Farewell CDs, hello hard disk

The UK's five major record labels have taken a fantastic presumption - that the Internet will eventually replace record shops - one step closer to being a (virtual) reality. Warners, Polygram, Sony, EMI and BMG are understood to be talking to a Paris-based company about joining an experiment in supplying music online, an initiative that selected Internet users in France are currently employing to download hit singles.

The Paris Music project - which already represents 40 independent French labels - is operating in 400 homes connected to the Cybercable network in Le Mans, Strasbourg and Paris. Users can download budget singles to their hard disk for a credit card payment of six francs (65p) and hit singles for Fr15 (pounds 1.60).

"Given the number of potential users, this experiment is crucial in setting the legal, commercial and marketing standards for this new industry which, in five years' time, could account for 15 per cent of worldwide sales," says Francois-Xavier Nuttall, president of Eurodat, the company responsible for Paris Music.

But Jeremy Silver, vice-president of interactive media for EMI and Virgin Records, is more cautious. He doesn't believe the Paris Music project to be unique but is attracted to the copyright safeguards that Eurodat, and payment operators Kleline, have arrived at.

"They seem to have spent a bit more time thinking about what record companies might need in terms of protection," Silver says. "If anyone is going to move music around over the Internet, the intellectual property within it must be protected in such a way that it can't be acquired without due payment to the artist and the record company."

Eurodat has tackled the copyright issue by devising encryption software capable of preventing subscribers from redistributing music to another source. Once a chosen track is on the hard drive, it stays there. It's a development that has prompted some members of the music industry to foresee the gradual collapse of conventional music retail outlets.

"The multinationals must be rubbing their hands in glee at all that extra margin they can make by directly distributing music to the consumer," says Jon Webster, marketing consultant and columnist for music industry publication Music Week. "As soon as the requisite safeguards regarding home duplication are in place, then the world will change. As younger consumers come on stream, they will be so used to Internet mail-order shopping and then downloading music that record stores will become a thing of the past."

That the UK's major labels are negotiating with Eurodat - "No one has agreed a deal with them yet, which includes us," reveals Silver - suggests they're aware a new pattern of consumer behaviour could emerge because of the Internet.

Currently, users are able to mail-order their music, a process that doesn't compromise the relationship between the major labels and the retailers. Were the labels to allow Internet users to download their music, it could prompt a commercial war against one of their oldest allies.

"The record companies have very important relationships with our colleagues in retail, so nobody in the record company undertakes lightly the thought of going out and trying to do something different from what retailers are doing without having prepared the ground very carefully for it," says Silver.

He says Paris Music is "a model of what the future might be about. We're not interested in trying to sell Top 40 artists, but it might be an environment in which we can sell product that isn't selling well, for example, back catalogues."

While the major labels ponder the opportunities, the music retail chains are being pro-active with new technology, hoping to reach customers who would rather order music from home.

"A number of customers don't have the time to shop, don't feel comfortable these days in a record store, or are geographically separated from them, and still have a passion for music," concedes Glen Ward, director and general manager of HMV Direct, a year-old home-shopping service that sells, via a catalogue and phone service, all the CDs and videos HMV stocks. "We are sceptical of the commercial viability of the Internet," he says, aware of the manoeuvres the major labels are making, and of the belief that the interactive TV channel his company is launching next year will best serve HMV's commitment to home-shopping.

And when the labels choose to distribute their music in the UK via a project like Paris Music, rather than usurp a company like HMV, they may want their brand identity to front the service. "It may be a new means of distribution, but that simply means the middle men do slightly different things than they did before," says Silver. "The idea that because of new technology one can wave one's magic wand and all those processes will just disappear, I think is a classic misconception of the technologists."

In theory, direct distribution of music via the Internet could hit the labels as hard as it hits the retailers. Couldn't artists use this process to sell to their fans, without the aid of record company? For the moment, probably not. While marketing and promotion determine artist profile, and until we have reared a generation of consumers happy to own their Oasis equivalent on hard drive only, the immediate prospects for an intriguing phenomenon are bleak.

"We looked at it some years ago," says Ward. "The technology is not new, its just a capacity issue, but our research showed that our customers said they liked the feely, touchy element of CDs; they're treasured items, people do collect them, as they collect books, and videos.

"If you download music on to your hard disk, everything ultimately can be loaded on to a flash chip, you could have your whole record collection on a little credit card-sized chip ... and that's not very sexy is it?"