Music Downloading and the Changing Face of the Music Industry

I wrote this article at the height of the music industry crash – when illegal music downloading had eventually caught up to the industry and bit it in the behind. Since then, the situation has become much worse and I’m surprised that there is even much of a music industry. Artists who became popular and were successful in the 1970s, 1980s and 1990s were very lucky. At the end of their lengthy careers, they could just walk away – that is if they had managed their money wisely.

In the late 1990s when I worked in the music industry, I saw the beginnings of the end: the two major music industry trade publications in Canada went under. That was not a good sign. Independent artists just signed to major record labels were dropped left, right and center. This article focused on music downloading only – but even that was only one cause of the industry’s plight.

Music Downloading and the Changing Face of the Music Industry

A dim light shines from underneath the closed bedroom door. In the darkened room, Paul Evans, 26, sits in front of his computer screen. A blinking status bar reflects back on his face. The bar shows how many more minutes remain until the file that he is downloading is completed. Evans is electronically downloading music files sent to him from one of his friends. What he is doing is illegal. The record industry claims that peer to peer (P2P) file sharing is the sole cause for declining sales; however, several other factors have contributed to the downfall of the industry. The record industry must re-evaluate how they do business to compete in today’s music industry; otherwise, its collapse could be imminent.

It is important to distinguish between the record industry and the music industry. The music industry promotes music through the Internet, digital music, P2P file sharing, concert revenues, satellite radio, song publishing, licensing, consumer electronics companies, DVDs, cell phone ring tones, and computer manufacturers. The record industry records, distributes, markets, and sell CDs. The recording, distributing, and marketing are done by four major record labels: Sony-BMG, Warner, Universal, and EMI (along with many independent labels). Music retailers sell music online or more traditionally in a “bricks and mortar” store – a store that physically exists like HMV or Music World. However, steadily declining sales between 2000 and 2003 closed over twelve hundred U.S. music retailers. 1.

In the 1990s, the major labels shifted their distribution channel away from traditional music retailers to “big box” stores like Wal-Mart and Best Buy. The music retailers couldn’t compete. The amount of space devoted to music in a big box store was smaller than a music retailer’s space; thus, the record labels had less space to sell their product. In addition to the problem at retail, the record industry became reliant on CD sales for its success.

The transition from an analog signal to a digital signal in the 1980s was a revolution, but the industry didn’t foresee the problems that it would cause. From the late 1980s to the late 1990s, the record industry enjoyed unprecedented financial success with the Compact Disc (CD). The CD replacement cycle that saw many of the fans buying the same music on CD, again, caused an unexpected ten year boom for the record companies, and this boom was largely based on reissuing existing catalog in the high quality CD format. 2

As people replaced their analog music collections with CDs, another revolution occurred: these people said ‘no more’. For many, the CD format was the fourth format that they had been forced into buying. From vinyl, to 8-track, to cassette, and finally to CD, the record industry sabotaged itself by having people replace their collections four times. When the replacement cycle ended, the industry, by digitizing music, allowed anyone to make a perfect copy of any song. By 2004, the best-selling CD in the United States was a blank, recordable one. 3 Consumers were now in control, and new technologies forced the record industry further into a precarious position.

Digital music allowed anyone to listen to music without having to possess a hard copy, further eliminating the need for CDs. As the technology to burn CDs became available in the 1990s, the blank CD became what the blank cassette was to the 1970s and 1980s – a way to copy music for free. Digital also meant that music was electronically transportable, fast and for free, using the Internet, instant messaging and e-mail. This was the beginning of MP3. MP3 compresses audio and video files for use in multimedia applications. The ‘MP’ comes from MPEG, standards developed by the Motion Picture Experts Group. The ‘3’ comes from Audio Layer 3, the part of MPEG that stores audio. With MP3s, CDs became unnecessary, creating a free fall in CD sales. “The CD is like the cassette of the mid-1980s, it’s dead – no one wants a CD, it’s not where the industry is going”. 4The industry was blindsided as tech-savvy teenagers began to download music like crazy. One teenager took downloading to a new level, causing the record industry to finally stand up and take notice.

