Here is videoclip of Jerry Del Colliano from UCS Thorton School of Music giving some advice to people who are aiming to be a part of music industry. I like the, not so often heard, sociolocigal point of view of his speech. He says that the most rapid and biggest chainges are not happening only in technology put in our society as well and that is what you need to consider the most as an artist.
Link to the videoclip:
http://uk.youtube.com/watch?v=1TUZf0oBVZE
woensdag 26 november 2008
maandag 24 november 2008
Something new in the downloading business
From site http://www.billboard.biz/bbbiz/content_display/industry/e3i76e9c2805e7a26bbee30d9980fd50828
Zune Pass Opens Doors On Permanent Download Offer November 20, 2008 - Digital and Mobile
By Antony Bruno, DenverStarting today, Zune users subscribing to the $15 a month Zune Pass service will get to also keep 10 tracks a month of their choice as a permanent download.Previously the Zune Pass worked like any other subscription service, where users paid the monthly fee for unlimited access to all 4 million songs in the Zune database. However access to those songs, as well as the ability to play any tracks downloaded, would disappear should users stop paying the monthly fee. Also, they would only play on the Zune device. The 10 songs a month downloaded under the new offer, however, don't have those same restrictions. Microsoft has agreements with all four major labels and indie aggregators The Orchard and IODA to make their content available, in total representing about 70% of the Zune catalog. The remaining 30% is expected to come online once the company finalizes licensing deals with a range of other indie labels. According to Zune GM of global marketing Chris Stephenson, the new deal is designed to lure more users to the subscription model. He says consumer research studies conducted by the Zune division shows music fans need something more to convince them to pay $15 a month for music, such as the ability to keep and own music discovered through the service. To make the offer, the Zune team had to rework its existing licensing deals with labels so that it now provides a certain percentage of the Zune Pass subscription fee to all labels based on market share, and then allocates a separate payment to each label based on what music is downloaded for good.
Zune Pass Opens Doors On Permanent Download Offer November 20, 2008 - Digital and Mobile
By Antony Bruno, DenverStarting today, Zune users subscribing to the $15 a month Zune Pass service will get to also keep 10 tracks a month of their choice as a permanent download.Previously the Zune Pass worked like any other subscription service, where users paid the monthly fee for unlimited access to all 4 million songs in the Zune database. However access to those songs, as well as the ability to play any tracks downloaded, would disappear should users stop paying the monthly fee. Also, they would only play on the Zune device. The 10 songs a month downloaded under the new offer, however, don't have those same restrictions. Microsoft has agreements with all four major labels and indie aggregators The Orchard and IODA to make their content available, in total representing about 70% of the Zune catalog. The remaining 30% is expected to come online once the company finalizes licensing deals with a range of other indie labels. According to Zune GM of global marketing Chris Stephenson, the new deal is designed to lure more users to the subscription model. He says consumer research studies conducted by the Zune division shows music fans need something more to convince them to pay $15 a month for music, such as the ability to keep and own music discovered through the service. To make the offer, the Zune team had to rework its existing licensing deals with labels so that it now provides a certain percentage of the Zune Pass subscription fee to all labels based on market share, and then allocates a separate payment to each label based on what music is downloaded for good.
donderdag 13 november 2008
Virtual World Integrates '3D Playlists'
Here is again something about one of our favourite topics social networks in internet and how we consume music there. Competition between these networks is getting bigger and bigger all the time so of course they need something to stand out. Again someone has taken a one step further in this field...
News from
http://www.billboard.biz/bbbiz/content_display/industry/e3i561563ef885396db67091d9bdceaffb3
Virtual World Integrates '3D Playlists' November 11, 2008 - Digital and Mobile
By Antony Bruno, DenverVirtual world IMVU has launched a music extension to its service, aiming to offer something like a "3D playlist" to set itself apart from other social networks and playlist services. Like other virtual worlds, IMVU lets users browse and interact in a 3D environment though the use of avatars. The music service lets these users create playlists, listen to them with other members, and buy songs. In addition to an avatar, IMVU users have their own rooms, or virtual spaces, in which they can stream their playlists. Users can also attach their music preferences into their avatars and bring playlists with them to public spaces, where other users can view and stream the songs as they wish.Music sales are DRM-free, and includes content licensed from all four major labels as well as independent distributors like IODA, Redeye and more.Virtual World Integrates '3D Playlists' November 11, 2008 - Digital and Mobile
By Antony Bruno, DenverVirtual world IMVU has launched a music extension to its service, aiming to offer something like a "3D playlist" to set itself apart from other social networks and playlist services. Like other virtual worlds, IMVU lets users browse and interact in a 3D environment though the use of avatars. The music service lets these users create playlists, listen to them with other members, and buy songs. In addition to an avatar, IMVU users have their own rooms, or virtual spaces, in which they can stream their playlists. Users can also attach their music preferences into their avatars and bring playlists with them to public spaces, where other users can view and stream the songs as they wish.Music sales are DRM-free, and includes content licensed from all four major labels as well as independent distributors like IODA, Redeye and more.
News from
http://www.billboard.biz/bbbiz/content_display/industry/e3i561563ef885396db67091d9bdceaffb3
Virtual World Integrates '3D Playlists' November 11, 2008 - Digital and Mobile
By Antony Bruno, DenverVirtual world IMVU has launched a music extension to its service, aiming to offer something like a "3D playlist" to set itself apart from other social networks and playlist services. Like other virtual worlds, IMVU lets users browse and interact in a 3D environment though the use of avatars. The music service lets these users create playlists, listen to them with other members, and buy songs. In addition to an avatar, IMVU users have their own rooms, or virtual spaces, in which they can stream their playlists. Users can also attach their music preferences into their avatars and bring playlists with them to public spaces, where other users can view and stream the songs as they wish.Music sales are DRM-free, and includes content licensed from all four major labels as well as independent distributors like IODA, Redeye and more.Virtual World Integrates '3D Playlists' November 11, 2008 - Digital and Mobile
By Antony Bruno, DenverVirtual world IMVU has launched a music extension to its service, aiming to offer something like a "3D playlist" to set itself apart from other social networks and playlist services. Like other virtual worlds, IMVU lets users browse and interact in a 3D environment though the use of avatars. The music service lets these users create playlists, listen to them with other members, and buy songs. In addition to an avatar, IMVU users have their own rooms, or virtual spaces, in which they can stream their playlists. Users can also attach their music preferences into their avatars and bring playlists with them to public spaces, where other users can view and stream the songs as they wish.Music sales are DRM-free, and includes content licensed from all four major labels as well as independent distributors like IODA, Redeye and more.
woensdag 12 november 2008
Music Downloads: Pirates—or Customers?
Internet music piracy not only doesn't hurt legitimate CD sales, it may even boost sales of some types of music.
Those were the counterintuitive findings released in March by Harvard Business School professor Felix Oberholzer-Gee and his co-author Koleman Strumpf, of the University of North Carolina at Chapel Hill. Their paper, "The Effect of File Sharing on Record Sales," caused a ruckus in the music industry not seen since the British invasion of the Beatles.
Many recording executives were not singing "Yeah, yeah, yeah," however. Convinced that illegal downloading and file sharing has robbed them of billions of dollars after four consecutive years of falling music sales, they criticized the team's methodology, which consisted of monitoring 1.75 million downloads over 17 weeks in 2002, scouring through server logs from OpenNap (an open source Napster server), and comparing the sales of almost 700 albums as reported by Nielsen SoundScan. Oberholzer and Strumpf concluded that there was almost no relationship between the two.
How could this be? The researchers believe that most downloading is done over peer-to-peer networks by teens and college kids, groups that are "money-poor but time-rich," meaning they wouldn't have bought the songs they downloaded. In that sense, the music industry can't claim those downloads as lost record sales. In fact, illegal downloading may help the industry slightly with another major segment, which Oberholzer and Strumpf call "samplers"—an older crowd who downloads a song or two and then, if they like what they hear, go out and buy the music.
Interestingly, the first half of this year saw the release of numbers seemingly supporting this theory: The number of illegal music downloads continued to increase—but so did music sales.
If in fact the research is correct, the strategic implications for the music industry are profound. Instead of conducting a high-profile campaign against pirates, should the industry instead target "samplers" to encourage them to buy more music? Should the industry consider peer-to-peer services as marketing tools rather than the enemy? Should online pricing be different from in-store pricing? What happens when broadband makes it as easy to illegally download an entire CD as an individual track or two? HBS professor Feliz Oberholzer-Gee recently spoke to Working Knowledge about these issues.
Sean Silverthorne: The draft of your paper with Koleman Strumpf came out almost three months ago, and caused quite a stir both inside the entertainment industry and out. What are your impressions of the reactions so far?
Felix Oberholzer-Gee: Two recent developments are important. Our study provides the first serious evidence that file sharing cannot explain the decline in music sales in the last couple of years. In addition, in the last two quarters, music sales increased while file sharing has become even more popular. BigChampagne.com, an Internet monitoring firm, estimates that there are now up to 9 million simultaneous file sharers, up from about 4 million in early 2003.
In view of our evidence and these new trends, even the Recording Industry Association of America (RIAA) now states that file sharing is only "one factor, along with economic conditions and competing forms of entertainment that is displacing legitimate sales." The industry is rethinking its position, although change occurs slowly.
Q: Let's talk strategy. What have been the recording companies' strategies to date for combating their loss of property rights via illegal downloading? And how effective has that strategy been? For example, is it a good thing to sue potential customers?
A: Suing potential customers is not exactly a standard entry in the book of good CRM. More importantly, the RIAA's legal strategy is hopeless and smacks of short-sighted panic.
Our research shows that only 45 percent of music files downloaded in the United States come from computers in the U.S. More than 100 countries supply files to the U.S. file-sharing community, and many of these countries do not have strong records of protecting copyrighted materials. The RIAA does not stand a chance to implement an effective legal strategy in all these countries.
The RIAA's legal strategy is hopeless and smacks of short-sighted panic.
Those who dream of legal solutions do not recognize the truly global nature of the peer-to-peer (P2P) phenomenon. Even worse, the RIAA's legal strategy does not even seem to work here in the United States. Despite the lawsuits—the RIAA has sued about 2,000 individuals to date—file sharing is more popular than ever.
Q: Assuming your conclusion is right—that there is no evidence that illegal music downloads erode CD sales—and in fact might help top-selling record sales—what are the implications for the recording industry in terms of strategy?
A: Our research shows that people do not download entire CDs. They download a few songs, typically the hits that one would also hear on a Top 40 station. This suggests that P2P is much like the radio, a great tool to promote new music. The music industry has of course long recognized that giving away samples of music for free over the airwaves can stimulate sales. The same seems to hold for P2P.
The problem with radio as a promotional tool is that it can be quite expensive for labels to get radio stations to play their music. P2P networks are promising because they make the market for music promotion more competitive. From the perspective of the music industry, the more competition among P2P services, the less costly it will be to promote music.
Q: Apple's iTunes has seemingly validated the concept that people will purchase music online. But it seems the recording companies themselves have done little on their own to experiment with models here, such as tiered pricing (hits cost more) and bundling.
A: The classic business model was a teaser model: The music labels provided one or two hit songs for free by promoting them on the radio and on MTV. If consumers liked the samples, they purchased a dozen songs at a price of $15. We now have gone from one extreme to the other. While inflexible bundling was the rule, services such as iTunes now completely unbundle CDs and offer all music by the song. The difficulty with this approach is that the economics of producing music are characterized by significant fixed costs. It is not much more expensive to promote an entire album than to promote an individual song. With complete unbundling, the revenue streams generated by a new album are likely to be much lower. How many consumers will pay a dollar for song number thirteen?
Clearly, there is a profit-enhancing role for some type of bundling even with digital distribution. For example, consumers might be willing to pay full price for the core songs on an album if they get the rest at a discount. We need systematic experiments to find out which types of bundling are economically most attractive.
Q: What's the current state of your research? Where does it go from here?
A: A key uncertainty relates to our finding that file sharers do not download entire CDs. We do not know why they sample only a few songs. One possibility is that the current patterns of file sharing reflect consumer preferences. Consumers do not know the quality of new music and sampling one or two songs is good enough to assess quality and make a purchasing decision. If this view is correct, the radio model is well and alive, and P2P offers great opportunities to promote new content.
Clearly, there is a profit-enhancing role for some type of bundling even with digital distribution.
However, it is also possible that the observed behavior is due to technical difficulties. In our data, only one out of three downloads is completed successfully. File sharing is fairly cumbersome for many consumers with poor Internet connections. If this is the reason for highly selective sampling, we can expect consumers to download entire CDs when broadband connections become more common. This is a less rosy scenario for the music industry because downloads of CDs are likely to be closer substitutes for CD purchases.
If poor Internet connections explain file-sharing patterns, general access to broadband would have profound strategic implications, suggesting that music companies ought to pursue a strategy of selling complements to recorded music. We see some examples for this strategy even today: Apple sells songs to promote its iPods. Prince gives away his most recent release to promote his concerts. We need careful continuous monitoring of the effects of P2P to know which strategies are most appropriate in the digital age.
source:http://hbswk.hbs.edu/item/4206.html
Those were the counterintuitive findings released in March by Harvard Business School professor Felix Oberholzer-Gee and his co-author Koleman Strumpf, of the University of North Carolina at Chapel Hill. Their paper, "The Effect of File Sharing on Record Sales," caused a ruckus in the music industry not seen since the British invasion of the Beatles.
Many recording executives were not singing "Yeah, yeah, yeah," however. Convinced that illegal downloading and file sharing has robbed them of billions of dollars after four consecutive years of falling music sales, they criticized the team's methodology, which consisted of monitoring 1.75 million downloads over 17 weeks in 2002, scouring through server logs from OpenNap (an open source Napster server), and comparing the sales of almost 700 albums as reported by Nielsen SoundScan. Oberholzer and Strumpf concluded that there was almost no relationship between the two.
How could this be? The researchers believe that most downloading is done over peer-to-peer networks by teens and college kids, groups that are "money-poor but time-rich," meaning they wouldn't have bought the songs they downloaded. In that sense, the music industry can't claim those downloads as lost record sales. In fact, illegal downloading may help the industry slightly with another major segment, which Oberholzer and Strumpf call "samplers"—an older crowd who downloads a song or two and then, if they like what they hear, go out and buy the music.
Interestingly, the first half of this year saw the release of numbers seemingly supporting this theory: The number of illegal music downloads continued to increase—but so did music sales.
If in fact the research is correct, the strategic implications for the music industry are profound. Instead of conducting a high-profile campaign against pirates, should the industry instead target "samplers" to encourage them to buy more music? Should the industry consider peer-to-peer services as marketing tools rather than the enemy? Should online pricing be different from in-store pricing? What happens when broadband makes it as easy to illegally download an entire CD as an individual track or two? HBS professor Feliz Oberholzer-Gee recently spoke to Working Knowledge about these issues.
