Apple’s iTunes Store now sells a quarter of all music, both physical and digital, in the US. The venerable compact disc is on its last legs. But so too, it seems, is the record industry as digital piracy spirals.

More than one in three songs sold in the US is done so digitally over the Internet. Digital downloads are expected to overtake CD sales within the next 18 months. Apple is now the largest retailer of music in the US, beating Wal-Mart’s 20% market share. CD sales are in freefall, and look headed the same way as vinyl.

But online sales are not making up for the precipitous drop in the sale of CDs. Sure, the worldwide economic malaise has crimped people’s disposable incomes, but peer-to-peer file-sharing services like BitTorrent are playing an equally big role in the decline in sales.
Very often, new albums are leaked onto file-sharing networks weeks or even months before they go on sale through legal channels. And many people think nothing of downloading their favourite artists’ music for free. Many people simply don’t regard it as a crime.

The big record labels appear to be fighting a losing battle. Certainly, their PR efforts have been disastrous. Suing children and little old ladies for downloading songs off BitTorrent, as they have done, is no way to engender sympathy from a general public that already regards them as avaricious and exploitative.

Earlier this decade, rock band Metallica’s efforts to tackle online file sharing service Napster backfired, alienating some of the band’s fans, who labelled them as greedy sell-outs.
Some people argue that the horse has already bolted, that artists are going to have to distribute their music free of charge in an effort to make up lost sales through extensive touring. The old model, they argue, is broken.

I’m not sure I go along with this argument. It’s like saying that as a journalist, I should give away my articles for free rather than selling them to a publisher, and then attempt to make up for the lost revenue on the speaking circuit, or consulting to companies.

What is true is that more creative revenue models need to be found. Selling digital music at the same price as a CD is not on given that it’s that much cheaper to distribute material on the Web — there’s no need to press CDs and deliver them to retail stores, and there’s never a problem with excess inventory or stock theft.

Perhaps the record labels need to temper their expectations of future revenue. It’s possible the industry’s collective revenues are simply going to be reset at a lower level, even without piracy factored into the equation.

What’s needed is innovation. Thankfully, there is evidence that record labels are starting to open themselves to new thinking in the way they sell their products.

One example is Nokia’s Comes With Music initiative, which it launched in SA last week. The Finnish handset manufacturer has launched three mid-range handsets — available from MTN, Cell C, Nashua Mobile and Altech Autopage Cellular — which come bundled with unlimited access for 12 months to the Nokia Music Store catalogue of 5m songs, including local artists.

Consumers are able to keep all the music they download to their phone or PC from Nokia. However, the music is protected using digital rights management (DRM) technology, making it difficult (though not impossible) to copy the music to other devices.

It is understood that Nokia is working hard with the record labels to remove DRM from the music it sells. Already, digital music sold by Apple and Amazon.com is DRM-free, meaning it can be copied freely.

Relying on people’s honesty, rather than treating them like criminals by crippling the music they purchase, seems like a more sensible approach to me. But, unlike many people, I do sympathise to some extent with the record labels. The music industry is being torn apart. It can’t be a fun time to be a record industry executive. — Duncan McLeod, TechCentral