Music: Snapshot of an industry in turmoil

by Mathew on January 31, 2008 · 11 comments

(This is a column I wrote that appeared in the Globe today. I’m reposting it here for anyone who might have missed it).

Want a snapshot of an industry in crisis? Take a look at the music business right now. If you can see any signs of a coherent strategy, feel free to e-mail me and let me know what it is. If the word “crisis” seems a bit too apocalyptic, maybe it’s better to think of it as an evolutionary process. Even so, the industry’s current turmoil is a sign of just how brutal evolution can be.

As it stands now, some of the labels seem willing to give their music away for free in certain cases – with a newspaper, for example (the New York Daily News just did such an MP3 giveaway deal with EMI), or on a cellphone (Nokia is working with Universal Music on a plan to provide phones with free music service included) – but not in others.

Some of the four major labels seem to have abandoned DRM (digital-rights management) restrictions, at least in certain situations: EMI now sells DRM-free tracks on iTunes, and all four are selling some of their content without DRM restrictions through Amazon’s music service. But most of the music on iTunes is still locked up with DRM, despite Apple CEO Steve Jobs’ plea that DRM be removed.

Some labels are suing online media services such as YouTube – as well as SeeqPod.com, a music search engine, and MP3tunes.com – while others seem willing to cut deals with online companies. Some are exploring new models of online delivery, while others appear content to continue filing lawsuits against downloaders.

Some industry bodies have gone beyond lawsuits and are now arguing that Internet service providers should be the ones policing their content online. The International Federation of the Phonographic Industry, for one, is trying to make the case that individual users should pay a tax on their Internet accounts in order to compensate artists whose work is copied or downloaded illegally.

Artists, meanwhile, are similarly all over the map in their approaches to the online world. While some bands like Radiohead are releasing albums on a “pay what you like” download basis (as well as the actual CDs), other artists, including Prince, are forcing YouTube to remove home movies that have their songs playing in the background, even if they appear for just a few seconds and can barely be recognized.

The latest attempt at an all-in-one, “peer-to-peer” online music service, Qtrax.com, launched with much fanfare this week, thanks to what it claimed was the backing of all the major record labels (the company’s service is designed to pay for free downloads by embedding advertising in a special music browser). Barely 24 hours later, however, all the labels disavowed any agreements with Qtrax.

More than almost any other content-related business (with the possible exception of the software business), the music industry has been in almost constant upheaval ever since the MP3 file was invented. That made music easy to copy and play anywhere. Ever since, the music industry’s major players – the big four record labels: EMI, Universal, Warner and Sony BMG – have been trying desperately to stuff the Internet genie back into his bottle, without much success.

About the only success story in the online music business is Apple’s iTunes. While it brings in plenty of money for the major record companies, it is still a constant source of irritation because Apple holds most of the power in the relationship. Virtually every other official attempt at an online music business model has failed miserably.

In many ways, the music industry’s dilemma is the same as that faced by other content industries, including the movie business (and the newspaper business, I feel compelled to add). The content that the industry relies on can be freely copied and exchanged almost instantaneously with millions of people, and lawsuits – at least so far – don’t seem to be putting much of a dent in that problem. As sales of physical products such as CDs continue to drop, online sales are rising – they climbed by 122 per cent in Canada in 2007. But they aren’t producing enough of a return to justify all of the embedded costs that the industry has built up as a result of its former business model.

To some extent, any content-based – or even service-based – business is likely confronting some of the same challenges as the music industry. What happens when your content or service moves online and becomes virtually free? Demand may increase, but revenue is almost certain to plummet. How do you make up for that shortfall?

If nothing else, the digital dilemma strips industries down to their essence, and forces them to try to answer the central question that all companies have to confront: What kind of business are you actually in, and what is your compelling advantage?

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