commentary The plight of the music industry has played out like a 1970s disaster film, the kind where the principal characters declare that nothing on earth could threaten their state-of-the-art luxury liner or superstructure.
Crash! Cut to people gasping for air or scrambling for a seat on the lifeboat. That's where the record labels are now -- scrounging for technologies and business models that can keep them afloat.
To their credit, the four largest music labels have experimented with a range of ideas. They have finally opened up to the idea of selling MP3s -- compressed audio files of songs that can be downloaded from an online source and then stored and played back on a digital music player. They also are dabbling in ad-supported music and have talked about launching a jointly owned subscription service.
Meanwhile, piracy continues to flourish. CD sales continue to tumble. Some top artists, including Radiohead and Nine Inch Nails, began distributing their own music last year, Paul McCartney quit EMI, and Madonna jumped to a concert promotion firm, Live Nation, and an alternative business model.
Half of all music sold in the U.S. is expected to be digital in 2011 and sales of downloaded music will surpass CD sales in 2012, according to a recent Forrester Research report titled "The End of the Music Industry as We Know It." Digital music sales will grow at a compound annual growth rate of 23 percent over the next five years, reaching US$4.8 billion in revenue by 2012, Forrester says. However, digital music sales will fail to make up for an ongoing decline in CD sales, which, by 2012, will be reduced to US$3.8 billion, according to the report.
So the music industry has its work cut out for it. This is how we see the next year shaping up in the digital music scene.
Apple gives in on price flexibility
The labels are serious about this one. They want to set their own prices for songs sold via iTunes, and Apple Chief Executive Steve Jobs won't let them.
But in the US at least, the labels now have Amazon as leverage. Offering US$0.79 MP3s that can load on to any digital music player, Amazon has an attractive offer. Especially when one considers Apple sells songs in United States' iTunes store for US$0.99 and most of its music can be played only on Apple players.
"I think Amazon will need a year to bulk up in terms of market share," said Chris Castle, a former executive at Sony Music. "They already got the brand and they got the skill set and, at 79 cents, what would you rather pay? Right now, Amazon has no place to go but up."
But watch what happens if Amazon does snatch a hefty chunk of market share or Apple bows to the labels' wishes on price. You think maybe Amazon's prices go up? Bet on it.
But don't worry too much, said Susan Kevorkian, an analyst with market research firm IDC. She argues that tiered pricing won't hurt Apple's business model or consumers.
Ad-supported downloads disappear
Perhaps not forever -- but certainly 2008 will mark the end of some of the current high-profile and mainstream ad-supported downloand services. The music labels have shown that when it comes to ad-supported music, they feel more comfortable locking up songs in continuous-play data streams and in downloads intended specifically for PCs rather than offering downloads (even if wrapped in Digital Rights Management antipiracy software) for portable devices.
While social networks like Imeem and LastFM.com, which allow users to listen for free only on their PCs, have secured streaming deals with all the top labels, SpiralFrog, an ad-supported download service, has signed only one deal for downloads, with Universal Music Group. New York-based SpiralFrog is borrowing money to keep operations going, which prompts concerns about where the company will get the millions it needs to pay the large advances the other three labels require.
And then there is the Qtrax debacle. Last month, the company told the world that it would offer free downloads from all four major labels. Days later, the start-up was embarrassed when music executives publicly told them: "Whom do you have deals with? Not us".
It comes down to this: the labels would rather partner with services that possess established audiences and don't offer downloadable music for portable devices. That mind-set, according to Kevorkian, has got to change.
"The labels are still PC-centric," IDC's Kevorkian said. "To stay relevant, they are going to have to allow fans to get their music wherever they want it."
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freemusic
06/03/2008 12:26 AM
I'm keeping faith in Qtrax- sounds promising. I disagree with many points about what people think is the future. Bottom line is- hard core music fans and those who can "google" are NOT going to pay for music, as long as they can find it for free. These guys are going to HAVE to find a way to make it free and put the illegal P2Ps out of business.
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Andy
06/03/2008 09:45 AM
The music industry now is like the horse industry just before cars became viable. Artists will give away songs to drum up business for live concerts, where they will make good monety if they are good. Consumers and artists do not need record companies anymore. Parasitical middle-men will get what they deserve for making their customers crimminals.
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IanB
31/03/2008 12:54 PM
Where do these companies get there advise from? Lawyers I expect. Any technologist worth their salt and having been around for a few years should remember the removal of copy protection from most games in the 90s due to its promotion of software piracy. The protection was an annoyance to those who paid money for the games and found that they had to undergo convaluted steps to play the game every time or that in some cases the games would stop working altogether. Those who pirated the games however, stripped out the protection and had no such issues. Sound familiar? I guess the music companies can be excused however since even IT companies like Microsoft are repeating these mistakes of the past.
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