM), and they should form their own music portals, or sign distribution licenses with as many Internet music distributors as possible. In this scenario, Gartner analysts said the consumers could go to a site and sample music off a new or old CD and decide on a track-by-track basis if they want to purchase. The portal can have a signed licensing agreement with the music labels and/or individual groups and artists to be able to distribute their individual tracks.

“Digital distribution models will morph through several iterations. The cog behind each of the models is the content keepers - the record labels,” said P.J. McNealy, senior industry analyst for Gartner’s e-Business Services group. “With technological developments, such as MP3 file formats, consumers are becoming more familiar with digital music formats and ‘ripping’ CDs. Many of these consumers don’t want a full album but instead are looking for three to four tracks from a CD.”“For a record label to recoup the same amount of money as it would if a consumer purchased a full CD, the labels would need to charge around $4 to $5 per track, but we think that’s too high. We think consumers may be willing to spend between $0.99 to $1.99 per track, so the labels will need to find alternative revenue opportunities.” Another model the record labels could consider would be an inverse of the traditional model where someone buys a hardcopy CD and then rips the CD into digital format. In this situation, the consumer can buy the full digital download first and then receives a hardcopy in a jewel case as well. The portal would have a signed licensing agreement with the music labels and/or individual groups and artists to be able to distribute the CD. The service would have two prices: one for just the digital download of the songs and another price to receive the CD as well. Because many consumers listen to MP3 files on their computer and/or handheld devices, they may be willing to pay extra to have a CD for their other electronic devices.“It will be up to the record labels to counterbalance their needs with the demands of the consumers and then to distribute their content through effective Internet channels,” Mr. McNealy said. “If a Napster-like or peer-to-peer solution with DRM were offered, it would be palatable to all content owners and a likely legal solution.”