[online music]
packaged music]
cs thoughts]

online music and the
future of the music industry

August 2000

Online music has been a hot topic of conversation lately. The record industry is in a panic because widespread trading of mp3s and "burning" of CDs is infringing on CD sales.

Well here's what I have to say to the major record companies about that: too bad!

Us record-buyers have put up with you long enough. Your jacking up of prices, your shoving the music you think we want to hear down our throats, your poor promotion of good artists and over-promotion of lousy ones. It's about time you got a taste of your own medicine.

These record labels cry crocodile tears about the artists losing out and intellectual property, but all they really care about are their own bottom lines. If these companies had less influence, not only would artists not lose out, in all probability, they would benefit. How? Firstly, independent music would be heard a lot more, because the Internet offers promotional opportunities at lower costs. Secondly, it's ridiculous to cry about artists' lost revenues because the record companies are the primary culprits for exploiting these artists in the first place. The story is all-too-common: struggling band gets pressured into a lousy contract, sells a million records and winds up two million dollars in debt. In truth, the royalty paid to the artists is so immensely small that they would be much better off without the labels.

The lawsuit against Napster (www.napster.com) is not only stupid, it's poor business. Firstly, it's sheer stupidity to assume that shutting down Napster will shut down all online mp3 trading. Yes, Napster is the best-known of such trading sites, thanks to extensive media coverage, but it is hardly the only place where people can go to find music. There are dozens, even hundreds of other sites just like Napster. Add to that the thousands upon thousands of private ftp sites and it would take the end of the world to shut it all down.

The lawsuit is poor business sense because it shows that the record labels are in defensive rather than innovative mode. Instead of foreseeing the direction that the record industry is going to take, they're fighting progress. It's the same thing that the television companies did when they fought long and hard against the introduction of the VCR. Now, revenues from video sales are in the gazillions of dollars each year. It's stupid of them to think that they can turn back time.

So what do I predict? Well, regardless of the outcome of this lawsuit, online music is not going to go away. Eventually, the major labels will realize and accept this. They will then announce to the world, with great fanfare, that "online music is the wave of the future, the new latest big thing" or something along those lines. Never mind that they're about three years too late. At that, the labels will set up their own websites to sell music online. These sites will be graphic-intensive, ad-cluttered and boring, but by using aggressive promotional strategies they'll generate a large amount of traffic.

At first, the labels will cling to the belief that people must pay for music. They'll try to sell it in formats such as LiquidAudio, that discourage easy copying. But because copies of the same songs will still be circulating in mp3, this will never work. Most online music traders do not have credit cards and will certainly not pay for something they can get for free. This is just common sense.

It will take the labels some time to realize this, but instead of keeling over and giving up, they'll do what they should have done all along: offer music for free in mp3 format, and generate revenue off advertising on their sites. In this way, they'll still make money, and the record-buying public will be happy. Artists might lose small amounts of royalties but it is likely that their contracts will include a clause for generating revenue from online music downloads as well. Anyway, most revenues of pop stars come from endorsements, touring, and promotional merchandise, which will still be around regardless.

Not that traditional methods of buying CDs will die out so fast, either. A huge segment of the population will probably never download a single song over the Internet. As such, the vast majority of the labels' record sales will still come from stores, for at least another decade or so. The baby boomer generation is not going to be caught up in mp3-fever anytime soon.

By resisting change, the record industry is shooting itself in the foot. Only by accepting and embracing change can the state of music move forward.