Uploaded on Flickr by Gonzalo Barrientos

The music industry has been for the last 10 years casting around for a new distribution model to replace the rapidly fading Compact Disc distribution network. After spending the last five years on a strategy of suing your customer into submission model not really working they are stuck for ideas what to do next. Their strategy of attempting to control digital downloads (and the future of music distribution) is a failure because of ignorance and hubris. This hubris is fueled by an understandable fear that their franchise is on the rocks and a desire to control the next chapter of music. Had it not been for Apple and iTunes, the world of  digital music would have been dramatically different. Steve Jobs had the foresight to see what digital music could be and launched the now iconic iPod music player. In 2008, it was the first time that the number one selling album sold less than 3 Million copies (Lil Wayne 2.88M, Coldplay 2.15M).

The music industry has had near total control over the music distribution for the last 50 years and are very comfortable in dictating how, what and where of music consumption. This included the structure of an album where consumers were forced to purchase 11 or so songs in order to hear the one or two that you are looking for. (Although the argument was that artists could create cohesive themes around their music, albums were created mostly as a marketing mechanism to control pricing) However today digital music is predominately sold as single songs rather than albums (although there are some fabulous exceptions).

This fear that the music labels are losing control has caused them to invest in numerous attempts to build an alternative online presence that emulates the CD distribution strategy, the latest failure being Total Music. TotalMusic is or was a digital music distribution initiative created by Sony BMG and Universal Music Group. The idea was to offer an alternative to free music downloads but the service was so laden with restrictions that people who attempted to use it just got frustrated:

The history of TotalMusic is dramatic, filled with failed deals, major strategy changes, and an antitrust lawsuit. Since forming, the company has proposed two new revenue models for music: the first was to offer end-users a large library of music for ‘free’, by building the cost of the music service into their music devices. That plan didn’t exactly work out – in early 2008 the Department of Justice launched an anti-trust probe which derailed the idea.

Then, last summer, the company came back from the dead. The second new model was meant to serve as a departure from the way music has traditionally been licensed on the web. Historically, the major record labels have charged sites per-song fees for streaming, badgering everyone into submission with threats of lawsuits and steep penalties. Major sites like MySpace and imeem are held under this kind of agreement, as are many smaller sites which are having trouble sustaining themselves because of the high fees (even Pandora, a streaming music site that had the most popular iPhone application of 2008, has worried about having to shut down).

The industry is desperate for an alternative because they are seriously concerned with the market power that Apple now has in the digital music industry. They foresee an industry dominated by a single digital retail vendor who controls the when what and how of distribution.

Total Music and Ruckus are a good example of the mess the industry is in. Unable to put a coherent online strategy together, they can’t even execute on a half-decent strategy like Total Music. The idea was to create a centralized hub where a centralized web presence managed digital subscription models. For example, you can manage mobile phone subscription, MP3 players, website widgets, online stores etc. The idea was to create a portal where you build your experience around subscription models:

With the Total Music service, Morris and his allies are trying to hit reset on how digital music is consumed. In essence, Morris & Co. are telling consumers that music is a utility to which they are entitled, like water or gas. Buy one of the Total Music devices, and you’ve got it all. Ironically, the plan takes Jobs’ basic strategy– getting people to pay a few hundred bucks for a music player but a measly 99 cents for the music that gives it value–and pushes it to its extreme. After all, the Total Music subscriber pays only for the device–and never shells out a penny for the music. “You know that it’s there, and it costs something,” says one tech company executive who has seen Morris’ presentation. “But you never write a check for it.”

They cannot help themselves. They are physically unable to stick with and execute a plan. They know they have to give up the habit in order to create a future for themselves, but just can’t let go.  Sony had given the MP3 player market to Apple through it’s inability to execute on a new plan, and now the labels are doing the same.

However, they ultimately do not have the stamina needed to build a global licensing engine that could manage the entire experience around supporting an artist, and herein lies the problem and the solution.

But to understand how best to solve the problem, we need to understand rights and royalties. There are two basic packages of rights, Publishing rights and Performance Rights. When we think of performance rights we think of every time a given song is played on the radio or at a concert. That original performance, such as the Beatles performing “Please Please me” played on the radio creates a royalty payment to the owners of the performance rights. The other bundle of rights is the publishing rights. These are rights (and royalties) revolve around getting people to record the song such as remake, sheet music and performance rights from third parties. These rights go to the accredited songwriters such as Lennon/McCartney so it is very important to have your name as an accredited songwriter because of these rights (and royalties).

To illustrate this consider the Beatles and the songs they created. The publishing rights are owned by a company called Northern Songs Ltd which was formed in 1963. This was a partnership between Dick James, Brian Epstein and the Beatles members. In 1965 the company was taken public for taxation reasons. Ultimately Northern Songs ended up in a joint venture between Sony Music and Michael Jackson where it remains today. Note however Lennon/McCartney still receive 50% of the royalty rights as songwriters (the other 50% is Northern Songs). Tis situation remains today. (This is true of most songs except for the four songs on the first two singles. These are now owned outright by McCartney).

The rights to the performances belong to Apple Corps, which is technically a partnership owned by McCartney, Starr, and the estates of Lennon (i.e., Ono) and Harrison (i.e., Olivia, his second wife). Those rights are licensed by Apple to EMI however Apple Corps have a lot of control over the exploitation of those rights including digital rights (which have so far not been granted despite Steve Jobs attempting to access those rights, which is why so far they have not appeared on iTunes).

This means that the rights to build an online licensing experience does not reside strictly with the music labels, Universal et al, it lies with a number of people, all who have to come together to realize a digital future. The future of the music industry is in tying all the experiences together, from digital downloads, to tickets, to swag, sheet music, you name it.

However to make this happen this implies trust, something after hundreds of threatening court cases and acrimony is in very short supply.

[tags]music, music industry, itunes, apple[/tags]

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