Like many of the pioneering brands in the digital music space--MP3.com included--eMusic has had more than its share of ups, downs, incarnations, and reincarnations.

In its latest embodiment, eMusic's story is both impressive and unheralded. It sells 4.5 million downloads a month, placing it far behind industry behemoth iTunes, but in great standing among the rest of the pack. And eMusic has carved out its own niche, eschewing the digital rights management (DRM) technology required for licensing by the major record labels and thus focusing entirely on independent labels and bands.

That means you won't find Kanye, U2, or Mariah Carey on eMusic, but you will a diverse catalog that includes Johnny Cash, Bob Marley, Ray Charles, Tom Waits, My Morning Jacket, and Miles Davis.

eMusic's six-year life as a digital music company reads almost like a history of the digital music space itself.

Starting in 1998, eMusic sold downloads and moved to a subscription-based model in 2000. In 2001, with the music industry in the midst of its post-Napster litigation-fest, founders Robert Kohn and Gene Hoffman sold eMusic to Vivendi Universal, which also bought MP3.com that year and was in the midst of launching Duet, its own subscription service. Duet was later renamed Pressplay and was sold in 2002 to CD-burning software maker Roxio, which eventually divested itself of the software business, bought the Napster name and rebranded Pressplay as Napster.

In 2003, having sold off Pressplay, Vivendi Universal sold eMusic to Dimensional Associates, a partnership that included David Pakman, founder of online music storage company MyPlay, which was sold to Bertelsmann in 2001.

Having taken eMusic from the 250,000-song catalog and low five-figure subscriber base it inherited to more than 1 million songs and nearly 150,000 subscribers in 26 months, Pakman, eMusic's CEO, tells MP3.com News where his company, and the overall digital music game, are headed.

MP3.com: How far along is eMusic from becoming the service that you hoped it would be when Dimensional acquired it?

David Pakman: We've had just amazing growth and we've done all that while being at what some consider a disadvantage because we don't sell music from the four major [labels]. We carry a catalogue that really only represents about 30 percent of music sales. But even with that limitation, we've been able to beat many of our competitors that carry a much larger catalogue.

We're very happy, but we're not there yet. We want to be at millions of subscribers and we want to sell more independent music in the world than anyone else. And I think we're very close to that.

MP3: What are the reasons for that success, from your point of view?

DP: We've been able to offer consumers a pretty great set of benefits that some of the other services aren't able to. One is compatibility--the service works on every device in the world that plays digital music, including the iPod. So, there are really only two companies in the world who can market music to iPod customers, and that's Apple and us.

Also, the independent music business is the only part of the music business that's growing. The only market share growth has occurred in the indie space at the expense of the major labels. At this point, the majors basically focus on pop and rap, and everything else is the domain of the indies these days--rock, classic rock, pure jazz, blues, classical, dance.

MP3: When Dimensional acquired eMusic, you said you hoped that eMusic would be a way to level the playing field for independent artists because, as you mentioned, the major digital music services tend to lean toward content from the major labels. Has that happened?

DP: We're definitely heading in the right direction. When the digital music space first took off, the conventional wisdom was that it would grow the overall music market because you'll have more access, convenience, and unlimited shelf space.

But that's not a foregone conclusion anymore, principally because the mainstream digital music services like iTunes are doing their very best to re-create the same things that happened in physical music retail. They're basically selling and marketing the hits. And there's nothing wrong with that. You can sell a lot of music that way because that's what most people want to buy.

But what is iTunes really doing to try to make sure that something beyond that sells? They have no motivation to do that. If that's the case, and if digital music retailers are just re-creations of Tower Records, then the music industry won't grow. It's simply going to replace physical with digital.

I don't believe it will grow unless you have retailers or merchandisers or marketers of music who are working to sell music beyond what's already on the charts. And that's exactly what eMusic is meant to do and I think we're doing a very good job doing that.

MP3: I get the sense that you think iTunes et al don't spend enough time targeting the older demographic that's not into the latest hits.

DP: We've done a bunch of customer research. If you send your typical 36- to 42-year-old person to the iTunes homepage, their reaction tends to be, "This is music for my kids." They don't really know who Kelly Clarkson is and who Ludacris is. So it's not going to help reconnect them to music. These people are eMusic customers.

MP3: And they're your preferred customers?

DP: They're a much more pleasant consumer to deal with because they are far less fickle. They are are interested in value but they're not starving for dollars. They have credit cards that are valid and don't max out all the time and they can afford to buy both a $400 hardware device and spend, you know, 100 bucks a year on music. So, we like that consumer a lot better.

MP3: How comfortable is eMusic with its niche? Talk about finding the balance between wanting to offer as much music as you can to your customers without going down the DRM road, without moving into the major-label space where, you know, it's a DRM-or-bust kind of a thing?

DP: We're very comfortable with our position. It's in our DNA. We'll continue to be no-DRM, not for philosophical reasons but only for practical, compatibility reasons. And if that whole practical, compatibility thing got sorted out, if you could sell DRM-protected music that was interoperable everywhere and that wasn't sort of penalizing customers for buying music digitally, we would do that.

