German Online Music Platform′s Troubled First Weeks | Business| Economy and finance news from a German perspective | DW | 06.04.2004
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German Online Music Platform's Troubled First Weeks

Just weeks after its launch, Phonoline, Germany's first online music platform, is the object of much criticism. Soon the fledgling company will face heavy competition from oversees -- can it survive?


Phonoline is facing stiff competition.

The launch of Phonoline, Germany's online music platform, was a fiasco -- even embarrassing Chancellor Gerhard Schröder. Three weeks later, critics are still on the attack, claiming the selection is too limited and the price of downloading individual songs too high. With more competition coming from overseas in the form of a soon-to-be launched European version of Apple's iTunes and others, Phonoline will have to fight to survive.

An inauspicious beginning

Three weeks ago at the annual CeBit technology show in Hannover, Phonoline was set to debut with much fanfare. In a special ceremony, Chancellor Schröder, who in the midst of his "innovation offensive" is eager to align himself with all things high-tech, was supposed to download the first song.

But before the Chancellor could download Belgian singer songwriter Kate Ryan's "Only if I," the German Copyright Society (GEMA) put a damper on the festivities. In an open letter, the society suggested that the Chancellor would be engaging in an illegal activity because, "the required copyright licence for this download at CeBit had not yet been obtained by any party".

The flap exposed the ongoing battle between GEMA and Phonoline, who have been engaged in negotiations for months to determine under what circumstances music can be downloaded legally, from whom the necessary rights must be obtained, and at what cost. This begged the question: is this version of "legal" downloading really legal?

Instead of displaying his technological savvy and downloading the song himself, the Chancellor stood by and watched as someone else did the dirty work. What was supposed to have been a public relations coup became a fiasco. But that was just the beginning. Three weeks after the launch, Phonoline is still facing harsh criticism.

Limited selection and high prices

At the launch, Gerd Gebhardt, the head of Phonoline, promised consumers "a comprehensive catalogue of some 250,000 songs with the daily addition of chart-toppers". But that has not proven to be the case. Users have not failed to notice that the platform lacks hits from music icons, like the Beatles, Madonna and Robbie Williams. Ditto for German stars Herbert Grönemeyer and Sarah Connor. "Comprehensive" it's not, they say.

What's more, the cost of downloading individual songs is comparatively expensive at €1.19 to €1.99. And the songs are encoded, limiting the number of copies that can be made to between three and five depending on which online music store customers use to access the online database. Popfiles and Eventim are the two main distributors.

Phonoline was meant to be part of a two-pronged assault to reduce music piracy. In addition to proceeding with legal action against those who illegally use peer-to-peer file sharing software like Kazaa, Phonoline was supposed to offer music fans a viable (and legal) alternative. But given the limited selection and cost, the latter part of the plan may not work.

More competition from overseas

Phonoline will not only struggle to triumph over peer-to-peer file sharing sights like Kazaa, it will also soon face increased competition from other legal online music platforms planning to launch in Europe this year.

Apple's iTunes, considered the industry leader, is expected to launch in Europe early this year. Should the Apple execs choose to maintain the current U.S. asking price of $.99 (€.82) per song, they will undercut the Phonoline price. Apple may also offer users a better deal by not limiting the number of copies that can be made.

Also jumping into the ring is the British online music company Wippit, which is threatening to start a price war that will challenge both Phonoline and iTunes. Wippit recently started offering downloads for a mere €.39 per song and has plans to launch in Germany soon.

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