It’s ’soundsational’ for on-demand entertainment publishing

Prompted by Wall Street predictions that it was in a business doomed to failure, in mid-1990 Blockbuster Video purchased a controlling interest in a start-up company called Soundsational. Soundsational was in the early stages of developing a prototype audio/video server; the idea was to allow retail outlets to receive — via network — digital entertainment products from a variety of sources. The stores could then produce and distribute audio CDs (or any other digital information on a digital storage device) in the store at customer demand.

According to David Lundeen, president of Soundsational and also director of corporate finance for Blockbuster, the next year and a half was spent refining its business plan and working with “hundreds of suppliers of computer, telecommunication, data storage and compression technologies” to develop a prototype that he felt could ultimately be deployed economically.

A partnership promise. As one might imagine, the prototype generated interest from many large technology companies, and Blockbuster decided to bring in a strategic partner. So it joined forces with IBM, and together the two companies hope to create a commercial system based on Soundsational’s working prototype. The deal is not yet official, but is sufficiently solid that both companies are speaking publicly about the promise of their partnership and the system.

While the company’s original idea was to provide “just in time” inventory for music, Lundeen realized that also games, video, computer software and any other digital data could also be handled by this system.

100,000 titles “online.” In addition to local data storage capable of holding 10,000 different music titles (more titles than most record stores have in stock today), the system would connect over a wide area network — phone or cable or satellite, being able to use any existing delivery mechanism — to a central storage facility that would have more than 100,000 titles online — far more than any record store could realistically carry. Each store would have the facilities to write CDs (or minidisks and analog or digital cassettes) and color laser printers to generate the artwork for each album.

Retail outlets would also be equipped with multimedia kiosks. Brian Henley, business development advisor for IBM, believes that kiosks hooked up to the Soundsational database — which allow customers to search for songs by a specific artist, look for specific titles, watch video clips and listen to tunes — will generate a heightened interest in buying. (We hope he’s right, but customer response will bear watching. Often listening to a CD before buying discourages the purchase, especially now that the standard price for a music CD has gone up again.)

Who’s providing what? The total package would be put together with hardware and software products from different vendors, not just IBM, although it’s not yet clear which companies are providing which technologies to the venture. Some is currently available through “off-the-shelf” technology.

Kodak, for example, has pioneered inexpensive, write-once CD technology, and while it has not signed up officially as a partner in the Blockbuster-IBM deal, its technology is being evaluated for use in the system. Other outside technologies are being evaluated as well, though much of the rest of the system is likely to remain proprietary.

Soundsational will remain a separate company from Blockbuster (although Lundeen predicts the name will change), and will plan on selling the technology and distribution service to other retailers. The deal with IBM, at this point, is nonexclusive: IBM is free to sell whatever pieces of the system it contributes to other companies. Soundsational will be the sole licensor of the entire system, and will operate the system, maintain the security of the network, and charge its customers (i.e., retailers) transaction fees.

Delays at the checkout stand? According to Lundeen, the Soundsational system requires between six and seven minutes to record a single CD. In order to make sure the fewest number of customers are kept waiting, Lundeen envisions each retail outlet “premanufacturing” popular titles while the store is closed at night, based on software designed to predict potential sales.

At the end of each business day, the system’s software will “decide” — based on factors such as how long a title has been on the market, its previous sales record and the success of the album’s single(s) — how many copies of Peter Gabriel’s new album, for example, should be pressed and available for sale in the morning.

If a customer wants to request an album not currently a top seller, he or she may have to wait a time for it to be downloaded and recorded. But assuming the record is still in the company’s catalog, it would be available to consumers.

A GOOD IDEA, BUT BLESSINGS ARE REQUIRED

Of course, nothing is ever that easy. Blockbuster is set to begin negotiations with the major record companies and movie studios for their blessing on this project. There are obvious reasons for hesitation, including guarantees that the record companies would be paid properly for each disc that is pressed, and the security of the system.

But the upside is quite attractive: instead of having to press a half million CDs of a new album, or 50,000 copies of a new CD-ROM-based video game, publishers could simply post the recording on the system, and see how well it sells without having to invest in materials. In addition, special-interest recordings or compilations could be put together almost overnight. “Whether 3DO or Sega, music or video, we just want to provide an efficient distribution system for entire catalogs” of products, said Lundeen.

That kind of power doesn’t come cheap. The storage requirements alone are immense, requiring terabytes (trillions of bytes) of local storage in every outlet. According to Lundeen, however, many record retailers carry anywhere from $200,000 to $400,000 of inventory at any one time. A record store could purchase a lot of local storage and processing power with that money, and these titles could be distributed on any digital medium the customer requests. Subsequent add-ons to the system may allow a retailer to manufacture Digital Compact Cassette or MiniDisc (even analog cassettes could be recorded). Such a system would allow a retailer to manufacture games, CD-ROMs and other software.

Although the next logical step is probably a little intimidating to companies that compete with Blockbuster — that is, to cut out the retailer entirely and allow customers to download titles to their home systems — the Blockbuster-IBM deal is a great example of the efficiencies gained by digital technology. If you’ll pardon the obvious pun, it sounds pretty good.

David Baron