By Richard Menta - 8/09/01
"Consumers and labels are at war". That is a direct quote from Webnoize's director of research Lee Black about the state of the record industry, an amazing statement punctuated by the sad fact that it is an accurate one.]
For example, it doesn't help that the major labels have called 70 million of their own customers pirates for trading music on Napster, nor was orchestrating the prosecution of a few as "examples" last year. Most recently they have started a campaign to develop copy-proof CDs, a project that has already started a PR backlash from consumers (see Is Copy Protection Dead on Arrival?). The labels treat the consumer not as a partner, but as the enemy.
Such a notion is counter to what they taught us in school. Consumers and manufacturers are supposed to walk hand-in-hand according to the old 16mm economics movies they played for us. By improving the efficiencies of the production of goods prices drop, more consumers can access to these goods, and revenues and profits increase through volume.
The Net improves upon the efficiencies of distribution and storage of music. Shouldn't the record industry welcome it? The answer so far has been no.
Seems the record industry has developed an adversarial relationship with consumers in an effort to prevent change that might give the average person more bang for their buck. That defies the logic expressed by those high school econ lessons. The record industry doesn't care. Sure, they understand the efficiencies of scale, but they also understand the profitable power of the oligopoly and how to force an issue. To them, the Net is fixing something that in their perspective ain't broke. How can it be, it makes them so much money?
The truth is, from the perspective of the consumer, the system IS broke and has been long before file trading became a national obsession.
6 CDs or $90.
And that leads me to a statistic that Webnoize released in a report about 2 months ago, a statistic that has burned in my mind for quite awhile because it tells so much. That statistic said that the average person purchases 6 CDs or $90 worth of music every year.
6 CDs or $90.
6 CDs is not a lot for an entire year's worth of purchases.
It tells me that the average person is already extremely selective in what music they purchase in CD or cassette form over a year's time.
With all the artists, and singles, and albums, and music videos, and concerts, and radio play and soft drink tie-in promotions that we are bombarded with every year, all we find room for is six CDs. Out of the top 10 albums every year the average person, at best, will own only six of them and that is at the exclusion of the additional work of the thousands of other artists out there.
Starting to sound like a broken record (pun intended)? I have a suspicion the average person is interested in far more music than that of only six artists per year. At $18.99 list for a CD I think we just choose to limit ourselves to converting only our favorite six into actual sales. As a matter of personal budget, CDs are relatively expensive.
They call it a low margin industry, yet for the about same $90 I can purchase CD players, VCRs, and other complex electronic devices filled with a myriad of capacitors, chips, relays and moving mechanisms. $90 in CDs gives me 6 plastic discs. Ahh, but those discs are filled with licensed material the record industry will argue. Does anyone know how many patents are attached to a VCR or CD player? Look at the back panel on your VCR and you may see a whole list of numbers referring to them.
The record industry has been adversarial to the consumer long before Shawn Fanning started to write code late at night. They did it by raising album prices every year and by turning the once modestly profitable single into a money-losing promotional tool for much more profitable albums. They did it by segmenting the music and herding consumers according to race, color, age, even sexual orientation, all in the name of squeezing extra profit.
We all want to collect more music. We all want a greater variety of tunes on our CD racks. It just costs a lot of cash and so we are forced to be very discriminate when we make our purchases. The average person isn't only listening to the music of six artists, they are just forced to narrow their potential purchases down to a top six list. For everything else we turn to free sources like radio, MTV, and most recently the Net.
In the analog world, corporate pressure has reduced our music palette in the name of profit. That applies to radio too. The result is these industries have created a big void that the Net music startups recognized and immediately set out to fill.
That is why when online file trading appeared CD sales didn't collapse, because Napster and its clones mostly served these gaps. It's also why Napster may be more like radio than we think.
You can't get much more selective than buying six albums a year outside of abandoning the traditional formats. CDs offer better sound than MP3s (and radio) and unlike digital music files are not tethered to the computer. Those conveniences are the best argument for the medium and why even hard core file traders continue to buy them. I think CDs will continue to sell around the six per person per year pace because the medium is not yet ready to be replaced by the consumer with another. It is mostly just being supplemented. Napster and the ilk only widened the music palette for non-sale listening, expanding the artist list for those top six positions.
The trouble is, the major record labels don't want you to expand that palette because that means some of the high profile artists they push on us might be knocked off of the top six. Yes, the artists replacing them will most likely be one of theirs, but more money can be made if they can control who is in play and who isn't and divide promotional resources accordingly.
This is nothing new, profits are the biggest part of big business. It is also healthy, but sometimes it can go too far. Right now, a lot of consumers are angry at the record industry. They have lost trust in it (see New Economy: Curdled Musical Romance Gets Couples Counseling) and that is a far greater threat to revenues than the death of Napster and the rise of the Napster clones. Those clones are a symptom of the problem, not the problem itself.
What might have been...
Put six CDs in a customer's hand and they'll pay $90 and be done for the year. Put 100 high quality MP3 singles in their hand and they might pay an additional $10 a year to expand on - not replace - the six CDs they bought. That's $700 million in additional revenue if we just talk about Napster's 70 million former users. $1.4 Billion if those users decide to download 200 songs, etc.
How many people do you know see only a few movies a year in the theater, yet rent regularly at the local video store. At $9 per person to see a movie, the cost forces us to be very selective over which movies we see just like it forces us to be selective on the CDs we buy. On video, $3.00 covers the entire family and so we supplement our movie going experience this way. We haven't stopped going to the theaters. That's because the wide screen experience is superior to the TV experience just as a CD on a stereo is superior to an MP3 playing on the tinny speakers of our computer systems (that is how most of us listen to our MP3s).
The end result is this has brought hundreds of millions of additional revenue to the movie industry.
A successful working model was already there for the record industry and they blew it. They didn't seem interested in offering a "cheap" supplemental solution through the Web. Had they embraced online music back in 1998 there may never had been a need for a Napster. MP3s could have evolved into a cheap, but not a free, source to allow us to affordably expand our music collections. It would have filled that void between what we wanted to buy and what we actually could afford to buy.
It does now, we just don't pay for it. Instead of buying fresh MP3s off the truck, we went on the barter system and traded because there were no major label wares to buy. Because the labels held out, Napster was able to come along and show us how fruitful and powerful trading could be on the Net. Until Napster, no one had any idea HOW powerful. Now that we know, we want to keep it.
So now we fight with the music industry as it tries to take away our right to trade. What we are really fighting against is being corralled back into the music of only six artists a year. As for the upcoming label services MusicNet and PressPlay (formerly Duet), not only may it be too little too late, but they are not "cheap" services. A CDs worth of music costs $20 per year to possess and that is more, not less, than a standard CD costs in stores (The labels want $120 per year for 75 songs, not the $10 one time fee per 100 songs suggested earlier. For more see MusicNet and Duet: downloads expire after 30 days). That defies the model we illustrated above.
The record industry fights us in the courts and in the legislature. We fight back through our actions and eventually through our wallets. The video sales/rental model tells us it didn't have to be this way. In my opinion, the record industry became its own worst enemy when they began to view the consumer as the enemy. You really don't have to say much more beyond that. They succeeded in killing Napster in the most public way possible to teach us a lesson and regain control and power.
The Romans succeeded in killing Christ in the most public way possible for the same reason.
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