Music industry online – Preparing to face the music

If travel companies thought they faced a new commercial landscape, they should spare a thought for the music industry. David Bicknell turns off his MP3 player and explains how another market is adapting


You can imagine record industry executives cringing every time they see an iPod, of which millions will have been bought in recent months.


According to recent figures produced by market analyst group NPD, last autumn Apple’s iTunes store sold more music than Tower Records and Borders in the US. It’s a trend that is unlikely to go away, as more and more people download music on to their iPods.


The attention of the music-buying public to digital music has been exacerbated by the meteoric rise of the Arctic Monkeys, who have used the Internet to distribute their music and create their own marketing machine.


Downloads have had the record industry in turmoil since the start of the Internet revolution, which spawned the rise of peer-to-peer file-sharing systems such as Napster, Kazaa and Grokster, and which almost overnight began undercutting record companies’ CD sales. By 2008, some estimate so-called digital music could account for up to 30% of world music sales.


The dismay caused by downloading even prompted the British Phonographic Industry and the Recording Industry Association of America to take legal action against their own consumers, those who were said to have illegally shared volumes of music over the web. The eventual solution was to buy the major operators, such as Napster. But illicit downloads still haven’t disappeared.


Although iTunes is estimated to have sold more than 500 million downloads worldwide, a recent survey by Mori showed that 51% of those who download tracks do so illegally, and more than three quarters said they had illegally downloaded music at least once.


Rob Wells, new media director at Universal Music, one of the big four record labels alongside Sony BMG Music, Warner Music Group and EMI Group, which control an estimated 70% of the world music market, admits the music industry is still having to cope with a massive process of change, created by the impact and adoption of new technology by the consumer.


In many respects, the whole landscape of the industry has altered. Everything in the old music publishing regime – processes, people, technologies – is facing upheaval, and the winners will be those that best manage to map the traditional-based model on to the new one.


The qualities needed for success are likely to be fleetness of foot, urgency, and an entrepreneurial approach – to replace the slow-to-change, ponderous, set-in-their-ways stance adopted by the record industry as the impact of the new technologies dawned.


It is clear that the landscape for an industry has been turned on its head when the new kid on the block turns out to be a computer company. Apple has now built a stake in the recording business, through the arrival of iTunes, which provides everyone with a means of legitimate downloads. ITunes now has a share in excess of 65%, perhaps even 70% of the legal download market.


Guy Fletcher, creative director of copyright specialist and music publisher MCS Music, believes the basic issue of copyright is at the heart of the problems caused to the industry by the Internet.


“The music industry is regulated by copyright,” he says. “If I write a piece of music, the instant it’s written, it belongs to me and that is my copyright. If anybody wants to use it, for any reason, they have to get my permission. And the same thing exists in a recording. That is the framework within which our business runs, and it’s backed up by copyright legislation.”


But, as Fletcher explains, the peculiarities of the Internet and the way it is administered immediately changes the rules. “Along comes the web, and straightaway there are two problems,” he says. “Every major copyright territory has its own definition of copyright; its own lists of tariffs and conditions within which copyright can be exercised; and those rules change from territory to territory.


“So the Internet blows a couple of things out of the water: there is instant access for anybody who wants to copy something, because it’s there online; it’s global, so copyright is breached.”


The industry’s transformation encompasses even more than this. Even the delivery methods of music have changed. The era of MTV has come and gone, and fewer people are listening to the radio, although – predictably – more are listening to broadcasts via the Internet.


The growth of music websites means wannabe bands can post demo files, images and videos. One site, MySpace.com, is an online community that “lets you meet your friends’ friends” and share photos and interests. What it offers is a massive pool of talented, yet unsigned people, and is being used by music managers to market their bands.


Susan Collins, of Bam Bam Music Management, which looks after the Noisettes and the Superdead, says there has been an explosion in the use of MySpace in the past year.


“The music section on MySpace has lots of unsigned bands. So everyone can be an ‘Artistes and Repertoire’ person. Even the record company A&Rs are now doing their job from a chair, clicking around websites to see how many downloads, ‘plays’ and ‘friends’ a band is getting,” she says.


But Collins believes the mechanics of downloading tracks on various services still needs work. “I have various choices if I want to download. I can go to iTunes, but it doesn’t have all the content I want. I can go to MP3.com, but I have to click a disclaimer, and I’m not sure of the legality,” Collins admits. “On Virgin Online and HMV Online, you need a monthly subscription if you want to burn on to CDs. The music industry in England still hasn’t got the model right.”


Ultimately, Universal’s Wells believes change is good and necessary and that the Internet will be viewed as having been of massive benefit to the music business, even if adapting to it has so far been painful.


That’s why Wells believes every single aspect of the music business must be put under scrutiny as the industry evolves. “The potential is enormous; it’s a question of harnessing it. And we will have to guide the business through seas of change,” he says.



Copyright issues


The problems caused by the web are all about copyright, which is managed by a number of companies, such as Guy Fletcher’s MCS Music.


MCS Music collects the money that accrues from the use of various forms of copyright, and distributes it to the owner.


There are two collection systems in use for mechanical royalties – i.e. copying of records – and performance royalties, which are royalties that accrue to broadcast and public performance use, such as in shops. That income alone in the UK brings in £11 million a year.


Mechanical income is what accrues to the sales of records, and goes back to when recordings were made mechanically, on wax. Every time a copy was made, it was a royalty-payable occasion. So, if you press 1,000 CDs, you’re making 1,000 copies.


Fletcher says: “This is the only system we’ve got. Then along comes the Internet, peer-to-peer and Napster etc, and what we’re trying to do is shoehorn our old-fashioned system into that. It doesn’t fit – it’s a round peg in square hole.”



The future of music


The new model on which many in the music industry are pinning their hopes, is the delivery of music to mobile phones, which themselves will incorporate the ubiquitous iPods, and eventually see the death of CDs.


“Up to the middle of last year, mobile phones didn’t have enough memory, and the quality of sound wasn’t that good,” says MSC Music’s Fletcher. “Now, the latest Nokia is coming out with five gigabytes of memory. That’s a gigantic store you can put 3,000 songs on to.


“You can put them on as MP3 files. All new mobile phones have stereo circuitry and they have headphone outlets. All you need is a docking station. It’s goodbye iPod.”


Fletcher adds: “The fact is, what you’ve already got on your mobile phone is a perfect billing system. You want to get a song, you go on your mobile phone, and you access a provider such as The 24, and you can download anything you want, and either pay it through your phone bill, or through any of the other payment systems.”


 


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