MAJOR LABELS AND THE INTERNET: What Really Went Wrong At That Party In 1999?

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After 10 Years Can We Finally Get Some Perspective?

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The media induced conception is that labels sat on their laurels during the advent of the Internet in the late 1990s, thus creating their own hell with illegal downloading.This is an easy pitch to buy into, especially if you have tech-related interests.It makes labels seem dial-up dumb and combined with their reputation for not paying their artists, it’s one that has been welcomed by just about everybody.

But is it true?And should we care about the truth or does it take a back seat to “justice?”

“Not true,” says Michael Ostroff, executive vice president of Business and Legal Affairs for the Universal Music Group. Mr. Ostroff serves as UMG’s chief legal officer, worldwide. I interviewed him in 2006 for my third book Million Dollar Mistakes from which much of this article (with updates) is excerpted.

Michael Ostroff:“It is very much a myth that record companies were saying no, no, no to the Internet. [Universal] started looking into the Internet as an opportunity in the late 1990s. One of the opportunities that we thought we would have was like the models they have in the film business. Physical product at one point, then streaming to different sources, and then buying the permanent download. Like video, pay cable, pay per view, and network broadcasts.”

So, what went wrong? If labels really were reaching for this technology and the internet companies reaching for them, why did both sides miss the boat? Now that we’re in year 10 since the start of the internet/label war a look back might reveal, for some– an inconvenient truth.

FIRST BLOOD

Many tech companies approached majors during the late 1990s for catalog licensing, but the one that seems to create the standard for examination is Napster; the David that bagged Goliath.It was the “success” of Napster that paved the way for other P2P based companies like Kazaa and LimeWire, both of which, unlike Napster, are still operating in illegal formats.

The principals of Napster claim they approached majors to get the rights to legally “distribute” catalog on their P2P service as early as January of 1999. Napster’s perception was that labels didn’t pay royalties to artists and, being very pro-artist, Napster wanted to make sure that artists were paid from their downloads (ironically). (See All the Rave: The Rise and Fall of Shawn Fanning’s Napster, by Joseph Menn.)

But record companies faced these three obstacles in regard to licensing to online services in 1999:

— They lacked the rights to grant.

— Their desire to maintain the album-based-economy business model.

— Fear of anti-trust suits for imposing standardization.

While other internet service-based companies seemed willing to engage in what must have been very frustrating negotiations with the majors, the three important factors above were obviously lost on the aggressive and naive Team Napster, whose average executive was barely 25 years old. Some execs had not even finished college. To them it seemed doubtful that these powerful labels, who could make or break careers, were claiming that they couldn’t go boldly and quickly into something that seemed so very obvious. At least to them.

Here’s how the three obstacles broke down:

FIRST: GETTING THE RIGHTS STUFF

A fact glossed over by the media when criticizing record companies was that in 1999, with the exception of certain “digital rights” for Jazz audiophile records, there was barely a single major label recording contract that granted the artists’ specific rights for Internet distribution (as opposed to copies being made via a download.) The now famous broad language that we see in today’s contracts that would cover any new development (“now known or hereafter invented”) was not a given for Heritage artists signed in the 1960 and 1970s.  And even if it were, there was still a loophole labels had to close on this issue just to protect themselves from liability.  This was something labels probably did not tell the tech companies courting them for fear they would be usurped, which in fact, some tried to do. (Napster, to name but one.)

The crux of this problem was that some key artists were not willing to give up Internet rights so easily. They were still feeling the sting from years back when labels asked for the rights to re-release their masters on the Compact Disc (CD) format. This was a right not automatically granted in pre 1980 contracts.

Throughout the 1980s, virtually every artist signed over their CD rights without receiving any up-front money. They were told instead that they would get higher royalties because the CD would sell for about $12, instead of the usual $7.99 in 1979-80. (Artists’ royalties are based on an integer of the unit price.)

But after getting these rights virtually for free, labels applied a “new technology deduction,” to the royalty formula, lowering payments by 25% and thus equaling the same royalty artists already received for LPs, which was already low and for which transparent accounting seemed impossible.

Many artists felt duped.

