How the music industry managed to screw itself so spectacularly

  • Author: Lauren
  • Lauren Fisher,

Okay, so the archaic nature of the music industry and the steadfast refusal to adapt to the changes brought about the internet may hardly be a new topic for discussion, but given recent events (namely MegaUpload being taken down), it is worth looking at how the music industry and record labels have reacted since the introduction of the internet.

What should have been a medium that allowed for cheaper distribution, new business models and an invigorated approach to discovering and nurturing talent has instead largely been somewhat of a hindrance to the major players, who seek to maintain the status quo and continue with the old way of doing business. Ultimately, this has been to their detriment as they're effectively competing with the groundswell of communities on the internet and in social media. But just how did the music industry screw itself so massively?

Ignored the benefits

The fact is that the digitisation of music and the arrival of the internet should have been a good thing for the music industry. Not only did it mean cheaper production, allowing labels to do away with expensive CDs and packaging, it also meant cheaper and more widespread distribution at 50 per cent of the cost of CDs. In 'What You Really Need To Know About The Internet', John Naughton gives a compressed history of digital audio, where he explains that when Napster came along in 1999, fans got a taste of the ease of downloading and sharing music. But the labels chose not to listen. Napster then spawned subsequent services - Limewire et al that far exceeded the rate at which the music industry was able to respond: positively or negatively.

Not only did the music industry fail to recognise the benefits afforded by the internet and sharing music online, they also spectacularly ignored the fact that this was exactly what fans wanted. They also failed to react at a time when they could have. When file sharing first started, it was restricted massively by the size of files and the speed of broadband to actually download these files. It was largely inaccessible to the populace, but had they predicted that the increase in appetite for instant music would occur alongside improving technology and broadband speeds, they could have got their houses in order to be ready when it did arrive.

What they have also seemingly consistently ignored is the appetite for music that the internet and social technologies has brought about. While the industry seems to focus on album sales as an indicator of the internet 'killing' music, this is the wrong place to focus. Indeed, album sales have been in steady  decline since 2000:

Yet digital music sales are not diminishing, as in 2011 digital music sales exceeded physical sales. And while total album sales (including physical and digital) grew by 1.3 per cent from 2010 to 2011, in digital album sales exclusively, there was a huge 19.5 per cent of growth. So the internet is not proving the threat the music industry is claiming it is, nor does it seem to be hampering profits in the way that they claim.

Capitalist models in a collective medium

Where the music industry seems to be failing most, is in the refusal to adapt their business models to reach the full revenue potential of the internet. The accusation leveled at MegaUpload was that it was causing losses of up to £300 million, through lost sales across creative industries. While there is a fair amount of contention around how that figure was reached and how the lost sales can really be attributed, the fact is that those in the creative industries are attempting to bring down those that they deem to be doing wrong by them, instead of looking at the revenue potential that might come by collaborating with sites like this.

The music industry is a greedy industry, led by capitalist motivations when all around it, its fans are embracing a collective medium that brings new opportunities not only in access to music but also through collaboration. Were the industry heads to adjust their capitalist motivations and accept that just might not be the way to do things any more, they may instead reach a new, better way.

Again, we can look to history to prove this lesson. While collaboration, interpretation or elaboration upon an existing work may ultimately be seen as detrimental to the original artist, we can see otherwise in the example of literature. In 1652, the philosopher John Locke kept a commonplace book in a library. This was essentially a public book where different people could make notes or record passages from works they were reading. It was essentially an early form of crowdsourcing. Yet it didn't lead to a compromise of the original works. Remixing has its place in creative industries for centuries. It hasn't led to the demise of them.

