By Richard Menta 1/02/04
At the end of 2003 one thing is clear, that the trends in digital music are edging closer to stability. Legal issues have rendered a few more precedents on both sides, but the entertainment industries are realizing they can no longer wait for the courts to help them profit from the Internet's ability as an ultra-efficient distribution medium.
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For example, the lawsuits pitting the record and movie industries against individual file traders have had some effect, but failed to do anything more than dent file trading and the services that promote them. Meanwhile, Apple proved that despite the popularity of free file trade services there is a great market to sell digital music. This one fact alone exposed a significant opportunity cost, one the record industry squandered for several years as it chose instead as its primary strategy to chase in court Napster, it's clones, and finally file traders directly.
The first of a two part year in review, we run through the winners of 2003. As with the 2001 and the 2002 winners lists it has been a year of controversy, but a new milemarker by the name of iTunes has appeared and it is influencing a change in attitude.
Noticeably absent from this year's list is the Record Industry Association of America (RIAA). Not because the organization hasn't been active - it has - but because there were so many wins and losses that this year is a push for them.
On the negative side the RIAA web site was repeatedly hacked all year to great embarrassment. They lost their US case against file trade services KaZaa, Grokster, and Morpheus (now on appeal) and Canada outright declared these same services legal. There are also more file traders at the end of 2003 than there were at the end of 2002, showing RIAA efforts all year have at best just slowed overall growth in tune swapping, not reversed it.
On the positive side the industry is raking in millions of dollars through Apple's iTunes service without having to manufacture and supply a product. All they have to supply is permission, permission for iTunes on its own to copy and sell the tracks the record companies already create for CD consumption. The RIAA still has Internet radio by the balls and has won as many court cases as it has lost. New legislation sponsored by the record industry lobby is also picking up momentum. Finally, the largest label Universal Music dropped CD prices to $12 and saw a surge in Christmas sales, which proved a win for consumer too.
Time will tell where the music industry will be next year and the year following. Now on to the winners.
Apple is this year's runaway leader. By the Christmas season the iPod captured near half of the MP3 portable market and became the new hip status toy. The interesting part is that this was NOT Apple's biggest success this year. That honor goes to the iTunes service, which appeared in April and was an immediate hit despite only serving the Mac market. iTunes then entered the Windows market in October that was already crowding with services trying to repeat Apple's success for the Microsoft set and dominated there too. In a few short months Apple altered the the attitudes and strategies of several industries (the music, movie, electronic, digital and computer industries to be exact) by proving consumers will buy digital music from the Internet despite the presence of the same music for free on file trade services.
2. The Independent Record Companies
As the five major labels complain that file trading is costing the industry billions in lost sales the independent record companies proved that false as they are enjoying a banner year. Why, because the promotional properties of file trading has opened their music to audiences past the commercial fog of MTV and monopoly radio. Proof that file trading is like the regional radio of old. Also proof that the ills of the major labels are a result of bad business decisions with regards to the Internet as a distibution medium that have cost the Big Five. The independent record companies learned to embrace the Internet and found profits.
Continues to own the MPEG 4 video portable business with the release of the excellent Archos AV320. The company has a couple of MPEG 4 players now and all are great, though relatively large and heavy. A peek at the future where services like Napster and iTunes may soon sell digital files of individual TV episodes for $0.50 each to commuters who forgot to tape their favorite show the night before and want to watch it on the train or bus ride to work
Its service continues to grow from last year, though a spate of recent record industry lawsuits against file traders stunted that growth for a period. Still going strong and making a profit, more people searched for "Kazaa" than any other term on the Yahoo search engine in 2003.
5. File Trade Services
Court decisions in the US favorable to these services and Canada's declaration that such services are outright legal make it now near impossible at this point for the record industry to completely shut them down. That the lobbies of both countries are turning to suing individual file traders confirms that the RIAA and their Canadian equivalent believe this too.
6. DVD sales
As Jack Valenti screamed how the swapping of movies is costing his industry billions, DVD sales prove otherwise. Up nearly 70% from last year (despite the fact that every hit movie is traded on the Net before the DVD is released) DVD revenue has grown in a few years from nothing to $11 billion. That's almost equal to that of the $13 billion record industry. Considering that DVDs now take up half the retail space in every record store, is it possible some of the lost record sales the RIAA claims could have come by way of the movie industry? Even just a smidgen?
Did what Bertelsmann Music could not do. They bought the Napster name and logo for a song (ahem) and revived it into a pay download service. A healthy promotional campaign along with the name recognition has propelled the new service to a clear number two to iTunes in the downloads-for-sale game.
8. DVD Jon
John Johannsen wins his second trial in Norway where again the entertainment industry tried to railroad him for creating a crack that allowed him to watch the DVDs he purchased on his Linux box. His ordeal will end as the Eurpean record industry turns to the governments to change the laws that allowed Jon to prove his innocence.
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Other MP3 stories:
The Digital Media Losers of 2003
MP3 Newswire Celebrates Five Years
MP3 Portable Sales Double in 2003