Now, in the mid 1990s, less than 15 yeas later, the labels wanted “Internet rights”—another right not automatically granted, even in pre1990 contracts. Even though newer artists had no choice, once burned heritage artists with leverage balked. Many wanted an advance.Some were not interested in giving their label more rights under any circumstances now that their contracts were in the twilight stage (you know who you are).And then there were the really “progressive” ones who felt that they might be able to make deals directly with Napster; laughable in retrospect but plausible at the time.

Bottom line, licensing a piecemeal catalog was considered flaccid and worthless to Napster’s business model (indeed to just about every ISP based model), yet for labels to give net-based entities complete catalog download rights in 1999, they would have to renegotiate with their 1000s of artists. That would take years.Napster, gave them about six months.

Tired of all this spit-balling about rights n’ stuff, Napster forged ahead with their launch in June of 1999. Artists with whom they were in direct negotiations soon backed off as they saw their own new releases posted on Napster’s P2P network– sans authorization.

It was war.

SECOND: TRANSITION FROM ALBUMS TO SINGLES

Napster was a singles-driven format, something the industry had evolved away from over the past 20 years.

But, misinformation has led consumers to believe that labels loved the Album format because it allowed them to package filler with the hits and charge more.This was never the case.

Labels want and have always wanted 14 hits songs on every album.Artists can rarely deliver and even if they can the radio/PR format doesn’t allow for too much attention to be placed on one album (with exceptions naturally.)The decision to move from singles to albums was driven by the law of averages, the economics of production, but also at the requests of artists.

Most all industry advances were based on projected album sales. This was something artists’ reps had worked for decades to achieve a standard for.Eight album commitments were perceived as sort of job-security for many artists; with an advance based on the standard financial projections of a 14 song album and a first run of at least between 100,000 and 750,000 units.

Switching over to a singles-driven model that has little to no pressings and just a posting on a website may sound good from a consumer point of view, but this sudden change would have seriously affected the economics of just about every deal in the industry.

Articles and blogs targeting only labels in their accusations of thick-headedness, seem to want to skip over the immutable fact that songwriters and artists didn’t want a “singles driven market” either, because, if album sales are no longer the means by which you quantify success, how are you going to determine the size of an advance? What are you going to figure it against? On-demand singles?

So, why doesn’t Wired and their ilk criticize artists?Because to imply that a songwriter deserves to have his songs “shared” because he’s clinging to a “dying business model,” doesn’t generate the same public sympathy for the tech industry.Instead, it makes them look like thugs. Better target: heartless record companies; a beard to hide the fact that stealing from majors was the same as stealing from the little songwriter too and a great aid in helping to make illegal P2P seem victimless.

Napster didn’t care to learn the economics of the music business, or how artists and songwriters pay their bills and feed their families. They just wanted the product and they wanted it yesterday.In their mind, artists didn’t get paid anyway, so why not forge ahead.

THIRD: DIGITAL TRANSMISSION STANDARDIZATION

Due to antitrust concerns there were limits to the conversations that major labels could have with each other or a tech company regarding a standard for digital transmissions. In other words, if you as a major record company controlling a vast majority of the product, make a deal with one tech company you could be required to make a “most favored nations” deal with all of them. With several companies competing for a “standard,” few media companies in 1999 were ready to do that.But you didn’t read about that in most news stories.The main-stream spin was that labels couldn’t adapt fast enough to keep up with the times,

If the antitrust climate that exists today were applied even less than 100 years ago, when Union Pacific for example, decided that they were going to create a transcontinental railroad with one type of track, every other train company would sue, claiming that they were bullying them into conforming to an inferior standard and not allowing them to compete. We’d have railroads where you would have to change trains every 100 miles or so because train company A’s trains won’t run on train company B’s tracks.

Or, applying the same analogy to telecommunications, a telephone system where you could only call people within a certain territory because the New Jersey telephone company used a different dialing technology or a different type of cable than ones adopted by other phone systems.

iTunes was years away and labels, wanting to create a uniform buying experience and not get pigeon holed with an obsolete standard, asked tech companies for some rational assumptions regarding which algorithm de jour was going to prevail.No one could give assurances in 1999, other than the MP3 format, which at the time was thought sonically inferior by majors and did not include coppy protection, like DRM.

