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Strategies & Market Trends : Paradigms

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To: Edwarda who wrote (22)3/7/1999 6:11:00 PM
From: Cheeky Kid  Read Replies (2) of 61
(Editor's Note: This is the first in a series of guest columns. Our first guest, Anthony Stonefield,is CEO of Global Music Outlet, a Los Angeles-based digital music marketing company. In recent months, GMO has worked for a2b music and consultants Electric Artists on promotions for artists such as Aerosmith, Garbage, Natalie Imbruglia, Tori Amos, Rod Stewart, Willie Nelson, and Duncan Sheik, and labels such as BMG, MCA, Arista, Capitol, Rykodisc and TVT. When GMO released it's version of "MP4" earlier this year, it raised quite a few eyebrows in the MP3 community.)


I'm guilty. In 1994, at very the genesis of digital song downloading, I started posting free MP2 songs (MPEG 1 Layer 2) on the Web. I was fortunate to be part of a highly charged era in the life of the Web-renowned Internet Underground Music Archive (IUMA). We were the darlings of the international media, and we felt that we were at the brink of a revolution.

For twenty years traditional music promotion and distribution channels-radio, TV, press, big gigs, physical retail stores-had been controlled by big money from big business. Here you find "signed artists," artists who are shackled and funded, having traded the rights to their sounds and images for an ego boost, cash advance and shot at stardom. The music business is a huge machine, and in a weird science way it works to sustain a $12 billion industry.

Naturally, the major record companies are not in a hurry to relinquish their control of it. So, during IUMA's heyday the R.I.A.A., a music industry trade association responsible for preserving the health of the musical copyright commerce, made its move. A digital copyright act was conceived. Sony sued Compuserve. A class action suit was brought against AudioNet. At IUMA, we dodged those lasers. Our copyrights (songs) were rough and ready. We were poised to overthrow the Evil Empire-the major music industry. We had our unproven and overlooked artists to replace their banal bands. It was extremely cool.
Unfortunately, there was one comical conundrum: since the basic product was free there was no underlying business model, no rocket fuel to fly our missiles.

So the First Digital Music Distribution Revolution was quelled and condemned, not by the laws of Man but by the basic laws of commerce.

Despite this realization I have continued to search, undaunted, for ways to provide artists with the access they deserve to promotion and distribution channels. My company's mission has been "to build a digital bridge between music lovers and music makers" because new technology channels still appeared to be cost-efficient and still untapped. In the five years since IUMA, we created the first pay-per-download prototype system (deployed in December 1996) in the US, one that was eventually adopted and evolved by AT&T into the a2b music system. Over this period, I have taken part in dozens of large-scale online music marketing campaigns, seen secure formats solidify and unsecure formats sprawl.

In my view, the following tragic issues and obstacles are causing the derailment of this Second Digital Music Distribution Revolution:

1. An invisible Catch-22 exists for new artists on the Net. As more artists jump onto the new technology bandwagon, so each individual artist sinks further into the obscurity that defined the traditional music scene. As a rough example, if ten music fans find a site with ten songs posted on it, at least each song (100%) may get downloaded once. But if ten music fans find a site with 1,000 songs posted, maybe only 20 songs (2%) will be downloaded. Reportedly, between 20,000 and 250,000 songs are posted on the Net in MP3. So, Q: how does one artist rise above the noise? A: Radio, press, TV and touring, i.e., same as it ever was.

2. Outstanding new artists usually have only one or two great songs. In most cases these few lucky tunes are the hot-air balloons that buoy up the artist's career. These songs spread the word about the artist and, more importantly, help to sell the artist's record so that this business case may attract an investors (like a record company) to take the act to the next level. In fact, many soon-to-be-signed artists are first signed by a publishing company that pays them for the exclusive right to exploit the artist's songs. If you given those songs away for free already, then the potential business opportunity is subverted. You let the air out of the balloons.

3. Add to that the unpopular fact that few artists have any great songs to start with. A bunch of good songs will be unlikley to lift an artist above the noise of the tens of thousands of other artists all vying for a starshot. The songs have to be truly great. It takes most popular artists at least ten years to refine their performance and songs. If the artist is performing and producing covers of popular songs, then certainly the publishing companies that control the "mechanical rights" to those songs will not give the artist the right post the songs for free on the Net.

4. The music business is still overwhelmingly about selling records. Some people think artists can generally sustain their careers on the basis of live gigs and merchandize sales. In all but a few special cases, this is far from true. Most popular and independent artist tours loose money. Only popular artists can sell enough t-shirts to cover the cost of making them.

5. Artists need traditional promotion and marketing to establish and sustain a viable career. Even hundreds of song downloads does not mean that the artist will get even one sorry soul to attend his or her gig or buy a CD. Indeed, the opposite is more likely.

6. Record companies may be essential. Dedicated artists do not necessarily want to become techies or dogged business people. Artists naturally seek an infrastructure that can support their craft and efforts without them needing to do all the dirty work for themselves. Thus, provided record labels and distributors (digital and physical) provide artists with value services, these companies are worth having around. While many record companies have ripped off artists, many have also given artists success that they would never have achieved alone.

7. Despite resistance from the establishment, new media formats, like CD, have boosted the music business (only good for those who are actually in the music business). But the new CD format offered consumers a quantum improvement in audio quality and easy-of-use over cassette and vinyl. Digital song files offer neither. Nor is there an incentive to buy the song files when the buyer can surely find a free MP3somewhere on the Net. MP3, therefore, appears to be a dead-end as a consumer product.

