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Business

Store Seeks To Lure Fans Back from Internet

Burning CDs offline: A German firm has pioneered new technology it hopes will put music retailers -- those old school brick-and-mortar shops -- back in the game.

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Ex-BroSis-Singer Indira burns her individual compact disc at the opening of a CD burning store -- the first in the world -- in Lübeck.

A German firm based in Lübeck, IMHG, has developed new technology for use in music retail stores that allows customers to burn their own CD's. A pilot shop employing the technology just opened in Lübeck, and more retail venues are expected to adopt the concept by the end of the year.

The music industry, music labels and retail stores alike have been battling a common foe: the rise of online file-swapping sites. Services like Kazaa allow music devotees to download their favorite songs for free and often illegally -- all from the comfort of their own home.

Industry-wide profits have fallen by 10 percent and major labels are running scared. "The music industry is in a crisis," says a spokewoman for Universal, Sophie Greiner. "Partly because many people are downloading their music from the internet."

Fighting back

Music labels have since fought back, taking the most notorious of the online swapping sights, Napster, to court and shutting it down. (Napster was based on a central registry of available files on its servers that connected users with other users with copies of the music they wanted to download. Other services like Morpheus, which employ decentralized technology allowing users to track down and download music from other computers, have thus far escaped prosecution and persist to this day.) The labels have attempted to start their own online services, offering music downloads for a fee.

But music retailers were left out in the cold, watching many of their customers turn to online music venues, both file-sharing and those offered by labels, rather than visiting brick-and-mortar shops. "As a retailer, you have to take some action when the record companies themselves start to sell music over the Internet -- otherwise you'll get lost in the shuffle," says Oliver Salzmann, founder of IMHG, the Lübeck-based company which invented the new technology.

Salzmann speaks from experience -- his family also owns a large department store, Pressezentrum, in Lübeck, which specializes in music and technology products. After watching the profits in his own music department fall, Salzmann and his father Martin felt they had to do something.

Browsing with a PDA

The Salzmann's developed a new retail concept, which allows customers to browse the store's musical selections using an adapted personal digital assistant (PDA), or handheld computer to the less technologically inclined. By running a scanner over the CDs, they can download thirty second samplers from an inventory of up to 20,000 songs, select up to 15 titles at a cost of 99 cents each and proceed to the check-out, where their selections will be burned onto a CD. The CD and jewel case cost an additional €2.

A pilot store employing the service was launched last week at the Salzmann's store in Lübeck. But by the end of the year they hope to license their creation to other large department stores and say they are already in talks with several major German retailers. A smaller version of the technology may even be installed in other locations, like at gas stations.

Unlike the dubious legality of online music sharing sites, this service is entirely legitimate. IMHG has contracts with three large labels -- Sony, Universal and Edel -- and hopes to line up more by the end of the year. The business model is simple: The retailers and record labels split the profits, fifty-fifty, of each song downloaded, while IMHG makes its money from licensing its technology and technical support.

But given the wide-spread popularity of Internet music sites, will this approach be enough to bring customers back into the store? Salzmann thinks the service will appeal to the less technologically inclined and to those who appreciate the assistance offered at a traditional music store.

"Many don't want to deal with the logistics of going online and burning their own CD," says Salzmann. "What's more, we offer a very professional looking product."

Changing the way we buy music

IMHG's technology is the latest innovation in an industry that is struggling to change the way we buy music. "The rise of online file-sharing sites showed us that customers want to search for individual songs and put them in a particular order," says Greiner. The music industry has since been scrambling to meet the demand, but recent ventures show there are profits for those who try.

Apple recently launched its own legal online music library by striking similar agreements with record labels, offering Apple users (thus far only within the United States) the opportunity to download songs for 99 cents. The venture exceeded all expectations, with more than 2 million songs purchased and downloaded within the first 16 days. As IMHG branches out across Germany and eventually worldwide, Salzmann is hoping for similar success.

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