Sean Silverthorne: The draft of your paper with Koleman Strumpf came out almost three months ago, and caused quite a stir both inside the entertainment industry and out. What are your impressions of the reactions so far?
Felix Oberholzer-Gee: Two recent developments are important. Our study provides the first serious evidence that file sharing cannot explain the decline in music sales in the last couple of years. In addition, in the last two quarters, music sales increased while file sharing has become even more popular. BigChampagne.com, an Internet monitoring firm, estimates that there are now up to 9 million simultaneous file sharers, up from about 4 million in early 2003.
In view of our evidence and these new trends, even the Recording Industry Association of America (RIAA) now states that file sharing is only "one factor, along with economic conditions and competing forms of entertainment that is displacing legitimate sales." The industry is rethinking its position, although change occurs slowly.
Q: Let's talk strategy. What have been the recording companies' strategies to date for combating their loss of property rights via illegal downloading? And how effective has that strategy been? For example, is it a good thing to sue potential customers?
A: Suing potential customers is not exactly a standard entry in the book of good CRM. More importantly, the RIAA's legal strategy is hopeless and smacks of short-sighted panic.
Our research shows that only 45 percent of music files downloaded in the United States come from computers in the U.S. More than 100 countries supply files to the U.S. file-sharing community, and many of these countries do not have strong records of protecting copyrighted materials. The RIAA does not stand a chance to implement an effective legal strategy in all these countries.
The RIAA's legal strategy is hopeless and smacks of short-sighted panic.
Those who dream of legal solutions do not recognize the truly global nature of the peer-to-peer (P2P) phenomenon. Even worse, the RIAA's legal strategy does not even seem to work here in the United States. Despite the lawsuits—the RIAA has sued about 2,000 individuals to date—file sharing is more popular than ever.
Q: Assuming your conclusion is right—that there is no evidence that illegal music downloads erode CD sales—and in fact might help top-selling record sales—what are the implications for the recording industry in terms of strategy?
A: Our research shows that people do not download entire CDs. They download a few songs, typically the hits that one would also hear on a Top 40 station. This suggests that P2P is much like the radio, a great tool to promote new music. The music industry has of course long recognized that giving away samples of music for free over the airwaves can stimulate sales. The same seems to hold for P2P.
The problem with radio as a promotional tool is that it can be quite expensive for labels to get radio stations to play their music. P2P networks are promising because they make the market for music promotion more competitive. From the perspective of the music industry, the more competition among P2P services, the less costly it will be to promote music.
Q: Apple's iTunes has seemingly validated the concept that people will purchase music online. But it seems the recording companies themselves have done little on their own to experiment with models here, such as tiered pricing (hits cost more) and bundling.
A: The classic business model was a teaser model: The music labels provided one or two hit songs for free by promoting them on the radio and on MTV. If consumers liked the samples, they purchased a dozen songs at a price of $15. We now have gone from one extreme to the other. While inflexible bundling was the rule, services such as iTunes now completely unbundle CDs and offer all music by the song. The difficulty with this approach is that the economics of producing music are characterized by significant fixed costs. It is not much more expensive to promote an entire album than to promote an individual song. With complete unbundling, the revenue streams generated by a new album are likely to be much lower. How many consumers will pay a dollar for song number thirteen?
Clearly, there is a profit-enhancing role for some type of bundling even with digital distribution. For example, consumers might be willing to pay full price for the core songs on an album if they get the rest at a discount. We need systematic experiments to find out which types of bundling are economically most attractive.
Q: What's the current state of your research? Where does it go from here?
A: A key uncertainty relates to our finding that file sharers do not download entire CDs. We do not know why they sample only a few songs. One possibility is that the current patterns of file sharing reflect consumer preferences. Consumers do not know the quality of new music and sampling one or two songs is good enough to assess quality and make a purchasing decision. If this view is correct, the radio model is well and alive, and P2P offers great opportunities to promote new content.
Clearly, there is a profit-enhancing role for some type of bundling even with digital distribution.
However, it is also possible that the observed behavior is due to technical difficulties. In our data, only one out of three downloads is completed successfully. File sharing is fairly cumbersome for many consumers with poor Internet connections. If this is the reason for highly selective sampling, we can expect consumers to download entire CDs when broadband connections become more common. This is a less rosy scenario for the music industry because downloads of CDs are likely to be closer substitutes for CD purchases.
If poor Internet connections explain file-sharing patterns, general access to broadband would have profound strategic implications, suggesting that music companies ought to pursue a strategy of selling complements to recorded music. We see some examples for this strategy even today: Apple sells songs to promote its iPods. Prince gives away his most recent release to promote his concerts. We need careful continuous monitoring of the effects of P2P to know which strategies are most appropriate in the digital age.
source:http://hbswk.hbs.edu/item/4206.html
Digital Music Industry Challenged to Follow Fans' Lead
LAS VEGAS -- At the Consumer Electronics Show this year it's clear that consumers are making choices that are driving industry changes, and nowhere is that more evident than in the digital-music business.
Music industry and technology executives convened for the Billboard Digital Music Live conference Wednesday to talk about what those in the business need to do to meet the needs of music fans who appear to be running the show.
"2008 has to be the year we get real or the business as we know it goes away," said Fred Goldring, an entertainment attorney with Goldring Hertz & Lichtenstein LLP. He said that consumers will access music regardless of whether artists, labels, publishers and digital-music distributors approve of the means or receive money from the exchange.
Since Napster turned the music industry on its ear in 2000, the digital-music business has been rocked by dissent among artists, labels, publishers and the breed of technology companies distributing and selling music online that emerged in Napster's wake. All of these parties want to derive revenue from their contribution to the business, but have been arguing for years about how everyone should get paid.
As this drama unfolds behind the scenes, consumers continue to find ways to bypass DRM (digital rights management) and emerging revenue models to download and share music, making it not just impossible for the music industry to make money from traditional means, but also difficult to make money at all. In the meantime, artists have embarked on their own revolution, using social-networking sites and other online means to get their music directly in the hands of fans and finding other ways to derive revenue from their work.
An example of the latter is the controversial and much-publicized move by U.K. rock band Radiohead to sell its new album "In Rainbows" direct to consumers without going through its record label or Apple's iTunes Store. The album first went on sale in October on Radiohead's Web site, allowing users to choose their price for the record; a few weeks ago, Radiohead released the record to iTunes and other retail channels.
Scenarios like this will continue to happen, both among major-label artists and independent or unsigned artists. Whether they work is not the point; it's what the industry will do to work within these models and support them rather than continue to resist that will decide how the industry will fare in the future, said Terry McBride, CEO of Nettwerk Music Group. Nettwerk is a Canadian privately owned record label and artist management company.
"The corporate side of it has to shift," he said. "The corporate people have not allowed us to do what we know we have to do. This is about the consumer, about monetizing their behavior and giving them choice. For all of the people that believe in controlling the IP and how [the music] gets to consumers, the game is over. It was over seven or eight years ago, and soon your business will be over."
Goldring suggested the industry focus on business models built solely around the networks that allow users to download music and find ways for everyone involved to make money that way.
"We have to stop trying to keep our old business alive .. and figure out how to monetize the pipes [music files] are going through," he said.
Barney Wragg, head of digital, EMI Music Group, said that in a perfect world, scenarios like the ones McBride and Goldring propose would exist. However, the needs of different artists vary, and there are still concerns about the integrity of their work and how they will be compensated for it as new business models emerge.
"I have artists that don't want to be involved in certain business models," he said. "I have to balance those conflicts. ... There are a whole bunch of artists who are worried about how they're going to get paid, and what this is going to do about their representation or their art."
Allowing their music to be distributed through ad-supported online music services is a particularly hard sell for artists who worry that having their work be associated with advertising "devalues" it, Wragg added.
Subscription-based models such as Rhapsody that don't give users ownership of their music have struggled to take off. Wragg compared music fans' view of subscription models to the early days of e-mail, when people wanted files to be stored locally and were adverse to the concept of e-mail existing only on a remote server.
That concept changed over time, as will the perception of subscriptions if they are marketed to consumers in the right way, he said.
Another factor that should boost the popularity of subscriptions in the future is the increased spending of younger fans who are naturally more comfortable with the idea of not owning their music, said Matthew DeFilippis, vice president of new media and technology for the American Society of Composers, Authors and Publishers, a membership organization representing the rights of artists.
"Ownership is a generational thing," he said. "Even though kids today are buying from iTunes, I don't think they care about owning a thing. As they become the new generation of homeowners and bill payers, [music subscription] will be moving toward a cable [TV] model."
source:http://www.pcworld.com/article/141222/digital_music_industry_challenged_to_follow_fans_lead.html
Music industry and technology executives convened for the Billboard Digital Music Live conference Wednesday to talk about what those in the business need to do to meet the needs of music fans who appear to be running the show.
"2008 has to be the year we get real or the business as we know it goes away," said Fred Goldring, an entertainment attorney with Goldring Hertz & Lichtenstein LLP. He said that consumers will access music regardless of whether artists, labels, publishers and digital-music distributors approve of the means or receive money from the exchange.
Since Napster turned the music industry on its ear in 2000, the digital-music business has been rocked by dissent among artists, labels, publishers and the breed of technology companies distributing and selling music online that emerged in Napster's wake. All of these parties want to derive revenue from their contribution to the business, but have been arguing for years about how everyone should get paid.
As this drama unfolds behind the scenes, consumers continue to find ways to bypass DRM (digital rights management) and emerging revenue models to download and share music, making it not just impossible for the music industry to make money from traditional means, but also difficult to make money at all. In the meantime, artists have embarked on their own revolution, using social-networking sites and other online means to get their music directly in the hands of fans and finding other ways to derive revenue from their work.
An example of the latter is the controversial and much-publicized move by U.K. rock band Radiohead to sell its new album "In Rainbows" direct to consumers without going through its record label or Apple's iTunes Store. The album first went on sale in October on Radiohead's Web site, allowing users to choose their price for the record; a few weeks ago, Radiohead released the record to iTunes and other retail channels.
Scenarios like this will continue to happen, both among major-label artists and independent or unsigned artists. Whether they work is not the point; it's what the industry will do to work within these models and support them rather than continue to resist that will decide how the industry will fare in the future, said Terry McBride, CEO of Nettwerk Music Group. Nettwerk is a Canadian privately owned record label and artist management company.
"The corporate side of it has to shift," he said. "The corporate people have not allowed us to do what we know we have to do. This is about the consumer, about monetizing their behavior and giving them choice. For all of the people that believe in controlling the IP and how [the music] gets to consumers, the game is over. It was over seven or eight years ago, and soon your business will be over."
Goldring suggested the industry focus on business models built solely around the networks that allow users to download music and find ways for everyone involved to make money that way.
"We have to stop trying to keep our old business alive .. and figure out how to monetize the pipes [music files] are going through," he said.
Barney Wragg, head of digital, EMI Music Group, said that in a perfect world, scenarios like the ones McBride and Goldring propose would exist. However, the needs of different artists vary, and there are still concerns about the integrity of their work and how they will be compensated for it as new business models emerge.
"I have artists that don't want to be involved in certain business models," he said. "I have to balance those conflicts. ... There are a whole bunch of artists who are worried about how they're going to get paid, and what this is going to do about their representation or their art."
Allowing their music to be distributed through ad-supported online music services is a particularly hard sell for artists who worry that having their work be associated with advertising "devalues" it, Wragg added.
Subscription-based models such as Rhapsody that don't give users ownership of their music have struggled to take off. Wragg compared music fans' view of subscription models to the early days of e-mail, when people wanted files to be stored locally and were adverse to the concept of e-mail existing only on a remote server.
That concept changed over time, as will the perception of subscriptions if they are marketed to consumers in the right way, he said.
Another factor that should boost the popularity of subscriptions in the future is the increased spending of younger fans who are naturally more comfortable with the idea of not owning their music, said Matthew DeFilippis, vice president of new media and technology for the American Society of Composers, Authors and Publishers, a membership organization representing the rights of artists.
"Ownership is a generational thing," he said. "Even though kids today are buying from iTunes, I don't think they care about owning a thing. As they become the new generation of homeowners and bill payers, [music subscription] will be moving toward a cable [TV] model."
source:http://www.pcworld.com/article/141222/digital_music_industry_challenged_to_follow_fans_lead.html
The Digital music industry: beyond the majors
ACEI Conference, NU, Boston 2008
The Digital Music Industry: Beyond the Majors
Panel Session on the Music Industry to be held on June 14, 2008
The popularity of online music-sharing networks has not only attracted interest from
major recording labels, artists, consumer advocacy groups, and the popular press, it
has changed the very structure of the music industry. The traditional recording company
model predicated on the control, dissemination and sale of music products is no longer
a viable option for many artists. Thus, value chains for content development, production,
delivery and use are rapidly changing along with the creation of business models to
exploit new opportunities. These developments raise new business and legal issues
related to market environments that support the creation and diffusion of new digital
content, delivery systems and user benefits. Furthermore, an artist’s ability to control
their creativity, marketing and distribution has many in the music industry predicting the
demise of the traditional record label. Our panelists will discuss the evolution of the
global online music industry and its potential for growth into the future.
Panel Moderator
Richard Strasser
Panelists
Leon Janikian
David Herlihy
Jim Anderson
Paul Lehrman
Richard Strasser, Northeastern University, Moderator
Richard Strasser is an Assistant Professor of Music Industry at Northeastern University.
Dr. Strasser is a graduate from the Australian National University with a Bachelor of
Music (distinction) and a Graduate Diploma in Music. After winning both the Queen
Elizabeth II Silver Jubilee Award and the Arts Council of Australia Scholarship, he
continued his studies at the Manhattan School of Music, where he received a Master of
Music and Doctor of Musical Arts degree. Richard Strasser also has an arts
administration degree from New York University. Dr. Strasser has served as a faculty
member of numerous universities including John Cabot University in Rome, Clarion
University of Pennsylvania, and as Coordinator of the Music Business program at the
University of Massachusetts Lowell. Dr. Strasser served on the Board of Director’s for
the Music and Entertainment Industry Educators Association, the Cultural Organization
of Lowell and the working group for the development for national music industry
education standards for the National Association of Schools of Music. He is author of
“The Savvy Studio Owner” published by Hal Leonard books and the forthcoming book,
“Music Business: The Key Concepts”, with Routledge. Richard is the recipient of the
2008 Excellence in Teaching Award at Northeastern University.
Leon Janikian, Northeastern University
Professor Leon Janikian has been an academician, professional musician, and
recording engineer for over 30 years. He began his musical education at the Longy
School of Music, followed by undergraduate studies at the New England Conservatory
of Music. At both institutions he studied clarinet with Felix Viscuglia of the Boston
Symphony Orchestra. In 1975, Janikian earned his Master of Music in Music Theory
and Composition from the University of Massachusetts/ Amherst. He was privileged to
be a student of the eminent composer and musical theorist Dr. Philip Bezanson. During
his graduate years, Professor Janikian initiated his deep involvement with the art of
musical recording and technology. His work during these years include recordings of the
former Leningrad Philharmonic Orchestra, Duke Ellington, Archie Shepp, Max Roach,
and many others broadcast over National Public Radio. In 1976 he founded Sound
Techniques Recording Studios. The studio was his major project for the next 13 years.