Napster was a turning point in music history; but, unlike the CD that was aggressively promoted by the record industry, Napster was controlled by the consumer. In the fall of 1999, university dropout Shawn Fanning created Napster (his online nickname), a computer program that allowed people to share and swap music files. Notoriety arrived in 2000 as the rock group Metallica discovered an unreleased demo of one of their songs on Napster. Metallica and the record companies sued Napster. In 2001, Napster was shut down and forced to pay music creators and copyright owners $26 million for unauthorized use of their music. The publicity that resulted from the legal battle did two things: software developers around the world created more, and more technically-sound P2P programs, resulting in a feeding frenzy for free online music; and, it left the major labels in an even more vulnerable position than ever before, as consumers migrated away from CDs to digital downloads. The industry then created a culture of resentment, as it focused its energy on individuals who illegally share music files.

The record industry began to sue people who illegally shared music files, creating an atmosphere of bitterness, as students and teenagers saw the industry as greedy, and biting the hands that fed it. “We would prefer not to be in the courts; however, this activity takes place on an unthinkable, massive scale”. 5 Litigation was a panic reaction from an industry that ignored the problem of downloading, until it began to eat into its revenue. “Suing music fans is not the solution, it’s the problem. Litigation is not artist development. Litigation is a deterrent to creativity and passion and it is hurting the business I love”. 6 The industry now admits that illegal music downloading sites will never be eradicated. Music will always be available for free somewhere on the Internet, despite costly battles to shut down illegal music sites. 7 The record industry’s woes can be blamed on downloading, but the industry itself is to blame for continuing to operate on an archaic business model.

The current business model of the recording industry, developed in the mid-20th Century, continues to be based on selling an analog, physical product, and does not take into consideration the evolution of technology. The record companies need to adapt to the realities of the marketplace and cast off their antiquated business models. 8 “The industry is going through a really difficult time because so many of the contracts they have with artists and bands are old”. 9 A digital subscription service could be an answer to the industry’s problems. “Until the industry adopts a subscription all-you-can-eat type of service, it’s in trouble. The industry needs to act quickly as the old business models are becoming obsolete fast”. 10

The industry is trying to change. The major labels, by legitimizing P2P file sharing, could extract revenue from P2P by collecting blanket license fees from P2P companies and ISPs (Internet Service Providers), who in turn charge their customers for the service. With the creation of legal, major label sponsored P2P sites like Pressplay, PureTracks, and MusicNet, the industry is trying to legitimize P2P file sharing, thus stopping the industry from disappearing.

The record industry needs to find a way to deliver legitimate digital solutions. It is clear that the record industry is in a precarious position because it has ignored the trends of digitization. Neither a physical media, nor an analog signal is at the cutting edge of music anymore; they are seen as antiquated and obsolete. Once CDs become obsolete, the record industry will soon follow. The record industry must embrace the digital revolution or be left behind.

1. David Kusek and Gerd Leonard, The Future Of Music: Manifesto For The Digital Music Revolution. (Boston, Berklee Press, 2005), p. 7
2. Ibid. p. 108
3. Ibid. p. 1
4. Steven Ehrlich, “Listen Up”, Ryerson Magazine. (Winter 2006), p. 19
5. Graham Henderson, “Recording Industry Launches Campaign to Protect and Promote Products of the Mind, Citing the Results of Two New National Polls”, www.cria.ca (September 29, 2005)
6. Terry McBride, “Suing The Hand That Feeds You: P2P Suits Make No Sense For Music Business”, www.futureofmusicbook.com (March 12, 2006)
7. Darren Waters, “Illegal Music Sites Here To Stay”, www.news.bbc.co.uk (January 8, 2003)
8. Kusek and Leonard, The Future Of Music: Manifesto For The Digital Music Revolution. p. 128
9. Laura Nenych, “Listen Up”, Ryerson Magazine. (Winter 2006) p. 19
10. Ehrlich, “Listen Up”, Ryerson Magazine. (Winter 2006), p. 19