It was over a decade ago when the major record labels began to worry about online piracy... They suddenly seem to realize that people illegally swapped music over peer-to-peer networks like Napster and later LimeWire. That wasn't the only problem at that point, either, although they were very slow to pick up on that small fact. Mostly in a panicked, knee jerk manner, their response to the piracy threat and the newer issue of sliding CD sales, music companies began to experiment with licensing their records to new online services. The original idea was that services like Imeem, Last.fm, and Pandora would let people listen to music on computers, mobile devices, and even home stereos. They in turn would collect small fees and advertising revenue that the services would potentially share with labels and artists. Music fans (they meant pirates) would be discouraged from stealing tunes, and the major labels like the Warner Music Group, Sony Music, Universal Music, and EMI—might even get a sales boost as listeners discovered new kinds of music.
Ah, and what a plan it was... the only problem is, things haven't quite worked out the way they envisioned. Many industry consultants say online music sites are being used by a growing number of listeners as a substitute for purchasing music, rather than serving as a catalyst for more purchases. Indeed, overall music sales have continued their years-long slide and in most genres, the decline has quickened. And while the money from digital download services like Apple iTunes and Amazon MP3 still grows at a strong pace, the music labels are not generating enough revenue to make up for the sharp decline in CD sales. Total industry sales were about $10 billion last year, down from $14 billion in 2000, according to the Recording Industry Association of America (RIAA). Even worse and more stressful is the fact that overall spending on music is forecast to shrink 4% through 2013, according to a recent report by Forrester Research.
What does this mean for the future of recorded music? In my humble opinion, by the year 2013 (maybe as early as 2011) it’ll make much more sense for the remaining labels to (finally) reorganize their business models around the reality created by the Internet and person to person (p2p) file sharing services. Most certainly by then, most or all artists will be under 360 music contracts (think Live Nation) that give the labels a cut of virtually every revenue stream artists can tap into - fan sites, concerts, merchandise, endorsement deals, and everything else, meaning these labels will no longer be tied to revenue limited to sales of master recordings.
So far though, precious little real money is actually changing hands. Check this out, for every 1,000 songs streamed at Lala, users pay the 99¢ download fee for only 72 of them. They pay 10¢ for only 108 out of 1,000. The remaining 820 songs are played for free. It doesn't take a math whiz to figure out that the labels need to do much more with this new business model to make it all work for everyone's benefit. Let's face it, the biggest labels still do have a lock on talent, and there’s currently no reason to believe that new artists won’t continue to strive to place themselves in to one of them. It is still a very rare day when the artist can navigate the murky waters of revenue streams and make the financially prudent decision on their own. It may still take a while for things to sort themselves out but sometime in the next decade we’ll most likely see a real renaissance in how music is distributed and consumed. Depending on the way things finally shake out, who knows, a decade after that we may have all forgiven the music labels for the way they treated us during the growing pains. (But, I doubt it...)
