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Why Music’s Future is Upbeat

All-you-can-eat subscriptions, cheaper downloads, pre-loaded music on MP3 players and other emerging models will someday soon revive the music industry’s fortunes.

Michael Stroud [iHollywood Forum] | POSTED: 12.01.04 @02:46
These are difficult days in the music business. Music labels' annual U.S. CD revenue has dropped 24 percent in four years to $11.1 billion in 2003. The Recording Industry Association of America estimates the industry loses $4.2 billion a year to piracy. Recently, the association filed new suits against 761 illegal file sharers -- including students at Amherst College and Iowa State University.

Despite these grim facts, I'm convinced that record labels, publishers, artists and some technology companies are going to make money hand over fist in the years ahead.

Not because the RIAA will sue pirates out of business (although cracking down will eliminate the worst offenders). But because market forces and some smart people will drive a model that consumers won't just tolerate. They'll fall in love.

That's because I believe three models will develop that will make music so inexpensive, easy to acquire and pristine that most people won't bother to steal it: All-you-can-eat subscriptions; drops in per-song and album prices; and (gasp) making music free.

The Internet and the cable business offer the best examples to date of successful all-you-can-eat models. Remember when AOL introduced unlimited use pricing for $19.95 a month in 1996? Its user population doubled to 10 million over the next year and to 30 million by 2001. The cable business last year raked in $51.3 billion from 73.4 million basic cable households, or nearly five times the value of music CDs sold that year.

Could you rip off the cable signal for free? Sure. But most people don't. Because they get to watch all the HBO, ESPN and Disney Channel they want for "free" once they've paid their cable bill. Not to mention record anything they want for posterity on video tapes, Tivos and recordable DVDs.

People arguably love music as much as cable. Imagine if 73 million American households paid $30 a month (about half what the average household pays for cable) for the right for each family member to listen to an unlimited number of personally selected songs at home or on-the-go. The music business would total $21.9 billion a year in the U.S. alone, nearly twice last year's CD sales totals. And that's not counting "premium" services the well-heeled would surely add on: DVD Audio downloads, live concerts, artist interviews, jazz classics, the Beatles channel and so forth.

The outlines of that model are now visible:

• RealNetwork's Rhapsody service, Virgin Digital and a growing number of other music subscription services let consumers stream music of their choice from catalogs of 500,000-plus songs in their homes for under $10 a month. The catch: If you want to take it on the road, you need to pay 0.85 to $1.00 per song for the privilege.
• Napster's new Napster to Go service, based on Microsoft's new Windows Media Player 10 architecture, circumvents Rhapsody's limitations by allowing consumers to transfer unlimited tracks to portable devices for $14.95 a month. The service launched on Gateway's new MP3 photo jukebox on Oct. 28 and the Audiovox SMT5600 mobile phone on Nov. 3.
• Sony is experimenting with a service called Stream Man in Europe that allows consumers to use mobile phones to access a personalized list of streaming songs from major and independent labels. The songs reside on a central server, not the phone.

As broadband wireless technologies like WiFi, WiMax, Edge and 3G become ubiquitous and dependable in the years ahead, expect wireless music streaming and subscription services to become commonplace.

Of course, some people will always want to "own" their music – just as people want to own DVDs and rent them from Blockbuster or buy those new Seinfeld DVDs rather than watch the syndicated reruns. So Apple's iPod model will still thrive. But to remain competitive with "rented" music, song and album prices will have to go down.

Labels and publishers may also choose to bundle songs with MP3 players and iPods and other electronics products. This Christmas, Radio Shack is quietly selling Motorola MP3 players preloaded with 20 Billboard tracks. Earlier this year, Apple and Pepsi offered 100 million free song downloads from the iTunes store to Pepsi drinkers who bought specially coded bottles.

Now let's get really radical. Let's load music onto new cell phones, memory cards, hard drives in BMWs and Trix download coupons. Pre-load that new Dell computer with Microsoft Office and 5,000 of your favorite songs. Let Post, Dell and Nokia pay labels royalties.

Apple has already demonstrated that you can make very good money on technology while making considerably less on the music. It's even possible to imagine technology and consumer brand companies that use music as loss leaders to power other more profitable parts of their business. That would require a mind shift for people used to valuing music by the price of a $15 CD. But if rights holders are fairly compensated and music reaches many more people, would a "loss" at the front end be so intolerable?

All-you-can-eat, price drops, free, loss leaders – these aren't words traditional music executives are used to using. But in the end – just as with audio tape, VCRs, DVDs and other new entertainment technologies – Hollywood is going to grumble all the way to the bank.

Michael Stroud is CEO of iHollywood Forum Inc., which produces conferences and seminars about digital entertainment and mobile technology.

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