DRM forced too many technical problems for 1999 software developers.So instead of saying, “We can’t figure it out,” they said, “Labels are being unreasonable in their licensing demands.” But another take on this is that Tech companies, by not being able to unify with a protected copy standard, forced labels to sit on their hands.

THE FREE TOY

In 1999 the music business had an already existing industry infrastructure, well established with standards, feeding thousands of employees and artists. The internet “industry” was just starting out, and other than HTML, had few standardizations.In order for copacetic progress to happen, tech companies would need to work within the labels’ existing standards. They claim they tried, but did they really?

Michael Ostroff: “I am not sure the tech companies were ever really reaching toward us. They were interested in building a business on the back of ours without compensating us. [Universal was] trying to develop [Internet] business in a more controlled manner. I think that we didn’t appreciate that all of that would come tumbling down.”

The rest is well documented elsewhere. Massive litigation and rewriting of copyright laws eventually closed down the free version of Napster. But by then labels had drawn blood with tech companies who simply did not understand the music industry’s concerns or didn’t care to.By December of 1999, one month before the new Millennium, a decision was made by the cabal of Silicon Valley companies: music would be the free toy at the bottom of their cereal box.Napster had proven the model.

Their PR machine in full swing, tech companies set about to make record companies the bad guy in an elaborate hearts & minds campaign.They helped finance “advocacy groups” like the EFF, and “solutions” like Creative Commons, to “educate” the public about “fair use” and their “right to share.” They seduced journalists and offered up intellectual puppets like Lawrence Lessig.And while P2P companies were losing the battle legislatively, from the public’s viewpoint they gained significant ground.Just about everyone thinks only bad things about record labels.All record labels.(The average person does not distinguish between majors and indies.)

The music industry missed a chance (if they ever really had one) to partner up with tech-companies. Will this ever change?I think so.

THE CHANGING TIDE

Of late, ISPs have started to see themselves as content delivery service providers, instead of just “dumb pipes.”Instead of “net neutrality” they now want to charge different rates for different types of content.And why not?The 21st Century commodity is not Soy Beans, it’s Bandwidth. But, this requires them to make friends with their former enemies–movie and music providers.The “free toy” has become the new potential client.Time to kiss some ass.

Last year I was a Keynote speaker at the Eurosonic/Nooderslag conference (the SXSW of Europe.)A comment in my speech was met with astonishment when I said to a room of 300 international delegates that because of the changing tide I predicted that within five years you’ll see a high-profile arrest for file-sharing.This seemed absurd to Europeans at the time.The Dutch government had just passed a law that made P2P practically legal.I was wrong.It would not be five years. That arrest was only a few months away in the even-more-progressive country of Sweden.

Since then, the Supreme Court of the US has upheld stiff fines from RIAA lawsuits. Britain is now penalizing file sharers,. ISPs have agreed to work with the RIAA and other special interest groups in assisting them with finding and punishing P2P users.The tide is changing.The storm is clearing.When will the music biz naysayers wake up?!

Even beleaguered Warner Records reported that their Q4 2009 numbers showed only a 2% drop in revenue from last year (adjusted for exchange rates or what is called a “constant currency basis.”)Could this be a sign?

Bottom line for the future of the music biz, to paraphrase Fast Eddie Felson

“We’re back!”

This is not the end.  It’s merely a new beginning.

Moses Avalon

PS: if you like this article you may also enjoy my third book, Million Dollar Mistakes.

(Care to comment?DON’T EMAIL ME.Let us all know what you think.Add your thoughts along with a link to your site or product to boost your web presence and give others a point of reference.Good SEO begins with your comments below.

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24 responses to “MAJOR LABELS AND THE INTERNET: What Really Went Wrong At That Party In 1999?”

  1. Leslie Zigel says:

    Moses,
    One other point that is important to understand in the dynamic of the late 90s was the fact that Napster was convinced their “product” was “fair use” under the copyright act. There were very active dicussions with the majors and Napster but its hard to cut a deal to license rights to a buyer who doesn’t think he needs a license in the first place. If there had been more sage advice in Napster’s corner early on, a better negotiating environment might have led to a much different result such as a subscription model for Napster usage.

    • Moses Avalon says:

      Yes, but don’t you think that this is was a rationalization? How could their attorneys really believe in their hearts that this was “Fair use?” Even if they were not IP specialists, Napster surly consulted at least one IP attorney.

