Morphing the music business
CD sales are slumping. Everyone's a song pirate. The music industry must go digital or die
Peter Hum
The Ottawa Citizen
Thursday, March 06, 2003
CREDIT: Wayne Cuddington, The Ottawa Citizen
Mike Burns and Jeff Doiron run Ottawa's Fuel Industries, which recently created an anti-music piracy Web site for the Canadian Recording Industry Association. They are standing in front of a projection of a demo of Fantom, a downloadable application for music lovers, which Fuel also built.
Dear tech-empowered music fan: If only you had left your computer last week and refrained from downloading that 10,000th MP3 file, you no doubt would have enjoyed a jaunt to Toronto for Canadian Music Week. Night after night, you could have crawled from tavern to tavern and set your ears a-ringing to a cavalcade of bands, from the punishing hip-hop/hardcore of Ottawa's 54stance to the too-cool bossa nova of Montreal's Bet.e & Stef to the foul-mouthed, femme fatale rap of Surrey's Stink Mitt.
The acts pretty much covered the musical gamut -- except for the sounds of dread and anxiety regarding the music industry's uncertain future. For that, you would have had to attend some of the panel discussions during the event's daytime conference, when music industry types discussed the technological revolution that, download by download, is rendering their business model obsolete. One panel, titled The 10 Most Influential People in the Music Business, was composed of young people between the ages of 15 and 21, telling the audience what was what (they are big fans of illegal music downloading, and wonder why they should buy music when they can get it free on their computers). Canadians have downloaded an estimated one billion songs illegally, allegedly causing a seven-per-cent drop in sales each year over the last three years, equal to roughly $80 million in yearly lost revenue. These are the kind of numbers that prompted Don Tapscott, a University of Toronto professor and author of Paradigm Shift and Growing Up Digital, to proclaim last week: "The CD is dead.''
Like many music-industry watchers and insiders, Tapscott says the business is at critical fork in the road. "One route spells disaster for the incumbents and the rebirth of a whole new industry,'' he said. "The other route sees the incumbents doing an 11th-hour re-invention and the creation of a whole new paradigm of music production, distribution, marketing and enjoyment.''
Or as Tony MacDonnell, the lead singer of 54stance, succinctly puts it: "Step into the new school. If not, you're wiping yourself out.''
Get ready, then, for the music industry's Hail-Mary pass. As early as this month, in the weeks leading to the Juno awards extravaganza in Ottawa April 6, expect to see the Canadian music industry's first forays into a new, Net-savvy paradigm. This revolution will be preceded by publicity -- the music-biz equivalent of dropping leaflets on Iraq. Radio and TV advertising, combined with a snazzy, made-in-Ottawa Web site, are intended to convince downloaders that a fundamental law of the Internet -- "I can get it for free'' -- is wrong in the case of copyrighted music.
Also this spring, the Canadian Recording Industry Association, whose members include the five major record companies, leading independent labels and CD and tape manufacturers, is to send promotional videos and information kits to Canada's high schools, enlisting teachers as emissaries spreading the anti-piracy message.
More importantly, Canadian music companies realize they cannot get the genie that is MP3 technology back in the bottle. They plan to go to the Net with what they hope are attractive, value-added alternatives to the free MP3 menace. Later this year, perhaps by early summer, subscription-based online music services will be up and running in Canada, including three now operating in the U.S. and two Canadian debuts.
Nor has the industry given up on selling CDs. It's just that the CDs may have to be different, with fewer songs and at a lower price, or with extra features including even bonus DVDs -- anything to earn some value-added caché.
"It's been three years of going backwards and really running behind the technology,'' says Canadian Recording Industry Association president Brian Robertson. "The problem is that the illegal elements of it have far overwhelmed the industry's ability to control it to date,'' he contends. "We're at the crossroads of controlling the illegal elements, and then embracing it (technology) in a very positive way.''
Robertson sounds optimistic. But is he realistic? If U.S. experience provides any hints, then the industry should temper any cheery anticipation with a big dose of patience. American online music services have yet to catch on. Anti-piracy publicity campaigns with Britney Spears and Nelly have apparently done little to turn the tide.
But in a do-or-die situation, optimism may be a must. What choice does the Canadian industry have but to go down this digital road? "There isn't any,'' Robertson says.
Business Fights Back
Don't think, however, that the Canadian music business sat back while it suffered at the hands of file-sharing services such as Napster, Kazaa and Gnutella. While those applications allowed millions of netizens to embrace peer-to-peer networking, in effect massing all the tidily compressed MP3 files on their collective hard drives into a gargantuan, easily accessible collection, CRIA was fighting back like an outnumbered sherriff in a crime-ridden, Wild-West town.
