Jul 01, 08Last updated: May 8, 2008
The Elevator Pitch for the Future of the Music Industry
1. Among all of the communication industries examined on the FutureOfPublishing.com, music occupies a unique position. It's where the battleground has been most clearly drawn. I see it, in the terminology of Nicholas Negroponte, as a struggle between "bits" and "atoms" - the analog and the digital. Analog atoms are easier to control than digital bits. They also happen to feature higher retail prices and better markups.
2. On the other hand, the digital bits group can make the argument made on those old late-night television commercials for cheap furniture and used cars: "How can we sell them so cheaply? We make it up on volume!" (As Amazon's Jeff Bezos recently wrote about the Kindle: "Anytime you make something simpler and lower friction, you get more of it.")
3. Maybe information (or entertainment) doesn't exactly want to be free (certainly its publishers seem unenthused about the prospect), but once it's in digital formats, it certainly is a lot easier to set it free, to distribute multiple copies, often in contravention of copyright laws, and, one might say, simple moral rectitude. Once the digital horse gets out of the barn...well, I think I'll just stop that metaphor right there. But it will become clear as you read this article that the forces that have been unleashed by the digitization of music are proving impossible to reign in.
4. The wild card in what's going on in the music industry goes far beyond the simple illegal distribution of digital copies of songs. Beneath those all-too-visible waves is a change in the power structure of the music industry: the relative power of artists, producers, distributors and consumers. This ultimately will prove more significant that the issues faced today.
5. While the music industry is in the midst of an enormous transformation, music today remains extraordinarily popular amongst consumers, particularly the demographic that matters most: young people. There's a great future for the music industry. It just won't look very much like it is today.
2. On the other hand, the digital bits group can make the argument made on those old late-night television commercials for cheap furniture and used cars: "How can we sell them so cheaply? We make it up on volume!" (As Amazon's Jeff Bezos recently wrote about the Kindle: "Anytime you make something simpler and lower friction, you get more of it.")
3. Maybe information (or entertainment) doesn't exactly want to be free (certainly its publishers seem unenthused about the prospect), but once it's in digital formats, it certainly is a lot easier to set it free, to distribute multiple copies, often in contravention of copyright laws, and, one might say, simple moral rectitude. Once the digital horse gets out of the barn...well, I think I'll just stop that metaphor right there. But it will become clear as you read this article that the forces that have been unleashed by the digitization of music are proving impossible to reign in.
4. The wild card in what's going on in the music industry goes far beyond the simple illegal distribution of digital copies of songs. Beneath those all-too-visible waves is a change in the power structure of the music industry: the relative power of artists, producers, distributors and consumers. This ultimately will prove more significant that the issues faced today.
5. While the music industry is in the midst of an enormous transformation, music today remains extraordinarily popular amongst consumers, particularly the demographic that matters most: young people. There's a great future for the music industry. It just won't look very much like it is today.
Page Index
- Summary of the Future of the Music Industry
- The Economics of the Music Industry
- Digital Rights Management and the Future of Music
- Even When They Win, They Lose
- Prognosis for the Future of the Music Industry
Summary of the Future of the Music Industry
Music is a creative endeavour, and is "published" and distributed in a manner similar to all other types of publishing examined on this site. Beyond the music itself, the lyrics are often poetic - indeed musicians such as Leonard Cohen and Joni Mitchell have published books of poetry and/or lyrics from their songs.Like books, the publication and distribution of music has always depended on available technology: 78s, LPs, singles, 8-track, CDs (but now a host of new formats and distribution methods). Technology and manufacturing has always controlled the conduct of this industry, as it has all others in this survey.
The digitization of music, made simple by computers, and its distribution, altered completely by the Internet, is dramatically changing the way music in marketed and sold.
The Economics of the Music Industry
According to a report on The iPod Observer, quoting data from NPD, "some twenty-nine million consumers ‘acquired' digital music legally during 2007, specifying the legal online download services such as iTunes. That represents a 5% increase compared to 2006, and that growth was largely driven by consumers age 36 to 50. NPD said that demographic ‘aggressively acquired digital music-players in 2007.'" The report continues, "however, kids today are too busy stealing music through P2P networks to actually pay for it in either CD or digital format... One million people stopped buying CDs in 2007, and NPD said that a majority of those people were ‘younger consumers.' More specifically, some 48% of U.S. teens didn't buy a single CD during the year, and that's a huge increase compared to the 38% who eschewed CDs during 2006. Be that as it may, digital downloads now account for 10% of total music sales."Another blog report on NPD's data in the New York Times reported that "NPD's annual survey of Internet users, which is some 80 percent of the population these days, found that 10 percent of the music they acquired last year came from paid downloads. That is a big increase from 7 percent in 2006. But since the number of physical CDs they bought plummeted, the overall share of music they paid for fell to 42 percent from 48 percent."