  2. I’m not saying anything here is incorrect, I’m sure it’s all true and it’s fascinating reading.

    But I also remember, back in 94-96, meeting with big multinational entertainment companies and explaining that the Internet was going to change everything.

    They didn’t get it. And they missed opportunities. Someone was going to take advantage, and they did.

    What’s even weirder is the tv and movie guys, after seeing what happened to the music folks, took an awful lot of convincing before beginning to see that the same thing was going to happen to them.

  3. Chuck G says:

    I wholly agree it was a dependence on the album-based economies that kept iTunes et al from evolving far sooner than they did.

    In the meantime, aggreators have given worldwide digital distribution to many independent artists, also eroding Major Label market share.

    Ah, if they’d only studied Motown and realized all that matters are hits songs!

  4. Greg Nisbet says:

    Have you read Don Dodge’s account of Napster’s “inside story”? He was Napster’s VP of Product Dev’t. He also cites the Internet distribution rights issue and the album/single dichotomy as deal-breakers, but he takes pains to make a clear distinction between Napster’s “label-friendly” approach and the rise of successors such as Gnutella. In everything from hiring music industry execs to maintaining central servers that could control distribution, I think he succeeds in showing in the particular case of Napster that there was indeed a “reaching out” toward the labels.

    In case you haven’t seen it, his post is here:

    http://dondodge.typepad.com/the_next_big_thing/2005/10/napster_the_ins.html

    The article is worth reading on many levels, but my favourite is one of his lessons learned, as follows:

    “Never start a business focused on solving a big company’s problem. They don’t know they have a problem…and they are probably right. That is how they got to be so big in the first place. The record labels didn’t know they had a digital distribution problem and were not interested in our solution to it.”

    • Moses Avalon says:

      Yes. Enlightening, but just as labels may have been deluded into not knowing they had a distribution problem, Napster et all, deluded themselves into believe that they had a “solution.” They did not. Their model was singles based, and a sudden shift as they demanded would have wrecked the 1000s of deals in progress. They also couldn’t guarantee standardization. And there are many other reasons why there never was a “solution.” There was just their way of wanting things to be– a way that could not be in that short time-frame.

  5. max davis says:

    If ISP’s are fessing up to being content delivery service providers, that is the first step to doing what should have been done back in the 90’s, a statutory rate for ALL multimedia via ISP’s.
    That was the ‘blown opportunity’ by ALL of those industries affected by digitization not just the music industry.
    DataRevenue.Org will get this done via mobile networks – the new frontier.

  6. cant help but thinkin that theres too much people at the table who are already out of the game. what if we could quit the whole round, rip it up and start again?
    whats this all about? is it just records? music? first of all its about art and pleasure in any form that people wanna get access to for countless reasons. now, if you buy a cd you get that (limited) access to listen to it at home or in your car and you have all these rules and regulations about copyright et al. thats just a sign that this all isnt naturally right.
    i mean, think about it: is it even achievable to copy music? i say no. music is like the ether. its nothing solid or even fluid. records are. those are copyable. in this manner, of course if a label owns the only right to make a song available there you go…
    but what if everything was different? why does anyone care about mechanical royalties anyway? why not pay everyone Only from the performance right and stop counting records sold/shippes and whatever. i mean no one counts dvds shipped where an artist maybe scored the whole movie. why care about anything physical?
    if artists would get a share of the performance rights even if they would not be the writers, wouldnt this fuel the good songs and therefor even the songwrters pockets? everyone could record any song like anyone can play them live, wouldnt this be great? a new music world mos definitly. anyone could cover yesterday and the best performance would make the round i guess and paul mccartney still would be happy cause he would get paid anyway. of course no one would need record labels anymore. the only thing songwriters would need is a PRS and everyone would need one big server where artists of any kind could upload and regisrer their recordings and then content providers could manage this big thingy and open its door for like 20 bucks a month for 200 hours listening to music (just an example) or 50 bucks all access. this money then would be split up and paid to anyone whose songs/records are played. this is all about the song idea, the song itself, the music, even it is not in hit format. imagine a song that is only 5 seconds long but that anyone would like to hear (like a ringtone). or a “song” that is 2 hours long. why sell those on itunes for kind of the same price?
    to me its clear: even the itunes model will cause another shift in the future cause it will be the new “old model”. why cant we just download all songs for free and then pay for only the performances?
    if an artist sells 1000000 records theses days but no one listens to them cause its only a “1 hit wonder” why should this artist deserve more payback than an artist without any hits but a great album that is timeless and anyone has at home and in constant spin like a bach symphony or a tarrantino ost or a great concept album? this would be fair. why not really work on a new model and dump the old. this is all too reactive and not an active business at all. of course no one expects execs to be creative but i guess this is also an old model and to be a great exec you have to be more of an artist and not so much of a craftman of talk anymore. this rain is coming one of these days, too. what do you think?

