If you you’re not aware of the changes happening in the music industry you’re probably living in a cave, or you forgot to pay the internet bill. It seems like every time I read about music there is a mention of revenue loss. 2007 is finally over and the analysts are on a numbers frenzy to show us what’s really happening, why the music industry is struggling and why we should all pace ourselves for new business and consumer models.
The Problem: Digital vs. CDs
‘The problem is not that consumers aren't buying digital music. Indeed, digital track sales grew by 45% last year, according to the Nielsen SoundScan "2007 Year-End Music Industry Report."
Yet digital music sales are not making up for a CD sales slump, and online music consumption will have to be far more widespread than it is today to do so.’ Emarketer.com
And indeed so, with everyone trying to get a bigger bite out of the digital pie and Amazon’s groundbreaking efforts to free us all of DRM and support independent artists in the process, I’m sure the future will hold amazing things for the digital revolution.
‘US recording industry revenue fell by $11 billion at year-end 2006, down 25% from a 1999 peak of $14.6 billion, according to Yankee Group's "US Digital Music Forecast: What Fate Awaits the Record Labels?" report.
Yankee Group said the rise of digital music will compensate slightly for this loss, reaching $5.34 billion by 2012, up from $1.98 billion at the end of 2007.’ Emarketer.com.
Half Way There: The Fans Determine the Price
Yes, yes, I know, Radiohead gave their album away for free. Well I paid 5 pounds for it. It was definitely a nice marketing trick and I’m sure we’ll see many more of these in the coming year. But let’s all remember that it only works if you’re Radiohead. All you indie artists out there dreaming that your fans will pay if offered a choice, they probably won’t. Your closest friends would, but they would have bought it anyways.
Trent Reznor was shocked to learn that only 18.3% of users when offered a chance to download the new album from Saul Williams for free really paid the 5$ to support the artist. Bottom line, he lost money. Even the Radiohead album found its way to P2P networks, with record breaking download numbers...what does this mean, all the music fans are on BitTorrent?! Hmmm…
The Solution: Flat Rate Music / Music tax
Media futurist, Gerd Leonard, proves everyone wrong by explaining what the benefits of a flat rate business model are. He outlines that music consumption has actually risen lately but in the same time consumer spending dropped. It’s just a matter of finding the economical equilibrium that makes it work and profitable for both sides.
Did someone say ‘Music Tax’? Well, this is the topic everyone is discussing.
Michael Arrington from the famous Technology blog, TechCrunch, has decided that years of blogging about new startups and technologies have now earned him the seat in the music 2.0 panel. He advises us all not to invest our time innovating new music models and ideas because the industry has only a few years left. He talks of music innovation in this new music tax era and explains why it’s not sustainable and why the labels will come knocking on everyone’s door again and again requesting a higher tax. I know that in some European countries there’s a TV broadcasting tax, and I also know it’s something that belongs in the 70’s and is not working. Billions were spent on claiming these taxes from people who don’t even watch TV and don’t really understand why they should be paying taxes when they pay a monthly fee to their cable providers for the channels they actually view.
Here’s the basic idea: Internet service providers, the guys you pay for your internet connection, will tax all users worldwide a monthly and in return users can listen to as much music as they wish.
Gerd Leonard comments on Arrington’s view of the flat fee model music tax:
“Michael, you just don’t get it and I wish you would stop just ranting on this issue of the flat-rate while lacking the understanding of this space. A flat rate for for digital music (NOT a tax or some sort of ISP penalty - but a blanket license that is offered to anyone that wants it) is the best thing that can possibly happen to artists and consumers alike. It creates HUGE incentives to get and retain attention on digital networks (as well as in real life aka concerts), since every click on a web / mobile site could and would result in your music being used (streamed or downloaded) which would translate directly into garnering more ad more pieces to this new ‘pool of money’. And yes, the artists want to get paid - imagine that!”
I believe a monthly subscription fee for music is the right model, at least the current one for the undecided consumer that doesn’t really see the need in paying 1$ for a song he can easily grab on eMule or Kazaa. I know a lot of people who’d be more than happy to fork over a few bucks a month to get unlimited music in their lives. That being said - no DRM, no strings, no “sorry this service is for US residents only” and no “we couldn’t find this artist may we suggest artist X”, no you may not, I want to listen to Neil Young not Wilco!
And then there was Qtrax
Biggest thing on the net lately is the almost launch of ad based free download service Qtrax. I recently attended MIDEM the world’s largest music conference/trade show in Cannes, France and everyone was raving about this new service that was supposed to launch that very week.
From rumors and internet chatter I understand that Qtrax said they have all four major labels on board and are ready to launch the largest free ad supported software in the world. But soon the press releases started coming in with rumors that Qtrax were unable to launch because Warner Music pulled back from the agreement and said they won’t support the service and very soon after the remaining three majors followed.
The majors said that they talked with Qtraax about a subscription model not an ad supported rev share model.
For now, Qtrax has launched and they are reporting high levels of traffic (number 2 on Alexa) and are confident in their product and their “existing music library”, although it does not consist of the majors just yet.
If Qtrax manages to get all four majors on board and allow users worldwide (currently not supporting all countries), DRM free, to use their service it might just be the solution we’ve all been yearning for.
More charts from Emarketer.com
Worldwide Record Sales: