| Joe, a 28-year-old Calgarian, recently bought a computer, and in three weeks he downloaded about 100 copyrighted songs using Internet file-swapping software WinMX. He listens to some of them on his computer's speakers and burns others onto CDs so he can play them in his car or home stereo.
"(Downloading music is) cheap, convenient and allows you to put together entire discs of music you'll actually listen to," says Joe, whose name has been changed to protect his identity. " (It) also allows you to keep up to date with music. Plus, if I get tired of a CD, I can stop listening to it without thinking it
was a waste of money."
Joe knows swapping copyrighted music files using peer-to-peer software services such as WinMX and Kazaa may be illegal, but doesn’t feel much guilt about it. He also says he doesn't spend too much time worrying about the impact of file swapping on the financial health of the recording industry.
"I understand that people are losing money on it, and I feel bad for the average person who works behind the scenes on a record," Joe says. " That being said, I don't feel sorry for the millionaire record execs or artists who might only make $10 million this year instead of $15 (million).
"(I feel guilty) only a little bit, but not enough to stop downloading."
Still, those who have a vested interest in the future of the recording industry are very worried about people like Joe.
After years of threats and debate, the music industry is facing a serious economic slowdown, and fingers are point squarely at Joe and millions of his compatriots who illegally trade music files online. They say online music swappers like Joe have stopped paying for music legitimately and that loss of revenue is hurting.
Accusing Internet users of single-handedly harrying the downfall of the industry is undoubtedly simplistic, but whatever the reason for the downturn, the dreary economics are real – in Canada, where Internet use and broadband Internet access is greater than in the U.S., record companies have laid off scores of employees the past few months. Brian Robertson, the president of the Canadian Recording Industry Association, says retail music sales have fallen 20 per cent in the past two years.
The downturn has become serious enough that people are starting to ask questions that would have been unimaginable even five years ago – are we seeing the end of the music industry? And if so, what will happen to music?
The problem
Robertson may not be as well known as his derided American compatriot Hilary Rosen, who recently stepped down as head of the Recording Industry Association of America, but he is the man behind a high-profile campaign attempting to convince Canadians to pay for music. He has no qualms about blaming file-traders for the music industry's slide.
"A whole generation of young people is growing up thinking they don’t have to pay for music," he says. "That’s getting to be a big concern to us and that’s where a little common sense has to come in.... Artists need support and songwriters need support and (consumers) have to give something back if they want to enjoy this in the future."
However, file-traders aren’t exclusively to blame for the industry’s woes. Competition from video games and DVDs is undoubtedly hitting hard – video games sales were up 12 per cent to $31 billion in 2002, according to the Informa Media Group, and the Canadian Recording Industry Association’s own statistics say DVD sales through March were up 101 per cent over last year. Contemplating competition against such figures can be numbing.
The industry itself doesn’t get off scot-free, either – its reliance on radio play, Top 10 charts and replatforming to make bags of money over the past 25 years has had a major impact on sales. Those practices have long been criticized by musicians and music fans because it meant less focus on pioneering artists and more on top-selling pop stars. Not ironically, some critics say those practices may be what makes it so difficult for the industry to compete with the file-trading behemoth
Legendary record producer and noted industry observer Sandy Pearlman (Blue Oyster Cult, The Clash) says the recording industry’s cash cow for the past 20 years has been replatforming – the practice of reselling old music in new media, or convincing consumers to buy the same album on CD, for example, even though they already owned it on cassette or vinyl. However, with the arrival of new technology in the past few years, replatforming has been virtually completed by consumers themselves on their computers, without the industry's involvement."
"(The industry) couldn't agree on a (DVD) standard and instead of mass replatforming everything on DVD, along came the mid-’90s and MP3s, and the whole thing got replatformed on MP3 for free," Pearlman told Fast Forward. "Instead of making a killing, they didn't make anything."
Meanwhile, the industry's focus on what Pearlman calls the "commodity Top 10" – hyper-popular pop media packages, of which music is but a small part, such as Britney Spears and *NSYNC – are also the most downloaded and swapped online, hitting the industry even harder.
"That commodity Top 10 is just being blasted by downloading, whereas some awesome but obscure band… is not being particularly affected by it," Pearlman says. "Traditional profit centres – the big pop artists – became a species that was radically endangered because it turned out to be the type of music that is the most pirated of all."
Even legitimate Internet music sites haven't been able to keep up to pirates. Apple's online music service iTunes, which launched in April with 99-cent song downloads, spawned a gusher of media attention when it announced it sold a million songs in its first week, but those figures declined steadily over the following months and the impact of the recent launch of Windows-compatible iTunes software has yet to be measured. A recent spate of legitimate online music sales sites, such as Canada's PureTracks.com, made a splash initially, but their long-term success is still far from certain. Fundamentally, they simply may not be able to compete with services such as Kazaa, which offer infinitely more choices at no cost.