  7. Adrian Vogel says:

    Chuck G, of course it’s hit songs that matter. But meanwhile downloading songs means we’ve lost the B sides or the double A side singles. Basically right now there’s no chance for glorious and classic B sides sucha as “Gloria” (by Van Morrison´s Them) or The Rolling Stones´”Ruby Tuesady” or so many Beatles 45s…
    Also, in this equation I miss somebody mentioning retail. It’s OK to discuss about record co., artists, songwriters, music publishers, tech companies, etc. But the first real losers were the stores. They are the ones that started closing shop paving the way for digital distribution and leaving the music industry in shambles.

    Greetings from Madrid, Spain

  8. jay says:

    Interesting as always. I hope the shift you mention takin place is real and will have a lasting effect but – as with mosth things in the music biz – seeing is believing. With the internet being completely global, non-stop and constantly expanding, I wonder if it will be possible to stop illegal P2P file sharing (what if Piratebay was a, say, Russian, Iranian, Chinese or North-Korean company?).
    Also, downloading for “free” is not all bad, as various studies have shown too. Many people now regularly are exposed to loads of music and artists that they would not have found or heard about before, possibly leading to paid downloads (i often buy songs from iTunes after having listened to illegal copies first), buying physical products and attending concerts.

  9. Lucster says:

    Moses,

    I read the older articles several times and had been left feeling a little less than convinced. When I saw this latest update appear I thought, “Good! Maybe this time he’ll convince me!”

    As I read, however, I found myself keeping a mental score of sorts; keeping track of the points you made and those you failed to really drive home. A few, I’ll admit, infuriated me to the point of wanting to create my own post in response. And so… I did.

    As I re-read your post, I “scored” each claim or supposition with a single point either in favour of the Music or Tech industries. Perhaps this is just one artists’ insignificant underbelly viewpoint or, more likely, just simply that I don’t know much about the business of music. Nevertheless, I hope this little experiment will help you create a stronger argument when the next update/edition comes out…

    Oh, and the final score was:

    Tech Biz: 8
    Music Biz: 7

    Not what you were after, I know. You can read how/why I came to these conclusions here.

  10. Moses, I agree things seem to be changing for the better…and lets hope artists get more of it-$$$!

    Songs for sale- $1.29 hallelujah!!!

    We’ve broken the $.99 cent barrier.

  11. Lee Jarvis says:

    This is a great post, and very enlightening. Your post throws new light onto the subject of the music industry in the 90s for me, and opens up many new ideas for research and learning, thank you very much.

    I do know that the industry now has given independent artists more power and opportunity to make a living, if they can find the right revenue streams and maximise them – it is very exciting!

    I will certainly look into your book for more information.

    Best,

    Lee.

  12. this is all a big mess now.
    music in itself isnt a product. but who can still say which files are legal?
    most people dont need anything physical to listen to music. collectors do. anyone seen the new beatles box skyrocketing these days? and btw. what about the beatles on itunes… these are 2 different markets: official collectors stuff (even cds and vinyl) and merchandise on the one hand and music on the other

  13. Lucster says:

    Moses,

    I guess my response was too long so I’ll abbreviate it here. First, I have to say I agree with you in principle. The labels were not ignoring the internet… far from it and the Tecchies ‘saying so’ doesn’t ‘make it so’ and isn’t reason enough to steal or aid and abet stealing.

    So… I’m with you. I’d just like to help strengthen your argument by showing what I see are weak points in what you presented.

