Despite piracy issues, music online continues to gain popularity. Value and business smarts will triumph over scare tactics in the continuing saga of downloadable tunes.

We wrote our last spotlight on music a year ago this May and the question remains: What will the music industry do to stop the hemorrhaging?

We’ve seen things start to move in the right direction, toward the music industry making the necessary changes to its business model to harmoniously co-exist with its consumer base. The wild success of Apple’s iTunes is a great example.

At the same time, though, the RIAA is still suing teenagers, digital rights management technology is still a big question mark, and consumers are still upset that CDs they’ve purchased don’t work on their computer CD-ROM drives or in their cars. There’s positive change occurring, but consumers are still waiting for the music industry to get its act together and quit alienating its customers.

A Glimmer of Hope: iTunes

Months ago, one of our people here at Underscore started pushing the rest of us to get into iTunes. “Are you crazy?” was the initial reaction. After all, why would anyone pay 99 cents for a piece of music that was freely available through the various P2P networks? (Not that we’re big downloaders here—we just have problems with paying for stuff when everyone else can get it for free. RIAA, take a deep breath and put down the Bat Phone to the lawyers. Thank you.) Truth was, the value proposition didn’t make sense on its face. Why would anyone pay for something they could get for free?

It took a $20 iTunes gift certificate to convince Underscore’s president to try the service and see the advantages it offers. In comparison to downloading from P2P networks, iTunes offers the following:

• It’s completely legal. No RIAA subpoenas will come from using iTunes. And you get a warm fuzzy feeling that comes from knowing you’re not screwing Metallica out of what’s coming to them.
• Real servers. No waiting four hours for that elusive live version of Pearl Jam’s “State of Love and Trust” to download from a guy in Zanzibar on a 14.4 connection. Music arrives quickly and completely.
• Tunes are easy to find. And there are so many ways to find them, from drilling down in hierarchical menus under a music genre to the intuitive search function to browsing playlists offered up by musicians and other celebrities.
• Integrity is preserved. No more waiting two hours to download what you think is Government Mule’s live cover of “Little Wing,” only to find out it’s really Tiny Tim doing “Tiptoe through the Tulips.”
• No spyware or viruses. ‘Nuff said.
• It’s a community. iTunes Essentials provides recommendations, like a playlist of “must have” cover songs. Users can also see the most downloaded songs and albums. Celebrities like Kevin Bacon, The Flaming Lips and Alice Cooper offer their recommendations as well. This is more than a download app, it’s a music lover’s focal point online.

At the same time, iTunes has some weaknesses. Thankfully, almost everything is fixable.

• “Hey, where’s the Led Zep?” You’re not going to find all of your music on iTunes. You may find an obscure song from Black Oak Arkansas with one search, and not find “Stairway to Heaven” by the original artist in the next. There are lots of major artists, albums and songs missing that you might expect to be there.
• Only mainstream artists need apply. You’re not going to find a lot of indie bands here. Some lesser-known artists are up, but you’ll probably have better luck on the P2P networks when looking for that band you saw at CBGB last Friday.
• Comparatively poor selection of rare and live music. For many, the attraction of the P2P networks is the ability to trade bootlegs. On iTunes, you’re not going to find Van Halen doing “Runnin’ With The Devil” live at the Pasadena Civic Auditorium in ’77. But you will find it with WinMX or Kazaa.
• • You only get the music, but you pay the same price. No packaging, no liner notes, no album art, no CD, no jewel case—but the price point is the same.
• • It costs money. But that’s okay. If iTunes is marketed appropriately, many online music aficionados will gladly trade off the 99-cent-per-song typical fee for the advantages listed above.

EMusic and Other Alternative Models

“The best thing I've seen online to this point has been EMusic,” says Al Crisafulli, freelance music writer and owner of indie label Dromedary Records. “Up until November, EMusic offered monthly subscription fees for unlimited downloads of a catalog that included titles from tons of excellent indie labels. Not just micro-indies, either, but labels like Vagrant, Matador, Alternative Tentacles, Kill Rock Stars, and Epitaph. Unfortunately, though, they changed their model—the $13-a-month I once paid for unlimited downloads now only gets me 65 songs a month.”

Other models, like those of record-company-owned services MusicNet and Pressplay, offered unlimited streaming and limited burn-to-CD options. Many consumers, however, viewed them as a rip-off, complaining that the models attempted to make money renting music as opposed to selling it.

With the success of iTunes, the new model is starting to emerge. But there are still problems. For instance, there’s no digital rights management (DRM) technology emerging that can keep file traders from continuing to share copyrighted works. One can pay to download something from iTunes and then share that file on the P2P networks.

