Saturday, July 12, 2008

Digital services look beyond the music

Dave Jaworski is CEO of PassAlong Networks, which is growing as it earns "pennies per transaction" on music, tickets and advertising.

Jupiter Research estimates that digital music stands poised to capture more than a third of all music sales by 2012, about $3.4 billion in the U.S., according to its figures.

But that number sheds light only on what retail services such as iTunes, and even will bring in. What's harder to quantify is the potential market for new-media companies that have — either by accident or design — sprung up in recent years offering digital music services to a wide range of clients.

MySpace, for example, emerged unexpectedly as a default service catering to the music crowd, growing so quickly that, in July 2005, News Corp.'s Rupert Murdoch bought the service for $580 million, a valuation premised on the lure of selling advertising to young consumers.

In 1994, technology analyst Esther Dyson laid out a prescient set of rules published in Wired magazine governing media and the Internet. Chief among them was that "content is free."

"Content providers," Dyson counseled five years before the rise of Napster, "should manage their businesses as if it were free, and then figure out how to set up relationships or develop ancillary products and services that cover the costs of developing content."

That's a lesson Mark Montgomery, co-founder and CEO of Nashville-based echomusic, took to heart when he broke from his co-owners of a Brentwood recording studio in 1999 to develop an online marketing company that specialized in music.

Today, echo can most easily be described as a firm that powers fan Web sites for acts including Keith Urban, Kanye West, Alicia Keys and Dolly Parton. Beyond merely posting a few pictures and concert dates online, however, echo's technology drills deep into each fan's profile, allowing artists to precisely target customers for items such as concert tickets, merchandise and ringtones.

Connecting in a relevant way

"Our platform allows us to connect to audiences in a very relevant way," Montgomery said of echo, whose revenue and employee count have more than doubled in each of the past three years, a growth rate that prompted Ticketmaster to purchase a majority stake in the company in 2007.

Dave Jaworski, a former manager at software giant Microsoft, has seen a similar wave of good fortune come to Franklin-based PassAlong Networks, a technology startup he co-founded in 2002. The company offers e-commerce technology that powers music purchases for sites ranging from EMI Christian Music Group's online store to that of national retailer f.y.e.

In the six years that PassAlong has been in business, it has more than doubled its office space to accommodate a growing staff — a stark contrast to the layoffs that have plagued Music Row since the 1990s.

"Similar to Visa and MasterCard, we get pennies per transaction," said Jaworski, whose office is decorated, not with gold and platinum albums like most music industry executives' offices, but with historic computers, from an early IBM PC to a laughably outdated Apple Macintosh.

With revenue-sharing deals in place on everything from music and ticket sales to online advertising, he said, "Lots of pennies add up quickly."

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