Retail Kiosks Dispense Custom Digital Tunes

CDs and DVDs hogging retail shelves could go the way of free glassware at the gas station.

MOD Systems Inc. has developed software that lets consumers download and pay for digital content from kiosks directly onto portable media players--with no cables attached.

The software for kiosks will serve up music, movies and video games and more, but MOD Systems Chairman Anthony Bay said the first undisclosed retailer to deploy the system early next year will offer tunes. The news was released Tuesday at the Digital Hollywood Fall conference in Santa Monica, Calif.

"Retailers are looking for technology to help them make a move toward offering more digital content in stores," said Anthony Bay, MOD Systems chairman. The software lets consumers choose individual songs for download to digital media player or burn to a CD.

Not only does the software give consumers more choices for digital music, but it also frees up shelf space for fast-selling items without completely eliminating slow-moving content from stores. Analysts also believe the kiosks will reduce product returns.

Less inventory and more choices could help retailers improve razor-thin profit margins by reducing capital tied up in physical inventory that could sit on the shelves for months.

"Brick and mortar big-box and specialty music retailers by necessity need to grab onto a piece of digital music sales or their time on this planet is limited," said Aram Sinnreich, managing partner of Radar Research LLC, Los Angeles. One example he gave: Music retailer Tower Records, after 46 years in business, was sold to a liquidator earlier this month.

The demand for digital music is growing. U.S. sales of digital singles rose 71.3 percent, to 286.3 million between January and June 2006, while the numbers of CDs, DVDs, vinyl records, cassettes and other physical music formats shipped declined 15.7 percent to 277.6 million from the year-ago period, according to the Recording Industry Association of America (RIAA).

Francie Mendelsohn, president of Summit Research Associates Inc., a Rockville, MD company specializing in sales through kiosks, believes kiosks that burn music onto CDs are a short-term solution. "Most can only burn 5 songs on one CD," she said. "Many people are of the opinion that CDs are becoming a dinosaur, as less people store and purchase music that way."

Mendelsohn warned, however, that for future platforms to survive, they will need to support multiple portable media players. "I tested a device several years ago, well before the iPod, and it failed because it could only handle one brand of MP3 player," she said. "Good idea, but way ahead of its time."

MOD Systems' platform, written mostly in Microsoft Corp. development tools like C ++, C #, and SQL, could drive a deeper wedge between Apple Computer Inc. and other device manufacturers if the platform catches on with retailers.

Today, Windows Media DRM protects the content, but MOD Systems CEO Mark Phillips said, "If Apple starts to license their Fariplay DRM software we can insert it into our system to allow consumers to download digital content onto Apple devices."

Scheduling software manages inventory remotely to ensure kiosks offer the correct mix of music, Phillips said. Consumers can connect to the growing catalog of 1.6 million independent and major label tracks via cable, Bluetooth, or 802.11 transfer protocols--or they can burn a physical CD.

MOD's Bay, who built and ran Microsoft Corp.'s digital media division, said MOD Systems will support the unnamed electronics retailer that signed on to deploy the kiosks under a hosted services model.

The store will install between 40 and 50 kiosks in about six locations, redefining the layout of the stores' music section. MOD Systems will manage the content, licensing rights, and billing, Bay said. A Web site will also give consumers an option to log online and choose music to have burned onto a CD they can pick up in stores, similar to a service Wal-Mart Stores Inc. launched last year.