8. Legal digital distribution is costly. Standards, like MPEG, may be open, but that doesn't mean that the technology is free. Even MP3 encoders have to be licensed. When you finally set up a business that can service artists, run an online distribution business, clear credit cards, and pay software and patent licenses, you're back to costs and profit margins that are not too far from what everyone has always complained about in the traditional music business.

9. As the world rolls into the Information Age, so intellectual property (IP)-the product a person's intellect or skills-will become the leading commodity in the global commerce. IP includes songwriters' composition rights and performers' and producers' rights in a recording. The rights to a domain name or an MP3 player design is also potentially valuable IP. The "what's mine" and "what's yours" is evolving to include "that idea or strategy, that software program, and that series of musical chords and words." If we work to undermine or devalue the value of IP, then we will be choking the engine that is driving us towards the digital utopian future.

10. MP3 will not topple the Evil Empire. The major music industry isn't going anywhere but towards greater consolidation and strength. If MP3 gains too much strength, the major music companies will take it over. This is what it does with uppity independent labels. The only way to bring the beast to justice is to work within it to make it more accountable to artists and consumers. I believe new technologies will assist with this, naturally.

11. The revolution is being televised. With the current popularity of Internet stock on Wall Street, more and more artists and record companies run the risk of being suckered into exclusive digital rights deals that allow Internet corporations to nab big pay-outs from venture capital investments or corporate buyouts, rather than from legitimate music commerce. MP3 has begun being exploited in company press releases to create the perception that millions of MP3 users will soon start paying to download MP3 songs rather than download them for free. That this concept is even conceivable is enough to base huge prospective investments on . . .

And so the Second Digital Music Distribution Revolution begins to disintegrate.

Not that these two misfires have not spawned their share of grand advances for music makers and music lovers, alike. In fact, there have been some serendipitous ironies and paradoxes that, I believe, may have tee'd the field up for the third and final revolution.

First, the wildfire of free MP3 song downloading has caused a reaction. With the Madison Project, SDMI, and a couple of other unnamable programs underway, the major music companies are now exploring what people want and how to give it to them online. The giant music industry has awakened from its 4-year slumber and start to actively participate in the field. The many competing companies are starting to seek common standards. At least major label artists should soon start seeing the benefits of this.

Second, the Web has revealed itself to be about information sharing, promotions, and online CD ordering. Until modem speeds can deliver full CD quality songs in a matter of seconds and portable players and storage devices can be simply plugged onto the end of the network, digital song downloads will be valuable more for promoting new records and artists rather than for delivering digital music products.

Third, digital distribution of music has a destiny that will benefit all levels of the music scene, on the one hand, creating moderate opportunities for many more artists than exist today and, on the other hand, lowering the numbers of superstars. For the consumer this will mean that we are not force-fed mediocre albums that contain only one skyrocket single. It will mean that we enjoy expanded varieties of music from artists that produce more consistent works (better albums or catalogs of songs) and that we can pick and choose which songs we want to buy.

Fourth, the new digital audio format we pay for will probably be more of a multimedia record-encompassing video, graphics, information, service links and superior to CD audio-than the simple audio files we download today. Artists will have to add up to more than a sound and image because more of the artist will be embodied in the multimedia record.

Effectively to summarize our legacy in the field, my company recently launched an MP4, an online music marketing application designed to satisfy both the Web's appetite for downloading free songs and artists'and record companies' need to promote their music. Our MP4 is a self-playing multimedia package that protects the music fan from being suckered into installing a third party player. The underlying audio format is an enhanced version of AAC, the audio codec adopted by the MPEG-4 audio standard. Our MP4 is designed and authorized for widespread free redistribution. It's deployment was not an attempt to establish any kind of proprietary standard. Rather it is a proprietary wrapper around what will be an open standard.

We launched our beta MP4 with 18 indie songs. In the first three weeks we had had over 40,000 MP4's downloaded, excluding the MP4/20 song excerpts. That figure extrapolates to positively prove that the popularity of free song downloads (whether in MP2, MP3 or MP4) may be more important than the format of the song file. In the deliverable MP4.1 we have incorporated much of the feedback we got from the beta launch, including anti-virus protection, expanded graphics, and a Macintosh version.

I see our MP4 as just the latest in a series of cool online music marketing applications. The Third (and Final) Digital Music Distribution Revolutions will not, I believe, take place on the Web. The final showdown will likely take place high above our heads, via the so-called Celestial Jukebox. Let there be light.

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My Two Cents:

I believe the future of music distribution will be via the Internet. Connections speeds are increasing and will continue to increase.

He brought up some very good points about music marketing, but I still personally believe music delivered via the web will happen, and be prosperous for all involved. Also don't forget this is a 12 Billion dollar a year industry.

Never underestimate technology or the power of the Internet. I believe digital distribution of music over the Net will happen, BUT it's time is not here yet.

Remember back when the hand-held computers (PDA's) made their debut a few years ago, I thought they were cool, but a head of their time. Apple trashed the Newton (WAY TOO SOON) and now look at the number of Hand-held computers on the market. Hand-held computers time has arrived. I would be willing to bet Apple has new PDA's on the drawing board and I would bet in the next 2-3 years, they will be here...just a gut feeling.

Never underestimate the power of technology and the power of distribution on the Internet.

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