MP3: You're not worried about limiting your customer pool by avoiding major labels?

DP: Many of our customers will still want to buy some music that's on a major label and they can't get that from us. And for that, it's still great to go to an iTunes or another place and download a few songs. But they know that with that comes some trade-offs. They know that their music they buy from Apple will only play on Apple devices and they may not own all Apple devices. They know that the music they buy from Napster or Yahoo or AOL won't work on their iPod. And we don't see that changing in the short term.

MP3: So you're not philosophically opposed to DRM, just the interoperability problems that it creates?

DP: We believe very strongly that it is a content owner's right to determine how they want to sell their stuff. So, we don’' have any, again, political or philosophical problem with DRM. But in operating a consumer service, we know that the customer has to come first. This is the first time in the history of the music business that we're selling music in formats that are not interoperable. I mean, the CD, the tape, the record, the 45, the eight-track. They all played on any device.

We certainly do believe that the lack of interoperability is holding the digital music market back. There's no question that Napster and Yahoo and AOL's MusicNow would all sell more music if they worked on the iPod. So definitely DRM as it relates to lack of interoperability is a problem for the industry. In terms of DRM's limitations on consumer behavior, I think you can strike a balance with the consumer that says, "You can still do some things with this, but not everything that you might be expecting to do." You just have to disclose that up front to them.

MP3: So lack of interoperability at a time of depressed music sales is a unwise, as far as you're concerned.

DP: At a time when the music industry sales are down like 30 percent over the last five years, it's not clear to me why the response to the industry has been, "Sue the customers. Lock down the CD in a careless way that might infect their computer and piss them off, and then sell them music that's not interoperable when they do want to buy it digitally." You should be embracing that customer who still wants to pay for music, you know, in such a glorious way, and I don't think they do a good job doing it.

MP3: If independent labels represent about 30 percent of music sales, how much of that does eMusic have and where can the service grow its catalog?

DP: In the US, we have about 90 percent of the independents, and we'll get the other 10 percent. We have 3,800 labels signed up. In Europe, 30 percent of sales are indies, and we have been licensing there pretty aggressively in the past year.

Together Europe and the US put us at about a million and a half tracks. Then you go to the rest of the world and, you know, there are millions more tracks. We count on [in-house digital indie distributor] Orchard to help with that. So at 2 million tracks, we would have the lion's share of the most interesting independent music in the world? Are there a few more million tracks out there that we should get over time? Yeah. But they're not as essential.

MP3: So how does the pitch to a label work now that major label services like iTunes and Rhapsody are also licensing indie content? Is it that, "If you license to us, you won't have to fight for space with Mariah Carey and Kanye"?

DP: This is what's so nice about our model. It's not dependent on us having exclusive access to music. Until iTunes and the other services decide, "We should subjugate some of this great pop and mainstream content that the four majors are insisting that we highlight in order to sell more of this less well-known music," then we will continue to be highly differentiated and I don't really see that happening.

The pitch is that with us selling 4.5 million songs a month--that's more music than Napster, Yahoo, AOL, MSN, and all the other services sell. So, we're second to iTunes and the others are nowhere near either of us.

MP3: But not a close second.

DP: Apple is selling boatloads more music than we are, but we don't spend $100 million on marketing, either. So, the royalty checks that eMusic pays to our labels, we are told consistently, is somewhere between 50 and 75 percent the size of the iTunes check and is greater than all the other services combined.

So, the economic benefit of selling your music on eMusic is plain in sight for every label. And we're not asking for exclusivity. And what we keep hearing from some of these labels is, "It doesn't make any sense to do anything other than the iTunes and the eMusic deal because with all the other services, we're getting pennies, if that."

MP3: Explain the secret of subscription services to us. If I pay eMusic $9.99 per month for the maximum for downloads per month, that works out to be 25 cents per song. If the labels are griping about Apple's pricing at 99 cents, how is it that you guys make money?

DP: It's the same way that health clubs exist. If 1,000 people sign up on January 1st with their New Year's resolution and all 1,000 people went every day, the gym would be way too crowded and you would quit.

But, of course 1,000 people don't go every day and some people go for the first couple of months and then don't ever go again for the rest of the year. That's the same model for us and Napster and Rhapsody, where a label might get less on a per-song basis but the consumption tends to go up.

The iTunes customer buys about three or four songs per customer per month on average. The eMusic customer buys 20 songs per month on average. So, the consumption is much higher when a user prepays for music. They want to get their money's worth. That also means that a highly casual user probably won't subscribe to a service because it's too much of a commitment. So, the difference between the models is that labels might get less on a per-song basis in a subscription service but will sell more of their music.

MP3: Last question, and probably the hardest of the bunch. Name five albums in your personal heavy rotation right now.

DP: Okay: Aimee Man, Lost in Space; Cary Brothers, All the Rage; Mike Errico, Pictures of the Big Vacation; Glenn Tilbrook, Transatlantic Ping Pong; and Colin Hay, Man @ Work.

MP3: Ahh, singer-songwriters.

DP: You got it.