August 3 - 10, 2000
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Even if technology overcomes those obstacles, nothing is totally secure. "The only music you can't copy is music you can't hear," says Brian Zisk, director of business development at the entertainment site iCast and a co-founder of the Coalition for the Future of Music. Already there's software that makes it easy to take even streaming files, which play over the Net but don't normally get stored on computers, and convert them to MP3s. And any encryption is still vulnerable to hackers, like those who cracked DVDs' supposedly secure format last winter. "People can unencrypt anything that can be encrypted," says the coalition's Michael Bracy. Pandora's box, continued
by Laura A. Siegel
People would pay for digital music if they could, says Ric Dube, an analyst at the Cambridge-based new-media research firm Webnoize. "One of the reasons Napster is so popular is that's where the content is," he explains. The independent music scene has flourished online, and copies of major-label music have swamped Napster and its cousins. But until very recently, there's been no way to get most popular music legitimately on the Web.
Now the labels are betting that if they offer a legitimate alternative, people will choose it instead. They may be right -- in a Webnoize survey of thousands of college students, more than half said they would pay $15 a month to use a service like Napster.
But the industry is way behind the times. "This moment has made a lot of people in the record industry lift their heads up off their desks for the first time in 10 years and realize they have to make a format that works," says Flansburgh.
Also, Matt Ashare examines the real problem with MP3s,
Douglas Wolk proclaims that digital-file trading is here to stay,
and Carly Carioli watches another community spring up on the Net
If we bought music online, we wouldn't really be paying for the music itself, but for features that free services can't yet offer. Guaranteed file quality and virus protection are the top two reasons consumers would pay for downloading music, according to a study by Jupiter Communications. People might also pay for convenience and user-friendliness -- the free software can be difficult to use, especially for people with little computer experience.
The major labels have already started to partner with online companies. No one has yet figured out how to make money from selling downloaded music, but here are some ideas they're trying:
* Selling individual downloads. Artists have long sold MP3s through their own Web sites, and EMusic sells MP3s by independent musicians and shares revenues with the artists. In addition, CDNow and other sites sell downloads in a secure format. But EMusic has already run into trouble -- it has suffered $100 million in losses and recently laid off 40 of its 210 employees to cut costs.
The major labels are rushing to throw music onto the Web: EMI will soon launch a digital downloading service, with 100 albums available in encrypted formats, and Sony was the first label to sell downloads on its site, offering about 50 songs. But these preliminary efforts are doomed to fail. Sony is charging exorbitant prices -- $3.49 for a single song -- and requires listeners to go through several complicated steps before even hearing the music. Universal will launch something similar this month. "That, to me, is an example of a business model that simply isn't going to fly," says Forrester's Eric Scheirer.
* Subscription services. On July 24, EMusic switched tacks and launched a subscription service, which will provide access to a collection of 125,000 MP3s for a flat fee of $19.99 a month, or less for long-term plans. And MP3.com just launched subscription channels for classical music, children's music, and stories. Paying users can download as many songs as they like, without having to pay for each one. That's a lot closer to the Napster experience than buying individual downloads, and more likely to work.
But EMusic has about one-hundredth of one percent of the number of files available through Napster. A system like this would have a chance of succeeding only if a user could get a wide variety of music, including songs by top stars, through one convenient service. It might happen: Sony and Universal recently announced plans to start a joint subscription service, and Warner and EMI are talking about similar ideas.
* Ad revenues. The just-launched company Tag-Email sticks audio and video ads onto legitimate MP3s and pays artists from the proceeds. And MP3.com shares some of its banner-ad revenues with artists, using a secret formula. But audio ads might prove too annoying for consumers to tolerate, and hardly any artists are making more than spare change off MP3.com's program right now.
* Tips. Jay Fenello has a plan: to give away music, encourage people to trade it, and ask them to send money only if they like it. Fenello is confident that his brand-new business -- ths- Music.com, which stands for The Honor System -- will turn a profit in less than a year, despite the lack of any way to make people pay. "We're on the verge of a new consciousness," he explains. "People will come to realize that being completely selfish in everything you do hurts everyone." Betting on the end of selfishness doesn't seem like a strong business model. But his idea has a time-honored precedent: tipping.
"I live on tips," Courtney Love said in her May speech. "Giving music away for free is what artists have been doing all their lives." It might work for musicians who are able to build a strong, loyal following. Many musicians believe their fans would pay them even though their music would be available for free. "I came to music out of idealism and out of love for music, and I don't think that relationship between artist and fan can be discounted," says Jenny Toomey, a musician and co-founder of the Coalition for the Future of Music. Kevin So, a Boston native and independent musician now based in Chicago, agrees. "My feeling is that this is a long-term relationship with my fans," he says. "They're going to take care of me."
* Selling other stuff. Although Fenello acknowledges that not everyone will tip his artists, he sees other benefits to distributing music for free. "This paradigm says, Go ahead and put your music out there, and the rewards will follow," he explains. "As you become better known, you end up with opportunities for better tour-performance attendance, opportunities for endorsements."
For all the hype over the new, this technology might be taking us back to old ways of using music. Offering music as a way to gain fans, then making money on performances and merchandise, isn't a novel idea. Just look at the Grateful Dead. "Till after World War II, recordings were primarily a way of increasing your value as a performer," says critic Dave Marsh. "For the typical musician -- as opposed to the superstar -- that remains true. The reality for most musicians in the United States is that they make their money not from recordings, but from live performances."
Not everyone agrees, though. "That's flat-out wrong," says Bracy of the Coalition for the Future of Music. "We really can't get into a situation where all the artists who work so hard are forced to give everything away for free, just because the tech community says so." And record labels, whose profits come from CDs, not from T-shirt sales, are unlikely ever to allow music to be totally free.
No matter how the music industry adapts to these changes, the issue of protecting intellectual property won't go away. As John Perry Barlow, a former Grateful Dead lyricist and co-founder of the Electronic Frontier Foundation, said in a famous 1994 Wired article, "Digital technology is detaching information from the physical plane, where property law of all sorts has always found definition." That means that all industries that depend on ideas -- from music to film and publishing, just for a start -- are going to have to figure out new business models, and the government will need to write new laws, to ensure that intellectual creation still has value.
Music is just the canary in the coal mine. It's been hit first because songs are easy to transmit digitally. But as technology improves, every kind of content industry is beginning to face the same problems. Already, Gnutella and Freenet can be used to trade any kind of file, not just music. Stephen King just released a book entirely online, bypassing publishers and asking for voluntary payments of $1 per installment. Disney, Time Warner, and several other companies are suing a man who distributed taped copies of TV shows through his Web site -- a service that attracted 100,000 users in three months despite poor video quality and no marketing.
Watch the music industry as it stumbles along. It will hold clues to what lies ahead.
