The Digital Age and The Future of Music.

It’s no secret that the music industry is challenged on multiple fronts. Now that we’re in the digital age, how can they change their outlook? Celia Hirschman, KCRW’s music industry commentator, speaks with Gerd Leonhard, co-author of The Future of Music: Manifesto for the Digital Music Revolution.

Listen to the Interview (Real)

Sales down almost eight percent in first half of 2005


Gloom returned to the record business in the first half of 2005, as album sales dropped 7.6 percent compared with the same period last year, despite blockbusters from 50 Cent, Mariah Carey and Coldplay.

In 2004, a two percent rise in sales from the previous year encouraged many that, after a three-year slump, the record industry might be on the road to recovery. But now the gains look more like a blip than a turnaround. "Everybody involved in the music industry
is concerned, because there’s a problem and it doesn’t seem like it’s being fixed," says the Firm’s Daniel Field, manager of Audioslave and Weezer, who hit Number One and Two, respectively, on the pop charts in early summer. "You walk into a record store and you can just feel it."

Read the Rolling Stone article.

The US Senate has recently turned its attention to online music licensing. The Senate Judiciary Subcommittee on Intellectual Property initiated the discussions Tuesday. At root is whether the current licensing framework for digital services is fair and clear enough to promote entry and growth. Rob Glaser of RealNetworks argued that there are inequalities which need to be addressed. "By clarifying and simplifying the compulsory composition mechanical license and the statutory sound recording performance license, this Subcommittee and the Congress will provide RealNetworks and the entire online music industry with business and legal certainty and dramatically reduced complexity," argued Glaser.  Music publishers have recently been showing greater interest in some sort of unified licensing scheme on account of the detrimental effect it would have on piracy and illegal downloads.

Read the  story at Digital Music News.

The new names in digital music are familiar, but they specialize in commercial music. Everyone knows Apple Computer as the company that is now moving more iPods than Macs. Former peer-to-peer bad boy Napster is now the lobotomized pimp of commercial music subscription services….

The broadband migration continues. Bandwidth and servers get
perpetually cheaper, yet the market seems to think that the only money
to be made in digital music is in pitching popular tracks for a buck or
less, or coming up with some portable aural smorgasbord solution of
commercial tunes. In a word, strategy is primitive.

That’s why I believe that, years from now, the major labels won’t be
the same batch of old-school vinyl pushers you see today. As ludicrous
as it may seem, I think that the real power brokers in the music
industry will be Google, Yahoo!, and Microsoft.

Read more from Rick Aristotle and the Motley Fool

From The Future of Music book

There is no direct proof that file sharing itself is hurting the music
industry. Record companies are touting this single-bullet theory to
explain away all the ingrained problems of an antiquated business
reaching the end of its life cycle. Indeed, one can argue that file
sharing is the cheapest form of music marketing there ever was.

Danny Goldberg, Chairman and CEO of Artemis Records, said, "I
don’t think there was any more downloaded song than 50 Cent’s [in
2003], and yet it sold nine million albums. So there were nine million
households that felt, despite the fact that they had seen the video,
despite the fact that they could get it online, that they wanted to
hear the full statement that 50 Cent was making."

File sharing should not be equated with the type of piracy that
is affecting the music industry on a global scale. Traditionally, in
the music business, piracy refers to the activities of organized
criminals who manufacture illegal copies of CDs, DVDs, tapes, and
records, then photocopy the covers and sell the illicit product on the
street for a steep profit. Pirates in many countries run pressing
plants that churn out CDs by the millions without paying the mechanical
reproduction licenses and mechanical license fees to the owner of the
master recordings. The International Federation of the Phonographic
Industry estimates that the number of illegally copied and/or
manufactured CDs increased 14 percent in 2002 and an additional 4.3
percent in 2003, to 1.1 billion units; and worldwide, 35 percent of all
CDs sold are illegal copies. It is estimated that the value of the
pirated music sold amounts to $4.6 billion, and these figures don’t
even include online file sharing or recording of audio streams. In 2002
the global recorded music market declined 7 percent to $32 billion, and
another 7.6 percent in 2003. Leaving file sharing out of the equation,
CD piracy as defined above, could account for the majority of the
decline in CD sales all by itself.

Read more from chapter 3 of the Future of Music here

For the industry, the best news about the Supreme Court ruling is that both music and technology companies can move forward with a clearer understanding of what the rules are.   It is time to get to work.  There is a fantastic opportunity for all parties to come to the table and establish some standards and bang out a digital music license that embraces the new technologies and allows the legitimate market to grow.  If the music companies continue with their strategy of scorched earth litigation and refusing to work with the P2P companies, they will miss the chance to negotiate a forward looking license, without congressional intervention.