During the Sound Techniques years Prof. Janikian was the primary engineer/ producer
for over 150 records in all musical genres, and numerous multimedia productions and
commercials. He is the recipient of a number of awards for his productions.
In 1984, while still the owner/ chief engineer at Sound Techniques, he was invited to join
the faculty of the Sound Recording Technology program at the University of
Massachusetts/ Lowell.
In 1995, Professor Janikian was appointed an Assistant Professor of Music at
Northeastern University. He continues to be very active in the recording field and is one
the most sought after musicians specializing in the traditional music of Armenia,
Greece, and the Middle East in the United States.
David Herlihy
David Herlihy received a B.A., magna cum laude, from Boston College in 1979 and a
J.D. from Boston College Law School in 1982. David lectures on copyright law and the
music industry, and he supervises Northeastern University’s record label.
David maintains a law practice which concentrates in entertainment law, intellectual
property, copyright, trademark, licensing, and new media. His clients include authors,
publishers, record companies, recording artists, songwriters, composers, performers,
producers, recording studios, visual artists, e-business innovation companies, software
and service providers, webcasters, and entrepreneurs.
David was the lead singer and principal songwriter for O POSITIVE (a Boston-based
musical group with full length albums on Epic Records and several independent record
labels) for which he won three Boston Music Awards for "Outstanding Male Vocalist" as
well as twice topping the Boston Phoenix/WFNX Best Music Poll as "Best Local Male
Vocalist." He is still active in the recording studio and occasionally performs live with the
band Toyboat.
Jim Anderson
After high school, Mr. Anderson toured for a year as an original member of
Liberty/United Artists’ recording group “the Jackals”, and began working as a studio
guitarist in the NYC area. In 1974, he graduated with a B.M. in Applied Music from
Berklee College of Music, where he taught guitar and theory for five years. As one of
the founders of Sound Techniques Recording Studios in Boston, for the last 19 years he
has performed on, produced and/or engineered dozens of projects with artists as
diverse as Yo Yo Ma, Guns ‘N Roses, Livingston Taylor, and Clark Terry . He has been
composing for over twenty years, and has worked extensively for The Discovery
Channel, The Learning Channel, and Animal Planet. He has won numerous awards
including a Platinum Album Award for “The Spaghetti Incident” by Guns “N Roses, an
ITVA Gold award for “Ninety Years” for Monterrey, Mexico, and an ITVA Gold Award for
the score for “Bass Shoe of Wilton, Maine”. Mr. Anderson also composed the score for
Fablevision’s award-winning animated film “Living Forever”, composed music for the
highly acclaimed documentary, “Mai’s America”, and composed the score for recently
released “Pilgrimage into the Past”. His most recent television project was the theme
for the “Ask This Old House” series on PBS. His most recent project was composing
original music for Boston University’s newly opened Welcome Center.
His most recent album production credits are “Noisy Old Men”, a CD featuring John
Abercrombie, Mick Goodrick, Steve Swallow, and Gary Chaffee, and “Playing Time” by
The Larry Baione Trio.
Paul Lehrman
Paul Lehrman is a composer, writer, educator, filmmaker, and music technologist. His
concert works have been commissioned by the Boston Computer Society, the Audio
Engineering Society, the Association for Small Computers in the Arts, and NEWCOMP.
He has performed-often with computers-at Carnegie Hall, Boston Symphony Hall, San
Francisco's Davies Hall, London Festival Hall, and many dingy bars and clubs. He has
scored over two dozen television and theatrical documentaries which have appeared on
PBS, A&E, History Channel, Discovery, Israel TV, France 3, and at New York's Lincoln
Center. Bad Boy Made Good, a film he wrote and produced about avant-garde
composer George Antheil and his infamous Ballet mécanique, has won prizes at several
festivals and been shown on PBS. In a 30-year career he has written some 500
articles for publications ranging from The Boston Globe Sunday Magazine to
Technology Illustrated, to Wired, and has served as a columnist for Recording
Engineer/Producer and Piano & Keyboard magazines. He is currently "Insider Audio"
columnist for Mix magazine, the leading journal of professional audio and music
production. He has written or co-written five books on music technology, one of which,
MIDI For The Professional (Music Sales Corp.), is after 14 years still the standard
college text on the Musical Instrument Digital Interface. His most recent book is The
Insider Audio Bathroom Reader (Thomson Course PTR).
He was the creator of the first sampling/re-synthesis program for a personal computer,
and co-developer of the first graphics-oriented MIDI sequencer for the Apple Macintosh.
He was also creator of the first all-MIDI album, The Celtic Macintosh. He has served as
a consultant to many music and audio hardware and software companies, including
Apple, Digidesign, Roland, Yamaha, AKG, JBL, and Kurzweil.
He is a Lecturer in Music and Multimedia at Tufts University, where he is also
Coordinator of Music Technology and co-director of the program in Musical Instrument
Engineering. Previously he taught in the University of Massachusetts Lowell's Sound
Recording Technology program, where he developed the curriculum in Computer
Applications in Music. He has been a guest lecturer at the Berklee College of Music, the
Manhattan School of Music, Stanford University, UC-Berkeley, Webster University, and
the Hartt School.
source:http://www.culturaleconomics.org/conference/ACEIMusicPanelInfo.pdf
The Digital Music Industry: Beyond the Majors
Panel Session on the Music Industry to be held on June 14, 2008
The popularity of online music-sharing networks has not only attracted interest from
major recording labels, artists, consumer advocacy groups, and the popular press, it
has changed the very structure of the music industry. The traditional recording company
model predicated on the control, dissemination and sale of music products is no longer
a viable option for many artists. Thus, value chains for content development, production,
delivery and use are rapidly changing along with the creation of business models to
exploit new opportunities. These developments raise new business and legal issues
related to market environments that support the creation and diffusion of new digital
content, delivery systems and user benefits. Furthermore, an artist’s ability to control
their creativity, marketing and distribution has many in the music industry predicting the
demise of the traditional record label. Our panelists will discuss the evolution of the
global online music industry and its potential for growth into the future.
Panel Moderator
Richard Strasser
Panelists
Leon Janikian
David Herlihy
Jim Anderson
Paul Lehrman
Richard Strasser, Northeastern University, Moderator
Richard Strasser is an Assistant Professor of Music Industry at Northeastern University.
Dr. Strasser is a graduate from the Australian National University with a Bachelor of
Music (distinction) and a Graduate Diploma in Music. After winning both the Queen
Elizabeth II Silver Jubilee Award and the Arts Council of Australia Scholarship, he
continued his studies at the Manhattan School of Music, where he received a Master of
Music and Doctor of Musical Arts degree. Richard Strasser also has an arts
administration degree from New York University. Dr. Strasser has served as a faculty
member of numerous universities including John Cabot University in Rome, Clarion
University of Pennsylvania, and as Coordinator of the Music Business program at the
University of Massachusetts Lowell. Dr. Strasser served on the Board of Director’s for
the Music and Entertainment Industry Educators Association, the Cultural Organization
of Lowell and the working group for the development for national music industry
education standards for the National Association of Schools of Music. He is author of
“The Savvy Studio Owner” published by Hal Leonard books and the forthcoming book,
“Music Business: The Key Concepts”, with Routledge. Richard is the recipient of the
2008 Excellence in Teaching Award at Northeastern University.
Leon Janikian, Northeastern University
Professor Leon Janikian has been an academician, professional musician, and
recording engineer for over 30 years. He began his musical education at the Longy
School of Music, followed by undergraduate studies at the New England Conservatory
of Music. At both institutions he studied clarinet with Felix Viscuglia of the Boston
Symphony Orchestra. In 1975, Janikian earned his Master of Music in Music Theory
and Composition from the University of Massachusetts/ Amherst. He was privileged to
be a student of the eminent composer and musical theorist Dr. Philip Bezanson. During
his graduate years, Professor Janikian initiated his deep involvement with the art of
musical recording and technology. His work during these years include recordings of the
former Leningrad Philharmonic Orchestra, Duke Ellington, Archie Shepp, Max Roach,
and many others broadcast over National Public Radio. In 1976 he founded Sound
Techniques Recording Studios. The studio was his major project for the next 13 years.
During the Sound Techniques years Prof. Janikian was the primary engineer/ producer
for over 150 records in all musical genres, and numerous multimedia productions and
commercials. He is the recipient of a number of awards for his productions.
In 1984, while still the owner/ chief engineer at Sound Techniques, he was invited to join
the faculty of the Sound Recording Technology program at the University of
Massachusetts/ Lowell.
In 1995, Professor Janikian was appointed an Assistant Professor of Music at
Northeastern University. He continues to be very active in the recording field and is one
the most sought after musicians specializing in the traditional music of Armenia,
Greece, and the Middle East in the United States.
David Herlihy
David Herlihy received a B.A., magna cum laude, from Boston College in 1979 and a
J.D. from Boston College Law School in 1982. David lectures on copyright law and the
music industry, and he supervises Northeastern University’s record label.
David maintains a law practice which concentrates in entertainment law, intellectual
property, copyright, trademark, licensing, and new media. His clients include authors,
publishers, record companies, recording artists, songwriters, composers, performers,
producers, recording studios, visual artists, e-business innovation companies, software
and service providers, webcasters, and entrepreneurs.
David was the lead singer and principal songwriter for O POSITIVE (a Boston-based
musical group with full length albums on Epic Records and several independent record
labels) for which he won three Boston Music Awards for "Outstanding Male Vocalist" as
well as twice topping the Boston Phoenix/WFNX Best Music Poll as "Best Local Male
Vocalist." He is still active in the recording studio and occasionally performs live with the
band Toyboat.
Jim Anderson
After high school, Mr. Anderson toured for a year as an original member of
Liberty/United Artists’ recording group “the Jackals”, and began working as a studio
guitarist in the NYC area. In 1974, he graduated with a B.M. in Applied Music from
Berklee College of Music, where he taught guitar and theory for five years. As one of
the founders of Sound Techniques Recording Studios in Boston, for the last 19 years he
has performed on, produced and/or engineered dozens of projects with artists as
diverse as Yo Yo Ma, Guns ‘N Roses, Livingston Taylor, and Clark Terry . He has been
composing for over twenty years, and has worked extensively for The Discovery
Channel, The Learning Channel, and Animal Planet. He has won numerous awards
including a Platinum Album Award for “The Spaghetti Incident” by Guns “N Roses, an
ITVA Gold award for “Ninety Years” for Monterrey, Mexico, and an ITVA Gold Award for
the score for “Bass Shoe of Wilton, Maine”. Mr. Anderson also composed the score for
Fablevision’s award-winning animated film “Living Forever”, composed music for the
highly acclaimed documentary, “Mai’s America”, and composed the score for recently
released “Pilgrimage into the Past”. His most recent television project was the theme
for the “Ask This Old House” series on PBS. His most recent project was composing
original music for Boston University’s newly opened Welcome Center.
His most recent album production credits are “Noisy Old Men”, a CD featuring John
Abercrombie, Mick Goodrick, Steve Swallow, and Gary Chaffee, and “Playing Time” by
The Larry Baione Trio.
Paul Lehrman
Paul Lehrman is a composer, writer, educator, filmmaker, and music technologist. His
concert works have been commissioned by the Boston Computer Society, the Audio
Engineering Society, the Association for Small Computers in the Arts, and NEWCOMP.
He has performed-often with computers-at Carnegie Hall, Boston Symphony Hall, San
Francisco's Davies Hall, London Festival Hall, and many dingy bars and clubs. He has
scored over two dozen television and theatrical documentaries which have appeared on
PBS, A&E, History Channel, Discovery, Israel TV, France 3, and at New York's Lincoln
Center. Bad Boy Made Good, a film he wrote and produced about avant-garde
composer George Antheil and his infamous Ballet mécanique, has won prizes at several
festivals and been shown on PBS. In a 30-year career he has written some 500
articles for publications ranging from The Boston Globe Sunday Magazine to
Technology Illustrated, to Wired, and has served as a columnist for Recording
Engineer/Producer and Piano & Keyboard magazines. He is currently "Insider Audio"
columnist for Mix magazine, the leading journal of professional audio and music
production. He has written or co-written five books on music technology, one of which,
MIDI For The Professional (Music Sales Corp.), is after 14 years still the standard
college text on the Musical Instrument Digital Interface. His most recent book is The
Insider Audio Bathroom Reader (Thomson Course PTR).
He was the creator of the first sampling/re-synthesis program for a personal computer,
and co-developer of the first graphics-oriented MIDI sequencer for the Apple Macintosh.
He was also creator of the first all-MIDI album, The Celtic Macintosh. He has served as
a consultant to many music and audio hardware and software companies, including
Apple, Digidesign, Roland, Yamaha, AKG, JBL, and Kurzweil.
He is a Lecturer in Music and Multimedia at Tufts University, where he is also
Coordinator of Music Technology and co-director of the program in Musical Instrument
Engineering. Previously he taught in the University of Massachusetts Lowell's Sound
Recording Technology program, where he developed the curriculum in Computer
Applications in Music. He has been a guest lecturer at the Berklee College of Music, the
Manhattan School of Music, Stanford University, UC-Berkeley, Webster University, and
the Hartt School.
source:http://www.culturaleconomics.org/conference/ACEIMusicPanelInfo.pdf
Music industry inches toward internet free for all
Marketing Concepts
Music industry inches toward internet free for allTuesday, June 10th, 2008
Music album sales have declined in recent years thanks to the popularity of iTunes, iPods, MP3 Players, and other forms of file-sharing technology. As a result, the music industry is not making as much revenue from CD sales as it once did. “The record business is over,” says music attorney Peter Paterno in a recent Rolling Stone Magazine article. “The labels have wonderful assets – they just can’t make any money off them.”
Despite decreasing record sales, people are paying big money to hear live music. Concert revenue reached $3.9 billion in 2007, an eight percent increase from 2006. Artists will continue to lean on live music as a main source of revenue in the future.
