Well, I don't understand the particulars - I'll have to read it again... But it sounds positive and intriguing. Anyway, this is a good general audience piece that just came out in Businessweek.
Also, here is a more technical piece some people may not have read yet. It is a little dated but I still basically agree with it:
byte.com
Business Week: June 28, 1999
Entertainment
Commentary: Are Music Companies Blinded by Fright?
David Bowie had lots of company when he entered a New York studio on May 24. Fans around the world watched and listened over the Internet as the rock star recorded a new song, What's Really Happening. It's an apt title, for the Net gives musicians a way to reach fans directly, bypassing the major record companies' lock on distribution.
Events such as Bowie's and the wildfire growth of pirated music being distributed online, have record companies running scared to sell music in a secure fashion over the Net by Christmas. There's just one problem: The industry is pushing a backward-looking scheme that limits the ways consumers can use downloaded music, potentially stunting the new medium's development. By promoting a plan that runs counter to the Net's open nature, the proposal could backfire and record companies could wind up losing more time to rivals.
BOTHERSOME RULE. Instead, record companies should focus on understanding the Net better and on harnessing its potential. For starters, less rigid rules would help propel the record companies into the online music business. And to squeeze the most out of the Web, the industry would be wise to develop new electronic revenue streams--such as charging for events like Bowie's cybercast or making catalogs of old music that might not have had enough demand in the past to warrant distribution through stores.
The industry's plan is called the Secure Digital Music Initiative (SDMI). It's a complex scheme that envisions phasing in a sprawling system to monitor distribution online. The Big Five record companies (Universal Music, BMG Music, Sony Entertainment, EMI Group, and Warner Music Group), with about 80% of the $38.7 billion global industry, back the SDMI. Although details won't be finalized until June 30 and the system won't be fully in place until next year, its framework is beginning to take shape.
At its heart is a bothersome requirement that listeners who try to copy a music file must first get permission. Making a personal copy may be no more complicated than now. But when trying to send music over the Web, the software used will probably require an authorization from a clearinghouse of central server computers run either by record labels or by tech companies such as IBM. A fan who gets permission to download one song, for instance, may not be able to send it from one home computer to another, even though taping for personal use is legal in the U.S. What's more, a song stored on a floppy disk may not be playable on any other device except the one on which it was originally recorded.
That's likely to chafe ''the average American, and more so the average Asian, who thinks it's a God-given right to copy something,'' says Richard Doherty, director of research at the Envisioneering Group, a testing-and-research firm in Seaford, N.Y. Leonardo Chiariglione, executive director of the SDMI, concedes the system will limit consumers' options, but he says they won't lose any rights. He insists that by controlling digital recording, the industry is trying to keep a lid on piracy.
The fear of rampant piracy is justifiable, but record companies are wrong if they think they can dictate the way consumers use music. Although the practice of digitally distributing music is new, it's already second nature for the younger generation of listeners. Around the country, college students are filling their PC hard drives with songs plucked off the Net for free. Most of the music is pirated and stored as an MP3 file, a seven-year-old digital audio compression format with near-CD quality. Tens of millions of people use MP3 players, and MP3 has replaced ''sex'' as the term that is most commonly searched on the Internet, according to searchterms.com, a Web site that ranks search words.
RAMPANT PIRACY. But through the SDMI, the industry is seeking naively to extend its distribution dominance into the Internet. The Net is a small but growing part of a piracy problem that last year cost about $10 billion worldwide in lost sales, says the International Federation of the Phonographic Industry. The SDMI scheme will do little to thwart the pros who do the biggest damage, and it will inconvenience millions of music fans, most of whom are honest. ''It's not about piracy but about inserting a licensing model into the digital music industry while it's very young and shapeable,'' says one executive of an independent online label.
By being defensive, the major record companies have already ceded first-mover advantage to a host of Net upstarts. Just as the film studios lost the distribution market for videos to the Blockbusters of the world, they're losing the chance to control the online music space. This year, major Internet portals such as Yahoo! Inc. and America Online Inc., the largest online service, have made massive investments to acquire companies that specialize in music and audio on the Web. This will spread music technology to millions of new customers and position the portals as major music distributors. Music industry veterans are getting into the act, too. Former Capital Records co-President Gary Gersh, former MCA Music and CBS Records boss Al Teller, and superagent Michael Ovitz, have announced separate deals to start online music companies. ''This is almost like the beginning of a new record business,'' says Gersh.
Indeed, the heavy-handed approach of the SDMI has little chance of reversing that and extending the distribution clout of old record companies into cyberspace. In the past, complex schemes for monitoring consumer transactions have collapsed under their own bureaucratic weight. Take the Secure Electronic Transaction standard, announced in February, 1996, and finally published in May, 1997. Designed by Visa, Microsoft, MasterCard, and a host of other companies to be a bulletproof system of handling credit-card transactions, the encryption system proved complicated and took longer than expected to develop. In its absence, Secure Sockets Layer, an existing technology that was considered less secure, has taken hold.
''TRAMPLED.'' The SDMI may face a similar fate. The Big Five have lost control over much of their catalog--the billions of CDs already released that aren't protected. Using MP3, those CDs can be copied without restriction. Coupled with smart recording devices that store thousands of hours of music, fans will have giant libraries at their fingertips ''The SDMI will be trampled by technology before the year is out,'' says Doherty.
For sure, the Internet will push piracy to new levels. But the way to combat it is to attack the motivation. Part of the answer is lower prices that reflect savings in the cost of marketing music online. Digitally downloaded music requires no pressing plants and no costs for shipping and storing physical CDs.
Film studios were wrong to fear videocassettes, which now make up more than half of film industry revenues. Similarly, the record industry is foolish to focus more on the risks than the opportunities of the Web. The majors are challenged to focus more on marketing, offering music of different stripes for free or by subscription, with additional revenues drawn from advertising or merchandising.
David Bowie's fans already know this. More than 10,000 have paid to subscribe to his online community, gaining access to every record and video he has ever made and getting a chance to contribute lyrics for his next album. Rather than trying to extend the life of an antiquated business model, record company execs should learn the dance of a new one.
By Steven V. Brull
Copyright 1999 The McGraw-Hill Companies, Inc. All rights reserved. Any use is subject to (1) terms and conditions of this service and (2) rules stated under ''Read This First'' in the ''About Business Week'' area.
6/17/99 2:43 PM |