CRIA's budget includes more than a million dollars for fighting online music piracy. It has several staffers scouring the Internet with sophisticated Web crawling software to identify Canadian Web sites offering illegal music downloads, fixing their crosshairs on dozens of such sites each week. CRIA follows up by sending "notice and takedown'' letters to the Internet service providers behind the pirates' Web pages, asking for it to investigate and deny service, based on conditions of use prohibiting users from breaking Canadian laws, including copyright law.
"It's a bit lumbering, but there is some measure of co-operation,'' says Robertson. "We've taken down millions of songs.''
CRIA would have gone further as an enforcer if it thought it could. If only it could emulate its sister organization in the United States, the Recording Industry Association of America, which is notoriously litigious. In 2000, the RIAA used the courts to shut down Napster. It is now playing legal hardball with U.S. Internet service provider Verizon, attempting to get the ISP to divulge the name of a customer suspected of sharing hundreds of music files. Ultimately, an RIAA success could lead to a wave of subpoenas targeting suspected pirates. The RIAA sends roughly 2,500 copyright-violation notices each month to colleges and universities and last week, its CEO Hilary B. Rosen said prosecuting individual students is possible.
CRIA, however, has not launched a single lawsuit. It has steered clear of courtroom action, in part because it figures that Canada's copyright laws are, for its purposes, toothless.
Robertson complains that Canada has yet to ratify the World Intellectual Property Organization's 1996 copyright treaty, while the U.S. has. "It's a very frustrating process to see the industry lose $250 million (over the last three years) in Canada and the bureaucrats moving so slowly,'' he says. "The very treaty that was created to help control the problem is still sitting on someone's desk, gathering dust... We're as aggressive as we can be, given out constraints.''
In any event, flat-out aggression has its drawbacks. The RIAA has been reviled in some techie and youth quarters for its crackdown's invasive measures and for effectively criminalizing its likely customers.
CRIA, in contrast, plays the good cop in its upcoming PR blitz. The message-track Web site, www.keepmusiccoming.com, was launched this week, replete with dynamic Flash animation, to win back music fans with honey rather than vinegar. The site, a contract job created by the Ottawa Web-based marketing shop Fuel Industries, seeks to convert downloaders with behind-the-scenes stories from the music business stressing the value of music, online chatting, streaming audio and video, and a game that "speaks to the economics of the music industry,'' says Fuel's president Jeff Doiron. The site also features a limited giveaway of tickets to the Juno awards, links to legit music-download sites and a bit of fear-mongering. "Warning: file-sharing programs can leave your computer vulnerable to viruses,'' reads one of the site's pages.
To help refine the Web site's message, Fuel Industries staff in December interviewed dozens of Ottawa teenagers about their music-listening habits, receiving responses that supported the industry's misgivings. "Almost every single kid out there that we interviewed downloads music, to some degree,'' Doiron says. "When they go online, the first thing they do is talk on MSN Messenger, and they check their e-mail and they go to either a sports site or a music site to download music. They then obviously burn CDs.''
Naturally, Fuel executives think that the company has done a good job. Just the same, they don't think the Web site will be a magic bullet against pirates. "MP3 piracy is here to stay. I don't think it's ever going to go away,'' says Fuel's creative director Mike Burns.
Playing Catch-Up
The music industry knows that anti-piracy propaganda aside, it must compete with an online alternative that can somehow top Kazaa and the like. If only it had taken sooner to the task. Had the music industry been more visionary in the Internet's early days, perhaps it would have acquired its online competition instead of trying to kill it.
"Ten years ago," recalls jazz pianist Herbie Hancock in an interview published at www.allaboutjazz.com, "I asked some of the executives if they had anybody at the label that was looking into the new technologies... and new ways to distribute music. They looked at me if I was crazy. The answer is 'No.'
"If they had paid attention to it (new technologies), the whole business that we are embarking on, this new scene for the record industry would be totally different," says Hancock, an enthusiastic tech advocate. "The record industry would have been the Napster."
MacDonnell agrees. "The large labels should have bought the system, implemented it and honestly turned it into a business... They empowered the hackers by shutting it down... all the hackers, all the people who are against that sort of mentality said, 'Oh yeah? We're going to make it even crazier.'"
With nothing to do but play catch-up, three U.S. services -- MusicMatch, MusicNet and pressplay -- are to launch in Canada as soon as the music industry can strike a deal for remuneration with the Canadian Musical Reproduction Rights Agency, which represents songwriters, music publishers and artists.
