Pandora's box, continued

by Laura A. Siegel

"I've talked to many people who have MP3s who don't buy records at all anymore," says John Flansburgh of the band They Might Be Giants, confirming the industry's worst fears. "Why did people move from vinyl to CD?" adds Steve Curry of EMusic, a site that sells music downloads. "It was an easier way to listen and to manage and to enjoy your music collection, and downloadable music is the same way."

Going digital For a list of and links to more than 80 file-sharing programs: www.ultimateresourcesite.com/mp3/programs/main.htm For information on different file-sharing programs: zeropaid.com Gnutella: gnutella.wego.com Gnutella beginners' guide: music.zdnet.com/features/gnutella Furi (a Gnutella Java version for Mac users): www.jps.net/williamw/furi Freenet: freenet.sourceforge.net Spinfrenzy Exchange: www.spinfrenzy.com Scour Exchange: www.scour.com/Software/Scour_Exchange Napigator: www.napigator.com iMesh: www.imesh.com Filetopia: www.filetopia.com -- LS

You can find a study -- or three or four -- to prove either point. Peter S. Fader at the University of Pennsylvania's Wharton School found that more than 91 percent of Napster users buy at least as much music as they did before they used Napster, with 28 percent purchasing more. That leaves nine percent of Napster users buying less music. But the Field Research Corporation found that more than twice that number -- 22 percent of Napster users -- admit they now buy fewer CDs. Both studies were cited in the Napster hearing, by opposing sides. The conflicting results show how unmapped this terrain really is.

But two things seem clear. First, CDs aren't going to disappear soon, given that not everyone jumps on the latest technology as soon as it appears -- after all, a third of music listeners still buy cassettes rather than CDs. Second, the future of music, ultimately, will be digital.

Start-up music companies, record labels, and college kids get the press. But the people who have the most at stake get overlooked: the ones who make the music. If people don't buy CDs or pay for MP3s, artists may not make any money from their recordings anymore.

"When the Internet became commonly used by artists the thought was `Hey, this is great, we can bypass all the middlemen,' " says Jon Sobel, a musician and founder of the Society of Independent Musical Artists (SIMA). "Lost in the shuffle was the idea that the music really has value."

Not all artists agree that online music is bad for their livelihood. Even within each of the industry's three basic tiers -- major-label, independent, and unsigned musicians -- some see the Internet as a way to succeed outside the established system. But others see it as an opportunity for people to take the fruits of their hard work without paying.

Courtney Love is one successful artist who's thrilled that major labels are losing control of music. "Record companies stand between artists and their fans. We signed terrible deals with them because they controlled our access to the public," she told attendees at an online-entertainment conference last May, in a now-famous speech in which she slammed the major labels that account for 85 percent of CD sales in the US -- Warner, Universal, Sony, EMI, and BMG. She's not alone. Chuck D, Cypress Hill, and surviving members of the Grateful Dead, among others, have aligned themselves with Napster.

A million-dollar advance doesn't actually mean a band gets a million dollars, Love said, explaining just what is so bad about those deals. The band is responsible for the costs of producing, distributing, and promoting its album -- not to mention paying its manager, lawyer, and business manager. If a band got a million-dollar advance and a 20 percent royalty rate, then sold a million CDs at full price, said Love, the musicians would still come out with next to nothing. But the record company would net $6.6 million in profits. In contrast, authors of books get to keep their advance as personal income, and are responsible for hardly any of those costs.

Recording contracts are generally so unbalanced, especially for new artists, that most musicians never profit from CD sales. So Love, for example, is leaving her label -- and getting sued for it.

Love can easily leave the labels because they've already helped propel her to fame, but artists who dream of hitting it big need the major labels because they control the promotional network. As the popularity of independent Internet radio stations and video sites rises, though, that's changing. "Now artists have options," Love said in her speech. "We don't have to work with major labels anymore, because the digital economy is creating new ways to distribute and market music."

And that could give artists more leverage when they negotiate with labels. "I don't think there's any doubt that the contracts that get done between artists and record companies will change," says Larry Miller, head of Reciprocal Music, a digital-rights-management company in New York. "They'll have to be [better] as artists become more empowered with technology to self-distribute."

But if music lovers download songs for free instead of paying for CDs, established artists in the current system have a lot to lose. Plenty of artists are battling the companies, Web sites, and even listeners who are distributing or taking their music without paying.

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