AudioRush.com Operations Technology Broadband access and penetration To compare the amount of time required to download an album's worth of music (45 minutes) using different technologies, we present below: 28.8Khps 56Kps (ISDN) 400Kps (cable modem) Full CD (477) Mbytes 36 hours 18 hours 2.6 hours Compressed CD 32.4 Mbytes 2.5 hours 1.3 hours 11 minutes Full 5 minute song 53 Mbytes 16 minutes 8.5 minutes 1.2 minutes Compressed 5 minute song 3.6 Mbytes 16 minutes 8.5 minutes 1.2 minutes Source: a2b Music available at www.a2b.com (summarized)

These transmission rates illustrate how arcom's commercial feasibility for online transfer of whole albums increases when consumers have access to faster transmission connections. The combination of audio file compression and greater bandwidth significantly reduces download time for consumers. Rather than 36 hours to download a 45-minute album, a compressed album can be downloaded in 11 minutes using a high-speed connection. According to industry analysts, the global number of broadband access subscribers is expected to rise from 2.35 million in 1999 to 136 million in 2007 (Pioneer Consulting, 1998; see Appendix 1 on page 26). ar.com's strategy is to maintain flexibility to adapt to changing market conditions in both data transmission modalities and file compression software.

Music file compression

The leading technologies in audio file compression currently available are:

• a2b is a non-licensable music compression format, based on AAC (MPEG-2 Advanced Audio Coding) technology by AT&T labs. It compresses at ratios up to 20:1 without loss of quality. It is a closed system, meaning it provides encryption algorithms, making music files secure for transmission over the Internet, and allows control over the number of copies authorized.
• Although widely popular, MP3 software offers only 10: 1 audio compression, without license, with inferior quality reproduction of music through an open system (liable to copyright infringement).
• IBM is now testing its new Madison Electronic Music Management System, with the help of a few major industry players - BMG, EMI, Sony Music, Universal Music, and Warner Music. This new format claims to prevent unauthorized copying of music, superior compression, and content that can be played on any CD player.
• Microsoft recently introduced its Windows Media Technologies 4.0 format, that claims to compress audio files to half the size of equivalent MP3 files. Although much touted for its ability to track royalties, this format is still in beta testing.
• Liquid MusicPlayer (Liquid Audio) is a licensed compression format based on Digital Dolby (AC-3) technology that offers audio file compression of equal quality to a2b, with over 15:1 compression and a closed system for complete security. Liquid Audio's encryption limits illegal copying and redistribution.

Of the dominant formats presented here, the advantage of choosing the Liquid Music System for Audiorush.com is the immediate availability of a complete, copyright-protecting, music publishing system that offers file compression and sound quality fidelity that is superior to the popular MP3.

Site Hosting

ar.com's technological requirements demand minimal capital commitment; they will be out-sourced to Videotron, the leading cable provider in the province of Quebec. Please see the table on page 11 for ar.com's commercial bandwidth requirements.

Bandwidth requirements

Hard drives & writable media

• Current CD-RW drives ($400 U.S.) allow one to copy a compressed music track on to a blank CD. Current CD data capacity is 680Mb. Analysts project 1999 demand for CD-RW drives at 15 million units. See Appendix 1 on page 26 for market penetration.
• Blank CDs are approximately $1.50 US each
• Flash memory devices (Rio MP3 Player, WinAmp, MPlayer3, MPMan, etc., $200 U.S.) similar in format to the Walkman, allow one to interface with a personal computer and download music tracks in MP3 format for portable listening.
• A home PC 4 Gig Hard Drives holds 125 CDs compressed at 20:1 ($120 U.S.)⁹

Site Operations

Standard operations for audiorush.com consist of three major facets: updating the site with new information, adding musical content to ar.com's repertoire of products, and distributing such content to online customers. Site updates follow these steps:

1. New material is actively solicited by the Communications Director, (see the Employees section on page 25)
2. The material is added with the use of Flash Generator software, which allows for simplified updates through the use of a linked database.

The addition of musical content to the ar.com site consists of:

1. Artists submitting their music (and cover art, created on their home PCs) to ar.com's submissions department as a digital audio file, or on a conventional CD
2. ar.com screening musical content for quality and appropriateness (a qualified Artistic Director, see the Employees section on page 25)
3. Artists signing a digital distribution contract, whereby they earn 50% of the sales price (before shipping) of each full album or individual track
4. Converting content into a format (Liquid Tracks) that can be played by customers' Liquid Music Player or Real Player using the Liquifier Pro music publisher
5. Uploading it to our server

The second facet involves distributing content to customers:

1. Hosting the site through a dedicated server
2. Providing samples of music which are streamed with the Liquid Music Server software.
3. Providing this music for purchase via a secured credit card transaction. This is provided by a third party that specializes in this service, iBill see www.ibill.com)
4. Delivering the selected content from ar.com's server (managed with the Liquid Music Server software)

ar.com will be paying a one-time licensing fee ($30,000) for the use of Liquid Audio's Liquid Music System, a commercial hosting package which includes the Liquifier Pro (copy-protected music publisher), Liquid Music Server (music delivery management software), and the Liquid Music Player (digital audio listening software). The Liquid Music System not only meets ar.com's requirements for efficient, trouble-free software to manage and publish musical data, but also equally offers superior performance and flexibility. The Liquifier Pro is the first professional software that allows ar.com to prepare and publish CD-quality, copy-protected music for purchase and delivery via the Internet to PCs and Macs everywhere. It transcends audio features by providing the capability to include lyrics, credits and artwork - all contained within one file, the Liquid Track. Furthermore, Liquid Audio uses Dolby Digital encoding, resulting in the highest quality audio for streaming and downloading of CD-quality music on the Internet. To ensure audio quality, regardless of different connection speeds, the Liquifier also provides a unique preview capability before publishing to the Liquid Music Server.

Liquid Music Server software monitors traffic on the Internet and ensures smooth delivery to the Liquid Music Player, in the case of streaming audio. The flexible design of the server allows us to send dynamic product and promotional information such as sale price, tour schedule, discounts and coupons; along with the Liquid Track to be played by customers using the freely distributed Liquid Music Player. There is also the possibility of offering effective promotions by freely distributing Liquid Tracks (with the artist's permission) which have an "expiry date" encoded inside. The track expires in a designated period of time, and in so doing provides a link to connect directly to ar.com to make a purchase if desired.