Thursday, July 10, 2008

Saving The Music Industry (From Itself)

People are using new technology to get entertainment for free. The industry sues and sues consumers but with no apparent results. The problem keeps getting worse. Sounds like I’m talking about the music industry, right? Nope. I’m talking about cable television circa 1990. It seemed like everyone was stealing cable. They even made a Simpsons episode about it. Do you ever hear about people stealing cable now? It happens but it’s pretty rare, especially compared to what it used to be. Why? Because cable companies solved the problem by making a product that was attractive enough and affordable enough that no one would bother to steal it. But wait didn’t they use scramblers and all sorts of new technology to beat the thieves? Yes but in the arms race between thieves and companies, the thieves are always ahead. Every new “un-crackable” version of Windows gets beaten by some kid the second it hits the market. Ditto for cable technology and ditto for DRM (digital rights management, this is the stuff that makes it so you can’t put your CD on your ipod etc…). I remember a few years ago when I bought the new 30 Seconds to Mars CD and I couldn’t put it on my ipod. It took me about five minutes of searching online until I found a way to beat it. I’m no computer geek; in fact I suck at that stuff. The solution was so simple anyone could do it. My point is that increasing anti-piracy technology alone will not do didily unless you give consumers a reason not to steal your product. Cable companies did this by bundling and lowering their prices. Now that legitimate cable was good and cheap who would go through the hassle of stealing it?

The music industry needs to do the same thing; that is if people still want to make money doing music. This goes for musicians, songwriters, producers, label executives, and everyone else.

There are several ways to do this. You could lower prices. But in general people in the music industry aren’t exactly making a killing and the increase in volume might not make up for it. This is because people want their music really cheap. I have a 40 gig ipod that filled up a long time ago. That’s over 10,000 songs even if you charged say 10 cents a song that’s 1,000 bucks. Plus this will never happen because the statutory minimum for songwriters’ royalties is nine cents per song for hard copies (that includes mp3s). This isn’t going to change anytime soon. There are too many different songwriters and publishers and they are not organized enough to engage in any collective bargaining. Sure you have ASCAP and BMI but they’re really just collection agencies and have no real sway over their publishers.
If reducing prices won’t work then the only viable option is subscription. The problem is; subscription sucks. But what if you could improve it? What you could make it so good that everyone would want it? If you can have any song, anytime, anywhere then who cares whether or not you actually have a copy on a physical drive?
Advances in technology are now making this dream possible. One of these is the inevitable universal access to wireless and or wi fi internet. Wireless internet will soon be accessible anywhere on the planet much as cell phone access is becoming universal. With this in mind a new kind of subscription service can provide music to consumers with everything they want at a modest price. With wireless internet everywhere on the planet there is no reason why people could not access a subscription service directly from their portable devices. Call it device direct subscription. This is a variation of the so called ‘heavenly jukebox,’ an idea that has been floating around the music industry for a few years now. With device direct subscription subscribers could access a subscription service not only from their computers but directly from any portable devices that they authorize as well, just as itunes currently allows users to authorize up to five computers to play music on a single account. Likewise subscribers to device direct subscription could authorize several portable devices to access the subscription service via their account. Direct device subscription would be extremely appealing to consumers because it would provide the subscriber with the complete freedom to listen to any song anywhere anytime. This freedom would have tremendous appeal. For example say a subscriber is driving in their car with a friend and this friend tells the subscriber about some great new band or song. Instead of having to go home and look the artist up on a computer the subscriber could instantly listen to the song on their portable device.

The iPhone boasts a format where it is easy to quickly find music anywhere in the vast itunes store. Likewise a direct subscription device could incorporate a format where users could quickly search for music on the subscription service. The portable devices could also allow users to construct playlists that can automatically pull songs from their locations on the subscription site. This will give subscribers easy access to the music they like so they don’t have to search for their favorite songs every time.

Another appealing feature of such a subscription service is the possibility of combining it with a custom internet radio service similar to Pandora. Here, however, there would be the added advantage that users could instantly add the songs that they like to a playlist and listen to them at anytime.

