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Friday, June 2, 2006 - Page updated at 12:00 AM

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MOD throws party even if timing's off

Seattle Times technology reporter

Today doesn't seem like the best time for MOD Systems' coming-out party.

The Seattle company is announcing its CD-burning kiosk technology for retailers, with Starbucks as its lead customer. But wait, didn't Starbucks say last week it had pulled similar kiosks out of stores?

MOD Systems will probably face a few of those huh? moments as it makes its pitch to retailers. The short answer: Starbucks phased out a first-generation system made by another company but will leave MOD Systems' kiosks at 10 coffee stores and three of its large-scale music stores, called Hear Music Coffeehouses.

Partnering with Hewlett-Packard, Starbucks began testing its music-kiosk initiative in 2004. Starbucks is keeping quiet about its plans, but executives have said they would like customers to be able fill up digital music players at their stores. That could bode well for MOD Systems, which is working on technology that allows people to do just that.

For now, MOD Systems is planning to roll out its products to more retailers, using the Starbucks experience as both a lesson for the future and an example of what stores can offer customers.

The company, which has 20 employees, has created an in-store system for shoppers to browse, buy albums or make their own compilations of songs. The music can be burned to a compact disc on the spot, and shoppers can pay by swiping a credit card.

The system also gives retailers a behind-the-scenes way to manage those purchases, set pricing, display advertising on kiosk screens and choose a store's background music.

Music to go


What: Seattle-based MOD Systems (MOD stands for "media on demand")

Who: Chairman Anthony Bay and Chief Executive Mark Phillips. The company has 20 employees.

What it does: Develops software for retailers to use with CD-burning music kiosks in stores. The company doesn't develop the actual kiosks, however.

Big customer: Starbucks is the only customer MOD Systems has announced.

Where: At Starbucks locations in downtown Everett and in Seattle's Capitol Hill, Madison Park, Queen Anne and the Pacific Place mall.

Source: MOD Systems

The company's founders have plenty of digital music experience. Anthony Bay is a former chairman of Loudeye, a Seattle digital music company, and a former executive in Microsoft's digital media group. Bay and MOD Systems' other founder, Mark Phillips, both spent time at Fullplay Media Systems, a now-bankrupt Bellevue company that made multimedia kiosks for customers to preview CDs, DVDs and video games.

Over the past two years, Phillips said, he and Bay have been discussing projects to work on together. They settled on digital media distribution for retailers. For all the progress made in online music stores, they said, physical stores are still mainly just shelves of CDs.

"The in-store experience, in terms of discovering content, is not as sophisticated as it is online," Phillips said. Amazon.com, for example, can offer tens of thousands of albums to customers, but retailers can fit only some 15,000 albums in one location. Still, most music sales still come from physical stores.

MOD Systems says it can offer retailers a catalog of 1.6 million songs. Starbucks is the only customer the company has announced so far, but Phillips said the systems can be used at traditional music stores or more unusual retailers, such as a cellphone dealer.

One analyst briefed on the company said a CD-burning kiosk isn't the most innovative development.

"Their system as it exists today, it's not cutting edge," said Aram Sinnreich, a managing partner at Radar Research. "It's not that different than what Starbucks was already doing."

But MOD Systems is developing ways to directly transfer music to handheld players, including new players with wireless capabilities. To that end, the company is preparing for more sophisticated consumers, Sinnreich said.

John Moore, a marketing consultant who worked for Starbucks for nearly a decade, agreed retailers need to expand further into digital to reach music fans.

"You've got to get ahead of the curve, or actually get on that curve, and leverage MP3 technology," he said.

Still, just enabling handheld music players doesn't guarantee success, Sinnreich said. Five years from now, he said, millions of Americans will access digital music wirelessly. Who knows if it will be through wireless carriers or Google or Starbucks?

"Everyone can see this is coming and everyone wants a piece of it," he said. "It's a very complex chess game."

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2006 The Seattle Times Company

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