    First, I find it ironic that these “aggressive and naive” Napster executives were actually in the coveted demographic that made up the bulk of the Music Biz’s clientele.

    Second, I think honesty should have been the label’s first policy/priority. I think they paid a huge disservice to themselves and all artists by not coming clean with what they could and could not negotiate for.

    Third, yikes… when you talk about the advent of the CD and the “new technology deduction” fiasco you seem to present it as though it’s the Tecchies’ fault… I know you hate hearing this term, but really, in this case… labels have to lay in the bed they made. If not, then you have to concede that Napster was merely applying a “new technology deduction” to the labels.

    Fourth, industry insiders may have their own view of what is and isn’t B-Side material (and I can appreciate how difficult it is to deal with people who think their drivel is hit material), but no consumer on the planet will argue the fact that a majority of B-sides were, in fact, filler. The argument that “this was never the case” falls flat (rare exceptions in the comments above notwithstanding).

    Fifth, as for no one wanting the ‘singles driven market’, if you want to cling to the claim that the industry never used ‘fillers’ then you can’t also claim as immutable fact that labels and artists would rather sell their 14 song album for $9.99 rather than 14 (good, a.k.a. non-filler) singles at $0.99 each…The math just doesn’t add up… and we all know everybody’s in it for the buck!

    Six… “…the MP3 format, which at the time was thought sonically inferior by majors…” I have to ask: Sonically inferior to what? Seriously… inferior by what standard? If you raise that as an argument, how come music was (and still is) allowed to be played on AM radio? A horrible transmission format if ever there was one.

    And, exactly what DRM is there on AM or FM radio? What DRM exists today? What DRM existed 10 years ago? On the one hand you’re claiming the Labels had an ‘established business model’ that shouldn’t be changed while on the other you ask for measures to be put in place that never existed. I appreciate the fervour. The “standing up” for your rights. But at some point, certain concessions need to be made.

    It’s called negotiating in good faith.

    I go on a fair bit more in my post about many, many points against the Tech industry but the bottom line here is that your article leaves me feeling as though the majors have learned nothing. Rather than trumpeting victory at every court decision in the RIAA’s favour, the Majors should be feverishly working out sweeping changes to both the Music and Tech industries that would benefit the most PEOPLE… not just owners of catalogs… artists, labels, tecchies and, most importantly, fans.

  14. now i guess everybody heard about the statement billy corgan made about his choice of releasing his new “album” for free and all… thats a step forward. it’s not about that its free, I mean I’m gonna buy the eps anyway. but its a step in the right direction. the songs are free so why bother with itunes? i’m a musician and a record collector. I’m spending so much money on records each month, its hilarious. records are too expensive the way they are released. a jewel box is nothing to be collected. at least i want a piece of art that expands the art of the music. if i dont need it, i dont buy it. anyway i buy records almost each week and i wont stop even if downloads will be free.aybe thats just me but i guess not. and in the end, smashing pumpkins wont share their performance rights for free, its just a spit on the mechanical rights state of the trash adress.

  15. wwittman says:

    Remember the story from Wiseguys?

    Once the mob is in your business it’s “pay me”.
    Made money this month? PAY ME.
    Lost money, too bad, PAY ME.
    Your bills went up and you’re in trouble? Too bad, PAY ME.

    well this is the ISPs.

    Buying music legally on iTunes? Pay them.
    Streaming legally from Rhapsody? pay them
    STEALING music on Limewire or posting illegal videos on youtube or just sitting here talking about it? PAY THEM.

    Content is just a reason for them to charge us. ALL of us.

    so naturally they don’t want any limitations, no matter how reasonable or fair, on that content or any cost to them for it.
    PAY THEM.

    That’s all it’s all about.

    Excellent article, thanks.

  16. ac says:

    Software and hardware can be effectively protected at reasonable cost. Copy protection works (multiple check, crc checks, code residing online/in dongles) for those two but techcompanies are doing it mostly wrong (every protection needs to be unique implementation, not bought from a protection provider company, this floods the few skilled crackers with work) or prefer the pirates acting as a word of mouth marketing channel so they don’t believe it’s worth the extra effort to put a stop to it if it kills the marketing side of it.

