The Effect of the Internet on Music Essay Example for Free

The Effect of the Internet on Music Essay There has been much ink spilled over the supposed death of the music industry. While this worry may be a bit premature, the most pressing economic issue facing the music industry today is the slow but steady push toward a complete restructuring of itself. Downloadable music, in the form of mp3s, has revolutionized the way we think about and consume music. With the increased prominence of independent labels, file-sharing websites, and innovative artists who are creating their own methods for releasing albums, the traditional record business is becoming increasingly irrelevant. In economic terms, this has so far meant declining record sales among the major labels, a recent spate of firings, and the loss of big artists, who are moving either to concert promoters like LiveNation, independent labels, or their own recording studios. Over the past year, artists from Radiohead to Coldplay to Trent Reznor have released songs and entire albums for free over the internet. They have almost universally been a success, although some less well-known artists, as well as various industry insiders, have argued against this being a workable model. Michael Laskow, CEO of an independent AR company, TAXI, argued that Radiohead allowing consumers to pay what they choose for a digital album is not indicative of the future of the music industry: While the band, its fans and artists alike are celebrating what looks like a success for Radioheads bold move in releasing their new album using the ‘pay what youd like’ model, I think everybody has overlooked one very important aspect of this, and it doesnt bode well for the future of the music industry. Radiohead has been bankrolled by their former label for the last 15 years. Theyve built a fan base in the millions with their label, and now theyre able to cash in on that fan base with none of the income or profit going to the label this time around. The question is: how will new artists be able to use this model in the future if they havent built a fan base in the millions in the years leading up to the release of their album under the pay what youd like model (Lipsman)? The worry that new artists won’t be able to give their music away for free (disregarding the 40% or so of people who voluntarily paid from one to twenty dollars for the album), is a valid one. However, Laskow seems to view major labels as the only answer to new artists looking for an audience and a way to make a living with their music. On the contrary, the rising prominence of independent labels over the past several years has proven that it doesn’t take millions of dollars to create an album and promote it. Labels like Kill Rock Stars, Bloodshot Records, and Rounder Records have all seen their profits rise over the past few years, at the same time that major labels have seen their sales dip or stagnate. Cameron Strang, founder of New West Records, points out the economic advantages in not having the huge overhead of major labels. Thats the difference between us and them. Artists on our label who sell 200,000 copies make a very good living (Margolis). Artists like Aimee Mann and Michelle Shocked are releasing albums on their own. (Dare I even mention Ani Difranco? ) Clearly, independent labels as well as individual artists are capable of doing the work that major record labels have been doing for years. With the advent of webcasting and podcasting, along with XM and Sirius radio networks, traditional radio doesn’t have the same hold on the music buying public’s imagination that it once did. Increasingly, new artists are discovered by getting their songs played on television shows like The Hills and Grey’s Anatomy. The music industry is attempting to do to webcasting what it did to Napster, which is to essentially strangle it through lawsuits in the hopes of being able to squeeze money out of the webcasters. Instead of viewing web-based radio as a unique promotional opportunity, the mainstream music industry only sees profits being taken out of its pocket. At the same time, artists, like the ones discussed above, are realizing which way the wind is blowing. Digital Music News publisher Paul Resnikoff notes that: A growing number of superstars are or soon will be grazing in post-major pastures. And for them, the bigger basket touring, merchandising, publishing, relevance, and even album sales remains more important than a paid download, protected or otherwise (Resnikoff). These additional streams of revenue are often the more lucrative for musicians than album sales. It only makes sense that artists would look at digital music, including webcasting and file-sharing, as ways to gain fans that will purchase concert tickets and merchandise. File-sharing continues almost unabated, although the popularity of iTunes despite much of its music being DRM-protected has provided a model for money-making in the