THE FUTURIST Cover Story, November-December 2003
Online Music: The Sound of Success
The online music industry is turning the traditional music
industry on its head.
By Eric Garland
A strange thing is happening in the music industry: The Record Industry
Association of America, the chief lobby group of major recording labels in the United
States, is filing hundreds of lawsuits against avid music lovers. The reason? These music
lovers--specifically, those who swap downloaded music files instead of buying CDs--violate
copyright laws.
Of course, they also pose a major threat to the record industry's
business model. But with 57 million (and counting) Americans already using music
file-sharing services such as Kazaa, Morpheus, and Grokster, the business model of pushing
plastic may soon be obsolete.
Through the evolution of technology, music today is both a service,
provided by musicians, radios, or computers on the spot, and a hard good, shipped around
the world in the form of plastic discs. In the future, wireless broadband Internet will
make music into nearly a pure service industry. Hard goods will rarely be invited to the
party when consumers can purchase the service of music either directly from the artist or
from virtual record companies. These new business models will allow consumers to buy the
experience of music wherever they are, bypassing expensive middlemen, supporting creative
artists, and likely increasing profitability both for the musician and their record
labels.
As wireless communications, recording, digital funds transfer, and other
technologies progress, it will be easier and less costly for musicians to reach their
audience. During the transition this will scare record company executives and copyright
lawyers, give hope to struggling musicians, and delight music lovers with more choice and
lower prices.
Technology Outsmarts Record Companies
The way most record contracts are set up, musicians only receive payment after every link
in the supply chain has extracted its wage. To sell an album on CD, the master disc is
pressed into thousands, if not millions, of plastic cases, loaded on trucks, coordinated
at massive music warehouses, then trucked to local stores, unloaded, shelved by stock
clerks, chosen by customers, and finally rung up by a cashier. Every person paid in that
chain makes money that did not go to support musical creativity. With new information
technology and economic pressure, however, consumers are increasingly bypassing these
extraneous costs with MP3s.
The MP3, an electronic music file that delivers clear, lifelike sound at
a high rate of data compression, is the first of several technologies to shake up the
music industry. MP3s make it possible to transmit and store music cheaply--and the music
is often free to copy. This file format is exceptional because it can deliver the service
of music without the supply chain that goes along with the hard good.
The success of the MP3, however, goes hand in hand with greater digital
storage, including hard drives and RAM, and Internet bandwidth--technologies that have
been disruptive for the music industry. Hard drives and Internet connections have been
around for years, but until recently, CDs were the most efficient way to deliver music to
the consumer. In 1995, to download an album over telephone lines would have taken many
hours, and the files would have overwhelmed the average consumer hard drive. These
restraints have been overcome by the sophistication of today's device.
Now that digital storage has reached a tipping point, small,
easy-to-copy audio files can be trafficked easily between consumers. There is no longer a
need to store recorded music on plastic discs that must be mass produced, trucked to
distribution centers, and delivered to retailers. It is becoming impossible to justify
charging $18 for a compact disc when much of the expense is from an infrastructure
designed to push plastic. And MP3 swappers aren't the only ones to recognize it.
(Excerpted from THE FUTURIST, November-December 2003. Click to order.)
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