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BizReport : Internet : April 19, 2001

Creating the Celestial Jukebox: Exclusive Interview with Gianluca Dettori, CEO, Vitaminic

At the recent Plug-In Digital Music Conference in Barcelona, Spain, the theme was digital music distribution and how to make profits in the age of music piracy. The music industry is currently trying to establish suitable alternatives to the illegal, free-for-all of Napster. One company attempting to do just that is Italian-based Vitaminic.

by Michael Brock

Boasting twelve local domains in ten different national markets, Vitaminic is a family of digital music distribution sites that gather around 1,000 different music labels under one roof. Its catalog ranges from the most obscure independent music imprints to well-known, international major labels.

On a B2B level, Vitaminic provides musical content, including the technology to deliver, store, and secure this music, via a wholesale subscription service to other business who want to enhance services to their own customer bases - whether these are Internet-users, mobile phone customers, or digital television viewers. Currently, Vitaminic has licensing agreements with fifty different partners in Europe alone, including Lycos, France Telecom, and MTV.

Vitaminic also serves the B2C market by offering both individual downloads and Europe's first music download subscription service (The Vitaminic Music Club) to music fans, as well as selling licensed compilation CDs of the music from its vast library.

To artists and labels, Vitaminic provides a cheap promotion and distribution option. To participate, each artist must provide one track for the general catalog, which the customer can download for free. After that, it is up to the band or label whether they would like more tracks included for download on either a pay-for or free basis. Both performance and mechanical royalties are paid out for all tracks downloaded, including the promotional freebies.

In this way, Gianluca Dettori, the 33-year-old CEO and cofounder of Vitaminic, deals with the fact that he is competing in a world where "free" is the main attraction for many digital music users. BizReport caught up with the Vitaminic boss at PlugIn Barcelona.

BIZREPORT: During your panel discussion, you mentioned that you feel that there is a "disconnect" between the major labels and the consumers. Would you elaborate on that?

GIANLUCA DETTORI: Yes, this disconnect is due to the fact that the transition is happening quickly, maybe more quickly than the majors can adapt to. And therefore, they are still not ready to face this transition. They see the opportunity, they are changing and expanding their business models, and they are looking at digital music as an opportunity. But still, they are not providing exactly what the consumer today would want, which is a large catalog, so they need to license their catalogs more widely, with a common technology that is simple to use. The format could be MP3, Windows Media, whatever. But a common format. If they want to secure the music- that's great, that's fantastic. But you need to provide a seamless experience to the user. The independent labels - we are working with more than one thousand labels right now, we license their content through them - they are more keen to work more openly. They license more catalog today and they are more flexible in terms of the formats and the standards. So it is easier to provide the services that the customer wants today working with independent labels.

BIZREPORT: David Stockley, the CEO of DX3 said, and this is a paraphrase, that "In the future, digital music must replace the physical browsing in a record store." How do you feel about that?

GIANLUCA DETTORI: Well, sure...but on the internet, you can do more than that. For example, subscription is more than that. With a subscription, you will not necessarily be looking for the quantity of the catalog, but for additional services such as quality filtering, personalization, or other things. At Vitaminic, we have a catalog now of 250,000 tracks. That is more music than you can possibly listen to in your entire life, and you don't want to do that anyway. So you will need some services, some filtering so that you get more the selection of the actual stuff that you like. It's all about providing services. Which, by the way, is one of the things that a retailer of CDs would usually do - there's a guy, and you can talk to him and he will tell you, "Why don't you try this record if you liked that one..."

BIZREPORT: Yes, the thing that I continue to enjoy about the "traditional" record store is the element of surprise: I might go in looking for, for example, the new David Bowie album, and find other records that also look interesting. That is also the appeal of Napster - and seemingly what you strive for in Vitaminic?

GIANLUCA DETTORI: Definitely. I think that digital music is going to be more and more a fragmented market, where there's going to be a lot more room for niches, for music that you haven't heard about and which you can discover. Nevertheless, it's still a transition. Consumers do want some music that is mainstream, and this is simply not provided. There are no alternatives yet to piracy for a lot of music, so at the end of the day, that's why services such as Napster are so popular. It's more efficient, it's faster to deliver music digitally, and that should provide the opportunity for more artists to reach their fan base. But that fan base doesn't need to be huge. They could reach, say, 20,000 fans world-wide, and make a living off of that. And that's why we believe in artist communities, we believe in still supporting unsigned artists.

BIZREPORT: You mentioned earlier that 80 percent of Vitaminic's income currently comes through advertising?

GIANLUCA DETTORI: That was last year. Last year, we were really still driven very much by advertising. The segment where we will be growing the most this year, is in B2B services, and e-commerce, as well...The subscription service and digital downloads will be growing by a larger percentage. So if last year was 80 percent advertising and the rest B2B and one percent e-commerce, this year will be more like fifty-fifty between B2B and B2C, and within B2C, e-commerce will be a larger percentage than just one percent.

BIZREPORT: One of the main themes at this conference is the issue of subscription services versus singular, priced-out downloads. Vitaminic is currently involved with both models, but it seems that the consensus is that subscription services will be the way of the future. What do you think about this?

GIANLUCA DETTORI: It's very difficult, really, to predict what is going to happen. We simply provide both options. At the end of the day, selling digital files on the Internet today is a very small business. Again, the reason is that there is so much piracy going on; therefore, it is very difficult to sell any digital product on the Internet, because you can get it for free on Napster. Having said that, what is good about subscription is that it is simpler, that it provides more selection, and more value for the money. For example, at Vitaminic, our subscription service provides you with access to something like 10,000 tracks. If you were to buy each track, it would be around a dollar per track. So, it's $10,000 worth of music that you get for $100. So, it's value for money, definitely. You would not want to download all 10,000 tracks, but definitely within that selection of music you will find a decent part of the music that you want. And so, you get the value back.

BIZREPORT: Does Vitaminic do "exclusives" with the labels and artists who you work with? Or are they free to use other digital distribution sites, as well?

GIANLUCA DETTORI: No, we never work exclusively. Working exclusively really changes your business. If you work exclusively with an artist or label, you become a label yourself. You own content, and if you own content, then your business is different from the business of Vitaminic. Our business is to provide the service of distribution - to exploit content. So we see a very clear distinction between those who own the copyright to the music - this would be the record company of the artist - and they would want to use distribution outlets, people who provide them with an outlet to a customer base. Either to give music away for free in order to get promoted, or to sell it. We have always licensed the content nonexclusively, and we draw a very clear line between the work of an artist or an artist's record company and the work that we do at Vitaminic.

BIZREPORT: You mentioned during the panel discussion that one major problem was the selling of local artists across borders. How is Vitaminic dealing with that problem?

GIANLUCA DETTORI: At the moment, not as well as we would like to. But our catalog is the same, meaning that you can find exactly the same music on the Italian site as on the French site. What we change from country to country is the interface. It's the same catalog everywhere, but organized differently between the national sites, within the means of the local market.

BIZREPORT: Although no one can predict the future, what is your forecast for digital music? Where do you think that it is going?

GIANLUCA DETTORI: I definitely see that things are starting to happen; even if not as fast as we would like them to. The catalogs are opening up, we have licensed BMG, Sony, Universal - so that is starting to move. Consumers want digital music today, so we have to deal with that. Where it's going to be in two years time- I don't honestly know. But we try to look at very reasonable things and at least know that within a good percentage of probability these things will happen. It is definitely changing a lot, and that is key to everybody. What's going to happen exactly, I don't think that anybody knows, really...

Tags: Vitaminic

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