The Web Pays: New Market Recasts Industries - Page 8

Entertainments New Tune

By Sara Robinson

This year may long be remembered as the year of Shawn Fanning and Napster, the popular music file swapping service thats the subject of a high-profile lawsuit. Napsters significance isnt just its challenge to copyright law, however. To entertainment analysts, what Napster has demonstrated is that the demand for Internet entertainment is not just hot - its scorching.

Look at the numbers: Since Fanning founded Napster, the services base of unique users soared from 1.1 million to 6.7 million from February to August, according to Media Metrix, making Napster the fastest growing application it has ever tracked on the Web.

Given the demand for digital music, its not surprising that company executives and analysts tout Internet entertainment, particularly audio and video, as the next big thing. They envision a world in which brick-and-mortar CD stores and video rental outlets are a thing of the past.

It hasnt happened yet. The Interactive 500 contains only a smattering of entertainment companies.

The barrier, says Phil Leigh, vice president of Internet research at Raymond James Financial, is the reluctance of content companies to release their catalogs for online distribution.

"The latent demand is clearly there," Leigh says. "Its just a question of when the copyright holders give out the keys to the kingdom."

Entertainment companies, however, say that unlocking the gates is harder than it looks. The switch to distributing music and video over the Internet requires secure systems that thwart pirates and track usage information and payments. Such "digital rights management systems" are still being developed and tested, so companies are reluctant to use them for large-scale distribution.

Even more important, the Internet companies want to use radically different business models, such as subscriptions, that require the content companies to have new types of contracts with their stables of artists and customers.

And the content companies fear theyll lose money if they risk everything on a different system for generating revenue.

So, even as Internet entertainment companies are champing at the bit, their most essential partners are moving slowly and cautiously. Too cautiously, Leigh says, noting that a whole generation of kids is used to getting their music for free.

"The public has a huge appetite for getting entertainment over the Net. Its just a question of when it all gets legitimized," Leigh adds.