Thoughts on File Sharing & Digital Delivery
By Mark Bjornsgaard, MusicDish.com

London, UK - 4.38 pm, June 30, 2003. A 14-year-old girl, pretending to do her homework, downloads the latest Avril Lavigne album on to the family PC and burns it onto a CD to play to her friends. A middle-aged management consultant hunts down his favourite Hootie & the Blowfish track on his laptop. A bored City receptionist listens dreamily to Justin Timberlake on her Mac between calls. Nearly four million people are sharing 800 million files on the internet.

Kazaa, the most popular peer-to-peer file-sharing software, is the new Napster. Installed from the web by 229,513,316 computer users worldwide since it was launched, making it the most downloaded resource ever, Kazaa provides access to every album ever published, from ABBA "Arrival" through Marvin Gaye's "What's Going On" to "Afterburner" by ZZ Top. And it doesn't cost a penny.

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The music revolution has begun. And if Napster stormed the major labels' Bastille three years ago, Kazaa now reigns terror over BMG, EMI, Sony, Universal and Warner. George Bernhard Shaw said "All great truths start as blasphemies." Well, here's one. Music copyrights no longer have any economic value.

"Peer-to-peer" file-sharing, or connecting two or more computers directly, without the need for a Napster-like central server in which to store the files, means it is almost impossible to hold anyone accountable for copyright infringement. The introduction of ADSL (last month, the number of broadband users exceeded two million, and it is expected to pass three million by the end of the year) has massively increased the scale, rate and quality of files shared. As CD sales continue to plummet worldwide, the Napster era is now considered something of a golden age for record sales. Who could actually be bothered to wait 45 minutes while a track downloaded on a dial-up connection? And yet, yesterday, having enjoyed a review of Dave Gahan's solo album, I downloaded it in 13 minutes, while writing this article.

This two-pronged assault has had a catastrophic effect on the share price of record labels. Sony's last annual report signed off: "The dollar value of its US music operation fell 4% for the year ending March 31, 2002", while ABN-Amro's most recent media research paper stated bluntly, "The outlook for the music industry remains bleak, with the next five years expected to see a compound average decline of almost 1%". Investors, it seems, can smell disaster, even if many in the industry cannot.

For the last three years, at every music industry convention, the number of record label CEO's pronouncing the imminent resumption of normal service was only exceeded by the number of possible solutions they were offering. Many, defying the shareholder stampede south, seem to be living in some sort of alternative reality - according to EMI's latest sales report, "Shareholders can expect a substantial improvement in operating performance in the year ahead... we intend to deliver sustained sales and profit growth." Profit derived from legal actions against the 10 million people who share music online, perhaps? The drastic cost-cutting in the last year, on which much of EMI's good news is based, hasn't even kept up with market shrinkage in real terms.

Vast sums have been spent developing expensive competing digital platforms, which continue to spring up like mushrooms in a murky forest. The latest, a joint venture between the majors and Apple, seems to be the equivalent of Cherokee Jeeps, when faced with "instantaneous car replication," consoling themselves by charging 10 pence for a fully kitted out SUV, and omitting to tell their shareholders that they still have to shell out £10,000 to throw the machine together.

If a clearer indication of the chaos the industry is in were needed, 2 months ago (June 26), the Recording Industry Association of America announced they intend to sue online file-sharers. But how exactly will they go about prosecuting 10 million people? And do they think that threatening to sue virtually their entire customer base is going to make it more or less likely that it will buy products from them legitimately in the future?

The explanation for this chaos favoured by major labels and articulated using the language of criminality - "theft," "piracy" - is that the business model they adopted 40 years ago - develop talent and sell the music on physical media (LPs, cassettes and CDs) has been trumped so successfully and so quickly by file-sharing, that the music industry simply hasn't been able to react fast enough.

However, this explanation excuses them from taking a much harder look at the nature of the business they now preside over. The real reason why labels are so exposed to the file-sharing storm is the culture of manufacturing music, as opposed to artist development. Although creating bands and music synthetically is appealing, as the production process is streamlined and costs can be managed, it is impossible to give such contrived products intrinsic values. It's hard to make the band a brand. And that, as Nike, Gap and the rest of the corporate world discovered 10 years ago, is the key to success.

Ironically, from time to time, the music industry has dabbled in the concept with, for example, Bob Dylan, The Sex Pistols, U2, The Manic Street Preachers and The Spice Girls. Did people love the Pistols just because they made great music, or because they confronted the establishment in troubled times, too? Were the Spice Girls played on every stereo because their songs were better than those of Bewitched, or because they cleverly hijacked post-feminism?

The problem for labels isn't content - it's context. Fans who are provided with a context in which to enjoy the content have proved time and again that they can be loyal, patient and generous. Radiohead's Kid A was hardly Pet Sounds, but the album went straight to number one in the States and the band's US tour sold out in four minutes.

Tinkering with the business structure is futile. The horse and cart owners of the 1920's bemoaned the advance of technology. The clever ones bought motorised vehicles. A new industry, artist lead, based on different core values and competencies must emerge.

Artist development and the live arena are crucial. Fans made live, will disseminate your message to a wider audience. Pay per view, as has happened in the football industry in the last 10 years, will assume a dominant position on the balance sheet. Fledgling bands will become adept at exploiting their merchandising capacity on the road - as the Rolling Stones and Kiss have done, with dramatic effect - Kiss fans are already driving Kiss-branded cars and planning to be buried in Kiss coffins.

Distribution costs disappear, marketing spends plummet, recording costs - helped by new technology - are slashed. A global promotional services market will evolve, which bands will use on a country by country basis, depending on budget and genre - with the world viewed as one market, exploited simultaneously. Instead of taking ten pounds from 100,000 people, the industry must aim to be taking one pound from a million.

To ensure that the music industry has any sort of future, label bigwigs must realise that albums are no longer their main breadwinner and file-sharing is not a threat, but the best chance they have to survive.

Provided by the MusicDish Network. Copyright © Tag It 2003 - Republished with Permission