What does this mean though? MTV founder Bob Pittman recently told Conde Nast Portfolio that all formats of music will one day be free mainly because artists will use their recordings as a promotional tool. People will recognize the band or artist as a brand itself. A brand will be built through the “internet free for all” and consumers will be more likely to spend money on things like concerts, T-shirts, and other merchandise. Considering the fact that little revenue is being made from record sales, artists will be better off handing out free song files and albums in order to create a larger fan base for themselves. More recognition and increased support can lead to more profits from concerts and merchandise sales.
“Maybe get a sponsor to pay a million dollars and just give the album away,” Pittman tells Conde Nast Portfolio. An example of this strategy comes from the hip hop industry. Timbaland has made a deal with Verizon Wireless to produce and sell songs exclusively through the Verizon.
The artist and the sponsor will greatly benefit from sponsors and promotion. However, record companies are suffering greatly from this “free for all” trend in the music industry. In 2007, Madonna left Warner Music to sign a 10 year, $120 million deal with concert promoter Live Nation clearly looking to make more money from live music performances. Linkin Park’s new album sold 623,000 copies in May 2007, the strongest debut of the year to that point. However, the band’s record company, Warner Music Group, announced that it would lay off 400 people that month.
More than 5,000 record-company employees have been laid off since 2000, according to Rolling Stone Magazine. In addition, a number of companies are merging together or shutting down. Sony Music Entertainment and BMG Entertainment merged in 2004. EMI and Warner have been thinking about merging in recent years.
Even while record companies and labels are struggling, digital sales continue to grow. Fans bought 582 million digital singles last year, up 65 percent from 2005, and purchased $600 million worth of ringtones. Because of this, music and record stores are going out of business. In 2006, the retail music chain Tower Records closed its doors. Musicland actually filed for bankruptcy. About 2,700 record stores have closed across the country since 2003, according to the research group Almighty Institute of Music Retail. Reports have also announced that the Virgin Megastore in New York Times and West Hollywood will also be closing in 2009. Around 65 percent of all music sales now take place in bigger electronic stores like Wal-Mart, Circuit City, and Best Buy, which carry fewer titles than specialty stores and put less effort behind promoting new artist.
The record industry is feeling the pain of the digital age. “A great American sector has been damaged enormously,” says Recording Industry Association of America CEO Mitch Bainwol in Rolling Stone Magazine, “from songwriters to backup musicians to people who work at labels. The number of bands signed to labels has been compromised in a pretty severe fashion.”
The music business is changing to keep pace with the technology world. Individual artists will now determine where their profits will be made, either playing live shows, selling merchandise, or on iTunes. Unfortunately for the record industry there is not much it can do.
Tuesday, June 10th, 2008 You can skip to the end and leave a response. Pinging is currently not allowed.
By Chris White
source:http://www.talkibie.com/marketing-concepts/music-industry-inches-toward-internet-free-for-all/
Music industry inches toward internet free for allTuesday, June 10th, 2008
Music album sales have declined in recent years thanks to the popularity of iTunes, iPods, MP3 Players, and other forms of file-sharing technology. As a result, the music industry is not making as much revenue from CD sales as it once did. “The record business is over,” says music attorney Peter Paterno in a recent Rolling Stone Magazine article. “The labels have wonderful assets – they just can’t make any money off them.”
Despite decreasing record sales, people are paying big money to hear live music. Concert revenue reached $3.9 billion in 2007, an eight percent increase from 2006. Artists will continue to lean on live music as a main source of revenue in the future.
What does this mean though? MTV founder Bob Pittman recently told Conde Nast Portfolio that all formats of music will one day be free mainly because artists will use their recordings as a promotional tool. People will recognize the band or artist as a brand itself. A brand will be built through the “internet free for all” and consumers will be more likely to spend money on things like concerts, T-shirts, and other merchandise. Considering the fact that little revenue is being made from record sales, artists will be better off handing out free song files and albums in order to create a larger fan base for themselves. More recognition and increased support can lead to more profits from concerts and merchandise sales.
“Maybe get a sponsor to pay a million dollars and just give the album away,” Pittman tells Conde Nast Portfolio. An example of this strategy comes from the hip hop industry. Timbaland has made a deal with Verizon Wireless to produce and sell songs exclusively through the Verizon.
The artist and the sponsor will greatly benefit from sponsors and promotion. However, record companies are suffering greatly from this “free for all” trend in the music industry. In 2007, Madonna left Warner Music to sign a 10 year, $120 million deal with concert promoter Live Nation clearly looking to make more money from live music performances. Linkin Park’s new album sold 623,000 copies in May 2007, the strongest debut of the year to that point. However, the band’s record company, Warner Music Group, announced that it would lay off 400 people that month.
More than 5,000 record-company employees have been laid off since 2000, according to Rolling Stone Magazine. In addition, a number of companies are merging together or shutting down. Sony Music Entertainment and BMG Entertainment merged in 2004. EMI and Warner have been thinking about merging in recent years.
Even while record companies and labels are struggling, digital sales continue to grow. Fans bought 582 million digital singles last year, up 65 percent from 2005, and purchased $600 million worth of ringtones. Because of this, music and record stores are going out of business. In 2006, the retail music chain Tower Records closed its doors. Musicland actually filed for bankruptcy. About 2,700 record stores have closed across the country since 2003, according to the research group Almighty Institute of Music Retail. Reports have also announced that the Virgin Megastore in New York Times and West Hollywood will also be closing in 2009. Around 65 percent of all music sales now take place in bigger electronic stores like Wal-Mart, Circuit City, and Best Buy, which carry fewer titles than specialty stores and put less effort behind promoting new artist.
The record industry is feeling the pain of the digital age. “A great American sector has been damaged enormously,” says Recording Industry Association of America CEO Mitch Bainwol in Rolling Stone Magazine, “from songwriters to backup musicians to people who work at labels. The number of bands signed to labels has been compromised in a pretty severe fashion.”
The music business is changing to keep pace with the technology world. Individual artists will now determine where their profits will be made, either playing live shows, selling merchandise, or on iTunes. Unfortunately for the record industry there is not much it can do.
Tuesday, June 10th, 2008 You can skip to the end and leave a response. Pinging is currently not allowed.
By Chris White
source:http://www.talkibie.com/marketing-concepts/music-industry-inches-toward-internet-free-for-all/
Music Industry Gurus' Five Point Plan to Save their Business
Researchers at The Leading Question and experts from Music Ally have determined that fewer people are regularly paying for downloads, while the percentage of the population that regularly downloads music from a P2P network is holding steady. They concluded, like so many before them, that the music industry is in dire need of a ground-up overhaul if it is to survive. However, they've done more than critique. The researchers came up a five-point plan for saving the music industry.
The 800-person UK study found that the percentage who regularly purchased music declined 16 to 14 percent from the end of 2006 to the end of 2007, and that 51 percent of their music was ripped from CDs. Fans paid for an average of 3.32 songs per month. And while the same percentage of people appear to have tried buying downloads and grabbing songs from file sharing sites, the purchasers' buying habits declined. File sharers -- apparently more satisfied -- tended to continue using those services.
"[Music fans] might buy a few tracks from iTunes when they get a new iPod for Christmas, but few go on to become regular paying downloaders," said Tim Walker, managing director of The Leading Question. "The statistics are obviously worrying, but the research does offer clues as to how fans who merely dabble can be encouraged to engage fully with licensed digital music services."Paul Brindley, Music Ally's managing director, pointed out that the changes they're recommending for the music business are not a matter of degrees, and that this is not the end of the world. "Business models need to change radically if the music business is to stand any chance of halting the current decline in sales. It doesn't have to be all doom and gloom."
Without any further ado, here are five recommendations for the music industry from The Leading Question and Music Ally:
1. Music needs to be bundled with other products and entertainment packages: Value can be created from many other ways than consumers simply buying the occasional download. Music needs to move away from per unit sales and become more of a service than a product. It should be pre-loaded into devices, bundled with mobile tariffs, offered as part of TV/Entertainment/ISP packages.
2. Labels needs to experiment with new release schedules and formats: The old model of single and album releases has run its course. Labels needs to be more innovative if they are not to be freezed out altogether. Look at the likes of Radiohead, Nine Inch Nails and Prince and experiment with new and varied formats, new pricing models and release schedules, digital only releases and promotional partnerships with brands.
3. Free doesn't mean no money: The music industry should not fear free. It needs to embrace it. The culture of the net is free or at least feeling free. But money can still be made from other sources: everything from advertising supported services, to brands paying for an association with the artists to newspapers paying for giveaway CDs.
4. Change the charts: The Charts don’t make much sense anymore. Now that fewer and fewer people are buying music the charts need to reflect the other ways that people are consuming music.
5. Trust the DJ: Online means anyone can access or own John Peel’s entire record collection, but the instant and massive availability of music on demand means you need a trusted guide like John Peel more than ever. The new layers of value will come from the social connections that come about through music as much as from the music itself.
source: http://blog.wired.com/music/2008/05/music-industry.html
The 800-person UK study found that the percentage who regularly purchased music declined 16 to 14 percent from the end of 2006 to the end of 2007, and that 51 percent of their music was ripped from CDs. Fans paid for an average of 3.32 songs per month. And while the same percentage of people appear to have tried buying downloads and grabbing songs from file sharing sites, the purchasers' buying habits declined. File sharers -- apparently more satisfied -- tended to continue using those services.
"[Music fans] might buy a few tracks from iTunes when they get a new iPod for Christmas, but few go on to become regular paying downloaders," said Tim Walker, managing director of The Leading Question. "The statistics are obviously worrying, but the research does offer clues as to how fans who merely dabble can be encouraged to engage fully with licensed digital music services."Paul Brindley, Music Ally's managing director, pointed out that the changes they're recommending for the music business are not a matter of degrees, and that this is not the end of the world. "Business models need to change radically if the music business is to stand any chance of halting the current decline in sales. It doesn't have to be all doom and gloom."
Without any further ado, here are five recommendations for the music industry from The Leading Question and Music Ally:
1. Music needs to be bundled with other products and entertainment packages: Value can be created from many other ways than consumers simply buying the occasional download. Music needs to move away from per unit sales and become more of a service than a product. It should be pre-loaded into devices, bundled with mobile tariffs, offered as part of TV/Entertainment/ISP packages.
2. Labels needs to experiment with new release schedules and formats: The old model of single and album releases has run its course. Labels needs to be more innovative if they are not to be freezed out altogether. Look at the likes of Radiohead, Nine Inch Nails and Prince and experiment with new and varied formats, new pricing models and release schedules, digital only releases and promotional partnerships with brands.
3. Free doesn't mean no money: The music industry should not fear free. It needs to embrace it. The culture of the net is free or at least feeling free. But money can still be made from other sources: everything from advertising supported services, to brands paying for an association with the artists to newspapers paying for giveaway CDs.
4. Change the charts: The Charts don’t make much sense anymore. Now that fewer and fewer people are buying music the charts need to reflect the other ways that people are consuming music.
5. Trust the DJ: Online means anyone can access or own John Peel’s entire record collection, but the instant and massive availability of music on demand means you need a trusted guide like John Peel more than ever. The new layers of value will come from the social connections that come about through music as much as from the music itself.
source: http://blog.wired.com/music/2008/05/music-industry.html
When Business Models Go Bad: The Music Industry’s Future
Source:http://dret.net/netdret/docs/wilde-music-icete2004.pdf
When Business Models Go Bad: The Music Industry’s Future
Erik Wilde
Swiss Federal Institute of Technology (ETH)
Z¨urich, Switzerland
icete2004@dret.net
Jacqueline Schwerzmann
Swiss National Television (SFDRS)
Z¨urich, Switzerland
jacqueline.schwerzmann@sfdrs.ch
Key words: File Sharing, P2P, RIAA, IFPI, DMCA
Abstract: The music industry is an interesting example for how business models from the pre-Internet area can get into
trouble in the new Internet-based economy. Since 2000, the music industry has suffered declining sales, and
very often this is attributed to the advent of the Internet-based peer-to-peer file sharing programs. We argue
that this explanation is only one of several possible explanations, and that the general decrease in the economic
indicators is a more reasonable way to explain the declining sales.
Whatever the reason for the declining sales may be, the question remains what the music industry could
and should do to stop the decline in revenue. The current strategy of the music industry is centered around
protecting their traditional business model through technical measures and in parallel working towards legally
protecting the technical measures. It remains to be seen whether this approach is successful, and whether the
resulting landscape of tightly controlled digital content distribution is technically feasible and accepted by the
consumers. We argue that the search for new business models is the better way to go, even though it may take
some time and effort to identify these business models.
1 Introduction
Since its invention in the early 1990’s, the Web has
changed many things. It is the first global information
system with a user base counting in hundreds
of millions, and in many industrialized countries, the
user base covers 50% of the population or more. This
means that the Web is a medium that can fundamentally
change businesses, in particular when the businesses
are dealing with immaterial goods (i.e., ideally
suited for electronic distribution) rather than physical
products. Among others, the music industry has been
seriously affected by theWeb, and in this paper we describe
the observable facts, their interpretation of the
music industry, some interesting alternative interpretations,
and conclude with some remarks about more
appropriate and promising ways to act and react in a
rapidly changing world.
A detailed and insightful study of the music industry
has recently been published by (Phillips and Johnson,
2004). For the purpose of this paper, the following
players and concepts are most important: The
Recording Industry Association of America (RIAA) is
the biggest national music industry association, and
thus the most important player in the field of music
industry associations. However, the national bodies
in this field are united under the roof of the International
Federation of the Phonographic Industry
(IFPI), which is the world-wide organization of currently
46 national members.
With regard to legislatory action, the 1998 U.S.
Digital Millennium Copyright Act (DMCA) has been
the most thoroughly discussed law for regulating intellectual
property rights and their technical implementation.
The DMCA prohibits the circumvention
of technical measures intended to protect the rights of
copyright owners in addition to the legal protection of
the content itself. Furthermore, removal or alteration
of copyright management information are prohibited.
However, the DMCA has not been an initiative of
U.S. legislation. It simply is a national implementation
of the international WIPO Copyright Treaty
(WCT), which in 1996 had been created by the World
Intellectual Property Organization (WIPO), a UNfunded
organization. Other countries or political entities
are following the path of the DMCA, for example
in 2001 the EU published the EU Copyright Directive,
and EU countries are now transforming the EU
directive into national law, for example Germany in
2003.
