New Formats

In a recent interview with Doug Dixon, David Kusek argues that the industry needs to develop new formats for music
distributed in physical formats. "Dual Disc is certainly a pointer in the
right direction," he says. "You need to create something that has
great value in order to continue to compete."

For example, in the movie A Clockwork Orange, says Kusek, "even
before CDs were out, they played music on a disk that was a little bigger than a
silver dollar. It reminds me of the idea that perhaps there are other formats
that could be developed, nontraditional formats, from what we have seen so far.
If you had a recordable format that was more convenient than CD, and held more
data, and was faster to record, then perhaps you could have a system where the
recording could be inside the stream of commerce."

The other critical trend, he says, is that "the price of these physical
products needs to come down. I’m encouraged that Dual Disc seems to be priced
around $18 to $20, and discouraged that CDs continue to hover in the $15 to $18
range. I don’t know how much control the manufacturers have over this, but to
the extent they can encourage their customers to be more realistic about pricing
CDs, the longer they will be able to stay in business. I really do believe the
price point for an audio CD is south of $10 at retail."

Music Commerce

But isn’t piracy destroying the industry? "There are two forms that are
currently labeled piracy," says Kusek. "You have the wholesale
replication of CDs and DVDs. To me, that’s counterfeit products and is obviously
not to be tolerated. It is certainly evil and criminal, and bad for
business."

"But the other kind of behavior that is labeled as piracy — downloading
files and trading files with your friends — I’m not sure that I would put that
in the same camp. Often there is no profit margin, there’s no distribution
network, other than yourself and a handful of people that you know. Generally,
you are not selling files to your friends."

"You can measure wholesale piracy and replication in many billions of
dollars, whereas for downloading and file sharing, it’s hard to quantify whether
it has had any negative impact at all in terms of real sales. I actually think
that is good for music, as painful as it may be for to the record
companies."

"I don’t think that file sharing and downloading of music is going to
stop," says Kusek, "until there is something easier, and better, and
cheaper, and more appealing. So as I argue in the book, why not embrace that
behavior, license and tax it, and somehow derive money from it? Make it easier
to find music, improve the quality of the files, and make it easier to record,
instead of trying to fight it. It seems a completely losing battle; People are
never going to stop doing it as long as the price of CDs is too high. So why not
go with the flow and embrace it?"

Investing in the Future

Says Kusek, "by and large the record companies are not in touch
with their customers at any significant level. They thought that their customer
was Wal-Mart. They are out of touch with their ultimate customer, and their
customer shifted away from them. They are still selling a ton of CDs, but the
whole file sharing thing was off their radar screen until someone told them
about it. So then they decided, let’s just go sue all these bastards."

"That bothers me as well," he says. "I ran the numbers, and
somewhere between 30 and 40 million dollars is being collected in the
settlements from the RIAA. But none of that money is going to the artists or
songwriters. It is going to the attorneys and the courts to process the papers,
and whatever is left is going to fund more lawsuits. It’s incredibly wasteful.
The numbers I see show file sharing growing on a monthly basis, ever since they
started the lawsuits, so it is not working. Imagine if they took $40 million and
invested it in a new way of delivering music that is attuned to the way people
want to buy."

To help people in the industry examine these options, Kusek runs an online
course on "The Future of Music and the Music Business" through the
Berkleemusic.com online extension school. "The course is for people at any
level of the music business," he says, "from artists, songwriters,
managers, record company, publisher, promoter, venue. We have had a lot of
people sign up from those areas trying to figure out what am I going to do in
the future: I own a record label, and how I get into this digital thing, or I am
a manager, and I can see that the labels are not really servicing my clients
anymore, so how can I grow my business in an appropriate way. A lot of the work
we do in the class is class projects or personal projects where you apply what
we are talking about to your situation and try to figure out what the next step
might be."

From his classes and consulting work, Kusek also sees differences in the
music business across the global economy. "One of my online students runs a
CD and DVD manufacturing company in India," he says. "They’re finding
that sales are actually quite healthy because the computer thing has not taken
off in the way it has in other parts of the world. I think there are many areas
in the global economy where there are lots of legs left to the existing physical
media, and those folks have more time to figure out alternatives."

Read the complete interview here at Manifest Technology.