digital era. Despite iTunes and growing copyright protection on albums and songs, paid downloads account for, at most, five percent of all music downloads. Even ringtones, which are currently a substantial slice of the digital revenue pie, aren’t turning a profit. Labels are considering raising prices, but it is unknown whether customers will pay for them, or that a single line of revenue will pull record labels through financially. Warner Music Group and EMI have had massive layoffs over the past year in an effort to restructure and shore up the companies financially. Minimum Advertised Pricing, or MAP, is the setting of minimum prices by manufacturers for retailers. In the case of the music industry, the major labels colluded in the mid-1990’s to require discount retailers to advertise higher prices or give up joint marketing funding, which could mean giving up millions of dollars (Menn 152). The history of MAP, at least in the music industry, appeared to end on September 30, 2002, when the five major labels settled a lawsuit brought by 30 states in an effort to end the practice (Menn 152). In 2000, the Federal Trade Commission investigated price-fixing by major labels and the majors signed a consent decree getting rid of minimum-advertised pricing policies (Christman, Pricing). The FTC has estimated the cost to consumers in the years when MAP was practiced to be at half a billion dollars (Menn 152). For nearly the past 100 years, since the passage of the Sherman Act, mandatory pricing restraints were deemed to violate antitrust laws. It wasn’t until the summer of 2007, when the Supreme Court overturned the law against setting mandatory minimum pricing in a case brought by an accessories manufacturer, that the practice was made legal (Christman, Why Labels). This has potentially enormous ramifications for the music industry and music fans alike; it remains to be seen whether those ramifications will be for the benefit of music fans or to their detriment. The music industry has argued that requiring discounters to sell CDs at the same price as specialty stores will lead to greater selection and a halt to the bleeding that independent record stores have experienced (Christman, Why Labels). At the same time, music fans have bemoaned the high price of CDs for years, and raising prices unilaterally could drive down music sales even further. The major label system, which requires millions of dollars in overhead to promote certain artists, is at least partly to blame for the rising prices. At Salon. com Scott Rosenberg argues that: Even more than the artists, the victims of this system are music fans who end up paying exorbitant prices for CDs to fund bloated recording-company marketing budgets. That money gets spent manufacturing a handful of superstars, leaving serious music lovers to fend for themselves in ferreting out unusual new music that the business considers too niche-y to be worth promoting (para. 6). In this view, the pricing system set by the majors is inherently unfair to both fans and the majority of artists who aren’t â€Å"superstars†. Rather than setting minimum pricing restraints for discount stores, major labels could lower wholesale prices to ensure that independent record stores could stay in business. This would largely be to the labels’ benefit; over the last five years, their reliance on big-name stars to sell huge amounts of records has been a losing proposition. Titles from unknown artists and back catalogs are often nowhere to be seen at discount stores. The personal service and deep selection at independent stores creates an opportunity to sell these types of titles. The $9. 99 price point set by discount stores and iTunes has surely contributed to declining album sales, but the burden of maintaining that price point has been shouldered almost entirely by independent music retailers, while the major labels continue to raise list prices (Christman, Why Labels). Majors are contributing to declining sales while preserving their own profit margins. Mike Dreese, quoted in Billboard, also points a finger at discount stores that lure customers in with low CD prices: Wal-Mart, Target and Best Buy have succeeded in almost destroying the specialty-music account base and are now setting the rules for the industry. If minimum pricing were implemented, it would keep the discounters from finishing the job. Those discounters, which have limited selection, have such dominance that labels now spend more money on supporting low retail prices and much less advertising the availability of the product (Christman, Why Labels). The tide of public opinion seems to be turning toward the use of minimum pricing restraints. When price-fixing in the music industry was first being investigated, still-new stores like Best Buy maintained a relatively deep catalog of music, knowing that it was competing directly with independent music stores. Now that discounters have succeeded in putting many small stores out of business, their catalog consists largely of the Billboard Top 100. What seemed revolutionary in 2000 – music priced at a reasonable amount over cost – has had unforeseen consequences. The prominence of discount stores in the music industry has contributed to the lack of choice and variety so unappealing to music fans. Wal-mart has surpassed Apple to become the number one music retailer in this country. The driving down of CD price points to $9. 