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2 Historic Perspective
The invention of new devices or ways of recording,
storing, playing, and distributing media has always
been the source of huge changes in the media
market. For the music market, inventions such as the
radio, the phonograph, the magnetic tape, the compact
cassette, the Compact Disc (CD), and then even
digital recording media such as Digital Audio Tape
(DAT) or the MiniDisc have been turning points in the
way the industry worked. Whenever new inventions
changed the landscape of the music industry, many
companies claimed that these inventions would ruin
their business. For the most inflexible companies, this
sometimes turned out to be true, but the majority of
companies managed to adapt to the new reality and
survived, and often even thrived because of new business
opportunities that had opened up.
For a very long time now, since the invention of
the phonograph in the late 19th century, the music industry
was centered around physical products, even
though the actual products changed. For the first time
now, the industry faces a shift away from physical
products, since computer networks and efficient audio
compression methods have enabled users to treat
music as simple data. And since data is most powerful
when it is as loosely coupled with physical media as
possible, people are doing exactly this, copying their
music from one CD to another, from a CD to their
computer or their portable audio device, or vice versa.
Users are expecting this kind of freedom because
they are used to so-called fair use. Fair use is what
enables users to use copyrighted material to a certain
extent, so that they can create private copies of their
CDs, even give these away to their friends, without
doing anything illegal. Since for a very long time, all
this fair use required the use of blank media (such as
empty cassettes), Europe’s music industry managed
to collect a share from every sold blank media, based
on the assumption that a substantial fraction of them
would be used to record copyrighted material. With
the recent development of treating everything as data,
it becomes difficult to downright impossible to continue
along this road, because blank media are no
longer specific to the media type, and a blank DVD
may be used to record one possibly copyrighted film
or days worth of music.
So the challenge the music industry is facing is that
they are essentially moving away from their niche of a
specialized business in a specialized hardware world,
but are simply becoming content providers. The current
tactics of the music industry is to protect their
niche through technical and legislative actions, and
the interesting question is whether this will succeed
technically, and whether it will succeed culturally,
when long-standing rights such as the fair use practice
are essentially taken away from the consumers.
3 Technical Development
All file sharing tools use Peer to Peer (P2P) technology,
meaning that the actual files are always exchanged
between individual users. This is a departure
from the more traditional client/server-model, where
service providers offer a particular service (such as
the pages of aWeb site), and clients use this service by
connecting to the server. P2P is an architecture where
participants dynamically can be server and/or clients,
which makes the overall architecture much more flexible.
Furthermore, for large amounts of data, transferring
them in a grid of cross-connected computers
is much more scalable then a centralized architecture,
where a central server would turn into a bottleneck if
too many clients were using it.
While P2P architectures are still an active field of
research, first approaches and implementations were
available in the early days of the Web. However, it
was not until Napster arrived that P2P became popular.
Napster combined a user-friendly interface design
and a focus on music, which quickly attracted
a large number of users. Before Napster, file sharing
was only practiced in rather small circles of people using
technology that was much less user-friendly. As
a result, the supply of available music was limited.
Napster attracted enough users to make virtually everything
available, which again attracted more users
and thus helped Napster to succeed as it did.
3.1 Centralized P2P Directory
Napster was the first file sharing application that used
the Internet for distributing files. Napster’s approach
was to implement the actual file transmission as a
P2P transaction, but the directory and search services
were hosted centrally. This centralized architecture
made the system an easy target to attack (both technically
and/or legally), and Napster was shut down (by
a court decision made in San Francisco) in 2000.
Since this was the proof that centralized systems
would be the targeted legally, no other centralized system
or service appeared. Furthermore, P2P technology
had already advanced past the centralized architecture
and developed new architectures, which did
not have any centralized host.
3.2 Distributed P2P Directory
After Napster’s shutdown, applications such as Kazaa
and Grokster (using FastTrack) and Morpheus (based
on StreamCast and the open Gnutella protocol) appeared,
and they are still in use today. These P2P
applications do not have a central host, but instead
continually exchange directory and search information.
Thus, a dynamic network of participating users
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When Business Models Go Bad: The Music Industry’s Future
is formed, which cannot be easily targeted legally or
technically. A newer application in this area is eDonkey,
which improves the search mechanisms and improves
download performance by splitting files into
pieces and distributing the pieces.
However, the recent aggressive RIAA campaign in
the United States proves that given sufficient legislative
support, even systems as volatile and seemingly
anonymous as distributed P2P applications can be targeted
legally. The RIAA intercepts protocol messages
from these applications, concludes that a user is illegally
sharing copyrighted material, and then uses the
DMCA to force ISPs to disclose the identity of the
individual user. This practice has been rejected by a
D.C. district court order in December 2003, requiring
a formal lawsuit to get the information from the ISPs.
Even though the legal battle will continue, it is clear
that the music industry is targeting users instead of the
makers of P2P software1. The weak point that is exploited
by the RIAA is the directory information that
is made available by the P2P clients. To address this
issue, new forms of P2P file sharing have been developed,
which do not require any directory information
to be transmitted over the P2P network at all.
3.3 Directory-less P2P
The BitTorrent application introduced a new concept
into the P2P file sharing world: Directory information
is no longer part of the P2P application, but handled
individually. In practice, BitTorrent is based on Web
servers which list available files, and these lists are
regular Web pages which can be accessed with any
Web browser. As soon as a user selects one of the files
to download, the request is handled by a local Bit-
Torrent client, which starts the download as a highly
optimized P2P activity, thereby sharing the data with
other users downloading this particular file.
The disadvantage of this approach is the fact that
the Web servers again are an easy target for technical
and/or legal measures, but since they do not need
any specialized software, it is rather easy to move the
contents between different servers, and at the time of
writing, there is an ongoing hide-and-seek game between
groups of individuals hosting the Web pages,
and institutions claiming that the Web pages aid the
illegal distribution of copyrighted content.
Another interesting facet of BitTorrent (as well as
some modern applications using the distributed P2P
directory approach) is that the P2P principle is extended
to encompass all users interested in a certain
file. Consequently, if there are 20 users exchanging a
file, it is never completely transmitted from one user
1In a L.A. court decision from April 2003, it was decided
that the P2P itself is not illegal, but the exchange of
copyrighted material using this software could be.
to another user. Instead, every users provides fragments
of the file to others, and receives fragments of
the file from others, so that there is no single, easily
identifiable interaction where to users actually exchanged
a complete file. This makes legislation more
difficult, since it is much harder to identify complete
transactions.
4 Online Music Sharing Statistics
One of the most important tools for carrying opinions
are statistics. Since the music industry’s goal
is to influence legislation, there must be some data
supporting the claims made by the music industry.
History, as discussed in the previous section, does
not provide any evidence that technological revolutions
had a negative influence on the music industry.
The music industry thus claims that this specific technological
revolution is completely different than the
previous ones, because it enables perfect copies, and
facilitates worldwide distribution for everyone. To
back this claim, the music industry presents statistics,
which are very interesting to look at.
The problem with file sharing is that the evolution
of file sharing tools (as described in Section 3)
has continually reduced the possibility to measure
the number of shared files. In order to overcome
this problem, many statistics presented are based on
highly questionable numbers, which euphemistically
could be described as upper bounds of the (unknown)
real numbers:
• Software downloads: Commercially oriented companies
such as Kazaa and Morpheus often report
the number of times a software has been downloaded
in order to show the popularity of their service.
Naturally, this number is of some significance,
again constituting an upper bound of users
(if installation files are not further distributed).
However, the number of actual users heavily depends
on the quality of the software (if the software
is unstable and hard to use, many people will
stop using it) and the utility of using it (many commercial
P2P products are notorious for containing
a variety of Adware and Spyware add-ons). Thus,
the number of software downloads may be interesting,
but is a number of very low significance when
measuring the usage of a service.
• Shared files: P2P clients using directory information
make it possible to plug into the P2P network
and get information about the shared files. However,
the number of files shared is no indication of
how many of them are copyrighted material, how
many of them are duplicates, and how many of
them can be retrieved successfully. Even though
a file is appearing in the directory service does not
3
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mean that is has or will ever be shared. Many will
not be shared because the users have disabled or reduced
uploading speed, and many others are never
successfully shared because transfers stop before
the complete file is transmitted.
For directory-less P2P clients, it is principally impossible
to even measure something like the number
of shared files, so for these clients this number
cannot be given or even estimated. To summarize,
the measurement of shared files is a number that
may be interesting (and often is used by commercial
P2P software vendors to lure new customers),
but is of very low significance. To make things even
less meaningful, since April 2003 the RIAA has begun
to systematically flood various P2P networks
with fake files.
• Sales of recordable media: Since many users
archive media files on digital media (mostly CDR,
with an increasing share of DVD-R), the sales of
recordable media are taken as a direct measurement
of illegally copied content. The measurements are
based on user polls which in many cases involve a
rather small number of users, so that (1) the significance
of these polls is limited. It is (2) also unclear
how much of the media being used for music
recording are used for fair use copies of legally acquired
music. And it is (3) assumed that each media
that is recorded is counted as a CD that otherwise
would have been bought. This claim seems to be
bold to make.
What makes things even more irritating is that the
music industry receives money for each recordable
media being sold, through long-standing agreements
which in the past had been designed to cover
fair use. Since file sharing is not regarded as fair
use, the music industry claims that all the recordable
are filled with illegally acquired content, but
still collects money for the media. And in an effort
to compensate the revenue losses of the last years,
the music industry wants to increase the amount
of money that users pay for each empty recordable
medium, and maybe even introduce charges
on recording equipment.2
Even though there certainly is some correlation between
file sharing and the measurements presented
above, it is highly questionable whether the methods
employed by the music industry do more than providing
an upper bound (which may be very far away from
the real numbers). The error margins in the individual
statistical numbers are very large and get even larger
when these numbers are used in combination.
Even if it were possible to reliably measure the
2With the lucrative side-effect that since music is simply
data, every computer is considered to be recording equipment
and would thus be an additional source of income.
number of shared files, the simple technique of multiplying
this number with the normal sales prize of
music media is, again euphemistically speaking, an
upper bound of the loss of revenue. The simple reason
is that P2P users collect far more music then they
would ever buy. Even though the per capita expenditure
for (mainly) immaterial goods is constantly rising,
there is still a limit to how much people are going
to pay for their immaterial possessions (such as music
or literature).
It is interesting to look at some of the numbers presented
by the music industry. These numbers are very
important, because only a negative impact of new
ways to use music enabled by computers and networks
will convince legislators to change the law in
the favor of content distributors. Legislation always
has been friendly to content distributors (for example
by expanding the time period for copyright protection),
but some serious statistic sort of justification
is required for changing the law.
Figure 1: Total Sales U.S. Music Market 1990-2002
In Figure 1 (Figures 1, 2, and 3 are reprinted from
http://www.azoz.com/riaa/news/logic.html), the sales
for different formats of music media is shown. The
“Hi-End” category summarizes music videos, DVD
Music Video, and DVD Audio, but even together with
the single market, which almost disappeared, does
not constitute a relevant segment of the market. The
“Full-length” market comprises vinyl LPs, cassettes,
and CDs, and is the only relevant market. As can be
seen from the figure, the sales numbers have declined
since 1999, and Napster went online in 2000.
Thus, this figure could be used to point out that
“sales declined since the first P2P application became
popular”. This is certainly true and is a correlation
that can be easily observed, but as every statistician
knows, a correlation is not a proof for a cause/effectrelationship.
It may be an indication, and further research
or experiments must be conducted to prove or
disprove that there is an cause/effect-relationship. In
4
When Business Models Go Bad: The Music Industry’s Future
the case of P2P file sharing, it is hard to make any additional
analyses, since the invention of P2P file sharing
was a singular event and cannot be repeated or
simulated in a controlled environment.
However, in search for reasons for the decline of
sales since 1999, it may be interesting to look at the
general economic development, particularly in case
of a product such as music, which can be considered
a luxury good which people will only spend money
for if they have additional money to spend.
Figure 2: Music Market vs. Dow Jones 1990-2002
Figure 2 shows a comparison of the various full
length media (vinyl LP, cassette, and CD) and the
Dow Jones Industrial Average (DJIA). The DJIA is
a reliable and generally accepted indicator of the general
strength of the economy, and suffered a steep decline
since the beginning of 2000, when the so-called
Internet Bubble (Perkins and Perkins, 1999) burst.
There is an interesting correlation between the DJIA
and the music industry sales figures in general, and in
particular since 1999.
Looking at this picture, the industry’s claims that
Napster and the following music sharing tools caused
the decline of the music industry sales appear in a different
light. To make this alternative interpretation of
the music industry sales even more interesting, Figure
3 shows the development of the retail prices (suggested
list price and actual retail price) between 1997
and 2002.
As can be seen, the retail prices for media increased
constantly over the period of time shown in the figure.
In a slow economy, constantly rising prices for
luxury goods will not help sales. The combination of
the economic situation and the pricing strategy of the
music industry is another way to explain the shrinking
sales since 1999. However, this interpretation is
rarely heard or seen, even though it is probably at least
as convincing as the Napster-based explanation.
Figure 3: Average Retail Prices 1997-2002
As a result of this bias towards one interpretation,
politicians tend to favor the music industry in their
legislation. The reason for this is two-fold:
• Statistics are convincing: Only few people in legislation
know the fundamental difference between
correlation and cause/effect-relationships, and presented
with the statistics and the Napster-based explanation,
they are easily convinced that the music
industry is in danger, and that this is caused by file
sharing.
• Unorganized users: While industry associations
have a lot of money which they can invest in lobbying,
lawyers, and studies backing their claims,
users do not have a voice that is easily heard or
powerful enough to influence legislation.
Recent legislation such as the DMCA and the EU
Copyright Directive are only implementations of the
WCT, but they are also examples for the extent to
which legislation is influenced by associations. At
present, it seems certain that WCT-influenced laws
will become the normal state of legislation.
It will be interesting to observe the reaction of the
general public when the right for fair use is taken
away from them, at least for certain forms of content.
Even though this is a logical consequence when
moving from buying content by buying some physical
media, to acquiring a license to use some data, the
cultural consequences remain to be seen. For more
than hundred years people have been used to the idea
of “their books” and “their recordings” (and the right
to do with these whatever they like, including copying,
lending, and selling), and it will take some time to
move away from this when eBooks and online music
become the rule rather than the exception.
5
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5 Consequences
The consequences of the Web so far have left the
music industry rather helpless. The reaction to the
new reality of music as data flowing freely through
the available data channels has been to attempt to stop
this flow through technical measures and legislation.
The alternative, adaptation to the new world, so far
has found amazingly little consideration. In the following
two sections we look at these two strategies.
A third way, which would involve more philosophical
than commercial action, is discussed in Section 6, and
it is more a vision and ideal than a realistic course of
action for the current music industry, given its current
focus and way of working.
