Music marketing in throes of digital transformation

By CURTIS ROSS
MEDIA GENERAL NEWS SERVICE
Published: May 5, 2008

If the MP3 was a shot across the music industry’s bow, Radiohead’s “In Rainbows” may have been the torpedo that sank the ship.
The English art-rock quintet initially released its latest album as a pay-what-you-want download.
The set-your-own-price angle captured the most headlines, but the secondary story was more important.

TRACK DOWNLOADS

•2008: YTD 341.2 million
•2007: YTD 265.6 million
(Jan. 1-April 29)

ALBUM SALES

•2008: 127.4 million
•2007: 143.9 million
(Jan. 1-April 29)

As the old TV pitch used to go, Radiohead cut out the middleman and brought the savings to you. A major rock band put out a new album sans record industry.
“In Rainbows” was the result of seismic changes in the technology and economics of the music business.
Fans cheered. The recording industry shuddered. Some other artists followed suit.

Where does it go from here?
Radiohead took a step back from its great leap forward, eventually releasing “In Rainbows” as a conventional CD and making it available through commercial download sites such as iTunes and Amazon.
But even if Radiohead releases its next album on wax cylinder, the business and distribution models have been changed for good.
The consumer has the most to gain.
For the music consumer, “It’s a fabulous time,” said Bryan Zisk of the Future of Music Coalition, which studies the legal and technological aspects of new music media.
“Prices are coming down. There are direct connections between artists and consumers. And you can get it in more ways than ever,” he said.
Future technological advances could mean higher digital fidelity.
“We use MP3 now, but as storage capacity gets greater and greater, we’ll be able to use larger files that sound better,” Zisk said.
“We’ve seen iPods get smaller and smaller,” he said. “One day they’ll show up attached to people’s glasses. Not to get too sci-fi, but we already see people walking around with those USB devices on their ear. Music will come to you however it makes the most sense.
“The format will become less and less relevant,” Zisk said. “The story is the direct connection between musicians and fans.”

A New Arrangement
Getting a record label contract was the traditional goal of a young band. The label provided money for recording an album, which it then manufactured, promoted and distributed. For the band to make money, it had to sell enough copies to pay back the label’s investment first.
The arrangement obviously favored the industry. Recording an album required more money than most bands could afford, and even if they could, the manufacturing and promoting costs were far too steep.
Digital technology changed that.
There are programs to turn laptops into recording studios. With MySpace and other networking sites, bands can post MP3s to a potential audience of millions. By networking with other bands, they can attract new fans.
“Increasingly there are artists who make their living playing live,” said Dave Marsh, a veteran music critic who has written for Creem, Rolling Stone and Playboy. “For those performers, the Internet is radio.”
Fans sign up for e-mail lists and are notified about tours and new releases. Music can be sold directly from the band’s Web site, either by download or on CD.
Assuming they bother making a CD.

CDs Down For The Count
Compact discs still are more popular than download albums by a wide margin, although the gap has been shrinking each year.
“I really wasn’t concerned with loss of sales because Radiohead is the kind of band whose fans want the physical album as well,” said Lee Wolfson, owner of independent Tampa music shop Vinyl Fever. “I knew we’d sell plenty of the CDs when it became available.”
“Downloading is a point of reference,” said Steve Crace, buyer and manager for the three-store Sound Exchange chain. He compares downloading to “the way we used to make a cassette copy of a friend’s album. We still want the physical product.”
CDs are plentiful at the Fever and the Exchange stores in North Tampa, Brandon and Pinellas Park. But Vinyl Fever also carries plenty of other products - from turntables to DVDs to action figures, and a decent amount of Sound Exchange’s shelf space is given over to DVDs.
“The CD is dead and gone,” said Nancy Miller, senior editor for Wired. “At a certain point record companies are going to have to go with what is the cheapest way of distribution, and that’s digital.”
That’s if those record companies hang on long enough.
The industry blames illegal downloading for its woes. Others say the industry should blame itself.
“The industry is totally out of touch with the generation it’s ostensibly catering to,” Miller said.

Doing Business Differently
The recording industry has had the same reaction to new technology since the days of radio: Kill it.
“Record sales collapsed because of radio. It took a generation for the record industry to come back and use radio as ally and not enemy,” said Steve Greenberg, head of the S-Curve label.
In the ‘80s, the industry called home-taping the enemy and tried to get taxes levied on blank cassettes. When MP3 technology began to boom a decade ago, the industry was caught flat-footed and instead of trying to catch up, tried to shut it down.
It’s a pattern repeated over and over. The Recording Industry Association of America, the legal and lobbying arm of the major labels, has gone after MySpace and You Tube despite the promotional abilities of both.
“The recording industry had a chance to use the Internet as new radio and control it, but they would have had to treat it like radio and not like a criminal activity,” says Marsh, who runs Rock & Rap Confidential, a newsletter and Web site with a focus on social, legal and political issues pertaining to music.
“I think there can be a legitimate debate about how quickly there was a legitimate online store,” said Jonathan Lamy of the RIAA. “What is clear is that record companies now fully embrace every digital model. Whatever the history, the current mentality within record companies is one of complete embrace of all legitimate music business models they can find.”
Rock & Rap has been particularly vigilant in tracking the RIAA’s attempts to combat file-sharing, which now takes the form of lawsuits against individual users. The lawsuits often target students or the non-Web savvy guardians of young computer users.
“You don’t think they want to sue somebody who’d want to hire a lawyer?” asked Marsh hypothetically. “They have a protection racket going on more or less. Basically it’s, ‘If you settle we won’t bankrupt you,’ and if you’re poor enough or uneducated enough they make a quick score.”
The RIAA shrugs off such criticism.
“We went into this exercise recognizing full well that it was a form of tough love and that it would not always be popular,” Lamy said. “There needs to be a message that breaking the law carried consequences.”
The suits are a drop in the bucket. Eric Garland of Web consultants Big Champagne told Reuters more than 1 billion digital tracks are illegally traded monthly, while the iTunes Music Store sold just over 2 billion downloads total in its first three years.
File-sharing isn’t going away. Even the RIAA knows it.
“We’re not going to eliminate that,” Lamy said. “That’s unrealistic.”
But while the industry battles illegal downloading, the death blow may come from artists such as Radiohead and Nine Inch Nails, who have found they can do business without the music business.
“It’s an enormous sea change, and the industry has never been good at being ahead of those curves,” said Jonathan Cohen, a senior editor at Billboard. “It doesn’t spell good things for the way things used to be done. I think consumers are speaking with their wallets that they want their music in a different way.”