99 has been salutary for customers, but may have longer-lasting effects by eliminating space for new artists and broad selection. Furthermore, even the $9. 99 price point has been artificially constructed by discounters hoping to entice customers and labels hoping to propel all-important first week sales (Deutsch). Noting the possible risks of this new low price point in Billboard, Ed Christman points out that â€Å"After all, at $9.99 the U. S. music industry currently has the lowest CD pricing at retail since the format was introduced here in 1983. † It is unclear whether imposing minimum advertised pricing at this point would even make a difference in terms of independent music stores. Many have already closed, and those that have stayed open have diversified or moved to a location free of big box discounters. The music industry may impose mandatory minimum pricing again, but low CD price points and the decreasing number of brick and mortar music stores will likely continue unabated. The internet has changed the distribution of music in ways we are only just beginning to imagine. The old models – for promotion, distribution, and sales – aren’t working in the age of the mp3. Clearly, continuing to hold on to past business models and attempting to fit new trends and technology into it has not worked out well for the major labels. A fear of competition and new technology accounts for the manner in which the industry attempted to deal with Napster. Afraid of lost profits, music industry executives from the top five record labels chose to batten down the hatches and lock away any possibility of negotiation with Napster. According to Joseph Menn, the author of All the Rave: the Rise and Fall of Shawn Manning’s Napster, this is partially due to a generational divide within the individual labels. Top-level executives are often â€Å"old-school leaders who turn purple with rage at the very idea of an MP3† (Menn 153), while younger up-and-comers saw the possibilities of this new technology. With the advent of webcasting and podcasting, along with XM and Sirius radio networks, traditional radio doesn’t have the same hold on the music buying public’s imagination that it once did. Increasingly, new artists are discovered by getting their songs played on television shows like The Hills and Grey’s Anatomy. The music industry is attempting to do to webcasting what it did to Napster, which is to essentially strangle it through lawsuits in the hopes of being able to squeeze money out of the webcasters. Instead of viewing web-based radio as a unique promotional opportunity, the mainstream music industry only sees profits being taken out of its pocket. At the same time artists are realizing which way the wind is blowing. Touring, merchandising, and publishing remain large chunks of income for both individual artists and music labels. The traditional record industry has become increasingly outdated and unable to keep pace with the digitized, connected world of the 21st century. Music downloading is hugely popular around the world, but particularly in places as diverse as Ghana and Brazil, where poverty is widespread and cheap mp3s have spread like wildfire. Maintaining the expensive overhead of a bloated recording industry through high price points for CDs means that music is only available to a certain class of consumer. Peer-to-peer file sharing has made music more widely available, and helped raise the profile of independent and unsigned bands. Clearly these benefits have to be taken into account while also denouncing outright piracy as clearly illegal. It is up to the music industry to come up with easy to use, innovative ways to incorporate the changes mp3s have made to their business, with successful ventures like iTunes leading the way. The specter of music piracy and lost profits have led the music industry into a premature grave, when they should be welcoming the opportunity to promote music in new ways and to new communities. WORKS CITED Christman, Ed. â€Å"Pricing Perils for Record Labels. † Billboard 26 May 2007. Lexis-Nexis. 15 May 2008 http://www. lexisnexis. com. Christman, Ed. â€Å"Why Labels Should Set Minimum Price Restraints. † Billboard 1 September 2007. Lexis-Nexis. 15 May 2008 http://www. lexisnexis. com. Deutsch, Claudia. â€Å"Suit Settled Over Pricing of Music CDs at Three Music Chains. † New York Times: NYtimes. com. 1 October 2002. 11 May 2008 http://query. nytimes. com/gst/ fullpage. html? res=9C05E5D91238F932A35753C1A9649C8B63.