Posted on 02/23/2003 7:14:24 AM PST by Radix
But like it or not, the music industry is in a free fall, and things are about to change.
(Excerpt) Read more at boston.com ...
Or maybe you're an old-schooler with a soft spot for quaint technology. You sit down at the computer, whip out the $30 prepaid card you got for Christmas, log on to Amazon.com, and burn a few of the 50 tracks you've got coming onto a compact disc. Voila: instant artifact.
Perhaps you'll click over to your music subscription service. Depending on your plan, you download tracks No. 2, 7, and 11 for a dollar each into your Internet-wired home stereo or, as a monthly subscriber, load an iPod to your heart's content.
Actually, it might be cooler to download the radio single directly to your mobile phone and make it your new polyphonic, master-quality ring tune.
The bold new world toward which the music industry is headed will barely be on display tonight, when a pageant of pop stars takes the stage at Madison Square Garden for the 45th Annual Grammy Awards. The industry's woes are likely to be drowned out by the sound of business as usual: fans screaming, stars swapping verses, label executives getting paid their due.
But like it or not, the music industry is in a
free fall, and things are about to change. The very foundation on which the business is structured -- selling music to stores -- is eroding at an astonishing pace. Sales of recorded music have fallen about 16 percent over the last two years. By contrast, sales of blank CDs jumped 40 percent in 2002, and users of the biggest online file-trading service, Kazaa, outnumber what Napster ever had.
Music retailers may be on the verge of extinction: Best Buy shuttered 160 of its Musicland shops in the last year, HMV closed its flagship New York City store six months ago, both of Tower Records' Back Bay locations have recently shut down, and Wherehouse Entertainment filed for bankruptcy earlier this month.
Label losses are piling up as well. Sony's music group lost $132 million during the first six months of its current fiscal year, EMI has cut 1,800 positions worldwide, and the Warner Music Group reduced its staff by 1,000 over the past two years. Each of the five major record companies has seriously slashed its artist rosters.
Prognosticators are split over whether the music industry is headed for total implosion or a less extreme, albeit painful, road to reinvention. There is no doubt, though, that seismic shifts in the way business is done -- the way music is delivered and consumed -- will lead to a radically altered landscape in the next few years.
Welcome to phase one. The government's anti-piracy campaign is in full swing, and the record labels are scrambling to make free file-swapping harder and to create legal online services that are user-friendly. They're spending millions on their own fledgling Internet services -- pressplay from Universal and Sony and MusicNet from BMG, EMI, and Warner.
Now all that's left to do is figure out how to make money selling downloaded music track by track, dramatically reduce recording costs, change artists' contracts to reflect a new economic reality, and distribute revenues under a business model that hasn't yet been conceived.
It's a daunting challenge that's been exacerbated by the competing interests of artists, shareholders, executives, merchants, and consumers. There is, however, one major point of consensus.
We're going digital. At some point in the not-so-distant future, we'll download all our music onto home stereos, portable audio devices, car players, and cellphones, all of which will be connected wirelessly.
This isn't the dream of a 16-year-old suburbanite smitten with his CD burner. This is the future according to Mike Dreese, founder of Newbury Comics, the Northeast's largest music retail chain.
''Five years from now you'll see virtually no CD stores,'' predicts Dreese. ''We sell a mature and somewhat stale product. At the same time, there's a splintering of attention, with consumers being excited by more, better, faster technology in competing entertainment platforms -- video games and software and DVDs. Demand is shifting, and anyone who thinks it isn't going to happen hasn't paid attention to history.''
Like music retailers, the labels are watching revenues plummet. Downloading and burning from free Internet file-sharing services such as Kazaa and the now-extinct Napster have eaten away at profits for record companies. Less well-documented is the global phenomenon of organized crime syndicates that illegally manufacture and sell CDs for three to five dollars apiece, the musical equivalent of pushing knockoff Rolexes on a city street corner.
According to David Munns, vice-chairman of EMI, as many as three-quarters of the CDs purchased in some Latin American countries were manufactured and sold illegally, and the problem is on the rise in the United States.
''This is a government issue,'' says Munns. ''Piracy in all forms -- file-sharing as well as organized crime -- requires legislation and enforcement. We've been working hard on getting our digital act together and engaging the government to regulate the Internet and put illegal [CD-manufacturing] factories out of business. There's no problem with people wanting music. In fact there's more demand and consumption than ever. The question is: How legitimate do you want the market to be?''
There's another side to that question, though. How do you persuade millions of music fans who've grown accustomed to getting their music for free to start paying for it?
