An industry torn apart - TechCentral

An industry torn apart

Duncan McLeodApple’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

  • McLeod is editor of TechCentral and publisher of NewsCentral Media. This column also appears in the Financial Mail

2 Comments

  1. Nice article.

    DRM is really just a way for Labels to limit the power of Resellers. It’s the only leverage they hold over the people who actually have relationships with their clients. When resellers realise this, they can start acting in the consumer’s interests rather than that of Labels.

    What’s beyond DRM? Google has started free downloads in China. http://www.nytimes.com/2009/03/31/technology/companies/31music.html. Interesting approach.

    In my opinion, pay-for music has to reposition itself and present an irresistible value proposition to consumers:

    1. Be easier than torrent clients – better searching, greatest range, quick downloads, wider range of formats… throw in some free tracks to get me hooked on the artist. actually have some decent music videos rather than johnny’s youtube slideshow with a soundtrack.
    2. Be cheaper than it is currently – clearly, trying to inflate costs to cover lost revenue isn’t working.
    3. Offer something that pirate services don’t (and can’t) – perhaps more interaction with the artists themselves, or value added services, e.g. create your own radio station online and start a social dj revolution. Sell compatible devices, create a protocol, develop an industry around this technology. Keep the standards open.
    4. Engage consumers at a higher level. Treat them as Patrons rather than Paupers. Apple’s Genius function is a great example of this. Consumers will eventually be more concerned with quality rather than quantity. When you have every single track in the world, how do you actually sift through the rubbish?
    5. Think beyond making money off licensing. A bunch of free tracks with ad revenue is better than no free tracks with no ad revenue. Perhaps building free tracks into the cost of everyday purchases makes it less of a grudge and more of a bonus.
    6. Create percieved value around legal behaviour. Ultimately, a track is a track. But if other people know that you’ve been downloading legally, a track becomes a means to social furtherment and affirmation.

    Do I feel sorry for labels? Well, people are probably losing their jobs. That’s sad. But industries need to respond sooner to change and the cheese moved a long time ago, partly due to their policies. The digital camera revolution is a classic example where some players were able to adapt and others fell by the wayside because of their attitude to change.

  2. Neil du Plessis on

    Very good article. (And all success with the new venture.)

    I totally agree and also with murraybiscuit’s comments. In fact, if you consider things like Apple’s “Cocktail” http://news.cnet.com/8301-13579_3-10296024-37.html we are already moving to the next step in digital music. The industry is seeking new, innovative ways to promote and in fact sell music and related products online.

    I believe that a big influence on why the average person would ‘steal’ music instead of buying it is because it is simply much easier to get it free with my computer than it is to go to a store and buy it. The success of the iTunes store is testament to this. Genius suggests the songs and you can get them cheaply with a single click. I believe that ease of use, and not price necessarily is the difference here.

    Nokia music store is a step in the right direction, especially in SA. However, considering my ease-of-use argument, the generally accepted direction of digital music; if we examine the situation in SA and our frustrating technology lag, I am discouraged.

    I point my browser to http://music.nokia.co.za/ and it tells me my browser is not supported. There is no iTunes music store in SA. Even the AppStore seems to be… limited… I put a locally produced (local artist) CD that I tediously went out and bought from a CD store, into my computer and the artist and tracks don’t resolve or resolve incorrectly.

    I consider myself tech savvy and I don’t really mind jumping through the hoops because I believe in supporting the artist. But I’m afraid, from a connected consumer perspective, it is about ease of use, ease of access – the user experience. They probably care less for what the music industry is going through and more about getting that latest album, and if you can make it fun for them in the process, they would keep spending money with you.

    The music industry has to get with the program, yes, and I believe they are, albeit slowly, kicking and screaming. But more importantly for us I believe, is that the industry in SA, tech and music is lagging behind what advancements have been made. Let’s contribute to and hope that we can make a difference with conversations and publications like this.