icon_newspaper.gifJim Stafford, The Oklahoman
Saturday, August 2, 2003

With a collection of more than 1,000 CDs, Scott Horton was satisfied that his personal music library had all it needed.

Then he clicked into Apple Computer’s new online iTunes Music Store where customers can choose from thousands of tunes to download for their personal use at 99 cents per song.

Now, it seems, the Edmond resident can’t get enough new music. In the weeks since he enthusiastically greeted the opening of Apple’s music store on April 28, Horton has added to his collection in a big way.

“Apple opened up a whole new thing for me, because I thought I had everything I wanted until I started browsing their music store online,” Horton said. “I downloaded over 50 songs last week alone.”

Horton said he was attracted to the Apple site because of its a la carte music menu. Customers can download individual songs from an artist rather than buy a whole CD.

“There are a lot of albums I would never buy because they were one-hit wonders,” Horton said. “But now I can download this one song.”

Apple reported in mid-July that it had sold 6.5 million songs through its online store in the first two month of its existence. All were sold exclusively to users of Apple McIntosh computers because its music store won’t be available to the wider world of Windows users until the end of the year.

While Horton is enjoying his new music, the success of Apple’s music store and other online sources have added to the well documented woes of traditional brick-and-mortar music retailers.

Music retailer Wherehouse Entertainment recently filed for Chapter 11 bankruptcy and closed 130 stores, including three of seven it operated in the Oklahoma City area. Best Buy recently sold its Musicland music retailer.

It all vividly demonstrates the damage that Internet-based business has inflected upon the “middlemen” in a host of business sectors ranging from music to travel to real estate, said Rob Atkinson, vice president of the Washington-based Progressive Policy Institute.

As keynote speaker at Oklahoma’s recent Governor’s Technology Summit in Tulsa, Atkinson told an audience of more than 200 that online commerce is causing major upheaval in many areas of business.

“There are lots and lots of sectors that their literal survival is threatened by e-commerce,” Atkinson said. “Real estate agents are one. Mortgage brokers. In the last year, 14 percent of travel agent companies went out of business. There are a lot of unhappy travel agents today who are hopefully doing something else and not unemployed.”

As a result, what Atkinson terms as protectionist laws have been passed in many states to bar Internet businesses from selling directly to consumers in all sorts of business areas. For instance, consumers can’t buy contact lenses from online vendors in many states because laws were passed to protect optometrists. He cited laws passed to protect real estate agents, wine sellers, auctioneers, travel agents and auto dealers.

As director of the Progressive Policy Institute’s “New Economy” project that focuses on e-commerce, Atkinson opposes legislation that limits Internet business to protect traditional middlemen, even if they are fighting for their existence.

“In our view, if you are a business, we’re not trying to impose a profit cap or say you can’t have excess profits, so we ought to let consumers set the shape of the marketplace,” he said. “Public policy should have no business in protecting businesses. In capitalist markets, businesses get the upside and they shouldn’t be protected from the downside.”

Atkinson has written extensively on the subject, including a policy report called “The Best States for E-Commerce,” that ranks states based upon their laws and regulations that support or hinder Internet use. Oregon ranked at the top of the list, with Oklahoma tied for 18th.

The comparison rates states on how they deal with online sales of contact lenses, prescription drugs, telemedicine, mortgages, insurance, autos, wine, taxes on Internet use and digital services provided by state government.

As for the music industry, Atkinson said brick-and-mortar music retailers “face a double whammy” both from online retailers who sell traditional CDs to the new retailers like Apple’s online store that sells downloads. That’s not to mention the illegal businesses such as the former Napster service that let consumers swap music among themselves.

One Oklahoma City-based music retailer has been an unlikely survivor of the shake-out.

CD Warehouse was a bankrupt public company when Oklahoma City businessman Christopher Salyer bought it earlier this year. CD Warehouse now runs 30 company-owned and 180 franchised retail stores that sell new and used music CDs. It has three Oklahoma locations.

Salyer said the effect of the Internet on the music retailing business has “been material and it has been significant.”

“I would say that the overall effect is that it has driven many of my competitors into bankruptcy,” he said. “CD Warehouse has been a remarkable survivor in the face of all this uncertainty.”

CD Warehouse has even developed its own Internet-selling strategy through a partnership with established Web retailers such as Amazon.com.

So, what is his view of the Apple online store and similar Internet retailers.

“It raises one of the more interesting questions that could possibly be,” Salyer said. “What intellectual property rights go with that purchased music from Apple.com? Will the customer who purchased that song be able to resell it to CD Warehouse, for example? This intellectual property thing is an extraordinarily interesting issue.”

For music fan Scott Horton, there’s not much to consider, other than choosing which songs to download. He said he’s not concerned with the plight of the retailers.

“Sorry,” he said. “I don’t know what else to say. The Apple store is absolutely awesome. They have allowed people who want to download music to be honest about it.”