That report offers two interesting slides from NPD:
(It was distorted in the original - the % signs are squished.)
This second slide highlights a further observation from the New York Time's posting: "For penetration, listening to AM/FM radio and to CDs on a CD player are still the most popular activities. People also listen to music on the radio more times per week than any other method."
In the U.K., according to the Entertainment Retailers Association, game sales exceeded music sales for the first time in 2007, and were quickly catching up with DVD sales. According to a March press release, "sales of music downloads increased 67.5% by value in 2007 to reach £145.6m (roughly $285 million U.S.), six times the value of the physical singles market.
"At this level online-delivered music accounted for just over 10% of the value of the total market for recorded music in 2007, compared with just over 5% in 2006 and just 2% in 2005."
Digital Rights Management and the Future of Music
The digital rights management (DRM) battles that plague so much of the publishing industry started in the music industry because CDs had no built-in DRM protection, because software for burning CDs to digital formats was relatively easy to develop, and because Microsoft and RealNetworks got into battle early on, inspiring a host of smaller competitors. Music files are relatively small compared to, for example, video files, and so could easily be distributed via the Internet. The music industry reacted with fury, and set the stage for battles to come in other publishing industries.The history of the battle for music on the Internet is brief and very much indicative of the kinds of struggles that have begun to impact other content providers. It started in 1999 with Napster, as copyrighted music began to be distributed around the Net in a free-for-all. It couldn't last and it didn't: the courts found mainly in favor of the traditional copyright holders of music and Napster was gone by the summer of 2001, eventually to be sold at auction and recreated as a well-behaved legal music download subscription site, with a fraction of its former popularity (as a now public company [Nasdaq: NAPS] it logged sales of roughly $125 million in the fiscal year ended March 31, 2008). Despite all of the effort that the industry devoted to destroying Napster, as reported above, it has had a negligible effect on the sharing of music files.
Now, some seven years later, the big music labels are changing their tune on DRM. As noted in a January 2008 blog in the New York Times, "Sony BMG said this afternoon that it would start selling music in the MP3 format through Amazon.com. That makes it the last of the four big record labels that have abandoned digital rights management software, which limits how many times copies can be made of digital music."
Apple still enforces DRM through its iTunes store, but for how much longer?
Even When They Win, They Lose
A May 8, 2008 article in the Wall Street Journal reported that a federal judge in Los Angeles issued damages of $111 million against an Internet company, TorrentSpy, which allowed users to find movies and music to illegally download (using a BitTorrent-style technology, whereby TorrentSpy does not actually store the files but facilitates locating individual user's computers that do.)Sounds good until you read a few more of the details: TorrentSpy had already shut down in March, because of the ongoing litigation. Furthermore, the holding company, Valence Media, based on the little Caribbean island of Nevis, declared bankruptcy, as have its "principals".
As the Wall Street Journal straightforwardly states, "The strategy of continuing to fight such sites in court seems to be having little measurable impact on piracy."
Prognosis for the Future of the Music Industry
The music industry is undergoing an extraordinary transformation. Sure the courts are still siding with the big record labels, whenever requested to do so. But at the same time, and, I believe, as a result, the whole nature of how popular music is created and disseminated is undergoing an enormous change.The "intellectual property optimists" think that the traditional music labels will maintain their hegemony. But I see changes afoot at every level of the business, from how music is created and recorded, to how it is publicized and how it is distributed and/or sold. The U.S. Supreme Court can render 100 judgements, but the game is already over. As in so many other of the content businesses, the big names will continue to hold considerable sway. But they will no longer be able to exercise control of the outcome. And the sooner they recognize and embrace this fact, the happier everyone will be.
I look separately at television, the movie business, radio and more. But I think the die is cast. Get with the program, or the program will quickly race past you.
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