5.1 Copy Protection
In order to stop or at least reduce the sharing of music,
various Digital Rights Management (DRM) technologies
have become the focus of attention. Rather
primitive ways are copy-prevention technologies for
CDs as described by (Halderman, 2002). However,
these technologies have been met with some reluctance
by users, because many of them mandate violating
the CD standard, so that, technically speaking, the
CDs that users are buying are no longer CDs. Apart
from the principal question whether such a hasty departure
from a proven, trusted, and widely accepted
standard such as the CD is a smart thing to do, CD
copy-prevention technologies also reduce the ways in
which a user can use the CDs (after all, this is the one
and only purpose of these technologies).
While the wide-scale distribution of copy-protected
CDs in Europe has been met with only little criticism
and publicity, record companies are still reluctant to
do the same on the American market, because American
consumers are generally known to be less tolerant
and complain more when they get what they consider
as an inferior product.
Going beyond simple copy-prevention technologies
for CDs, true DRM technologies including cryptographic
methods and licensing, are also slowly
catching on. However, the required infrastructure
for these technologies still make them very heavyweight,
and from the perspective of a user, they are
much less user-friendly than traditional CDs. (Haber
et al., 2003) argue that even if piracy is identified as
the most important problem for the music industry,
it is questionable whether DRM technologies are the
solution to this problem. They argue that even though
DRM may handle the authorization of copy-protected
content, there will always be a significant amount of
unprotected content available (obtained by dissociating
the content from the DRM information), which
then is distributed to interested consumers.
5.2 Adapting to a New World
While the music industry is mainly concerned with
protecting their traditional sources of income, the
record sales, other companies concentrate on new
business models. Apple’s iTunes was the first online
music distributor to become rather popular, and one
of the reasons is that the concept is modelled around
user-friendliness rather than the goal to protect old
business models. The online distribution on music
still is in its infancy, but it seems to be able to support
a business, given the business is designed to work
within the new world rather than against it. Users are
willing to pay for a real alternative to P2P, if they can
choose among titles of major labels, in user-friendly
formats, without copy protection and for Windows
and Apple platforms. Business models with copy restrictions
or proprietary formats are less attractive and
less successful.
(Fetscherin, 2003) describes the three major challenges
that content providers are facing in the future,
which are (1) competing against pirated copies
of their own products, (2) viewing the Internet as a
new distribution channel with fundamentally different
properties, and (3) learning to observe user acceptance
of controls and limitations that are imposed on
users. While it seems that the first points are already
included in the music industry’s new business plans,
the third point is largely ignored.
It will be interesting to see how content providers
as well as users adapt to a new world of licensing and
pure data. For example, for an eBook, the perceived
value for a user may be higher or lower than for a traditional
book. For a novel, it may be more convenient
to have a paperback which can be easily handled and
is less fragile than an eBook reader. For a technical
manual, however, it may be very valuable to have it
in eBook form thus providing sophisticated indexing
and searching facilities. For music, there may be similar
categories, and unless the content providers have
not invested more effort into finding out what people
want and how much they are willing to pay for it, the
adaptation process to the new world of content distribution
will remain more difficult than necessary.
6 Alternatives
While the previous sections described ways how
the music industry could and might be able to make
the transition into a new area, the question remains
whether the whole idea of a completely product-based
view of music is desirable. To phrase this approach
differently: While there maybe companies (even big
ones) that have made their living from viewing and
selling music as a product, it is questionable whether
6
When Business Models Go Bad: The Music Industry’s Future
this view of the world should be endorsed by legally
protecting it. Legislators in the U.S. and Europe protect
digital content by enacting stronger intellectual
property law, based on the WIPO treaties. The high
price for a legal framework with such excessive copyright
restriction will be loss of fair use and anonymity
for the user. Law combined with increasing technical
control shifts the balance between the interests of
users and copyright owners towards the latter.
The WCT and resulting national laws are simply
protecting the interests of traditionally working industries
in a new world, and the price for this often is privacy.
The RIAA’s recent actions against users of file
sharing programs not only have shown that the new
legislation is criminalizing significant fragments of
the population, but also that many privacy issues have
been treated rather lightly when introducing the new
legislation. As an alternative, the Electronic Frontier
Foundation (EFF) has suggested to let users of
P2P file sharing services pay a voluntary monthly fee,
which would then be collected and distributed similarly
to the European fee on blank media. A similar
approach is letting Internet Service Providers (ISPs)
collect the fee as described by (Sobel, 2003).
As a radical alternative for content providers, the
Creative Commons concepts developed by (Lessig,
1999; Lessig, 2001) is an interesting solution. It is
based on the assumption that all cultural work is interconnected
and thus cannot be regarded and marketed
as an individual product. This concept is mainly targeted
at content providers with no commercial motivation,
which want to make sure that their content is
available and can be used by interested parties.
7 Conclusions
While we argue that the music industry in general
could benefit from concentrating on new business
models rather then protecting the old ones, we
do not deny that commercial music piracy (such as
producing and selling counterfeit CDs) is a problem
and should be prosecuted. However, the current trend
to criminalize a substantial fraction of the consumer
base is probably counterproductive and will definitely
not help to increase the speed of adaptation to the
new reality of music as data. While large-scale online
sharing of copyrighted material is illegal, P2P
applications are not illegal by nature, and could also
serve as a foundation for a new way of making money
with music. Additionally, new studies such as (Oberholzer
and Strumpf, 2004) indicate that the actual loss
of sales is much smaller than usually claimed.
The current copyright law (before the
WCT/DMCA legislation) is sufficient to protect
copyrighted material, and the attempts to legally protect
the technical protection mechanisms for content
show that the resulting architecture will probably
result in more restrictions for users. The statistics that
are used to convince legislators to accept this kind of
legislation are highly questionable, starting from the
business figures and ending with the user counts and
the concluded loss of revenue. Only the complete
absence of effective user interest lobbying makes the
current legislation possible.
Promising new business models such as iTunes
show that it is possible to make money on the Internet,
and that users can be offered a service that is not
overly restrictive but still effective enough to avoid
large-scale exploitation. While we cannot present a
business model that will successfully move the music
industry into the area of the Internet, we are confident
that the current complaints will disappear once
the thinking has moved from protecting the old ways
to discovering and using the new ways.
REFERENCES
Becker, E., Buhse, W., G¨unnewig, D., and Rump, N., editors
(2003). Digital Rights Management — Technological,
Economic, Legal and Political Aspects, volume
2770 of Lecture Notes in Computer Science.
Springer-Verlag, Berlin, Germany.
Fetscherin, M. (2003). Evaluating Consumer Acceptance
for Protected Digital Content. In (Becker et al., 2003),
chapter 3.5, pages 301–320.
Haber, S., Horne, B., Pato, J., Sander, T., and Tarjan, R. E.
(2003). If Piracy Is the Problem, Is DRM the Answer?
In (Becker et al., 2003), chapter 2.8, pages 224–233.
Halderman, J. A. (2002). Evaluating New Copy-Prevention
Techniques for Audio CDs. In Proceedings of the
2002 ACM Workshop on Digital Rights Management,
Washington, D.C.
Lessig, L. (1999). Code and Other Laws of Cyberspace.
Basic Books, New York.
Lessig, L. (2001). The Future of Ideas. Vintage Books,
New York.
Oberholzer, F. and Strumpf, K. (2004). The Effect of
File Sharing on Record Sales: An Empirical Analysis.
Technical report, University of North Carolina,
Chapel Hill, North Carolina.
Perkins, A. B. and Perkins, M. C. (1999). The Internet Bubble.
HarperBusiness, San Francisco, California.
Phillips, R. J. and Johnson, R. D. (2004). The Music
Industry. In Bowmaker, S., editor, Economics Uncut:
A Complete Guide to Life, Death, and Misadventure.
Edward Elgar Publishing, Northampton, Massachusetts.
Sobel, L. S. (2003). DRM as an Enabler of Business Models:
ISPs as Digital Retailers. Berkeley Technology
Law Journal, 18(2).
7
When Business Models Go Bad: The Music Industry’s Future
Erik Wilde
Swiss Federal Institute of Technology (ETH)
Z¨urich, Switzerland
icete2004@dret.net
Jacqueline Schwerzmann
Swiss National Television (SFDRS)
Z¨urich, Switzerland
jacqueline.schwerzmann@sfdrs.ch
Key words: File Sharing, P2P, RIAA, IFPI, DMCA
Abstract: The music industry is an interesting example for how business models from the pre-Internet area can get into
trouble in the new Internet-based economy. Since 2000, the music industry has suffered declining sales, and
very often this is attributed to the advent of the Internet-based peer-to-peer file sharing programs. We argue
that this explanation is only one of several possible explanations, and that the general decrease in the economic
indicators is a more reasonable way to explain the declining sales.
Whatever the reason for the declining sales may be, the question remains what the music industry could
and should do to stop the decline in revenue. The current strategy of the music industry is centered around
protecting their traditional business model through technical measures and in parallel working towards legally
protecting the technical measures. It remains to be seen whether this approach is successful, and whether the
resulting landscape of tightly controlled digital content distribution is technically feasible and accepted by the
consumers. We argue that the search for new business models is the better way to go, even though it may take
some time and effort to identify these business models.
1 Introduction
Since its invention in the early 1990’s, the Web has
changed many things. It is the first global information
system with a user base counting in hundreds
of millions, and in many industrialized countries, the
user base covers 50% of the population or more. This
means that the Web is a medium that can fundamentally
change businesses, in particular when the businesses
are dealing with immaterial goods (i.e., ideally
suited for electronic distribution) rather than physical
products. Among others, the music industry has been
seriously affected by theWeb, and in this paper we describe
the observable facts, their interpretation of the
music industry, some interesting alternative interpretations,
and conclude with some remarks about more
appropriate and promising ways to act and react in a
rapidly changing world.
A detailed and insightful study of the music industry
has recently been published by (Phillips and Johnson,
2004). For the purpose of this paper, the following
players and concepts are most important: The
Recording Industry Association of America (RIAA) is
the biggest national music industry association, and
thus the most important player in the field of music
industry associations. However, the national bodies
in this field are united under the roof of the International
Federation of the Phonographic Industry
(IFPI), which is the world-wide organization of currently
46 national members.
With regard to legislatory action, the 1998 U.S.
Digital Millennium Copyright Act (DMCA) has been
the most thoroughly discussed law for regulating intellectual
property rights and their technical implementation.
The DMCA prohibits the circumvention
of technical measures intended to protect the rights of
copyright owners in addition to the legal protection of
the content itself. Furthermore, removal or alteration
of copyright management information are prohibited.
However, the DMCA has not been an initiative of
U.S. legislation. It simply is a national implementation
of the international WIPO Copyright Treaty
(WCT), which in 1996 had been created by the World
Intellectual Property Organization (WIPO), a UNfunded
organization. Other countries or political entities
are following the path of the DMCA, for example
in 2001 the EU published the EU Copyright Directive,
and EU countries are now transforming the EU
directive into national law, for example Germany in
2003.
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2 Historic Perspective
The invention of new devices or ways of recording,
storing, playing, and distributing media has always
been the source of huge changes in the media
market. For the music market, inventions such as the
radio, the phonograph, the magnetic tape, the compact
cassette, the Compact Disc (CD), and then even
digital recording media such as Digital Audio Tape
(DAT) or the MiniDisc have been turning points in the
way the industry worked. Whenever new inventions
changed the landscape of the music industry, many
companies claimed that these inventions would ruin
their business. For the most inflexible companies, this
sometimes turned out to be true, but the majority of
companies managed to adapt to the new reality and
survived, and often even thrived because of new business
opportunities that had opened up.
For a very long time now, since the invention of
the phonograph in the late 19th century, the music industry
was centered around physical products, even
though the actual products changed. For the first time
now, the industry faces a shift away from physical
products, since computer networks and efficient audio
compression methods have enabled users to treat
music as simple data. And since data is most powerful
when it is as loosely coupled with physical media as
possible, people are doing exactly this, copying their
music from one CD to another, from a CD to their
computer or their portable audio device, or vice versa.
Users are expecting this kind of freedom because
they are used to so-called fair use. Fair use is what
enables users to use copyrighted material to a certain
extent, so that they can create private copies of their
CDs, even give these away to their friends, without
doing anything illegal. Since for a very long time, all
this fair use required the use of blank media (such as
empty cassettes), Europe’s music industry managed
to collect a share from every sold blank media, based
on the assumption that a substantial fraction of them
would be used to record copyrighted material. With
the recent development of treating everything as data,
it becomes difficult to downright impossible to continue
along this road, because blank media are no
longer specific to the media type, and a blank DVD
may be used to record one possibly copyrighted film
or days worth of music.
So the challenge the music industry is facing is that
they are essentially moving away from their niche of a
specialized business in a specialized hardware world,
but are simply becoming content providers. The current
tactics of the music industry is to protect their
niche through technical and legislative actions, and
the interesting question is whether this will succeed
technically, and whether it will succeed culturally,
when long-standing rights such as the fair use practice
are essentially taken away from the consumers.
3 Technical Development
All file sharing tools use Peer to Peer (P2P) technology,
meaning that the actual files are always exchanged
between individual users. This is a departure
from the more traditional client/server-model, where
service providers offer a particular service (such as
the pages of aWeb site), and clients use this service by
connecting to the server. P2P is an architecture where
participants dynamically can be server and/or clients,
which makes the overall architecture much more flexible.
Furthermore, for large amounts of data, transferring
them in a grid of cross-connected computers
is much more scalable then a centralized architecture,
where a central server would turn into a bottleneck if
too many clients were using it.
While P2P architectures are still an active field of
research, first approaches and implementations were
available in the early days of the Web. However, it
was not until Napster arrived that P2P became popular.
Napster combined a user-friendly interface design
and a focus on music, which quickly attracted
a large number of users. Before Napster, file sharing
was only practiced in rather small circles of people using
technology that was much less user-friendly. As
a result, the supply of available music was limited.
Napster attracted enough users to make virtually everything
available, which again attracted more users
and thus helped Napster to succeed as it did.
3.1 Centralized P2P Directory
Napster was the first file sharing application that used
the Internet for distributing files. Napster’s approach
was to implement the actual file transmission as a
P2P transaction, but the directory and search services
were hosted centrally. This centralized architecture
made the system an easy target to attack (both technically
and/or legally), and Napster was shut down (by
a court decision made in San Francisco) in 2000.
Since this was the proof that centralized systems
would be the targeted legally, no other centralized system
or service appeared. Furthermore, P2P technology
had already advanced past the centralized architecture
and developed new architectures, which did
not have any centralized host.
3.2 Distributed P2P Directory
After Napster’s shutdown, applications such as Kazaa
and Grokster (using FastTrack) and Morpheus (based
on StreamCast and the open Gnutella protocol) appeared,
and they are still in use today. These P2P
applications do not have a central host, but instead
continually exchange directory and search information.
