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The Future of Recorded Music

Wednesday, 03 February 2010 02:20 Andy B

A comment/prediction on the future of recorded music. The file-sharing wars highlight a fundamental question - what is the best way to incentivize artists to create music and to distribute that music to consumers. I don't think the current model is it.

Basically, right now record labels sign artists to contracts and pay them large amounts of money up front. Most of the artists they sign will not make back the money they have been paid, so the few that do "make it" are leveraged like crazy to make up for everyone else that loses money. Artists make almost no money from record sales - they were paid up front and until the record companies make that back, they get essentially nothing.

Contrary to a lot of the rhetoric, I don't think that the *music* industry lives or dies with the *recording* industry. The recording industry is but one part of the music ecosystem and the functions provided by record companies can be provided by someone else. Those functions are - more or less - artist discovery, recording, marketing, and distribution.

Recently, we have started to see viable alternatives to record labels emerge and artists taking risks to explore them. There are several successful examples I can think of off the top of my head including the Radiohead (buy my album for what you think it is worth - even 0), Jill Sobule (fan-funded albums), Artist Share (more fan-funding), Josh Freese (selling "access" - e.g. $20,000 to hang out for a week), etc... There is no one "magic" business model that will work for everyone, but there are plenty of ways to make money that don't require selling music.

This is my (somewhat lengthy) prediction for what we are going to see in the music industry over the next 5-10 years. It may not be exact, but I honestly expect something like this to happen: (click read more to see it)

Why Three Strikes is Dangerous

Monday, 01 February 2010 22:54 Andy B

News today regarding a grandmother threatened and disconnected from her ISP. With no due process or anyone to ensure that accusations are legit, there is a danger in enacting three strikes policies.

It will not take too many of these before US ISPs start to back off from agreements they may have made with content rights-holders. The PR is just not worth the marginal benefits to ISPs. For Three Strikes opponents (like me) it is probably good that these issues are cropping up before a law is passed to require it like we are seeing in France and the UK. It will not take many grandmothers or single mothers with home businesses as their primary livelihood getting disconnected to scare away legislators.

Video Game DRM - The Definition of Insanity?

Friday, 29 January 2010 01:56 Andy B

One of the things that I have never quite understood is the obsession video game companies have with oppressive DRM schemes. Has there ever been a DRM "solution" that has not been cracked? Not to my knowledge. Game companies dump large sums of money into making games more difficult to play and often introducing security holes or otherwise compromising the stability of the consumer's system.

There is certainly piracy of video games. However, DRM doesn't stop it. Serious pirates will still crack the protection and download games. Law abiding citizens don't pirate and wouldn't with or without it. There is certainly a subset of people who DRM stops from using unauthorized copies of games, but how big is that subset?

I have not seen any data on this, but when costs of developing, implementing, and supporting DRM issues are compared to the lost sales from "casual pirates" not using DRM, does DRM make business sense? Again, I have no data, but it seems unlikely.

Now we have word that Ubisoft is taking DRM one step further. No details on titles or timing, but the company announced this week that they would begin requiring PC games to "phone home" every time the application is run. Ubisoft has one a history of DRM blunders, and this may prove to be the worst.

Ubisoft rep Brent Wilkinson said "We think most people are going to be fine with it. Most people are always connected to an Internet connection." Yeah... most people. But what about the rest? What happens when your cable modem goes on the fritz and it takes a week to get Comcast out to fix it? What happens when you take your laptop on a trip and want to play on an airplane? Maybe it won't affect most people, but those that it does are lost sales that go on top of the expenses of implementing and supporting the DRM scheme. DRM kept me from buying Spore and it will keep me from buying anything Ubisoft slaps this poorly thought-out DRM on.

Ars Technica sums it up best:

"This is fine," one self-professed pirate told Ars. "I only have to access the Internet once to get Ubisoft games. You're the ones paying for a broken copy."

Why do companies think it is profitable to be anti-consumer? Make a product people value and make purchasing a legit copy worth more than pirating it and you have no need for the costs and headaches of Ubisoft.

