NEW YORK (03/03/2000) - E-commerce executives have been scratching their heads trying to figure out how to make money out of MP3, the wildly popular music file format that up until recently afforded no way to protect copyrighted material for widespread digital distribution. Destiny Media Technologies Ltd., which today unveiled its MPE file format and related encryption and distribution technology here, says it has the answer.
The MPE (encrypted MP3) format allows online music distributors to include text and graphics along with the encoded music file, so when consumers download a song they can see related art and marketing material as well as music and production credits, according to company executives here today at the New York Music & Internet Expo.
Related MPE technology, integrated into both the song file itself and on back-end servers, lets online music distributors collect money from people purchasing the songs, manage distribution rights, and track sales and referrals.
Though Destiny officials acknowledge they face a number of big-name players in the music distribution and digital rights management arena, among whom are Liquid Audio Inc., the Canadian company believes it holds a trump card in MPE.
"MPE allows for what's being called 'viral marketing,' where one person who loves a song can send the file on via e-mail to friends, who can then play a 30-second sample, and if they like it, purchase it as well," said Ed Kolic, chief operating officer for Destiny, based in Vancouver.
When a consumer downloads the MPE file, they get the song compressed in MP3 format, a player to play the tune, and the right to play 30 seconds of the song. If they then decide to buy the song, they click on a button on the player and, using a credit card, make a purchase.
The format includes software that ties the song file to the unique identifier on the consumer's hard disk and portable MP3 player, Destiny officials said.
The consumer can send the file (and related player software) to friends, who can repeat the process of previewing the song and possibly buying it. This process can be replicated, from person to person around the world.
If a buyer of an MPE tune wants to move their downloaded music to a new computer or portable player, they use the MPE player software to send information on the new machine back to Destiny, which then assigns the tunes that have been downloaded to a new hard drive or portable player.
"If someone does this a number of times in a short while, we'll get flagged (by the software) that this is probably an abuse," Kolic said.
Destiny officials admit that players like Liquid Audio are far better known in the market right now, but they claim that MPE offers the first viable method for facilitating the type of word-of-mouth, pass-along "viral" marketing that is the Holy Grail of any Internet retailer.
The extra overhead -- on top of the encoded music itself -- required by the player, encryption, credit card transaction and graphics capabilities, is about 350K bytes per song. MPE technology can be adapted to work with any compression format, including Microsoft Corp.'s Windows Media music format, but Destiny believes that MP3 will remain the most important technology.
"There's a huge amount of MP3 files out there, and the new portable players coming out from the major manufacturers all use MP3," Kolic pointed out.
On the money side, Destiny is setting up a payment scheme where all parties on the music production, copyright, creation and distribution end, as well as Destiny itself, get a cut of each transaction. The company hopes to get about 15 to 20 percent of each transaction.
However, Destiny -- with its 16 employees -- has an uphill battle to fight against much bigger companies in the digital rights management arena such as Liquid Audio, Microsoft, Reciprocal Inc. and Intertrust Technologies Corp. Even if Destiny is among the first to market with a working solution that supports the idea of "viral marketing," pass-along type of distribution, these other companies are working on digital rights management software that offers similar capabilities, according to Dan O'Brien, an analyst with Forrester Research Inc., a market research company in Cambridge, Massachusetts.
"They're going to have to convince potential partners to trust that they have the ability to do the complicated rights management and transaction tracking on the back end, and they're up against much bigger players, some of whom already have commitments from major companies," O'Brien said.
Destiny has other irons in the fire, though. The company also offers related streaming technology that lets music sites set up radio stations. The idea is consumers can tune into the radio stations, and then download and pay for the music they like. Destiny offers hosting services to host the content of the radio station, or for a $2,500 licensing fee, Web sites can obtain the Destiny technology and do the hosting themselves, Kolic said.
Within a year, Destiny hopes to move the technology over to the wireless world, and let its streaming music and downloadable player and transaction technology work over GSM (global systems for mobile communications) wireless networks, Kolic said.
Meanwhile the company plans on hiring extra staff to do marketing in the U.S., executives here said.
Destiny, in Vancouver, Canada, can be reached at +1-604-609-7736 or at http://www.destiny-software.com/.