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Futurists and industry analysis agree we are on the verge of a revolution in the music business.  Gerd Leonhard posits in “the days of the lauded ‘Internet music revolution’ were just a mere testing ground, like the first kicks of a baby during pregnancy.”[1] Similarly, music business analyst Bob Lefsetz believes “[w]e could be on the verge of a renaissance…[t]he death of the traditional label model could eliminate looks-based music and formulaic radio…[e]verything you hated is essentially gone.” [2] This revolution in the music business has been predicted for well over a decade.
In “The Economy of Ideas” John Perry Barlow draws the poignant analogy of the music industry of the future being like “selling wine without bottles on the global net.”[3] He argues it was the ability to deliver wine (music) in a physical form that the rights of invention and authorship adhered thereto.  The value was in the conveyance of property, not the thought conveyed.  Throughout history “[p]roperty was the divine right of thugs.”[4] The record industry caused it to be “the bottle that was protected, not the wine.”[5] Music, being a non-physical idea, has been converted into property through industry.  Building upon Barlow’s concept, Leonhard argues music will no longer viewed as a product but rather a service.[6] Music only became viewed as a product because of the agenda of an industry that quickly learned “selling the bottle can make a lot more money than only selling the wine…[f]or the future, think of a “record label” as a ‘music utility company.’”[7] It appears the record industry is broken but the music industry has a future.  With the right concept and execution a revolution in the way consumers access music will continue to happen.  The business models of the future bear this in mind.  A growing number of artists refusing to deal with traditional record labels have experimented with the following alternatives:

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The Fall of DRM

In an effort to combat piracy the music industry has experimented with alternatives in the physical medium on which music is sold as well as piracy thwarting technological blocks.  First, the industry tried to upgrade from the standard CD format to more difficult to pirate high audio quality SACD or DVD-Audio albums.  These were largely viewed as superfluous and costly because they often required the purchase of a new player to listen to them.  Next, the industry adopted DRM, a technological system limiting the total number of devices a song would play on. This system failed because fans continued to illegally download millions of mp3s and quickly found ways to convert their DRM protected files to unlocked mp3s. Barney Wragg, head of digital music for EMI and former Senior Vice President for digital music at Universal Music, had an epiphany in summer of 2006, I realized that as an industry we’d kind of been smoking crack.”[1] After eight years of fighting the mp3, major labels were beginning to accept that selling DRM-free music was necessary for survival and, with Mr. Wragg pioneering the way, EMI was the first major label to become DRM-free.  Other major labels were soon to follow.  Universal Music abandoned DRM in summer of 2007, and a few months later Warner and Sony BMG had no choice but to join the movement by making their entire catalogs available DRM-free via Amazon.[2]

Upon realizing that no adequate technological protection system existed to effectively stop piracy, the record industry shifted its approach.  Rather than protecting their music files with DRM or by threat of litigation, record labels would simply provide enough incentives to induce consumers to purchase CDs.  Once such incentive is added value content. Alicia Keys’s hit album As I Am was released in late 2007 chock-full of added content, including: 30-second audio files for ringtones and ringbacks, mobilephone wallpapers, and digital videos, which were also distributed through YouTube and MySpace.  Inducement through added content proved to be a smash for Ms. Keys when As I Am sold more than 3.5 million copies.[3] Ian Rogers, former general manager of Yahoo! Music, articulated it well when he said “[t]he record companies are all realizing they’re not in the CD business anymore.”[4]

Much to the surprise and luck of the record business, another income stream emerged.  Continue Reading…

Litigation Against Technology

While record label’s efforts in the marketplace have largely failed, their aggressive litigation strategies have won some technology-crushing verdicts.  Ever since the landmark case Sony Corp. of Am. v Universal City Studios, Inc.[1] the content and technology industries have frequently engaged in courtroom battles.  Three of the most influential decisions of the last decade will be summarized here.

First, UMG Recordings, Inc., v MP3.com, Inc.[2] in 2000, was centered on a website, MP3.com, which permitted users to access a huge database of music over the Internet after demonstrating independent ownership of an original copy of that recording.  The district court found MP3.com directly liable for copyright infringement because it failing to obtain authorization from plaintiffs to copy and distribute their copyrighted works, a violation of plaintiffs’ exclusive rights under §106 of the Copyright Act.[3] The court also rejected MP3.com’s Fair Use defense.  The court found that the purpose and character of MP3.com’s use of the plaintiff’s work was commercial and non-transformative; the nature of the work used was core protected content; the work was copied and distributed in its entirety; and finally, MP3.com’s actions would have an adverse market affect on the plaintiff’s music.[4]

Second, A&M Records v Napster, Inc.[5] in 2001, brought Napster, the principal architect of the online file-sharing, to its knees under the theory of contributory liability.  Continue Reading…

Basic rules of economics dictate that once supply and demand for a good are at equilibrium, the price point and supply levels are at the most efficient levels to meet demand.[1] Where supply has grown into abundance and demand remained stagnant the value of goods must be decreased to correct the market back to equilibrium.  The supply and demand for entertainment content behaves in precisely the same fashion.  Today the supply of music is greater than ever before.  Supply has been significantly increased by technological innovation drastically lowering production costs of content, which has caused both professional and amateur content to be in abundance. The modern consumer is inundated with content unlike any other time in history.  Additionally, the very way consumers entertain themselves is shifting due the fact that much of this fresh pool of content is primarily available online.  Scores of teens are turning to the Internet as their primary source of entertainment.[2] In a study conducted by www.cybersentinel.co.uk, researchers found teenagers spend an average of 31 hours online per week.[3] These are consumer entertainment hours that only a few short years ago would have likely been occupied with off-line traditional creative media.  This indicates there is a fundamental and substantial change occurring in young consumers preferred method of entertainment.

As consumer demand is changing the entertainment market from the ground up, businesses are in a constant state of trial and error attempting to recapture consumers’ increasingly diluted and unpredictable interests.  Today’s Darwin-esq digital wild west is undoubtedly powered by demand.  The entrepreneurs at Amiestreet.com are taking this concept quite literally.  They have created a website that prices mp3s on the basis of consumer demand. The site allows artists to upload their material, which is first offered for free and as more people purchase the songs the price goes up, with a maximum of 98 cents per track. This model has attracted the participation of some big name such as Johnny Cash and Sarah McLachlan.[4] Amiestreet.com’s mantra is “we’re committed to giving every artist a shot at being the next big thing, and you the chance to discover them first.”[5] This philosophy is one that describes the sentiment of many tireless music aficionados and musicians alike. Continue Reading…

In this rapidly changing market climate logic would lead one to assume the record industry would be adopting dramatic changes in its business model.  However, the recording industry’s business model has remained largely the same since Emil Berliner developed the gramophone in 1887.  Berliner’s improvements over Thomas Edison’s Etching Tin enabled the device to mechanically reproduce sound from a flat record rather than a tinfoil cylinder.[1] A flat record that was easy to mass-produce.  Berliner’s innovation thereby created, quite literally, the record industry.

While the medium of storage has evolved from records to 8-track to tape to compact disc and so on, the fundamental business model has remained.  The traditional major label model is as follows: (1) recorded music is placed onto a mass-producible object (e.g. compact disc); (2) the physical components, such as jewel cases and inserts, are manufactured; (3) the record is distributed to retail outlets; and (4) the record label promotes and markets the album.[2] The traditional model is wholly dependant upon the physical distribution of a tangible and mass-producible good to make a profit. Continue Reading…