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November 19, 2004
Digital Downloads To Rescue Music Industry?

The music industry has warned that they face certain economic doom thanks to Internet piracy. Their trade organization, the RIAA, has pressed forward with an aggressive strategy of lawsuits designed to punish individuals who download music illegally as well as force CD manufacturers to include intricate and intrusive security measures. However, the Guardian reports that at least one major record company credits the Internet for reversing their steep declines:

The music group EMI today said the music industry was bouncing back from the effects of internet piracy, with lawsuits against file traders having had an "educational and deterrent" effect. Although the global music industry recorded a decline of 1.3% in the first half of 2004, that figure represented a 9.6% improvement on the same period in 2003. ...

EMI, the world's third largest label and home to artists including Radiohead and Norah Jones, said its digital music revenues had more than quadrupled in the six months to September 30.

The figure was boosted by the success of mobile phone ringtone sales and online stores such as Apple's iTunes. Digital sales of 12.2m in the first half represented more than 2% of group turnover.

Demand for songs downloaded via computer has surged since Apple launched its iTunes music stores in the UK, France and Germany in June. Microsoft, Tesco and Coca-Cola have also entered the market.

I've understood the industry's war on illegal downloads; after all, as a writer, I'd hardly want others profiting from my work or even disseminating it without my permission. Singers and songwriters deserve compensation for their work, but the music industry's approach often looks more like monasteries trying to sue Gutenberg's printing press out of the market. It doesn't address the reality of a revolution in communication.

The advent of high-speed networking brought technology like Napster and Kazaa, systems that swapped large files over the Internet in a short period of time, without allowing both industries to create new economic models to exploit them. Now, with several years to work solutions, the record industry should have retooled themselves to take advantage of the technology instead of fighting it.

Why should they continue to put themselves in the media-manufacturing business when consumers have demonstrated a willingness to either perform the task themselves or forgo it altogether? The material cost of the CDs, packaging, printing of labels, and shipping product to stores all add to their overhead. Instead of spending all of that money, they could replace at least a substantial part of it by selling music by the song over high-speed Internet connections. The only material costs would be the servers themselves, and the ongoing expense would just be the Internet pipes they lease for connections.

Once all of the record companies shifted to the new model, the change would be revolutionary for the companies themselves and for the consumers. Listeners could download only those tracks they find interesting, while record companies could package albums at a reduced rate to encourage a unit purchase. Consumers could burn their own CDs if they want, or simply load the tracks onto MP3 devices or hard drives (or both). No song would have to go out of distribution ever again, due to the lack of cost for hosting the track. Singers and songwriters would still collect royalties on music that had long gone dormant without convincing a record company to incur the material costs of a re-issue.

Properly managed, such an economic model would benefit the entire market. Unfortunately, up to now the record industry has focused more on establishing an adversarial relationship with their customers instead of listening to what they want. Any industry that does that over a long period of time will experience the decline that the recording industry has suffered. Perhaps EMI's recognition of the new market will finally wake up the other major players to resolve their difficulties in a way that benefits everyone.

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Posted by Ed Morrissey at November 19, 2004 6:55 AM

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» Screw CDs from Jay
Captain Ed notes that the RIAA continues to be clueless about the future of music. Rather than embrace digital distribution, they're still fighting with consumers. I've bought precisely one physical CD this entire year, and only because it was fr... [Read More]

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