Thus, a dynamic network of participating users
2
When Business Models Go Bad: The Music Industry’s Future
is formed, which cannot be easily targeted legally or
technically. A newer application in this area is eDonkey,
which improves the search mechanisms and improves
download performance by splitting files into
pieces and distributing the pieces.
However, the recent aggressive RIAA campaign in
the United States proves that given sufficient legislative
support, even systems as volatile and seemingly
anonymous as distributed P2P applications can be targeted
legally. The RIAA intercepts protocol messages
from these applications, concludes that a user is illegally
sharing copyrighted material, and then uses the
DMCA to force ISPs to disclose the identity of the
individual user. This practice has been rejected by a
D.C. district court order in December 2003, requiring
a formal lawsuit to get the information from the ISPs.
Even though the legal battle will continue, it is clear
that the music industry is targeting users instead of the
makers of P2P software1. The weak point that is exploited
by the RIAA is the directory information that
is made available by the P2P clients. To address this
issue, new forms of P2P file sharing have been developed,
which do not require any directory information
to be transmitted over the P2P network at all.
3.3 Directory-less P2P
The BitTorrent application introduced a new concept
into the P2P file sharing world: Directory information
is no longer part of the P2P application, but handled
individually. In practice, BitTorrent is based on Web
servers which list available files, and these lists are
regular Web pages which can be accessed with any
Web browser. As soon as a user selects one of the files
to download, the request is handled by a local Bit-
Torrent client, which starts the download as a highly
optimized P2P activity, thereby sharing the data with
other users downloading this particular file.
The disadvantage of this approach is the fact that
the Web servers again are an easy target for technical
and/or legal measures, but since they do not need
any specialized software, it is rather easy to move the
contents between different servers, and at the time of
writing, there is an ongoing hide-and-seek game between
groups of individuals hosting the Web pages,
and institutions claiming that the Web pages aid the
illegal distribution of copyrighted content.
Another interesting facet of BitTorrent (as well as
some modern applications using the distributed P2P
directory approach) is that the P2P principle is extended
to encompass all users interested in a certain
file. Consequently, if there are 20 users exchanging a
file, it is never completely transmitted from one user
1In a L.A. court decision from April 2003, it was decided
that the P2P itself is not illegal, but the exchange of
copyrighted material using this software could be.
to another user. Instead, every users provides fragments
of the file to others, and receives fragments of
the file from others, so that there is no single, easily
identifiable interaction where to users actually exchanged
a complete file. This makes legislation more
difficult, since it is much harder to identify complete
transactions.
4 Online Music Sharing Statistics
One of the most important tools for carrying opinions
are statistics. Since the music industry’s goal
is to influence legislation, there must be some data
supporting the claims made by the music industry.
History, as discussed in the previous section, does
not provide any evidence that technological revolutions
had a negative influence on the music industry.
The music industry thus claims that this specific technological
revolution is completely different than the
previous ones, because it enables perfect copies, and
facilitates worldwide distribution for everyone. To
back this claim, the music industry presents statistics,
which are very interesting to look at.
The problem with file sharing is that the evolution
of file sharing tools (as described in Section 3)
has continually reduced the possibility to measure
the number of shared files. In order to overcome
this problem, many statistics presented are based on
highly questionable numbers, which euphemistically
could be described as upper bounds of the (unknown)
real numbers:
• Software downloads: Commercially oriented companies
such as Kazaa and Morpheus often report
the number of times a software has been downloaded
in order to show the popularity of their service.
Naturally, this number is of some significance,
again constituting an upper bound of users
(if installation files are not further distributed).
However, the number of actual users heavily depends
on the quality of the software (if the software
is unstable and hard to use, many people will
stop using it) and the utility of using it (many commercial
P2P products are notorious for containing
a variety of Adware and Spyware add-ons). Thus,
the number of software downloads may be interesting,
but is a number of very low significance when
measuring the usage of a service.
• Shared files: P2P clients using directory information
make it possible to plug into the P2P network
and get information about the shared files. However,
the number of files shared is no indication of
how many of them are copyrighted material, how
many of them are duplicates, and how many of
them can be retrieved successfully. Even though
a file is appearing in the directory service does not
3
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mean that is has or will ever be shared. Many will
not be shared because the users have disabled or reduced
uploading speed, and many others are never
successfully shared because transfers stop before
the complete file is transmitted.
For directory-less P2P clients, it is principally impossible
to even measure something like the number
of shared files, so for these clients this number
cannot be given or even estimated. To summarize,
the measurement of shared files is a number that
may be interesting (and often is used by commercial
P2P software vendors to lure new customers),
but is of very low significance. To make things even
less meaningful, since April 2003 the RIAA has begun
to systematically flood various P2P networks
with fake files.
• Sales of recordable media: Since many users
archive media files on digital media (mostly CDR,
with an increasing share of DVD-R), the sales of
recordable media are taken as a direct measurement
of illegally copied content. The measurements are
based on user polls which in many cases involve a
rather small number of users, so that (1) the significance
of these polls is limited. It is (2) also unclear
how much of the media being used for music
recording are used for fair use copies of legally acquired
music. And it is (3) assumed that each media
that is recorded is counted as a CD that otherwise
would have been bought. This claim seems to be
bold to make.
What makes things even more irritating is that the
music industry receives money for each recordable
media being sold, through long-standing agreements
which in the past had been designed to cover
fair use. Since file sharing is not regarded as fair
use, the music industry claims that all the recordable
are filled with illegally acquired content, but
still collects money for the media. And in an effort
to compensate the revenue losses of the last years,
the music industry wants to increase the amount
of money that users pay for each empty recordable
medium, and maybe even introduce charges
on recording equipment.2
Even though there certainly is some correlation between
file sharing and the measurements presented
above, it is highly questionable whether the methods
employed by the music industry do more than providing
an upper bound (which may be very far away from
the real numbers). The error margins in the individual
statistical numbers are very large and get even larger
when these numbers are used in combination.
Even if it were possible to reliably measure the
2With the lucrative side-effect that since music is simply
data, every computer is considered to be recording equipment
and would thus be an additional source of income.
number of shared files, the simple technique of multiplying
this number with the normal sales prize of
music media is, again euphemistically speaking, an
upper bound of the loss of revenue. The simple reason
is that P2P users collect far more music then they
would ever buy. Even though the per capita expenditure
for (mainly) immaterial goods is constantly rising,
there is still a limit to how much people are going
to pay for their immaterial possessions (such as music
or literature).
It is interesting to look at some of the numbers presented
by the music industry. These numbers are very
important, because only a negative impact of new
ways to use music enabled by computers and networks
will convince legislators to change the law in
the favor of content distributors. Legislation always
has been friendly to content distributors (for example
by expanding the time period for copyright protection),
but some serious statistic sort of justification
is required for changing the law.
Figure 1: Total Sales U.S. Music Market 1990-2002
In Figure 1 (Figures 1, 2, and 3 are reprinted from
http://www.azoz.com/riaa/news/logic.html), the sales
for different formats of music media is shown. The
“Hi-End” category summarizes music videos, DVD
Music Video, and DVD Audio, but even together with
the single market, which almost disappeared, does
not constitute a relevant segment of the market. The
“Full-length” market comprises vinyl LPs, cassettes,
and CDs, and is the only relevant market. As can be
seen from the figure, the sales numbers have declined
since 1999, and Napster went online in 2000.
Thus, this figure could be used to point out that
“sales declined since the first P2P application became
popular”. This is certainly true and is a correlation
that can be easily observed, but as every statistician
knows, a correlation is not a proof for a cause/effectrelationship.
It may be an indication, and further research
or experiments must be conducted to prove or
disprove that there is an cause/effect-relationship. In
4
When Business Models Go Bad: The Music Industry’s Future
the case of P2P file sharing, it is hard to make any additional
analyses, since the invention of P2P file sharing
was a singular event and cannot be repeated or
simulated in a controlled environment.
However, in search for reasons for the decline of
sales since 1999, it may be interesting to look at the
general economic development, particularly in case
of a product such as music, which can be considered
a luxury good which people will only spend money
for if they have additional money to spend.
Figure 2: Music Market vs. Dow Jones 1990-2002
Figure 2 shows a comparison of the various full
length media (vinyl LP, cassette, and CD) and the
Dow Jones Industrial Average (DJIA). The DJIA is
a reliable and generally accepted indicator of the general
strength of the economy, and suffered a steep decline
since the beginning of 2000, when the so-called
Internet Bubble (Perkins and Perkins, 1999) burst.
There is an interesting correlation between the DJIA
and the music industry sales figures in general, and in
particular since 1999.
Looking at this picture, the industry’s claims that
Napster and the following music sharing tools caused
the decline of the music industry sales appear in a different
light. To make this alternative interpretation of
the music industry sales even more interesting, Figure
3 shows the development of the retail prices (suggested
list price and actual retail price) between 1997
and 2002.
As can be seen, the retail prices for media increased
constantly over the period of time shown in the figure.
In a slow economy, constantly rising prices for
luxury goods will not help sales. The combination of
the economic situation and the pricing strategy of the
music industry is another way to explain the shrinking
sales since 1999. However, this interpretation is
rarely heard or seen, even though it is probably at least
as convincing as the Napster-based explanation.
Figure 3: Average Retail Prices 1997-2002
As a result of this bias towards one interpretation,
politicians tend to favor the music industry in their
legislation. The reason for this is two-fold:
• Statistics are convincing: Only few people in legislation
know the fundamental difference between
correlation and cause/effect-relationships, and presented
with the statistics and the Napster-based explanation,
they are easily convinced that the music
industry is in danger, and that this is caused by file
sharing.
• Unorganized users: While industry associations
have a lot of money which they can invest in lobbying,
lawyers, and studies backing their claims,
users do not have a voice that is easily heard or
powerful enough to influence legislation.
Recent legislation such as the DMCA and the EU
Copyright Directive are only implementations of the
WCT, but they are also examples for the extent to
which legislation is influenced by associations. At
present, it seems certain that WCT-influenced laws
will become the normal state of legislation.
It will be interesting to observe the reaction of the
general public when the right for fair use is taken
away from them, at least for certain forms of content.
Even though this is a logical consequence when
moving from buying content by buying some physical
media, to acquiring a license to use some data, the
cultural consequences remain to be seen. For more
than hundred years people have been used to the idea
of “their books” and “their recordings” (and the right
to do with these whatever they like, including copying,
lending, and selling), and it will take some time to
move away from this when eBooks and online music
become the rule rather than the exception.
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5 Consequences
The consequences of the Web so far have left the
music industry rather helpless. The reaction to the
new reality of music as data flowing freely through
the available data channels has been to attempt to stop
this flow through technical measures and legislation.
The alternative, adaptation to the new world, so far
has found amazingly little consideration. In the following
two sections we look at these two strategies.
A third way, which would involve more philosophical
than commercial action, is discussed in Section 6, and
it is more a vision and ideal than a realistic course of
action for the current music industry, given its current
focus and way of working.
5.1 Copy Protection
In order to stop or at least reduce the sharing of music,
various Digital Rights Management (DRM) technologies
have become the focus of attention. Rather
primitive ways are copy-prevention technologies for
CDs as described by (Halderman, 2002). However,
these technologies have been met with some reluctance
by users, because many of them mandate violating
the CD standard, so that, technically speaking, the
CDs that users are buying are no longer CDs. Apart
from the principal question whether such a hasty departure
from a proven, trusted, and widely accepted
standard such as the CD is a smart thing to do, CD
copy-prevention technologies also reduce the ways in
which a user can use the CDs (after all, this is the one
and only purpose of these technologies).
While the wide-scale distribution of copy-protected
CDs in Europe has been met with only little criticism
and publicity, record companies are still reluctant to
do the same on the American market, because American
consumers are generally known to be less tolerant
and complain more when they get what they consider
as an inferior product.
Going beyond simple copy-prevention technologies
for CDs, true DRM technologies including cryptographic
methods and licensing, are also slowly
catching on. However, the required infrastructure
for these technologies still make them very heavyweight,
and from the perspective of a user, they are
much less user-friendly than traditional CDs. (Haber
et al., 2003) argue that even if piracy is identified as
the most important problem for the music industry,
it is questionable whether DRM technologies are the
solution to this problem. They argue that even though
DRM may handle the authorization of copy-protected
content, there will always be a significant amount of
unprotected content available (obtained by dissociating
the content from the DRM information), which
then is distributed to interested consumers.
5.2 Adapting to a New World
While the music industry is mainly concerned with
protecting their traditional sources of income, the
record sales, other companies concentrate on new
business models. Apple’s iTunes was the first online
music distributor to become rather popular, and one
of the reasons is that the concept is modelled around
user-friendliness rather than the goal to protect old
business models. The online distribution on music
still is in its infancy, but it seems to be able to support
a business, given the business is designed to work
within the new world rather than against it. Users are
willing to pay for a real alternative to P2P, if they can
choose among titles of major labels, in user-friendly
formats, without copy protection and for Windows
and Apple platforms. Business models with copy restrictions
or proprietary formats are less attractive and
less successful.
(Fetscherin, 2003) describes the three major challenges
that content providers are facing in the future,
which are (1) competing against pirated copies
of their own products, (2) viewing the Internet as a
new distribution channel with fundamentally different
properties, and (3) learning to observe user acceptance
of controls and limitations that are imposed on
users. While it seems that the first points are already
included in the music industry’s new business plans,
the third point is largely ignored.
It will be interesting to see how content providers
as well as users adapt to a new world of licensing and
pure data. For example, for an eBook, the perceived
value for a user may be higher or lower than for a traditional
book. For a novel, it may be more convenient
to have a paperback which can be easily handled and
is less fragile than an eBook reader. For a technical
manual, however, it may be very valuable to have it
in eBook form thus providing sophisticated indexing
and searching facilities. For music, there may be similar
categories, and unless the content providers have
not invested more effort into finding out what people
want and how much they are willing to pay for it, the
adaptation process to the new world of content distribution
will remain more difficult than necessary.
6 Alternatives
While the previous sections described ways how
the music industry could and might be able to make
the transition into a new area, the question remains
whether the whole idea of a completely product-based
view of music is desirable. To phrase this approach
differently: While there maybe companies (even big
ones) that have made their living from viewing and
selling music as a product, it is questionable whether
6
When Business Models Go Bad: The Music Industry’s Future
this view of the world should be endorsed by legally
protecting it. Legislators in the U.S. and Europe protect
digital content by enacting stronger intellectual
property law, based on the WIPO treaties. The high
price for a legal framework with such excessive copyright
restriction will be loss of fair use and anonymity
for the user. Law combined with increasing technical
control shifts the balance between the interests of
users and copyright owners towards the latter.
