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A Change Coming on

Posted July 19, 2011

by R. Feldman

For much of the twentieth century, basically one business model encompassing the sale of music and the collection of performance income has ruled the music industry. This model has weathered a plethora of technological changes from piano rolls through three vinyl formats, cassettes, CDs, DVDs, and then again through dance halls, radio and television. Then around 2000 all hell broke loose. 

Since then it has been a story of decentralization, piracy, contraction, and evolution, which has scattered the direction and focus of an industry that has struggled to come to grips with a new way of doing business. Though many have predicted what the new model might look like, no one has yet to explain how it will all work, and while a new order may emerge, it’s doubtful that we’ll ever see a headline that reads “New Business Model Arrives”. In spite of this uncertainty, emerging developments are on the horizon bringing “The New Model” into focus, and in many ways, you can say that it’s already here. 

Technology, as always, is the key ingredient, and in this case it’s about the robustness and ubiquity of the Internet. This coming of age is in fact generating a new generation of companies and is driving massive IPOs such as LinkedIn and Groupon. For the music industry, the increasing presence of a Wi-Fi cloud underlies the success for streaming companies as Pandora, Spotify, and new access models like Apple’s I-Cloud. 

Though currently only 3% of the music business, streaming is likely to increase dramatically in the near term – not only because of better user interfaces, but because it’s now technologically easier where it wasn’t before. And when you have the ability to get what you want and when you want it, you don’t need to own or purchase music anymore. 

That also means you don’t need to steal (share) it through P2P either. This is already being demonstrated in Sweden with its high Internet speeds, high piracy but where Spotify has a high adoption rate. If that model holds true, as streaming gains market share, we’re likely to see a decrease in the roughly 85 billion songs that are shared/stolen each year.

And there are other factors on the horizon that might also decrease P2P sharing. The most interesting of these is the new Copyright Alert system launching later this year. This ground breaking agreement between the ISPs and the RIAA and MPAA (perhaps a benefit of the Comcast/NBC merger) promises to put a serious dent in online piracy. Under this agreement, ISPs will send out copyright alerts to P2P infringers with escalating “mitigation measures,” including redirecting browsers of offenders to educational pages and lowering their download speeds. Coupled with recent legislation such as the IP Protection Act and the Rogue Website initiative, there could be a big change on the way.   

What does this mean for the music business?  While it’s not clear how much new revenue to expect as P2P sharing decreases, and even less clear how much revenue streaming will produce, there will no doubt be more of it. 

One of the issues with streaming is that it creates many more transactions than downloading does. Tracking this income has been difficult, but again technology plays a role with new services emerging (like Crunch Digital, for one) that promise to provide accurate collections through digital audits. Additionally audio recognition technologies such as Tunesat, Landmark Digital, and Media Guide, are poised to help music publishers and master owners monetize the millions of transactions associated with streaming.

And yes, it’s a good time to be an indie. Though the majors control the world of mega stars, music is becoming more of a relationship with fans, and indies have the advantage here. Not only has the music industry decentralized but the lines between industries have blurred. It’s now possible for any segment of the industry, from publishers to managers to artists, to market their own music. In many ways the tide has swung back to the time when the music business was often just two guys selling records from the trunk of their car – except now it’s two guys in a garage running an entire record company.    

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