Introduction
On our page entitled "New Model," we detail how the music business used to work and how it works now. It's not a pretty picture. Artists are basically making albums and selling 1 for every 5 or 10 or 20 (depending on whose stats you use) stolen. The exact "giveaway ratio" is not critical, what is critical is what this new model is doing to the music industry and the people who work in it. The graph below tells the story as do the pages we created here and here.
What we want to talk about on this page though is where do we go from here? What is the future of music? Many people focus on the conversion of music into digital files on the internet as the paradigm shift and no doubt that is the case. But, the real effect of this in our view is the transformation of the music distribution model.
The Old Music Distribution Model
The "old" recorded music distribution system was simple: label to distributor, distributor to record store, record store to consumer. With the bankruptcy of Tower Records and many other retail record chains, that model has been crumbling for years. Part and parcel of that old system was that the record companies set the prices at which each individual album (or the rare single) was sold. They also had total control over whether a single was offered (and they mostly weren't).
The new distribution system is fractured into many pieces. The remnants of the old system are lingering on. The iTunes model is of course labels to Apple and Apple, via iTunes via ISPs to consumer. In the iTunes model, iTunes has negotiated a simple, fairly flat rate structure with the record companies. So, fundamentally, the record companies have little control over individual pricing of their products (and they hate that!!!). They do have the right to sell only an album and not a single (as Kid Rock famously did with his album containing the massive hit single "All Summer Long").
The new distribution model also of course involves illegal downloading. In that model, somebody gets a copy of a song, either through a promo copy or a legitimate CD purchase, or they stole it over the internet, or whatever and they "share" it over the internet in any number of ways: bittorent, usenet group, etc. In this mode, like the iTunes model, all "transactions" take place through ISPs.
The Future - The ISP Will Be The New Music Delivery System
What we all (artists, labels, songwriters, policy makers, industry trade groups, and the internet service providers) need to be focused on is that the old system will, for all intents and purposes, completely die out in the next decade.
Moreover, we need to focus on the fact that the ISP will be the new delivery system: whether via legal services like iTunes or piratical activities.
So, if music labels want to maintain control over their product, they have two choices:
- Work with the ISPs
- Buy the ISPs
The latter certainly is not going to happen. ISPs, which are for the large part, part of telcos, have combined industry revenue (U.S.) in the $40 billion per year range1 whereas the U.S. music industry's revenue is in the $6 billion range2.
In fact, it is more likely that the ISPs wil buy the record companies. Don't be surprised to see some of that. Actually, we view this as a potentially positive scenario. Once ISPs are content owners, we suspect their sensitivity to protecting that content will be greatly enhanced.