So far, pressplay and MusicNet, the labels' initial bids to lure paying customers, have fared poorly across the board, frustrating customers with limited selections and restrictions on burning. Ironically, message boards at pressplay (which stocks only music from Universal and Sony artists) are filled with tips telling people to go to the file-sharing services Kazaa or Listen4Ever.com to find the music they want.
Paid services won't succeed, says Josh Bernoff, principal analyst at Forrester Research, until they support all the labels' music, offer unlimited multiformat burning and downloading capabilities, and provide the right to pay as you go.
''If a consumer wants to download a single track for a buck, she should be able to do that,'' says Bernoff, who specializes in consumer behavior and the media. ''Or prepay for 100 downloads as with a phone card. Or subscribe by the month.
''This raises questions about how much it should cost to download a track. If an album is worth $15 and you remove the packaging and distribution system -- which is a big part of the cost -- you get down to nine or 10 bucks worth of value in the music. Does that mean each song should cost a dollar? Most tracks aren't worth that much. Should the hit single be five bucks? The issue of pricing is going to be a huge one.''
A powerful consortium of music retailers believes that adding value and service is the key to persuading consumers to pay for music online. Best Buy, Tower Records, Virgin Entertainment, Wherehouse Music, Hastings Entertainment, and Trans World Entertainment -- which collectively represent 40 percent of US music retailers -- have formed a joint venture called Echo with plans to offer digital downloads in their stores and over the Internet.
''The value that can be provided legally will allow legitimate services to pull away from illegal ones that only offer songs,'' says Dan Hart, CEO of Echo, which is currently licensing songs from labels and plans to begin offering downloads in stores later this year, with a massive Internet rollout in early 2004. ''Things like bundling, for instance, where if you buy U2's new CD, you can download the last one for half price. Things like offering recommendations for new music based on what you've already downloaded.''
Dave Goldberg, the founder of Launch.com, Yahoo's music site, envisions a far more dramatic rethinking of the music business vis a vis the Internet. In the next four years, he says, there will be a dramatic downsizing of the industry. It's likely that more acts, including well-known ones, will be dropped. Existing profit structures -- to which the labels have clung, some argue, with blind tenacity -- will be revamped by a new generation of executives who realize that a fresh business model has to be created in partnership with artists.
''It will be less adversarial and less expensive on the front side, so selling 100,000 CDs will be considered a success,'' says Goldberg, who worked in marketing at Capitol Records before founding Launch.com eight years ago. In the current climate, a gold-selling album (500,000 copies) is considered small change by a major label, with only platinum, or million-selling albums, registering as winners. ''In the long run, artists will have a lot more flexibility, if not access to capital.''
According to Goldberg, new relationships between artists and fans may be forged in the future through the Internet. He offers this scenario: ''Let's say you're Bob Dylan. He doesn't sell a lot of records, but he has a lot of fans. If for $50 a year 100,000 fans get new music and presale concert tickets and his diary entries, for example, that's $5 million, which is a lot more than he'd make selling CDs.''
The artist, of course, is both the unsung hero and the victim here: the creative force who drives the machine and the one with the most to lose at the hands of music pirates and powerful record labels alike. The digital future offers unprecedented possibilities for leveling the playing field, says Michael Bracy of the Future of Music Coalition, a musicians' advocacy organization.
''On the one hand it's a time of incredible opportunity,'' Bracy says. ''Technology has made it cheaper and easier to get a record out. However, the ability for someone to compete in the marketplace has been getting more difficult. The artists who have the talent and drive and savvy to understand marketing and technology will be able to build virtual communities and networks and advance their own causes. It may mean the end of superstar careers. But the idea is to build structures that allow more people a legitimate shot at making a living.
''As the Scottish artist Momus says, everyone will be famous for 15 people.''
Joan Anderman can be reached at anderman@globe.com.
This story ran on page N1 of the Boston Globe on 2/23/2003. © Copyright 2003 Globe Newspaper Company.
I hate buying a $20 Cd just to get 1 or 2 songs. As a matter of fact, I don't -- this way they would at least get money from this source that they do not get now.
Ahhh Yuh!
Me too. What get me is no one talks about the difference in sound quality one get from Vinyl opposed to digital. They way I understand it when music is put into digital form parts of the true sound are taken out in order to keep the file size down. Of course w/ most music coming out today sounds like crap anyway it doesn't matter much.
Right, and to make things worse we're going to go to a format MP3 with lower fidelity than CD, which if done correctly is very close to vinyl and better in some respects.
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