The industry has also consolidated at a furious pace the past few years, with massive mergers, often based on dubious economic premises, shrinking the industry down to only five major companies. And by focusing on disposable pop acts, many record companies have forgotten a basic economic tenant – diversification.
"The commodity Top 10 is collapsing, and I, for one, can only say ‘Thank God,’" Pearlman says.
The impact
Calgarian Paul Johnson spent 20 years in the music industry before choosing to leave it recently in the wake of another round of cutbacks. He has seen a stream of layoffs the past few years, and is starting to worry that financial difficulties faced by record companies are making it difficult to foster passion for music in consumers.
"The problem there is you’ve lost value in something. There’s really little value placed on music," Johnson says. "There are going to be waves of people who just don’t care about paying for music.
Johnson says changes to the way record companies operate is inevitable, but as those changes unfold and record companies struggle, he worries artists will have a tough time making a living, talent will go undeveloped and consumers will have difficulty learning about music and artists.
"There’s a wheel of economics that exists and if record companies aren’t making their costs... if that wheel isn’t being fed by income, in 10 years time your 10-year-old son... is not going to know what to download."
Whether it's the music itself or the music industry that cultivates passion in consumers is debatable, but Johnson isn't the only one who has seen how the current downturn is impacting the industry. If the current slide continues, cutbacks are inevitably going to impact artists.
"I just know when record companies are making staff cuts, I’m sure A&R cuts could be next," Brian Robertson says, referring to artist and repertoire representatives who sign artists to contracts and develop musical talent.
In the industry's eyes, A&R cuts result in fewer artists signed to recording contracts, less money to develop their talent and less money to promote those artists to consumers. That may not be such a bad thing, if you believe Pearlman's assertions that record companies have put too much of a focus on Top 10 pop stars, but it will undoubtedly impact the way the industry currently operates.
"It’s very unfortunate because there are many, many very passionate people in the music industry," Johnson says. "It’s unfortunate because these people are not with record labels anymore."
The future
The recording industry has tried a number of methods to stop the trade of pirated music online – the courts were used to shut down peer-to-peer trading services such as Napster and Audiogalaxy; an education campaign is under way in Canada to encourage people to pay for music; and the recording industry in the United States is now suing some file-traders. Those strategies may ultimately work, but there are few indications they are stopping piracy. In May, Kazaa hit 230 million users, making it the most downloaded software application in history. Three months later, it was still being downloaded by three million users a week.
Pearlman has his own industry-saving idea. He proposes seeking payment from some of the true beneficiaries of the explosion in online file trading – the information industry. He says implementing a micro sales tax on hardware manufactures and Internet service providers such as telephone and cable companies to collect money for the music industry is equitable and realistic under the auspices of international financial institutions such as the World Trade Organization.
"Most of the growth in current sales of the worldwide computing industry is because of the tsunami of piracy," Pearlman says. "One-tenth of one per cent of the world information industry… is about as much as was paid out in royalties produced in the EU (European Union) and North America last year.
"Everybody who should get paid, will get paid."
Others say the very technology being blamed for the problem is going to save music by completely realigning the industry.
David Owens, an expert in digital music at the University of Toronto, says there are sound financial advantages to artists bypassing record companies altogether – digital technology has made recording music affordable, and marketing and selling online eliminates capital, manufacturing and packaging costs.
"Some of the slack is going to... be picked up by the entrepreneurial spirit," he says. "People want their music in digital format and they are not willing to go back to the last millennium."
Even the recording industry is starting to acknowledge the need to change
"One just has to turn this corner," Robertson says. "The upside is very positive."
However, the priority for the recording industry during the past few years seems to have been talking about change rather than actually changing. Even with the flood of legitimate online music offerings hitting the Web, the music industry's focus has largely been on trying to convincing consumers to return to buying CDs – for example, Universal’s recent decision to slash CD prices – rather than on pushing forward with new ideas. Simply put, it may be too little too late.
Those looking to new paradigms of music creation, to use an industry term, tend to be outside the mainstream recording industry, which means that real change may come from the outside. That also means the future of the current industry may not just be in trouble, it may be already gone.
Even consumers recognize that the industry needs to change and are waiting for it to catch up.
"I think the industry will change, but it could be for the better," Joe says. "It might be a cop-out to ease my conscious a bit, but the artists never say they're in it for the money. They say they want to be able to express themselves and want to tell their stories and such.
"They're still getting that opportunity, perhaps even on a larger scale." |
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