Sony, Record Labels to Take On ITunes by Offering Fee-Based Music Service

Sony Corp. and the world’s major record labels, are starting their own music streaming service in the U.S. this quarter that will challenge Apple Inc.’s iTunes, after years of letting start-ups license their artists.

“Music Unlimited powered by Qriocity,” which Sony unveiled in September, started in the U.K. and Ireland in December and in France, Germany, Italy and Spain this weekend. It’s available on Sony’s Playstation 3 game console, Blu-ray Disc player, Bravia televisions, personal computers, and will be on smartphones using Google Inc.’s Android operating systems.

“We took a long time looking at music before jumping in,” Tim Schaaff, the chief executive officer of Sony Network Entertainment, the division of Sony overseeing Music Unlimited, said at the MIDEM music industry conference in Cannes, France this weekend.

Music Unlimited, which has more than 6 million songs, lets Sony Music Entertainment and partners Universal Music Group, EMI Music and Warner Music Group effectively cut out middle men and gives them more control over revenue. The music industry has long struggled to come up with alternatives to combat counter steep drops in number of CDs being purchased and rampant piracy.

The move also helps record companies take on Apple’s iTunes Music Store, which in February reported its 10 billionth song download. ITunes, introduced in 2001, is the largest destination for buying music in the U.S., bigger than Wal-Mart Stores Inc. and Amazon.com Inc., according to researcher NPD Group Inc. As of September, the company had registered 11.7 billion downloads.

‘Dead Bodies’

Sony’s Music Unlimited will, like iTunes, require a payment to access songs and add them to personal libraries. While iTunes allows users to access downloaded songs offline, streaming services require a user be connected to an online device.

Music Unlimited will rival streaming and download services already on the market, including cloud-based sites like Spotify, whose majority of users access the service for free in return for sitting through ads.

The path Music Unlimited is taking is strewn with shuttered streaming services, including Apple’s Lala service and most recently British Sky Broadcasting Group Plc’s Sky Songs.

“There have been a lot of dead bodies along the way,” Schaaff said.

Sony’s service stands a better chance of survival, he said, because the number of connected Sony devices in the marketplace will be about 350 million in the next few years.

Sony unit Gracenote Inc. is providing technology for the service that will recommend music to users based on their tastes and listening habits.

Sony’s Clout

The move by the record labels mirrors an effort by most of them in late 2009 to start their own online video site, Vevo, after years of TV channels such as Viacom Inc.’s MTV profiting from airing videos by their artists.

Vevo today attracts premium advertising revenue and has 60 million unique users, according to Jean-Bernard Levy, the chief executive officer at Vivendi SA, which owns Universal Music.

Sony’s clout in the market also helps, said Rob Wells, head of digital at Universal Music.

“Most of the cloud-based companies have been start-ups, but Sony is a big company starting this,” he said.

The biggest obstacle to the success of Music Unlimited is piracy, Wells said.

Hundreds of online music services licensed by record labels have done little to stem illegal downloading, according to the International Federation of the Phonographic Industry, a London- based body that tracks piracy.

Service Payment

Digital piracy is rising along with websites and forums linking to content accessible by piracy services, IFPI said last week in its annual report. Global sales of music via the Internet and mobile phones grew at 6 percent in 2010, half the rate of the year prior, to $4.6 billion.

Schaaff, who spent 14 years at Apple where he helped develop the QuickTime platform before joining Sony in 2005, said Music Unlimited is targeting the 85 percent to 90 percent of consumers who have yet to participate in digital music services.

The service started in Europe because Omnifone Ltd., which powers companies with its unlimited music service technology, is based in the U.K. and Sony wanted to make sure it was prepared before spending “millions of dollars on marketing” Music Unlimited, Schaaff said.

Music Unlimited costs 9.99 euros per month for a premium service and 3.99 euros for a basic plan. The service has no designs on becoming ad-supported.

“Free doesn’t make any money,” said Thomas Hesse, head of digital operations and corporate strategy at Sony Music Entertainment.

To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net.

To contact the editor responsible for this story: Vidya Root at vroot@bloomberg.net

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