WSJ: The Music Industry Needs Hackers, Not Lawyers

I’m sure this has happened to you: Running out of summer, I just had to listen to “Summertime Blues,” by The Who. I couldn’t find it in two record stores even at $16.96, so I went online. Buymusic.com wouldn’t let me download to my iPod, and Apple iTunes required a $2,000 Mac. So I, er, lifted it, via KaZaA, and was playing air guitar within 28 seconds.

Music piracy is rampant — there are plenty of five-click discounts like my own. In a survey published last week, the Boston-based Forrester Research group estimated that over the past year, 23 million pirates didn’t buy 47 million CDs, thus costing the record industry $700 million. Sony claims the number is closer to $7 billion. That’s a lot of limos and bottles of Dom. Forrester also forecast that within five years, one third of all music sales will be via online subscriptions and downloads. The next day, Universal Music announced that it would actually be cutting prices on CDs to encourage people to purchase, rather than pirate, its music. It’s a wonder the record business is Stayin’ Alive.

The music industry is a fire brigade of greedy middlemen and markups between the artists and you. Over the past 40 years, they have honed their skills, raising prices and making all of us re-buy our old favorites in each new format as technology has moved from records, to cassettes to CDs. And now the fourth wave, CDs to online, is here. But record honchos missed the backbeat and the fourth wave swamped ‘em.

Headphone Captain Hooks are tough to stop. As of yesterday, record companies — via the Recording Industry Association of America — have sued more than 250 of their customers, sent subpoenas to Internet service providers demanding the names of flagrant file-sharers and even threatened to unleash worms and viruses on file-sharing Web sites.

But c’mon, no one outside the insurance industry really thinks it’s a great long-term strategy to scare your customers. Alienate 16-year-olds, and all you’ll ever sell are Rolling Stones albums to boomers. Come to think of it, the record industry relies a bit too much on the continued health and well being of wrinkle rockers Mick, Bruce, Sting, Bono and even “I Got You, Babe” Cher.

It feels like the post disco-era funk. Rap and hip-hop are rolling over, boy bands and pop tarts taste like overchewed bubble gum. Grunge got cleaned up and country is getting dirty. Only rock ‘n’ roll never dies, but there are not enough new hits to grow the industry.

Bertelsmann Music Group’s sales are down 10% this year and losses have tripled, derailing a potential merger with Warner Music. NBC has a deal for Universal Studios, but wasn’t even offered Vivendi’s Universal Music, the French not wanting a fire sale.

At the recent MTV Music Awards, Madonna passed the torch (or was that her gum?) to Britney Spears.

I don’t think that, or anything short of getting Jim Morrison out of retirement is going to save the industry. There ain’t no cure for the music industry blues, or so it seems.

Maybe there is — in moves like Universal Music’s. Adam Smith’s invisible hand actually spanked music executives — the ones with an almost 30% market share — into action. Having tried lawyers, they finally realized it’s about the money. This is typically a sign of weakness, but I think it is brilliant pragmatism.

Fifteen years ago, the software industry had a huge piracy problem, one of the main reasons being that Microsoft Word or Excel cost hundreds of dollars. Borland cut the price of its Quattro Pro spreadsheet program to $49, and people bought it instead of copying it. Sales went up, 1 million copies were sold in the first 90 days. Economists call this elasticity.

The same thing may happen in the music biz. The vast majority of music listeners are honest, property-loving citizens, and my guess is we would all gladly pay a fair price for music. Ten dollars per album may still be high — who knows? The industry still needs to figure out how to transition to an online-only model. Without shiny discs, and the markup brigade, they can charge 50 cents a song and $5 an album and still make as much as they do today via stores. It shouldn’t be that hard — the cellphone industry does $1 billion a year in ring-tone sales. Surely the music industry can sell songs online in even bigger numbers.

Long term, the music industry needs technology, not lawyers, to fix its problems. Hire a few of those hackers you are now threatening with jail time. Don’t sell dumb data, sell software. Each song or album could eventually come with its own code, its own little operating system, to play the song on the next generation of players. This fifth wave may be the industry’s salvation. Unless, of course (shhh, don’t tell anyone), Limp Bizkit figures out how to write code itself, bypassing record labels altogether.

Comments

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[Diana]

It's a topic up for debate. In the end of the day, people will illegaly download songs,albums, movies, software, etc.

This is only my opinion, I totally agree, cutting the price to encourage people to buy is excellent! I admit a lot of people today are getting by with their paycheques and $18 plus tax for CD can be a lot to many. If the record companies could sell tracks & albums for download from their site for a cheaper price, can boost sells.

Another thing, instead of sueing people and bullying them, labels should create technology that won't let computer copy the disc or no computer play back at all! It can help stop illegal data upload or illegal copying.

Thanks for reading!

D.C.G.

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