DRM: A Promise Unfulfilled

Speaking of DRM, there’s nothing to speak of in the digital world, unless you count Microsoft’s Windows Media Audio format. Used in almost every Windows-based music download offering (except for iTunes), WMA can be effective at combating illegal file sharing. But can only be marginally effective at best when consumers can still get unrestricted MP3s.

For the most part, record companies and other stakeholders in music distribution have invested in copy protection technology that prevents end users from using computers to copy music from CDs. Nearly all of these efforts have resulted in ticked-off consumers who find they can’t play their CDs in their cars, their PC CD-ROM drives and in certain home CD players. Lawsuits have been filed, both in the United States and abroad, against record companies for failure to meet functionality expectations.

MP3 Surges in Popularity (Again)

2003 saw the explosion in popularity of MP3 players. MP3 is well past the early adopter stage. No longer are consumers only playing MP3s on their computers or memory-anemic portable players. Many portable CD players allow users to play CDs that contain MP3s. Burning MP3s to CDs as data files allows users to cram 75 to 125 songs onto a typical 650 MB CD, as opposed to the 10 to 20 songs they’re used to with CDs they buy at the music store.

Portable MP3 players are getting really popular as well. Whereas a typical MP3 player sported between 32 and 128 MB of onboard memory not too long ago, these days they have enough to store a music fan’s entire album collection. Apple’s iPod was tops on many consumer Christmas lists this past year. The top model iPod offers 40 GB of onboard memory—more than enough to store 10,000 songs. A new offering from Apple, the iPod Mini, shoehorns 4 GB of memory into a device that weighs just 3.6 ounces and is smaller than a cell phone. The device can easily carry 1,000 songs and the rechargeable battery allows for eight hours of play at a time.

MP3 has surely gone mainstream. A device from Linksys allows users to beam MP3s from their computer to their stereo wirelessly via Wi-Fi. Many car stereos can read the MP3 format, as can home CD and DVD players, both fixed and portable. Clearly, the music consumer has found something he likes.

Sue Me, Pal

The last several months have seen the RIAA file suits against individuals for sharing copyrighted music over the Internet. Consumers, watchdog groups and other critics have been quick to criticize this approach, especially after hearing that children were among those targeted with lawsuits.

“The bottom line hasn't changed,” says Crisafulli. “The record business continues to release inferior product, and force the consumer to pay top dollar for it. The consumer continues to rebel. But now, the industry has taken things a step further—they're initiating lawsuits against individuals. Of course, this isn't a customer-friendly practice—but the record industry has never been a customer-friendly industry.”

While the media has a field day anytime the RIAA files suit, especially when the target ends up being a 12-year-old girl, indications are that this approach might actually be working. In November, The NPD Group released data that indicated that in August, 1.4 million households removed all the digital music files from their computers. Attributing this to the RIAA’s anti-piracy campaign, NPD also mentioned that there was an 11 percent drop in the number of households using P2P networks to share digital music files from August to September. Watchdog groups questioned whether or not there was a cause-effect relationship between these declines and the RIAA suits.

What is clear, however, is that the recording industry is suffering from a consumer perception perspective. According to a November article on TechWeb, two thirds of people who had recently shared files online, as well as 40 percent of people who hadn’t shared online, had indicated that the RIAA lawsuits caused them to have a “much more” or “somewhat more” negative opinion of the recording industry.

What About Adding Value?

There are two things that can protect the recording industry’s interests while satisfying the wants of the consumer: creativity and added value. Creativity can help add value to the consumer and give them new ways to interact with and purchase music.

“Some artists and labels have tried some unique things to encourage consumers to purchase the CD from a retailer,” says Crisafulli. “Matador, for example, has their entire catalog from the band Mogwai available for download on EMusic, with the exception of the most recent release. The CD version of their most recent release, however, contains a demo version of the music recording program QBase, along with all the individual recorded tracks that comprise one of the songs on the CD. This allows you to load QBase onto your computer and remix the track on your own. This is a pretty unique approach, and I think Matador could take it a step further by including more remixable tracks on future releases—maybe they could even encourage fans to send in their re-mixes, and make the best ones available for download on Matador.com.”

Perhaps the music business should concentrate on addressing increased consumer expectations instead of fighting hard to preserve outdated models. In this way, both consumers and the recording industry could be happy.

About Underscore Marketing
Underscore Marketing is a next-generation media and strategy shop founded in May of 2002. Since its inception, Underscore has attracted top-notch talent, including some of the innovators who have helped guide the industry through the emerging media landscape. Underscore’s deep understanding of all forms of media drives its success as a cross-platform shop that delivers top-notch expertise to its clients, both in planning and in execution.