While the music companies may feel that they won a tremendous victory, the reality is that their customers are turning away in droves. The day after the decision there were more than 5 million people online trading files.  If the music companies do not provide an authorized way for people to get music the way they want to, music fans will simply continue to get the music for free.  People need to realize the immense monetary and political power of the entertainment industry and fight back against inflated prices, limited distribution and being told what they can and can’t do with their music.  As a music consumer you should demand that the music industry stop suing their own customers and come to the table and negotiate a digital license for music that embraces the new realities of the digital marketplace.

This excerpted from the March 29th transcript of the oral arguments in MGM vs. Grokster between Richard Taranto Esq, attorney representing Grokster, et. al. and Justice Anthony Scalia.

MR. TARANTO:

Let me say a few words about what the record says about legitimate activities. Altnet is a company — they say that they have distributed, on peer-to-peer systems, hundreds of thousands of
authorized songs, and, they say, millions of pieces of video games, leading to sales. This is not a trivial
number. JIVE, speaks about 250,000 peer-to-peer downloads of a music video. The Internet archive,
which is talked about in the record, and as you now look at what they are on their Website, now lists some several
hundred musical artists with 20,000 recordings which are being put out there for peer-to-peer distribution. The
Creative Commons is licensing all kinds of things for authorized public distribution. There are musical bands —

JUSTICE SCALIA: Because, I gather, that some artists don’t make money from the records, but make money from the
popularity that draws fans to their concerts…  So they’re willing to give away the records for free.

MR. TARANTO: — My understanding is “some” is a great understatement, yes.  The bands which have authorized their live concert
recordings to be traded among — on — to be traded. The GigAmerica business is in the business of compiling musical recordings and other things for authorized distribution. The world of
music distribution and video distribution and movie-trailer distribution and, in small instances now, text
distribution, but growing, is changing and making use of this extremely innovative, low-cost tool. The great innovation
of this tool of communication ….

The great virtue of peer-to-peer decentralized software is that it doesn’t require anybody to put stuff onto a
server and then bear the cost of bandwidth, of being charged by the Internet service provider when a million people
suddenly want it. It automatically scales. It — the more people who want it, the more people will have it, because it
will be out there on a million computers. That is an inherent distributional economy, together with the autonomy of the
user, rather than having a kind of Mother-may-I system, with having to check every communication through some third
party to say, “Am I authorized to make this communication,” that are the virtues of this system and that make it
clearly capable of growing the already large hundreds of thousands, even millions, of uses that this — that these
pieces of software already enable people to do.

One final word. We’re not disputing that there are, in an industry-wide way, a set of important policy
issues here, though there’s nothing in the record about what self-help measures — digital-rights management,
encryption, other things — there’s nothing in the record what — about that. There’s nothing in the record about what
kinds of real industry harm is being done by this. Right? This is all citations to Websites in their brief. These are
classic questions of predictive judgement, industry-wide judgements that Congress should make to decide whether there
is a problem in need of solution, and what solutions ought to be considered, whether changing the rule would have a
overriding bad effect on other industries.

Read the complete and lengthy transcript here.  Film at 11.

"Before, say, ’94 or ’95,
before the Internet came around, there seemed to be a sharper divide
between those who create and those who consume: It seemed like you were
supposed to be either one or the other. I love to see this kind
of American rebellion, fueled by extreme hate for the record label, not
just from the fans but from the people like Prince, Ani DiFranco, Aimee
Mann, that have loudly said how they hate their label and they’re never
going to work for a label again. I have the feeling that a new
generation of musicians will grow up not having to be converted to that
way of thinking.

Like right now, I meet lots of 30-something
musicians, who maybe spent their teens and 20s wanting to be a rock
star, and now are kind of starting to think, “Well, maybe I can make a
good living just putting out my music directly and doing it on my own.”
But they kind of had to fall over to that way of thinking. What I think
will be really interesting is, imagine being a 13-year-old musician
right now, growing up surrounded by this mentality of “Fuck the label,
the label sucks, indie is cool, go direct, never sign over your rights
to somebody else”! Imagine growing up in that mentality, and what
that’s going to look like in 10 years!"

Read the LA Weekly interview here.

All eyes are on the Supreme Court, with a decision in this important case predicted as early as next week.  The Electronic Frontier Foundation (EFF) is defending StreamCast Networks, the company behind the Morpheus
peer-to-peer (P2P) file-sharing software.

Twenty-eight of the world’s largest entertainment companies
brought the lawsuit against the makers of the Morpheus, Grokster, and
KaZaA software products, aiming to set a precedent to use against other
technology companies (P2P and otherwise).  The case raises a question of critical
importance at the border between copyright and innovation: When should
the distributor of a multi-purpose tool be held liable for the
infringements that may be committed by end-users of the tool?

