Internet: Death of a Dinosaur

Published Jun 17, 2004
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Music may well be the food of love, but in any case, it’s penetrating every consumer medium with any mass-market appeal. We buy CDs and play them on our stereos; we listen to the radio while we eat breakfast, and while we drive our cars. We go to concerts. The papers are full of music news and charts, MTV and VH1 bring us music videos 24/7, and soundtracks are vital and integral part of movies. And increasingly, we are consuming music through the Internet. Some of it in legal ways, a lot of it ripped from a CD and posted on the Web, in newsgroups, through I.R.C. chat rooms, or distributed through file-sharing networks. The music biz is scared out of its collective wits. So how can the Internet become a good, safe marketplace for record labels, musicians, and consumers?

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Old News
Illegal distribution of music is nothing new. Since the blank tape made its entry into the mainstream, people have been taping songs off the radio, copying complete albums from friends, and making mix tapes to accompany them in their cars, at parties, and in portable devices like the Walkman. The music industry sporadically spoke out against such copyright infringements, but never took any serious action. The threat was never serious enough to warrant serious measures. But when the Internet proved to be the ideal place to distribute music, the industry reacted with abject fear, and they are fighting the consumers and their perceived revenue losses with tooth and claw. This, ladies and gentlemen, is extremely counterproductive, and can only lead to the extinction of the record industry as we know it today.

The Bigwigs
Jack Valenti, the head of the Motion Picture Association of America (MPAA), and Cary Sherman, president of the Recording Industry Association of America (RIAA), have been the figureheads of the crusade against illegal distribution. Since the dawn of the Web, they have been focused on keeping the existing revenue structure intact – a structure that is radically skewed in favor of the record companies. They have gotten serious help from right wing republican senators such as Orrin Hatch. Last year, the industry convinced Hatch to include amendments to the EnFORCE act (Enhancing Federal Obscenity Reporting and Copyright Enforcement Act of 2003) that would extend that exemption to “physical product configurations” such as CDs.

This means stricter copy control on discs, but the real issue is not that people make copies of CDs. That is only one of the ways people listen to songs. The real issue is that the record industry should accept that people want to consume music, in any format, on any medium. The business models under which they operate should reflect that fact. It is simply not fair to consumers that they should pay the same price for a song if they buy it online as they would on a store-bought CD. The distribution cost is way lower in the digital online world than in the realm of plastic casings and glossy inlays. If they refuse to change, they will go the way of the dinosaurs.

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New Economy. New Rules?
The industry is understandably worried about how it will keep their revenues. And the truth is they won’t. At least not in the same way as before the online music explosion. One of the great changes in the new digital economy is its potential for spreading the wealth. When music is distributed online, songwriters and musicians are in a position to renegotiate their piece of the action, especially since the record company spends less money packaging and marketing the music digitally. Musicians now have a stick they can wave at the labels: Unless they get a decent cut of the action, they can distribute the music themselves, or use one of the numerous independent labels and distribution outfits who tend to ask for around 15 percent of the gross, instead of 75 percent.

It remains to be seen whether or not the artists and their unions can take advantage of the current situation, and get a more balanced deal. You may think that musicians are well-off, but while U2, Britney Spears, and Michael Jackson have amassed big bunches of money, most artists can’t live off what they do. Record contracts typically stipulate that the label is entitled to have all production, distribution, and marketing costs covered, before the artist sees dime one. This means that the musician is taking the lions share of the risk. In the new economy, there should be a new set of rules. But the artists have to act to implement them.

Don’t Mess With Your Customers
The way the industry has handled the situation has only served to alienate every music fan in the world. Most people want to acquire music legally, and they will go to great lengths – and pay a lot of money – before they turn to illicit means. But the record industry has more or less driven a lot of people into piracy. Make no mistake; a small portion of the population – mainly techsavvy kids – prefer to act outside the law, and they will not be swayed into buying their CDs if the prices go down. But they are not the majority. For the rest of us, we want to consume music legally. But when it becomes obvious that we are getting screwed – some of us react by ripping CDs and downloading mp3s. The rest of us pay up, because becoming a criminal is not an alternative.

The Vanguard
In its first year of existence, Apple’s iTunes has sold more than 70 million songs online. This is a bit short of the 100 million originally projected, but way more than anyone else. And still, the more than 700.000 songs available through the service is only a drop in the ocean of recorded music – 99 percent is still unavailable online. Apple head honcho Steve Jobs wants to bring you more. A lot more.

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His idea is to collect all the music that is lying around in warehouses, on master tapes, vinyl, cassettes and CDs, and encode it for digital distribution. Most record companies only have about a third of their total catalogue available in the stores. This is not really due to any ill will, it is simply too costly to distribute records that aren’t big sellers. Apple is creating a new business opportunity for record labels, from the very small to the very big, with digital distribution, cheap and easy.

The Big Idea
“What Jobs is saying is, ‘We’d be happy to take all this content that is rotting away in warehouses and turn it into a new revenue source for you,’” Barry Ritholtz, a market strategist with Maxim Group, a money-management firm, told Wired News. “It’s probably a bit much to say Jobs is saving the music industry, but he’s showing them the way into the digital age. They have been stumbling around drunk in the dark.” One big record company that has embraced this new idea, is Motown, the soul and r&b giant that has a huge back catalogue of music by greats such as Stevie Wonder and Diana Ross. They struck a deal to put the first 45 Motown singles and 45 classic albums on iTunes, celebrating Motown’s 45th birthday. Others are following suit.

I don’t think iTunes will change the way we listen to music all by itself. But it is inevitable that the music industry will change, whether it wants to or not (obviously it doesn’t.) In the next few years, we will see a complete revamping of the business – with complete emphasis on the Internet. Who’s next? The movie and gaming industries, of course. They are up for a complete renovation as well.

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