The dinosaurs of the recorded music industry must evolve or die

Could the reason for the music industry's reluctance to embrace the technology be their realisation that it represents a write off of millions of dollars invested in the traditional infrastructure of CD production, logistics, distribution and retail framework that has been the industry’s sole means of accessing the customer base? There remains a market for CDs, as they still offer a much higher quality of music (for the moment) and a tangible product that fans will buy. But the situation is rapidly changing.

It has taken Apple, with its new iTunes Music Store, to provide the first customer-friendly means of digital music delivery. An outsider to the music industry (albeit one used by a vast majority of music creators and artists), Apple has modified its popular iTunes software to include a window where people can search for, and purchase over 450,000 songs for $US0.99 each. It's simple, one click and you've got the song for $US0.99. It is then possible to share any purchased song with three different computers, download it onto an iPod or burn it to CD. Seemingly this was too much to ask of record companies, who attempted to create online music sales through competing companies, Pressplay and Musicnet. Both proved cumbersome and difficult. Users paid a monthly subscription and were allowed to download a fixed number of songs which they could then access on just one computer, and only for as long they continued paying their subscription. To BMG’s credit, they dared to invest in Napster, hoping it would somehow evolve a viable user-pays model, however this never eventuated and Napster went broke.

In the end, most record companies chose to obstruct the technology rather than adopt and adapt it, bringing us to the current situation of record companies spending millions chasing individual university students. This is not to say that those record companies will necessarily be obsolete in the download world. What might the record company of the future look like? They are valuable sources of A&R (Artist and Repertoire) expertise. A&R personnel find, develop, invest in and refine the image and releases of the raw talent they have discovered in the hope that the outcome will be the creation of great content. The promotion and marketing of this same act is also extremely important in a mass-appeal market. However, the record company should not hold a monopoly on marketing and promotion. Instead, like the rest of the corporate world, each act would be outsourced to specialised marketing and promotion companies which understand the subtleties of each culture and subculture and try to “control” less and “cultivate” more. With lower overheads and better returns on acts, it opens potential for longer life cycles for the bands, and with this a further opportunity to create a true fan base at an international level.

This modular approach of providing A&R, that is continuing to invest in the image, songs and outcome of the musical product, while outsourcing marketing and promotion, would take the role of the music company away from the all-service company, to one responsible for just one or two links in the value chain. Whether by accident or design, Festival Mushroom Records has been the only major Australian record label so far to move towards this model. By enhancing its core competencies in control and development of the copyrights of particular acts, they change their focus to “the good old days” of investing in quality acts and spending time developing them.

Artists under the new model will be able to distribute and market their music within a modular and flexible market, whether purely through MP3 (where cost of sales is virtually zero, allowing for greater returns on lesser sales for a breaking act, for example, Little Birdy’s new release) or investing in production of CDs (for larger, older or deceased acts who are not catering to savvy fans, such as Elvis Presley) or, in a majority of cases, a hybrid of the two formats, MP3 and CD.

Whatever the outcome, these will prove very interesting times for the music industry. Structural problems can be disguised as competitive pressure from computer games and DVD sales or continue to be blamed on “downloads and piracy”, but some of the major players are yet to react to, or even admit to, the real problems facing the industry. While it may be a few years before we see an act independently break by selling digital music over the internet, unless the music companies find a means of focusing their role in “filtering” good acts and creatively developing great content, as opposed to distribution networks, it seems they will be left behind.