Wednesday, February 27, 2008
Consider the statements that were made today without controversy:
- DRM on purchased music is dead
- A utility pricing model or flat-rate fee for music might be the way to go
- Ad-supported streaming music sites like iMeem are legitimate players
- Indie music accounts for upwards of 30 percent of music sales
- Napster isn't losing $70 million per quarter (and is breaking even)
- The music business is a bastion of creativity and experimentation
Only a few years ago, none of those statements would have been true, but perhaps none is more striking than the last. Panelists from every sector of the digital media marketplace were in agreement that the major labels, under the pressure of eroding profits, have been forced to become experimental in their business dealings and to do deals that would have been deemed too risky only months before.
Just within the last year, we've seen an array of experiments that include ad-supported streaming, "album cards" from labels like Sony BMG, and allowing Amazon to offer MP3s from all four majors. Some labels even allow user-generated content to make use of their music in return for a revenue share from sites like YouTube—unthinkable a few years ago to a business wedded to control over its music and marketing. YouTube's Glenn Otis Brown says that the labels now have less of a "standoff mentality" and are ready to deal.
That innovation has been paying off. Interscope now rakes in 40 percent of its total revenues from digital sales, while Sony BMG makes 30 percent (in the US), but this hasn't been nearly enough to offset the loss in revenue from plummeting CD sales. While the majors once held all the cards when it came to licensing music (and they used their power to negotiate revenue splits on the order of 85/15), they aren't quite so powerful any more. In fact, several audience members and panelists even questioned whether major music labels brought much to the table besides their back catalogs.
Who needs a label?
Ted Mico, the head of digital strategy at Interscope, defended the majors by saying that "anyone who has spent an hour or a day listening to demos understands the labels' place in the food chain"; that is, labels provide both filtering and then marketing of music. Without their help, promising artists would be lost in a sea of noise and would be almost impossible for music lovers to discover.
This attitude was deconstructed during the very next panel, where the CEO of social music recommendation site iLike pointed out that labels, in fact, don't actually need to spend their time listening to demos; customers have already done it for them. Social networking sites like MySpace show that it works. Do music labels still need expensive A&R staff when they can simply listen to works of any band with over 50,000 MySpace friends? The message, in other words, was "Music 2.0, welcome to Web 2.0."
The contrast between these two ways of looking at the world—one rooted in a more elitist and expensive model, the other open to the "wisdom of crowds" and its democratic ideals—underscored a broader theme that emerged from the first day of the conference: the music business is a complicated place. Internecine warfare was the order of the day, so much so that the disagreements from one panel of music luminaries drew an impassioned plea for the infighting to end.
David Del Beccaro, the president of Music Choice, laid out a clear case for change and for labels to focus more on building long-term partners than on short-term advances and profits, but he sees the music industry's fundamental transformation as taking ten to twenty years to complete. In a business changing this quickly, that could mean death.
Greg Scholl, boss of indie label The Orchard, pointed out that the music business is not just four companies, and that indie music's market share is now approaching one-third... and it's growing. Indies have also been more open, historically, to experiments such as selling music without DRM. If the major labels take more than a decade to turn the ship around, they risk running a ghost ship with little in its cargo hold but a valuable back catalog. The indies could instead become the place for fresh new music and even for established artists who want more control (we saw that last year with Paul McCartney, John Fogerty, and James Taylor, for instance).
But no one quite knows how it will all shake out at this point. As Sony BMG's Thomas Hesse put it, "the next big thing is a dozen things." That's a scary thought to labels that pursued only one thing—the sale of recorded music on pieces of plastic—for decades.
February 27, 2008
For the first time last year, nearly half of all teenagers bought no compact discs, a dramatic increase from 2006, when 38% of teens shunned such purchases, according to a new report released Tuesday.
The illegal sharing of music online continued to soar in 2007, but there was one sign of hope that legal downloading was picking up steam. In the last year, Apple Inc.'s iTunes store, which sells only digital downloads, jumped ahead of Best Buy Co. to become the No. 2 U.S. music seller, trailing Wal-Mart Stores Inc.
That could be hopeful news for the music industry, which has been scrambling in recent years to replace its rapidly disappearing CD sales with music sold online. The number of CDs sold in the U.S. fell 19% in 2007 from the previous year while sales of digital songs jumped 45%, Nielsen SoundScan said.
The number of people buying music legally from online music stores jumped 21% to 29 million last year from 24 million in 2006, according to the study by NPD Group, a market research firm in Port Washington, N.Y.
NPD declined to release figures on individual retailers' sales or their market shares, so it is impossible to know how close iTunes sales are to Wal-Mart's. The NPD market ranking of music retailers is based on a study of the music habits of Americans 13 and older over the last week.
The report, which involved 5,000 people who answered questions online, highlighted a generational split. The increase in legal online sales was driven by people 36 to 50, the report said, giving the music industry an opportunity to target these customers by tapping into its older catalogs.