The Supreme Court’s landmark
decision

in Sony Corporation of America v. Universal City Studios,
Inc. (a.k.a. the "Sony Betamax ruling") held that a distributor cannot
be held liable for users’ infringement so long as the tool is capable
of substantial noninfringing uses. In MGM v. Grokster, the Ninth
Circuit found that P2P file-sharing software is capable of, and is in
fact being used for, noninfringing uses. Relying on the Betamax
precedent, the court ruled that the distributors of Grokster and
Morpheus software cannot be held liable for users’ copyright
violations. The plaintiffs appealed, and in December 2004 the Supreme
Court agreed to hear the case.

"The copyright law principles set out in the Sony Betamax case
have served innovators, copyright industries, and the public well for
20 years," said Fred von Lohmann, EFF’s senior intellectual property
attorney. "We at EFF look forward to the Supreme Court reaffirming the
applicability of Betamax in the 21st century."

Read more from the EFF and get ready for this extremely important decision.

Online music distribution is set to grow significantly over the next
few years, forcing industry to reconsider their business models and
posing regulatory challenges to governments, according to a new OECD
report on the digital music industry.

A ‘re-evaluation’ of music distribution needs to happen to achieve a
balance between consumers’ desire to access digital music and the
industry’s copyright protection concerns…. Instead of paying a set fee to download an individual song, music
downloads might become part of a subscription package from a cable
television company, internet service provider or mobile-phone carrier,
the OECD said.

  • A key requisite for the creation of efficient online music
    delivery is a competitive and wide-spread access to broadband
    infrastructure. The delivery of online content also necessitates new
    technologies and an environment that facilitates the creation,
    acquisition, management and delivery of content. Effective and secure
    (micro)-payment systems are needed.
  • Alliances between content providers, broadband and technology
    providers that come up with new business models play a critical role in
    driving the adoption of licensed content services.
  • A diversity of interoperable content, standards and hardware are
    likely to prove most beneficial to efficient online content markets.
    With vertical integration, lock-in of consumers to certain standards,
    and difficult access to certain content, an environment where small and
    innovative players can compete should be maintained.
  • The OECD notes the importance of government actions to take steps
    to address online piracy. Around one third of Internet users in OECD
    countries have downloaded files from P2P networks. While, in principle,
    file-sharing software is a new and innovative technology, piracy is an
    important impediment to legitimate online content services. The most
    important is to find equilibrium of available legitimate and innovative
    uses of new technologies and the necessary protection of associated
    intellectual property rights (i.e. copyrights).
  • The Internet already provides new forms of advertising at lower
    cost, lower barriers to entry for artistic creation and lower costs of
    finding new talent. However, the effects of authorised and unauthorised
    file-sharing and digital music services with pay-per track offers on
    artists and the music supply are not yet obvious and need further study.

Read the Organisation for Economic Co-operation and Development Report

"The report said it is difficult to establish a causal connection between the rise of file sharing and a drop in music sales. While the music industry’s revenues fell 20 percent from 1999 to 2003, other factors, such as illegal CD copying, might have played a role in the decline, the OECD said," according to an article that ran on Wired.com today. "The report recognized the value of fledgling online stores like Apple’s iTunes. Last year represented a "turning point" for legal music downloads, the study said. However, online music distribution only accounted for 1 to 2 percent of music revenues in 2004. The OECD expects to see that climb to 5 to 10 percent of revenues. But growing online sales will depend on expanding catalogs to appease demand and sway illegal downloads, the OECD said. The report also suggested exploring new distribution methods, beyond what the OECD called traditional… transactions."

Read the article.

As TVT’s chief executive officer, Steve Gottlieb, puts it: "Manufactured pop culture is disintegrating before your eyes as the Net takes hold," and the nimbler, less risk-averse indies are best positioned to take advantage of the digital transformation. While the majors look at P2P file sharing, podcasting and other forms of digital distribution and see thieves, pirates and the willful disregard of copyright, the indies increasingly see a chance to connect directly with their customers – and an opportunity to steal a march on the Big Four. As Gottlieb points out, independent artists now account for 30% of internet radio play, and labels such as Artemis Records (Steve Earle, the Pretenders) have been distributing files over P2P networks for over a year. Add the fact that podcasters, at the wheel of the fastest-growing media phenomenon around, almost universally avoid major label music due to potential licensing infractions and it starts to look like there’s a digital train leaving the station – and the majors aren’t on it.

Read more in Digital Music News

Independent labels use networks as a way to reach consumers, not necessarily make money.

"…To many independent labels, the main goal is simply to introduce music fans around the globe to little-known artists who have no chance of being played on commercial radio stations. The payoff they hope for in the long term is greater CD sales; any downloads they sell on the networks are icing on the cake.