Three Strikes and the Evolution of File Sharing

Friday, 29 January 2010 03:38 Andy B

The 2010 State of the Net conference was Wednesday in DC. One of the panels was on the "Three Strikes" laws that are being proposed and enacted in several countries around the world. The panelists mostly debated due process concerns (there really isn't any - bare accusations are probably enough to get your account shut off) against the benefits of a temporary Internet disruption over lawsuits.

What the record companies and other content types don't seem to get is that file sharing evolves with the landscape and overcomes any obstacles.

First there was Napster. Napster was a centralized file sharing service and an easy target for a lawsuit. It became obvious that a centralized model was not feasible.
In response to Napster (and the "paint by numbers" guide given by the Ninth Circuit) Grokster and several similar networks popped up with a much more decentralized purpose. While legal under the Napster case law, the Supreme Court created "inducement" to extend liability to these decentralized networks.
In response to Grokster BitTorrent further decentralized file sharing. With the ability to set up many different trackers and quite a bit of potential for legitimate uses, while certain sites may fall under Grokster it is unlikely that the technology itself will be found illegal.

So, we are at a point where the technology has evolved as necessary to evade legal obstacles. The RIAA and IFPI suggest three-strikes as an effective way to avoid lawsuits and lower piracy. Why would this be anything other than another obstacle to be overcome?

This is the way I see it, one of two things will happen if three-strikes is widely implemented. If it is a failure - the system ends up too expensive or otherwise inadministrable - nothing changes. On the other hand, if it works, a new generation of file sharing software will be born that allows anonymous and secure piracy. It has happened before, it is naive to think it won't happen again.

Anonymous networks are out there - the technology exists. Up to this point, there hasn't been sufficient motivation to drive the adoption of anonymous file sharing networks. If three-strikes is as successful as the recording industry hopes, that will change.

So what does this all mean? Is piracy inevitable? What can be done to stop it? I don't think it will ever be "stopped." Counterfeit operations have been going on for centuries and aren't likely to magically stop now. A better approach might be to adopt business models that rely on scarce goods that are more difficult to counterfeit - live shows, access, fan-funded albums. Bands are starting to learn how to do this - many with quite a bit of success.

Piracy will never be eliminated but it can be leveraged as part of a larger business model. There is probably no single model that will work for everyone, but when has that ever been true? The traditional model certainly works better for some than others, and new ways of making a living off music should be no different.

Should We Care if the Recording Industry Survives?

Thursday, 28 January 2010 02:56 Andy B

According to industry groups, piracy has the music industry on the brink of extinction. The IFPI's (International RIAA) Digital Music Report 2010 labels digital piracy as "Climate Change for All Creative Industries" and asserts that piracy is stronger than ever.

Some quotes from the report:

“What I worry about is that we are heading into a world where copyright has no value and where there’s no incentive for anyone to provide patronage and support for the creators of intellectual property.” Simon Renshaw, Los Angeles-based manager of a long list of major artists including the Dixie Chicks. (p.20)

“We have to find a way of funding our future and not pretend that new revenue models are magically going to rescue us as the world of recorded music is destroyed by piracy .” Björn Ulvaeus, singer-songwriter, formerly of ABBA

Assuming for argument's sake they are correct should we care about the survival of the recording industry?

I do mean this as a serious question, not just anti-big music rhetoric.

Note the question asks about the recording industry and not the music industry, which is an important distinction. The basis of this question is a chart I came across a while back, indicating that total artist revenues are up despite drops in recorded music sales. The heart of the question is the role traditionally played by recording studios and whether they are necessary to the music industry of the future.

The traditional role of recording companies has been primarily to 1) discover talent, 2) record, produce, manufacture, and distribute physical albums, and 3) market artists. Are these services needed?

All three of these can be cheaply replaced by the Internet and social networking. Talent can self-promote until they reach success. Albums can be created with a laptop and $1,000 worth of mics and digital audio gear. Artists can use peer-to-peer networks, websites, Facebook, Twitter, and whatever the next big thing is to connect with fans and build a following in ways unimaginable a decade ago. The Arctic Monkeys are Exhibit A.

If record companies insist that their business models be adhered to and the market changes to them (through copyright laws and "education") why should we care if they die? Music will survive and succeed without them. Musicians will survive and succeed without them. If record companies cannot provide valuable services to artists in the 21st century (and they haven't yet) why should we care if they go out of business? It seems like fretting of the demise of buggy whip makers.

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