Article

Music kiosks: On the right track?

Media kiosk manufacturers say business is up tempo.

April 8, 2007

John Timmons looks like what he is. Tall and thin with wild blond hair that flows like a Jimi Hendrix riff, he fits the mental image of a record-store owner. His shop, ear X-tacy, sits on a trendy stretch of traffic jam in Louisville, Ky. Inside, music muffles the sound of CD cases flipped by listeners scanning for titles.

 

In a nod to the technology that has overtaken his passion since the days of vinyl and large, cardboard jackets, Timmons has installed a listening station at the front of his store that lets customers sample clips of CDs. What he does not have, however, is a kiosk for those customers to download their selections to a CD or an MP3 player.

 

"If we put a kiosk in, we would have to sell an ungodly amount to recoup our expenses," Timmons said. "They are very expensive, and the money we would get back for each song would not be very much. I see how money can be made with kiosks, but the financial model doesn't work for me."

 

The same dilemma faces many potential deployers of music-download kiosks. At the beginning of the decade, the devices promised a fun and convenient way for music fans to take advantage of the confluence of digital music, cheap burning technology and the advent of portable playing devices. Users would gain access to a vast library of songs, even those no longer published. Deployers would have virtually unlimited "long-tail" inventory.

 

But the promise was fading as fast as Britney Spears' marriage when a new device called the iPod electrified the music market. Suddenly, even technophobic senior citizens could take Barry Manilow with them on MP3 as they went mall walking.

 

Music kiosks unplugged?

 

Francie Mendelsohn, president of Summit Research Associates, believes the music-download kiosk is unplugged. She said digital media kiosks already have matured to their full potential and have little room to grow.

 

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"It doesn't look like a terribly promising thing," said Mendolsohn, who tests and consults on kiosks. "There was a lot of excitement for them at one point, but they won't last all that long."

 

The demand for kiosks existed before the iPod began to take over the online realm, but by the time manufacturers got enough funding to ramp up deployment, iTunes, Apple's online store, owned 80 percent of the market.

 

The ripples shot across the industry. In 2004, for example, coffee giant Starbucks unveiled digital music kiosks in several of their highest-grossing stores, including numerous locations in their home city of Seattle and in Santa Monica, Calif. At the time of the launch, Starbucks had plans to expand the rollout to 2,500 locations through 2006, but after two years of testing the company pulled the machines from 35 of the 40 stores that had them.

 

Starbucks officials, who would not respond to an interview request, insisted the company was not pulling away or scaling down.

 

Location: Getting the juice flowing

 

Outside looking in, it seems the time may have come and gone for music kiosks, but those in the industry say the opposite is true and, in fact, the age of music kiosks is just beginning.

 

Manufacturers of music kiosks agree on the benefits of digital downloading at kiosks. Dave Champlin, vice president of marketing for Mediaport, said that in addition to bringing in extra foot traffic to music stores, kiosks allow stores to reduce their retail space and at the same time greatly increase their selection of titles. Customers have the flexibility of making custom compilation albums and accessing older recordings that are out of print or not in stock.

 

Jon F. Butler, Mediaport president, said the company has seen a 20 percent yearly increase in sales since the company began in 2000. He believes that music kiosks are part of a natural evolution of music media, similar to when eight tracks were overtaken by cassettes, which in turn were made obsolete by CDs.

 

Butler said Mediaport's deployments, located in Virgin and Brazin stores in Australia, are successful because they have taken a different approach when choosing their locations: Its success has come from deploying in music stores where people already are planning to buy music.

 

"We watched the Starbucks trial happen, but most people are going there for quick convenience and not to lounge around for a long time," Butler said. "It would be the same if you put a music kiosk in McDonald's; it would get dusty and eventually unplugged because people are in and out."

 

Digital rights management

 

Differentiating electronic formats are one of the biggest challenges for kiosk manufacturers. Digital-rights management and interoperability are the biggest hurdles music-kiosk manufacturers face. Apple's iTunes uses a proprietary system called FairPlay to ensure that iPods only play music downloaded from iTunes. Mix & Burn and Mediaport use Microsoft's Plays-for-Sure system, which allows songs burned from their kiosks to be played on a wide range of MP3 players, but not iPods.

 

"The problem with the industry is that everyone is trying to provide one key piece, when everyone needs to come together for a complete solution," Butler said. "It's like the battle between VHS and Beta. There will eventually be a standard format for digital music."

 

Bob French, president and COO of St. Paul, Minn.-based Mix & Burn, works with record companies to acquire music licenses, which, he said, can be the most daunting task of all. Record labels, reluctant to release their entire catalog for fear of piracy and theft of kiosk hard drives, embed digital rights management (DRM) codes into their music.

 

According to French, Mix & Burn was one of the first music-burning kiosk companies to acquire DRM licenses from the "Big Five" record labels: Universal, Sony, BMG, EMI and Warner Music Group.

 

"Acquiring the licenses costs a lot of money, so there is always a lot of pressure for the labels to give up DRM," French said. "Even though the DRM battle will keep going on, it's still better to be in the market."

 

The future is beginning to look better for DRM, however. EMI recently released most of its massive music catalog to be sold on iTunes, free of DRM restrictions. Listeners always have been able to burn downloaded iTunes songs to CDs, thus removing the DRM coding, and later upload those tracks to MP3 players. Now one step has been eliminated.

 

Music kiosk manufacturers hope this deal is the beginning of a trend that will result in easy access to all big-name music catalogs.

 

Jon Butler and Bob French both credit iTunes for opening the door and letting record companies know there is a market for digital music. But with Apple owning a majority of the online music market and record labels constantly raising the cost of their digital rights, music kiosk manufacturers often are asked why they continue to place music kiosks in stores when people can just burn CDs at their own homes.

 

French and Butler agree that it's all about the hands-on experience of making your own custom CD, and — even though it is self-service — the human interaction with store clerks and other music fans draws people in.

 

"Believe it or not, people actually still want to get out of their houses," Bob French said. "People go out and get in the buying mood, and making a CD using the music kiosk is an impulse buy people make while shopping."

 

"There is a place for entertainment in retail. To say it's gone is a mistake," French said. "Kiosks are alive and well, and there is a business here."

 

Brian Abbott would agree. He is a store manager for FYE, whose parent company has partnered with Mix & Burn. His store, in Lexington, Ky., uses a Mix & Burn kiosk with six tablets, or stations. Abbott said the kiosk brings in about 50 CD transactions a week.

 

While the kiosk does not generate a significant percentage of business, Abbott sees other advantages.

 

"There's usually someone sitting over there messing around on it," he said. "So far it's been great for selling singles and getting albums that are out-of-stock."