"It is small, but everything starts small," Chief Executive Daniel Glass of Artemis Records said of his company’s revenue from Kazaa and other popular file-sharing networks. "To not be part of it is insane."

Read the whole article from the LA Times here

New York – WFUV Presents – If the new world of mp3 blogs, mash-ups, downloads and ringtones boggles your mind, tune in to Let’s Get Digital as host Jen Guerra takes a musical look at all things online.  The New Yorker Pop Music Critic Sasha Frere-Jones, CDBaby.com Founder Derek Sivers, Berklee College of Music Vice President David Kusek, Creative Commons Executive Director Glenn Otis Brown, Analyst Phil Leigh and others join Guerra for an hour-long program examining how the race to get online affects not only musicians, but music fans and the music business in general. 

Let’s Get Digital can be heard on WFUV (90.7 FM) www.wfuv.org and streaming online.

"Like modern  plumbing, the music industry could operate almost as a  utility—with copyright holders able to meter usage down to  how many people listened to particular songs at particular  times. In such a world, the industry could live off of micropayments flowing seamlessly back to the owners of  content rather than rely solely on the disjointed and  inefficient distribution of CDs to retailers. Artists, meanwhile, would have unprecedented access to new listeners  as their songs spread virally into vast musical networks  that fans can access literally anywhere. As the most  accessible artists find their audiences, those artists would  enjoy increased concert attendance, new forms of merchandise  and countless other opportunities to connect with fans like  never before."

Read part one of the two part interview

Part two is here

"The latest CD sales numbers are part of an increasingly bleak picture, with the first half of 2005 likely to be a big disappointment. Disc sales have been declining for years, that is nothing new, but now it appears that the bottom could be a long ways away. A quick and dirty analysis points to a format transition, with music consumers gradually moving away from the physical (CDs) towards the digital (downloads, subscription services, etc.) That is how disruptive market shifts work. But somehow, the reality is a bit more complicated. After all, the U.S. market is still estimated to be more than a $10 billion business, and people are still buying CDs from artists they love. Most of these consumers have easy access to free or paid downloads, subscription services, and other options like satellite radio. Perhaps it is in our consumer genes, the need to touch and own something tangible in exchange for our hard earned dollars. Whatever it is, the CD market has not been decimated, and it is not going away tomorrow.

But CD sales are only one part of a much larger picture. Sure, tremendous attention is paid to declining major labels, RIAA lawsuits, suffering retail chains, and lackluster IPOs. But that is all part of the record business, with the music business a much larger entity. Smart artists today think beyond the CD, incorporating merchandising, touring, publishing and sponsorships into a more well-rounded picture. Those other aspects of the business are not in a downward spiral, with customers often spending more than $150 in one evening for a concert ticket, parking, and a t-shirt or two. And no one has to ask those consumers twice – they are ready and willing to spend big bucks for the artists they love.

That larger picture has never been one that major labels have been able to capture. The story is a familiar one: artist signs with label, label invests and makes artist popular, artist reaps benefits of ancillary revenues without the label getting a cut. That is a scenario that has been repeated for decades, but now that non-diversification is starting to threaten the very existence of the big four. Meanwhile, movie studios have an entirely different business structure, reaping revenues from theaters, DVDs, television broadcasts, even stuffed animals and airline screenings. That, coupled with an entirely different consumer relationship, may make the digital disruption less severe in Hollywood. In the meantime, artists like Linkin Park and Coldplay could be the first of many flare-ups, with more artists starting to view themselves as small business units and not major label adjuncts."

From Paul Resnikoff, Editor Digital Music News

How will fans purchase music in the future? Will people keep buying tracks for their personal libraries on iTunes or will the subscription model proposed by Napster, Real and others be the ultimate channel of consumption? Should music become a utility? How should the rest of us best position ourselves for the continuing rapid evolution of the distribution models of content?  These are the questions we address in this edition of IRIS Research.

To The Best of Our Knowledge

Seven hundred million people get their music from the Internet. More than 10 million people own iPods. Does this mean that compact discs and record companies are going the way of the gramophone and eight-track tapes? In this hour of To the Best of Our Knowledge, we’ll look at this digital music revolution…as we explore the future of music.

Check out this program from Wisconsin Public Radio

Forbes_80_100

People should pay for their music the way they pay for gas or electricity.
Forbes Article 2005

More people are consuming music today than ever before, yet very few of them are paying for it. The music recording industry blames file sharing for a downturn in CD sales and, with the publishing companies, has tried its best to litigate this behavior out of existence, rather than try to monetize the conduct of music fans. These efforts are fingers in a dike that is about to burst. Digital media are interactive, and people want music that they can burn to CDs, share and use as they wish. The music industry should instead look at turning this consumer phenomenon into a steady stream of cash–lots of it.