One problem with current subscription models is that if a user wants to enjoy the service on a portable device the user must use a tethered download that will self destruct if the service is ever cancelled. Tethered downloads are unappealing because they make the subscriber feel as if they are being held hostage by the subscription service. If a user ever cancels the service, the songs are wiped clean and they have to take all of the time to re-download each one. With device direct subscription there is no need for tethered downloads because the subscriber will be able to access all the music on the service instantly and directly from portable devices. This way, users won’t feel as if they will loose their property if they cancel because they haven’t spent time downloading songs.

Device direct subscription will make royalties easy to calculate fairly. Because no copy is made, mechanicals (the statotry rate of 9 cents per copy made of a song) will be replaced by royalties. This will also help keep costs down. Because there are no downloads the service can instantly keep track of exactly how many times a song is listened to. One way to calculate royalties would be to get the service, labels, and publishers, to agree on a percentage of the subscription revenues that will go to each group and then to divide those percentages among the various labels and publishers in proportion to how many times their songs were played. For example the total revenues from subscription fees could be divided into three pools (i.e. 33% for the service, 33% for the labels, and 33% for the publishers). Each label and publisher would get a pro-rata share of their respective pool depending on how often their music is played. Of course some artists and labels will not put their music on the service. This poses a problem for users who will want to have the ability to listen to these artists as well. To solve this problem the devices should have some storage space where songs can be ripped from cd’s or downloaded from other sources. For example if the Beatles don’t post their music on the site I can still download Revolver to my portable device an listen to it along with all the music provided by the service whenever I want. This way, subscribers will not feel that they are limited to a set of songs. This will have the added effect of incentiveising artists and labels to join the service because if their music is not available to the subscribers for free many may be temped to obtain those tracks illegally.

Device direct subscription is a format in which the album can survive. Currently with internet downloads people don’t buy or even steal albums they download the songs they like. With a subscription service, listening to other songs on an album requires no purchase and no download time or disk space. As a result people will be more likely to give the other songs on an album a listen if they like one or more of the songs from the artist. This would allow artist and labels to generate additional royalties by posting entire albums on the service.

Device direct subscription will get money in back in the hands of artists, labels, and publishers. 100 million subscriber paying ten or fifteen dollars a month would generate a large enough pool divide up and keep everyone paid. Instead of a few people buying cd’s many will listen to an artist’s tracks because they can do so for free once they’ve paid the subscription fee. Labels will still market artists because increasing interest will boost subscription and result in more listening of their songs. This will result in a larger portion of the pie for those labels and artists that successfully market their music. Device direct subscription is attractive enough that consumers will be willing to pay for it. P2P downloading takes time and carries with it the risk of viruses and prosecution. Subscription, on the other hand, is safe and takes little time because there is no downloading. Right now the paradigm is ownership. Listeners like to own their music because ownership gives them the freedom to listen music any time. With device direct subscription there is no longer any need for ownership because listeners will enjoy the same freedoms that come from ownership with the added benefit of a virtually infinite music library.

Come on, don’t you want one?


Jerkolas said...

The music industry is in desperate need of some fixes. Fortunately rock reached perfection by 1974 - it's a scientific fact - and I all ready have all that stuff so I no longer need to be much of a consumer. Still I think you should use that lawyer talk of yours to bring back the glory days of Kazaa.

SGarff said...

Well I guess I can’t argue with a scientist about scientific facts and I won’t ague with Homer Simpson either. 74 certainly was a good year. You had David Bowie’s Diamond Dogs, New York Dolls’ Too Much Too Soon, Queen’s Sheer Heart Attack, Neil Young’s On the Beach, Rolling Stones’ It's Only Rock 'n' Roll, and don’t forget Donny and Marie Osmond’s I'm Leaving It All Up To You. Kazaa is dead R.I.P. Bit torrent and other P2P file sharing systems will all die as well the instant the music industry gets with it and offers consumers what they want. Fortunately there is a really good used and discount CD store in Hollywood (see my June 13 post) so I can get my audio addiction satisfied relatively cheaply.