[Infowarrior] - Briefing: Panic in the music industry

[Richard Forno]

Briefing: Panic in the music industry

http://theweekdaily.com/news_opinion/briefing/28194/briefing_panic_in_the_mu
sic_industry.html

As young people download singles off the Internet and CD sales collapse,
record companies are scrambling for new ways to make money. But are the
companies‹and the CDs they sell‹already obsolete?

What has happened to the big record companies?
They¹ve become casualties of the digital age. As recently as 1999, the
recorded-music business was booming, with revenues totaling $14.6 billion in
the U.S. alone. But when all music became available in digital form, it
became easy to copy it or steal it and share it on the Internet. By 2006,
U.S. revenues had plummeted to $11.5 billion, and the decline shows every
indication of accelerating. Through the first half of this year, CD sales
are running a full 20 percent below last year. One stark sign of the
collapse is the new definition of a ³hit.² In the old days‹that is, seven
years ago‹an album would have to sell about 500,000 copies to reach No. 1.
But Johnny Cash¹s posthumous release last June reached the top of the
Billboard charts after selling only 88,000 copies. In today¹s highly
fragmented market, hit records also have far less staying power than when
albums such as Michael Jackson¹s Thriller held the top spot for months at a
time. ³Almost every core operating principle in the recorded-music business
has been shaken or challenged,² said Edgar Bronfman, chairman of Warner
Music Group.

Is music losing its popular appeal?
Not in the slightest. But the digital revolution has turned the business
upside down. Thanks to music-downloading sites on the Web, young people are
spending more time than ever listening to music on their computers and
iPods. The problem is that many of them either are not paying for the tunes
or are paying a lot less than they would be if they were still buying full
albums on CD. One study found that consumers downloaded 50 billion songs in
2006, most of them illegally‹costing the industry $12.5 billion in lost
revenue. But it¹s not just paying customers who are deserting the record
companies. A growing number of musicians, including some big stars, have
concluded that they no longer require the record companies¹ services.

What are they doing instead?
They¹re cutting out the middleman‹the record companies‹and taking their work
directly to customers. It started a few years ago, when such artists as
feminist folkie Ani DiFranco began handling their own recording and
distribution. Now, a handful of superstars have also decided they can live
without a major label. Madonna just left Warner Music, her label for 25
years, to sign a $120 million deal with concert promoter Live Nation, which
will oversee everything from record distribution and live performances to
merchandise sales. For their most recent albums, Paul McCartney and Joni
Mitchell turned over their distribution to a distinctly nontraditional
player in the music biz: Starbuck¹s. ³It¹s a new world now,² McCartney
explained. ³People are thinking of new ways to reach the people.²

How is the industry responding?
Not very effectively so far. The industry seems to have devoted most of its
energy to largely futile efforts to prevent illegal downloading. It can
claim some legal victories, most recently in October, when an industry
association successfully sued Jammie Thomas, a 30-year-old single mother in
Minnesota, for downloading 24 songs. She was ordered to pay damages of
$220,000‹or $9,250 per song. But while it¹s understandable that an industry
would want to crack down on people stealing its product, the notion of big
companies hunting and suing single moms and students has been a
public-relations disaster. Besides, as one music executive told the Los
Angeles Times, piracy is impossible to stop. ³You can¹t stomp it out. People
are going to get it one way or another.²

What can record companies do?
The record industry has to find new ways of making money that do not depend
on selling CDs for $16 apiece. Most companies now sell at least some of
their catalog through iTunes, while some labels are experimenting with
offering free downloads through their Web sites, hoping to entice consumers
to buy some of an artist¹s or band¹s other songs. At the same time, the
companies are devoting more resources to parts of the business that just a
few years ago were mere afterthoughts or that didn¹t even exist. Indeed,
some record-industry visionaries say the future won¹t have much to do with
making physical ³records² at all.

So what would music labels sell?
Music‹but through a more ³holistic² approach, tapping all kinds of revenue
sources. The labels are already trying to re-create themselves as
full-service firms that can help recording artists produce revenue in the
form of CDs and downloads, concert tickets, merchandising, and licensing
fees from movies and television, advertising, and mobile-phone ringtones.
Ringtones, in fact, are now the fastest-growing source of music-industry
revenue. ³I find myself, when I¹m signing a record deal now, asking, ŒCan
this sell as a ringtone?¹² said Steve Rifkind, president of SRC, a label
affiliated with Universal. It remains to be seen whether such alternative
strategies will save the day. ³Everybody¹s still hoping for the best,² said
Joe Nardone, owner of Gallery of Sound, a chain of Pennsylvania record
stores. ³But the best ain¹t what it used to be.²