That's not to say iTunes is not popular with the younger set. Mallory Portillo, 24, an executive assistant in Santa Monica, said she hadn't bought a CD in five years, but typically spent more than $100 a month buying music online. She will turn to illegal music sharing sites only if she can't find new releases or more obscure music on iTunes, she said.
Buying online saves her the step of having to load a CD onto her laptop so that she can then transfer the files to her iPod.
Her most recent purchase came two days ago, when she spent $19.99 on iTunes for Michael Jackson's 25th anniversary edition of "Thriller."
"Hopefully it doesn't come back to haunt me one day that my 'Thriller' CD is on my computer and therefore not a collector's item," she said.
The increase in online spending didn't offset the revenue lost from the drop in CD sales and from illegal downloading. Last year, about 1 million consumers stopped buying CDs, according to NPD.
There are several ways for consumers to expand a digital music collection. They can buy music at online stores such as iTunes and Amazon.com's MP3 store. They also can convert their CD collection into a digital format.
What concerns the music industry is illegal Internet file-sharing on websites where people pick up a digital song or album that others have uploaded. They can also do what is known as peer-to-peer file sharing, when people download music while temporarily opening up their computers to others to pick up music. The music industry says people who obtain music free online are breaking the law.
Rachel Rottman, 14, says she hasn't bought a CD in a year. The Santa Monica High School freshman says she downloads five or six songs a day, using paid services such as iTunes and social networking site MySpace, where bands post songs for free download. Rachel said she had about 2,600 songs stored on her computer.
Before getting a computer in the seventh grade, she always bought CDs. But now it's too much trouble, she said.
"You have to go to the store and then you have to pay -- I don't know how much, $12, I'm guessing? -- then you have to put it on your computer," Rachel said. "When you download it, it's right there."
Hunter Conrad, an eighth-grader at Lincoln Middle School in Santa Monica, says she downloads about 80% of her music from iTunes, "but when it's an artist I really like, I'll buy the original CD."
Out of her group of friends, she's "one of the few" who still buy CDs, she said. Most of her buddies download for the convenience, to save money and to get only the songs they like.
"Nobody really wants the other songs [on an album]," Hunter, 14, said. "They just want the hits."
In the last year, consumers paid for 42% of the music they obtained, the report said. That was down from 48% in 2006 and more than 50% in 2005.
"The trend is continuing but it will flatten because there are people who will always want the physical," said Ted Cohen, managing partner at TAG Strategic, a digital media advisory firm.
Over the last year, the music industry has pushed back. Some companies now permit online music stores to sell songs without copyright protections in hopes of making it easier for consumers to move digital music to different computers and devices, and thus remove the temptation to download it illegally.
Some music companies have thrown support behind Amazon's MP3 store, which competes with iTunes. The music industry has also sued fans to stop them from downloading and sharing music without paying for it.
The legal efforts may have had an effect. The report said that the portion of survey respondents who shared music on sites that facilitate illegal downloads was 19% in 2007, the same as 2006. But those who do it are doing it more. Some said they got more than 3,000 songs a year this way.
Two years ago, teenagers accounted for 15% of CD sales. In 2007, the figure was 10%. The digital music world has yet to completely capture the attentions of Isaac Kahn and his friend Charlie Williams, both 14. They buy music online but prefer to go to the Amoeba store on Sunset Boulevard in Hollywood and thumb through the CDs. "I like to look at CDs and see if there's anything else I might want to buy," Isaac said.
Charlie, who recently bought a device to transform his father's 300 records into digital files, said many teens download music illegally because they are on computers. But he doesn't have a computer. And besides, he said, "I'm a musician myself; I prefer to just buy it."
Have you seen a film projected digitally? Are you lucky enough to have a local theater specializing in this new projection format? Well, if you are and you happen to be anxiously awaiting the arrival of Indiana Jones and the Kingdom of the Crystal Skull (and honestly, who isn’t?), you will not be able to see Indy’s latest adventure in said format as reported over at JoBlo. It’s OK to sob a little, I know how you feel.
Digital technology has slowly been reshaping the movie business, from filmmakers like Robert Rodriguez and George Lucas shooting with digital cameras, to digital technology filtering down to the home user and thus allowing more and more people to try their hand at making movies, to home theater enthusiasts using gorgeous DLP projectors in their homes, not one area of film delivery has been left untouched. This goes right on through to digital projectors at your local theaters.
With all of this love for digital tech, including Indy creator George Lucas, one has to wonder what the thought process was that led up to this decision. Of course, the answer is as simple as saying Steven Spielberg. He retains his love for all things film, and prefers that his films be presented in their traditional format. By his decree, his latest film will not be available in the digital format.
I have only recently seen my first digitally projected film (it was 27 Dresses), and it was quite the gorgeous experience. It makes me want to see everything that way, so I am a little sad that Indy will not be seen this way, but in the end it does not really matter, as I just love movies.
However, if you live near an all digital moviehouse, you may want to drop them a line in case they have not heard already.
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