The WCT and resulting national laws are simply
protecting the interests of traditionally working industries
in a new world, and the price for this often is privacy.
The RIAA’s recent actions against users of file
sharing programs not only have shown that the new
legislation is criminalizing significant fragments of
the population, but also that many privacy issues have
been treated rather lightly when introducing the new
legislation. As an alternative, the Electronic Frontier
Foundation (EFF) has suggested to let users of
P2P file sharing services pay a voluntary monthly fee,
which would then be collected and distributed similarly
to the European fee on blank media. A similar
approach is letting Internet Service Providers (ISPs)
collect the fee as described by (Sobel, 2003).
As a radical alternative for content providers, the
Creative Commons concepts developed by (Lessig,
1999; Lessig, 2001) is an interesting solution. It is
based on the assumption that all cultural work is interconnected
and thus cannot be regarded and marketed
as an individual product. This concept is mainly targeted
at content providers with no commercial motivation,
which want to make sure that their content is
available and can be used by interested parties.
7 Conclusions
While we argue that the music industry in general
could benefit from concentrating on new business
models rather then protecting the old ones, we
do not deny that commercial music piracy (such as
producing and selling counterfeit CDs) is a problem
and should be prosecuted. However, the current trend
to criminalize a substantial fraction of the consumer
base is probably counterproductive and will definitely
not help to increase the speed of adaptation to the
new reality of music as data. While large-scale online
sharing of copyrighted material is illegal, P2P
applications are not illegal by nature, and could also
serve as a foundation for a new way of making money
with music. Additionally, new studies such as (Oberholzer
and Strumpf, 2004) indicate that the actual loss
of sales is much smaller than usually claimed.
The current copyright law (before the
WCT/DMCA legislation) is sufficient to protect
copyrighted material, and the attempts to legally protect
the technical protection mechanisms for content
show that the resulting architecture will probably
result in more restrictions for users. The statistics that
are used to convince legislators to accept this kind of
legislation are highly questionable, starting from the
business figures and ending with the user counts and
the concluded loss of revenue. Only the complete
absence of effective user interest lobbying makes the
current legislation possible.
Promising new business models such as iTunes
show that it is possible to make money on the Internet,
and that users can be offered a service that is not
overly restrictive but still effective enough to avoid
large-scale exploitation. While we cannot present a
business model that will successfully move the music
industry into the area of the Internet, we are confident
that the current complaints will disappear once
the thinking has moved from protecting the old ways
to discovering and using the new ways.
REFERENCES
Becker, E., Buhse, W., G¨unnewig, D., and Rump, N., editors
(2003). Digital Rights Management — Technological,
Economic, Legal and Political Aspects, volume
2770 of Lecture Notes in Computer Science.
Springer-Verlag, Berlin, Germany.
Fetscherin, M. (2003). Evaluating Consumer Acceptance
for Protected Digital Content. In (Becker et al., 2003),
chapter 3.5, pages 301–320.
Haber, S., Horne, B., Pato, J., Sander, T., and Tarjan, R. E.
(2003). If Piracy Is the Problem, Is DRM the Answer?
In (Becker et al., 2003), chapter 2.8, pages 224–233.
Halderman, J. A. (2002). Evaluating New Copy-Prevention
Techniques for Audio CDs. In Proceedings of the
2002 ACM Workshop on Digital Rights Management,
Washington, D.C.
Lessig, L. (1999). Code and Other Laws of Cyberspace.
Basic Books, New York.
Lessig, L. (2001). The Future of Ideas. Vintage Books,
New York.
Oberholzer, F. and Strumpf, K. (2004). The Effect of
File Sharing on Record Sales: An Empirical Analysis.
Technical report, University of North Carolina,
Chapel Hill, North Carolina.
Perkins, A. B. and Perkins, M. C. (1999). The Internet Bubble.
HarperBusiness, San Francisco, California.
Phillips, R. J. and Johnson, R. D. (2004). The Music
Industry. In Bowmaker, S., editor, Economics Uncut:
A Complete Guide to Life, Death, and Misadventure.
Edward Elgar Publishing, Northampton, Massachusetts.
Sobel, L. S. (2003). DRM as an Enabler of Business Models:
ISPs as Digital Retailers. Berkeley Technology
Law Journal, 18(2).
7
Music industry looks for ad answers
Music industry looks for ad answers
By Simon Atkinson Business reporter, BBC News
A chief executive unveiling a new business venture can normally be counted on to be both enthusiastic and bullish.
But while Michael Bornhausser's enthusiasm is unwavering, when asked whether his company's latest plan will be a success, he is quite blunt.
"In theory it will work," he says. "But really I don't know. We just have to give it a try."
Later this year, his firm SDC will allow mobile phone users in Australia to download music to their handsets for free.
In return customers will be encouraged - though not forced - to click on interactive adverts supposedly targeted specifically at them.
SDC is one of several companies planning to give customers music, digitally - usually on the proviso that they consume some advertising first.
Lingering doubts
Mr Bornhausser's frankness about the project's risks is understandable.
Advertising is well-established on websites that allow users to listen to music and watch video clips online.
If someone is currently listening to music for free, you are going to struggle to make them listen through an advertisement Shannon Ferguson Yahoo Music Europe
But using sponsorship to fund music that can be downloaded legally "for keeps" has struggled to take off.
Spiralfrog, a website with similar goals to SDC although a quite different approach, had promised legal free music by the end of 2006.
Its aim was to be "offering young consumers an easy-to-use alternative to pirated music sites".
However, management shake-ups and a missed launch date hardly inspired confidence.
Large doubts linger that such projects can work and - if they do - that they can ever contribute more than a small amount to the music industry.
Indeed, when the UK's music business network Music Tank held a forum last month asking "Can Ad Money Mend The Record Business?" the answer from attendees in the private room of a Soho bar was an overwhelming "No".
Holy grail
In principle, anything which allows advertising revenue to be channelled to the music labels whose songs are made available is going to attract interest - particularly when sales of music on physical formats, notably CDs, are continuing to decline.
True, digital sales from the likes of Apple's iTunes Music Store almost doubled to about $2bn (£1bn) during 2006, the International Federation of the Phonographic Industry says.
But the revenue is not growing fast enough to reach the music companies' "holy grail" of offsetting the fall in CD sales.
And with some estimates suggesting that for every legal download, there are 40 illegal ones, it is the trend of people illegally downloading music which proponents of ad-funded music must overcome.
People need to think more about what the customer wants Steve Purdham Chief executive We7
"The battle is definitely against free music," says Shannon Ferguson, managing director of Yahoo Music Europe.
"If someone is currently listening to music for free, you are going to struggle to make them listen through an advertisement.
"Audio adverts added to audio content is not going to work."
Customer focus
Steve Purdham is not so sure.
A former DJ in County Durham, he is the co-founder of internet filtering company Surfcontrol and now chief executive of We7, another firm to offer ad-funded music.
Customers who download songs from its catalogue will have to listen to an advert before they hear to the tune.
But after four weeks they will own the piece of music - advert-free - and will be given the opportunity to upgrade the piece to a higher quality for a "small charge".
The ad-funded model is just one way that progress can be made, he says, with there also being a place for subscription-based services where customers pay a fixed rate to download songs.
"Its not an either-or situation," says Mr Purdham, who has gone into the business with former Genesis legend Peter Gabriel.
"If you go down one route only, you're dead.
"People need to think more about what the customer wants."
Payment queries
Even with a service such as the iTunes Music Store, where it costs customers 79p to download a song, margins are tight.
And so the industry is asking: is it really conceivable that a service could generate enough money from advertising alone to give the music away for free?
If someone comes to us with a business model, then we're interested in talking to them Daniel Ayers Director of digital sales SonyBMG
"If someone comes to us with a business model, then we're interested in talking to them," insists Daniel Ayers, director of digital sales at SonyBMG in the UK.
But the issue of money - and a lack of certainty about when and how the artists get paid - keeps labels wary about ad-funded free music.
"With something like iTunes, somebody buys a song by one of your artists, then they get a cut of that sale," says Mr Ayers, who has worked with bands including Kasabian and Kings of Leon.
"But if it's not based on price per download or price per artist, how does it work?
"The artists, naturally enough, want paying, but when you talk to companies offering ideas and ask how much the artists will get paid, nobody can tell you."
Sampling tool
Last month, SonyBMG followed in the footsteps of EMI and Warner by agreeing to work with QTrax, a file-sharing program which only provides songs which it has permission to offer.
Advertising will also be brought up alongside the listings, Mr Ayers said.
However, users will be limited in how often they can use the songs, which cannot be burned to a CD or transferred onto an MP3 player.
I'm not sure that this can save the music industry, but it's important to have creative concepts Michael Bornhausser Chief executive, SDC
"For us, it makes a great sampling tool, for someone to listen to music and then, hopefully, buy it," Mr Ayers says.
'Creative concepts'
The model being used by Mr Bornhausser's SDC uses technology to track what happens to a song once it is downloaded.
The advert offered will depend on things such as the user's profile and the kind of music they are listening to: perhaps Harley Davidson for somebody in their 40s choosing hard rock - or a make-up firm for a teenage girl downloading the Sugababes.
Payments will be made to artists based on the number of times a song is played.
"Is this the right model?" Mr Bornhausser asks. "The truth is, I don't know, but our approach is just do it, just give it a try. It's important to have creative concepts and do things that work for the consumer."
One thing he is sure of, though, is that SDC - and others like them - have their work cut out.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/6670439.stm
By Simon Atkinson Business reporter, BBC News
A chief executive unveiling a new business venture can normally be counted on to be both enthusiastic and bullish.
But while Michael Bornhausser's enthusiasm is unwavering, when asked whether his company's latest plan will be a success, he is quite blunt.
"In theory it will work," he says. "But really I don't know. We just have to give it a try."
Later this year, his firm SDC will allow mobile phone users in Australia to download music to their handsets for free.
In return customers will be encouraged - though not forced - to click on interactive adverts supposedly targeted specifically at them.
SDC is one of several companies planning to give customers music, digitally - usually on the proviso that they consume some advertising first.
Lingering doubts
Mr Bornhausser's frankness about the project's risks is understandable.
Advertising is well-established on websites that allow users to listen to music and watch video clips online.
If someone is currently listening to music for free, you are going to struggle to make them listen through an advertisement Shannon Ferguson Yahoo Music Europe
But using sponsorship to fund music that can be downloaded legally "for keeps" has struggled to take off.
Spiralfrog, a website with similar goals to SDC although a quite different approach, had promised legal free music by the end of 2006.
Its aim was to be "offering young consumers an easy-to-use alternative to pirated music sites".
However, management shake-ups and a missed launch date hardly inspired confidence.
Large doubts linger that such projects can work and - if they do - that they can ever contribute more than a small amount to the music industry.
Indeed, when the UK's music business network Music Tank held a forum last month asking "Can Ad Money Mend The Record Business?" the answer from attendees in the private room of a Soho bar was an overwhelming "No".
Holy grail
In principle, anything which allows advertising revenue to be channelled to the music labels whose songs are made available is going to attract interest - particularly when sales of music on physical formats, notably CDs, are continuing to decline.
True, digital sales from the likes of Apple's iTunes Music Store almost doubled to about $2bn (£1bn) during 2006, the International Federation of the Phonographic Industry says.
But the revenue is not growing fast enough to reach the music companies' "holy grail" of offsetting the fall in CD sales.
And with some estimates suggesting that for every legal download, there are 40 illegal ones, it is the trend of people illegally downloading music which proponents of ad-funded music must overcome.
People need to think more about what the customer wants Steve Purdham Chief executive We7
"The battle is definitely against free music," says Shannon Ferguson, managing director of Yahoo Music Europe.
"If someone is currently listening to music for free, you are going to struggle to make them listen through an advertisement.
"Audio adverts added to audio content is not going to work."
Customer focus
Steve Purdham is not so sure.
A former DJ in County Durham, he is the co-founder of internet filtering company Surfcontrol and now chief executive of We7, another firm to offer ad-funded music.
Customers who download songs from its catalogue will have to listen to an advert before they hear to the tune.
But after four weeks they will own the piece of music - advert-free - and will be given the opportunity to upgrade the piece to a higher quality for a "small charge".
The ad-funded model is just one way that progress can be made, he says, with there also being a place for subscription-based services where customers pay a fixed rate to download songs.
"Its not an either-or situation," says Mr Purdham, who has gone into the business with former Genesis legend Peter Gabriel.
"If you go down one route only, you're dead.
"People need to think more about what the customer wants."
Payment queries
Even with a service such as the iTunes Music Store, where it costs customers 79p to download a song, margins are tight.
And so the industry is asking: is it really conceivable that a service could generate enough money from advertising alone to give the music away for free?
If someone comes to us with a business model, then we're interested in talking to them Daniel Ayers Director of digital sales SonyBMG
"If someone comes to us with a business model, then we're interested in talking to them," insists Daniel Ayers, director of digital sales at SonyBMG in the UK.
But the issue of money - and a lack of certainty about when and how the artists get paid - keeps labels wary about ad-funded free music.
"With something like iTunes, somebody buys a song by one of your artists, then they get a cut of that sale," says Mr Ayers, who has worked with bands including Kasabian and Kings of Leon.
"But if it's not based on price per download or price per artist, how does it work?
"The artists, naturally enough, want paying, but when you talk to companies offering ideas and ask how much the artists will get paid, nobody can tell you."
Sampling tool
Last month, SonyBMG followed in the footsteps of EMI and Warner by agreeing to work with QTrax, a file-sharing program which only provides songs which it has permission to offer.
Advertising will also be brought up alongside the listings, Mr Ayers said.
However, users will be limited in how often they can use the songs, which cannot be burned to a CD or transferred onto an MP3 player.
I'm not sure that this can save the music industry, but it's important to have creative concepts Michael Bornhausser Chief executive, SDC
"For us, it makes a great sampling tool, for someone to listen to music and then, hopefully, buy it," Mr Ayers says.
'Creative concepts'
The model being used by Mr Bornhausser's SDC uses technology to track what happens to a song once it is downloaded.
The advert offered will depend on things such as the user's profile and the kind of music they are listening to: perhaps Harley Davidson for somebody in their 40s choosing hard rock - or a make-up firm for a teenage girl downloading the Sugababes.
Payments will be made to artists based on the number of times a song is played.
"Is this the right model?" Mr Bornhausser asks. "The truth is, I don't know, but our approach is just do it, just give it a try. It's important to have creative concepts and do things that work for the consumer."
One thing he is sure of, though, is that SDC - and others like them - have their work cut out.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/6670439.stm
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