"It's not as though there's any sort of confrontation or disagreement,'' Robertson explains. "It's just the complexity of tracking hundreds of thousands (of songs) that are going to be up on the Internet and are going to be streamed (played in real time as if the computer were a radio) and downloaded.''
In addition, two Canadian online music services, Moontaxi and Galaxie, are poised to launch. Like the other services, the Canadian offerings are expected to charge users a monthly subscription or a per-song cost. In the U.S. the services typically charge customers $9 or $10 a month to listen to streamed music. Customers can usually download a song and copy it to a CD for 99 cents.
The latter scheme, as well as the forthcoming re-introduction of CD singles (discs with perhaps two or three songs retailing for just a few dollars), demonstrate that music on the Net has re-established the song, rather than the multi-song album, as music's basic unit of music. The industry knows that young customers are far more keen and able to fork out $3.99 rather than $19.99. As well, there's the issue of artistic consistency. "You know what really bugs me?" asks MacDonnell. "Let's say I've heard one song on the radio... and I buy the album and the rest of the album sucks. I feel like I've paid 28 bucks for one song."
Robertson is optimistic that the music industry can turn a buck by distributing songs online. However, the U.S. music-lovers have been slow to play along. The U.S. services have, all told, about 300,000 customers, while free music-sharing services have users in the millions. As well, the free services offer much greater selection. Since peer-to-peer networking links the collections of every file-sharer when they are online and active, millions of songs can be accessed. Legit services typically offer far fewer tracks -- several hundred thousand or so -- because of their need to obtain rights for reproduction.
There has been a glimmer of hope for the labels in Europe, where the music industry has made online inroads with classic drug-dealer marketing, by giving away free high-quality samples. OD2, a United Kingdom-based company founded by musician Peter Gabriel, is behind Digital Download Day, a scheme that will allow Internet users in the U.K., France, Germany, Spain, Italy and the Netherlands to download as many as 30 tracks for free from a 150,000-song playlist on March 21. A pilot version in October, limited to the U.K., drew about 500,000 users and crippled Internet servers. OD2, reported NME.com, has increased its server capacity tenfold this time around.
Digital-Kiosk System
Bricks-and-mortar CD stores, however, will not be left behind. Of course, the HMVs and CD Warehouses of the world already have online presences. But Robertson says that a conglomerate of retailers is developing a digital-kiosk system so that a visit to the CD store could more closely resemble going online. Later this year, in-store shoppers will be able to go online at a kiosk, surf through selections and download in the store. "It could be a huge boost with respect to choice," Robertson says. "Obviously you're fairly limited in what you could put on the shelves. Instead of having a few hundred titles, you're going to have potentially hundreds of thousands. The retail opportunity is certainly enhanced."
Meanwhile, third parties such as Fuel Industries in Ottawa are devising applications and new technologies to bolster what the record labels can offer customers.
Doiron and Burns are hot on a Fuel product which they call CD Gateway. The technology effectively turns a legitimate CD into a "Opem Sesame" passkey to an otherwise inaccessible Web site. The Web site, Doiron says, could offer additional songs, video footage of the band on tour, contests and other content.
Fuel staff are to show this technology to BMG Records representatives in New York next week, along with an downloadable application that they call a Windows information manager.
A demo of the application allows for a user to program his or her musical preferences into the application, which then would receive news updates such as tour information and musical samples. The application would also incorporate streaming video, photo galleries and an online store.
Fuel's discussions with young music fans found that they were, in a word, fickle. "Kids have a disconnect between the music and the artist," Doiron says. "If Eminem is the biggest artist out there right now, kids don't really care if he goes out of business because they don't buy his CD. As far as they're concerned, there's a thousand Eminems waiting in the wings for the record labels to push to be the next big thing." He contends that Fuel's information manager could "help to start build that relationship again between the artist and the fan."
Says Burns: "You want to build something so that the kids can go on there, get the information they want to get, build that relationship up, let them sample music and let them choose if they want to buy it or download it or make their own mix CDs."
"There's a way to hit the business model so it's bang-on," Burns asserts.
The shake-out, then, is coming, with little certain about the outcome -- except that until a bang-on business model establishes itself, there will be more reprises of songs of anxiety and dread.
"Something's going to have to change," says MacDonnell. "And somebody's going to have to hurt for awhile until a solution is found."
Music Sites
Industry Sites
keepmusiccoming.com
cria.ca
Alternate Views
fairtunes.com
janisian.com/article-internet_debacle.html
Artist-Driven Download Sites
garageband.com
mp3.com
Ottawa-Based Sites
theottawamusician.com
54stance.com
robertfarrell.com
terrytufts.com
AI