    Copy protection won’t work for music/video ( = easy to crack -> mass unprotected distribution). Somekind of watermarking ( = find leak, sue) could work for a moment and survive mp3 re-compressions and the kind without being audible. Eventually pirates would just get two copies with different watermarks and do a difference analysis to find the watermark signal.

    The key is to create and provide value. Bits and bytes are just that, I do believe IP has value but because audio/video IP can be easily copied at sufficient quality (even if it has to go through DA and AD once more, the DA/AD converters today are superb so this means nothing to quality in practise and increasing BW allows pirates to use FLAC/APE compression to avoid loss of audio information).

    This means audio/video bits do not have value once they’re freely available as it’s a race to the bottom that cannot be stopped.

    The conclusion from this is that in order to have value it must be something that pirates cannot copy but is valuable to the buyer. Perhaps it can be something that the buyer just sees as something of value but may choose not to exercise. Eg. contact channel with the artist not exposed to pirates, physical product/art that buyer can believe to be a limited run and is not something as dull as a cd shell and preferably not plastic. This should be something that’s cumbersome to scan digitally. There should also be somekind of barcode/rfid in that an internet connected device can be hovered over it and then the audio will begin to play.

    There seems to be thinking that there are music consumers and collectors. This is wrong. They’re one and the same. The issue is that most pop music is made to be something that forgettable and then overplayed on radio. Fix these issues will make the music more collectable. The desire for the added value product/service and the music itself needs to be worked up. Radio where one company controls playlist for large regions should be avoided as it just creates a short list of overplayed crap and reduce the value with every play.

    As consumer what I would particularly like to see that cannot be pirated is being able to communicate ideas or requests to artist and have them put their rendition of it up in say youtube for small payment, nothing fancily produced just the ability for those who cannot dedicate the years to become skillful player to hear some of their own ideas. (not everyone can hear the sounds and ensembles in their head like some professionals)

  17. ac says:

    Forgot to add. Radios that do not announce each and every song name or otherwise make purchase available immediately after playback (or full playlist after dj mix) should be prevented from getting rights to play more stuff.

    Radios are IMO still major marketing channel and labels need to shape how the radio works. Either own the radios or find some way to prevent radios from being affected by advertiser whims. The money in long term needs to come from consumers and not solely advertiser so the radio needs to work for the consumer/listener and strong policies against advertisers dictating style of programming need to be in place.

  18. Rob says:

    Moses, if digital rights were a show-stopper in 2000 when Napster was initially put out of business why then were they not in April 2003? And if favoured-nation precedent was a showstopper in 2000 why (again) not in April 2003? And if these 2 showstoppers were real how did Listen.com have online retail licenses for Major label catalogue by July 2002? Also, you omit the release and bust of SDMI in September 2000, a futile hope which I contend speaks for a great deal of the Doug Morris-driven Majors-only online strategy up to 2002.

    Also, your narrative doesn’t explain why Sony (for example) squashed the Creation – in-house effectively – web site.

    Sorry mate I don’t buy a word of this.

    Rob.

  19. WillYum says:

    Moses, good article.

    How about a take on it like this:

    “Singles, albums, cassettes, CD’s and now Digital Distribution are merely content delivery vehicles providing the consumer access to the product (music, right!).”

    As you have described above, the record industry was built wall-to-wall to ship physical product. Compensation, legal rights and many jobs were based upon this model. Along comes a game-changer, digital distribution, and suddenly everything is outmoded.

    This happens each time a game-change event occurs – buggy whips withered away when the car drove up, telegraph faded when the telephone arrived, passenger rail travel died when people could fly, etc. More convenient always wins.

    Every well-established business has a model for success. It is a model that abhors change. Especially when change is coming so fast that the business model cannot cope – for all the reasons you describe above.

    In the end, it is the artist, the content delivery business (record labels go here – they are in the delivery business!) and the consumer who will win. But the game will be played on a very different playing field.

    Thanks!

  20. […] The main stream music biz has taken quite a beating in the press (and from me) since 2001. They’ve been accused of not understanding the needs of the market, clinging to “old models”  and thumbing their nose at changing technology. Most of these criticisms have come from tech companies and their influence over the press which means of course, that it’s not as black and white as these critics would have us believe. (In fact it’s not even close to true. For what really happened with labels and Naspter/Silicon Valley in 1999 go here.) […]

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