Happy to use social media for their own gains

What's interesting is that when you consider all the accusations and lawsuits brought about by music labels against social technologies, they seem perfectly happy to gain from it on their own terms. This can be seen perhaps most starkly in the case of 31 of the world's largest record labels, filing a lawsuit against TubeFire - which allowed people to easily download videos from Youtube. The site was removed and $3 million in damages were sought. Juxtapose this with the fact that Universal Music and Sony BMG are the two highest earners on Youtube and it seems we have an unfair game being played:

The labels are happy to use a social platform where they can easily generate revenue, but when a derivative of the site is launched, they bring out the heavies and have it removed. This is not the way social technologies function and it will surely ultimately be detrimental to the labels, as they are not playing the game in the right way, only taking and not providing, which is against the ecosystem of the internet and therefore not sustainable.

Failure to collaborate with social networks

When Facebook launched their Open Graph last year, a number of music partners were announced, including Spotify, Earbits, MOG and Slackr. When Facebook announced 60 new Open Graph apps this year, a number of music partners were announced, including Turntable.fm, Rhapsody and SoundCloud. On neither of these occasions was a record label on the list. Now of course while we can't know whether the labels sought this but were rejected by Facebook, it's hard to imagine Facebook turning down a collaboration opportunity with a major label.

The failure to work more openly with social networks or let's be honest, Facebook ,will impact the music industry massively. Not only have they effectively missed out on free advertising (how much of your timeline is now filled with links to songs your friends are playing?) but also on revenue. Opening up on Facebook did not cause the demise of Spotify. Of course not. It did the exact opposite and they are now benefiting from over four million more users.

A plug in the ocean

The music industry is screwing themselves over with the sheer impossibility of what they are trying to do. By filing complaints against sites that host or link to copyrighted material, instead of adapting their copyright policies or collaborating with the communities on there, they are entering a never-ending fight that will only seek to damage their reputation and continually force them to give users what they want. Shutting down Napster didn't kill music sharing online. Indeed digital sales (not free downloads) continue to rise. If the increase in free digital downloads is occurring alongside a rise in paid downloads, then the music industry is creating a problem that doesn't need to be there.

What they should instead be doing is focusing on new ways to offer content, that fits with user's desires. Take the fact that our time online is now at a premium as we face a barrage of content. Sure, there are a significant group of people that will happily stream or download content for free, slowly and sometimes at a poorer quality. But there is also a significant group, who value their time, that are willing to pay for access to the music that they want, in return for a speedier service.

Spotify certainly aren't having any trouble getting people to pay for their service, despite there being a free, ad-supported version available. Either way, Spotify is winning and generating revenue in a way that (the majority of) record labels won't do because they have instead focused their attentions on an impossible struggle.

The might of the community is simply too strong for the music industry, and they seem doomed to ignore this.

SonicAngel - doing it right

The problem, of course, is not consistent across the entire music industry with smaller, younger labels emerging or adapting to make the most of the benefits available within social media and also develop new business models at the same time. The Belgian record label Sonic Angel is a good example of this, though it's early days so the success of their model is yet to be proven. They are working with Massachussets Institute of Technology to develop tools that effectively scan the web for new talent, so doing away with heavy investment in A&rR that is often bandied about by record labels as needed to nurture talent and justify their stance against downloading.

Further to this, they are also implementing a model that relies on the crowd, as opposed to trying to fight against it. Fans are given the option to buy shares in the artists, as well as voting on content uploaded by artists themselves, which gives the record label deeper insight into what their fans actually want. And Sonic Angels are certainly not an isolated case, as other ventures such as CrowdBands are attempting to harness the collective to change the way music is found, funded and distributed.

This is exactly where the music industry needs to be headed. The simple fact remains that the old way of doing things no longer applies. And just as with every cultural or creative industry that has undergone a forced change through the evolution of technology, fear abounds. But just as these industries have undergone changes for hundreds of years that were initially seen as a threat, they didn't spell the end. Scribes hand-writing copies of books didn't kill literature, the printing press didn't kill literature, public libraries didn't kill literature, the internet didn't kill literature, ebooks didn't kill literature. None of the changes the music industry is undergoing means that it is a dying industry. Just that they may have to be less greedy and more amenable to change.

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