CATCH THE NEXT TRAIN TO CLARKSVILLE

“The genie is out of the bottle.” “The train has left the station.” “The toothpaste is out of the tube.” “You can’t close the barn doors after the cows have left.”

All of the above phrases have been used ad nauseam to describe the effects of the Internet on the music industry. They are all very tired, albeit accurate, expressions of frustrations concerning how technology has challenged the normative business models. Futurists and pundits warned the record industry during the heyday of Web 1.0 that they would be left behind if they didn’t adapt and conform to the new methodology of the Internet.

When Napster 1.0 was taking off, it seemed that it would be an impossible task for the major record companies to have any degree of flexibility. They had a lot of money invested into the infrastructure of the traditional brick and mortar method of distribution. I can recall an excellent digital music conference called MB5 hat occurred in the fall of 2000. (It was, perhaps, the best music conference that I ever attended for reasons that I may explore in future columns. Certainly one of them is that I met one of my creative idols, Alan Parsons.)

At that conference (remember, it was in 2000), there was a panel called something like “The Future of the CD”. Many of the leading digital music experts were either on the panel or in the room. Alan and I sat in the audience listening to the panel agree that the CD had maybe one or two years left before it would be supplanted by some, as-yet, determined digital format. Alan and I were among the minority of people – perhaps the only two - in that room that said that the CD had at least 5 years left in it. Not only were our viewpoint vindicated, there have been many formats to rise and fall since the year 2000. The buzz of that conference was a quarter-sized hard disc that could hold, believe it or not, 500 MB of storage!!! It’s inventor was hoping that it would replace the CD.

As we move forward from 2000 to present day, we see that CDs are still the predominant music format (85% of all music sales are still non-digital nowadays). But the most significant development in the past 7 years is that practically every record label, large or small, is now distributing their releases digitally as well as physically (although some are doing only digital releases, of course).

It is reasonable to say that the labels have jumped on the train albeit just in the nick of time. To complete the analogy, it is tempting to imagine that they jumped on the train while trailing a gigantic, metal anchor that is trying to slow down the train. But that is not really the point of this column.

The labels have, for the most part, created a path towards total digital distribution. They have not quite arrived at the destination. But they are, at least, moving in the right direction.

Contrasting the progress that the labels have made, music publishers look like the commuter who missed the train and is standing alone on the platform. All across the world, publishers, and the societies that represent them, are struggling to find a way to take advantage of new distribution models while still protecting their copyrights. It seems anachronistic that 11 years after the explosive growth of the Internet, licensors are still fighting new media business models. They are trying to figure out how to take an old, brass key and fit it into a lock operated by a plastic card.

The past few weeks has seen a tremendous amount of press about the writer’s strike in Hollywood. A key issues are the demand that writer’s receive 8¢ per DVD instead of 4¢ as well as establishing a formula for sharing Internet revenue (i.e., downloads) of TV shows and films. In this battle, the producers are fighting tooth and nail to keep from paying the writers a share of such downloads claiming that they don’t know the economics well enough to establish criteria.

This differs from music-oriented websites who are actively seeking out publishers and licensing societies to strike deals and put money into the pockets of publishers and, in turn, their composers. Many large websites are more than willing to share their revenue with songwriters and their representatives. And yet, most of their advances are either spurned or met with overly ambitious revenue share calculations.

In many cases, the lack of any common compromises serves to hamper services that want to be legitimate and drives consumers to illegal sites that are not paying any music royalties whatsoever. As a copyright holder and music publisher myself, I can totally respect the concept of copyright protection. I would fight against any unauthorized use of my music.

Yet, in the effort to protect the value of a copyright, very often publishers and societies are actually losing new revenue opportunities. A writer could argue that a publisher that chooses to be highly restrictive with its catalog is only damaging the value of copyright. That is because it fails to capture the consumers who wind up going to services that are properly licensed.

Whenever a publisher goes to a writer to pitch an administration deal, one of the most common questions a writer asks is why should they give up 10-20% of the income. The usual response is that with the publisher’s help, the remaining 80-90% will be worth more than if the writer kept 100% to themselves.

The labels have learned that any DRM, which is so tight as to insure absolutely no copyright infringement, will ultimately result in little or no revenue. There is an obvious, analogous question for the publishing industry: Will their efforts to protect their copyrights ultimately impair their ability to monetize all the new opportunities that will continue to arise? I think so. And I think that they need to get on board the train before the genie slips on all the toothpaste that is out of the tube and spread on the floor of the barn.