MidemNet Thoughts: Music Biz Chasing Its Tail; Is Legal P2P The Answer?

The music industry stands at a critical juncture (no, really this time) – but some people don’t think it’s capable of making leaps bold enough to avoid financial oblivion.

Two years ago, Midem-goers fretted over whether dropping DRM would satisfy consumers frustrated at digital limitations on their purchases; last year, subscription and ad-funded new services promised to woo buyers with free or cheap downloads. But still the rate at which money is being lost is accelerating – music revenues are forecast to halve between 2001 and 2014.

This can’t carry on. For yet another year, music industry bigwigs wrung their hands over how the complexities of pan-European licensing prohibit download services from selling their tunes. But this should be the easy bit. DRM has gone, at least for song retail; subscription services through the likes of Omnifone and Nokia (NYSE: NOK) are a reality – but still the music industry’s own main umbrella body reckons an overwhelming 95 percent of downloads are illegal. Perhaps it’s time to think big. Perhaps it’s time to admit that, in the future, no-one will pay for music anymore.

The UK business is awaiting the recommendations of Lord Carter’s Digital Britain report – but it is likely to favour either fighting P2P through co-regulation (if ministers get their way) or tackling P2P through self-regulation and the eventual creation of new bundled music services (if ISPs and labels get theirs). Aand that could mean more of the same – a fragmented landscape and revenue left on the table.

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Legalise P2P: “Basically this market is dysfunctional,” self-appointed Swiss “media futurist” Gerd Leonhard said at MidemNet: “Control has not worked – end of story. Let’s switch from control to providing permission.” On a panel, he told UK Music CEO Fergal Sharkey, BPI CEO Geoff Taylor and ISPA secretary general Nicholas Lansman to stop trying to prohibit P2P when they could profit from it – authorising ISPs to let let P2P downloads happen on their network, as long as they pay the music biz for every track transferred.

Restore value: On the numbers, legal P2P could restore value from the more than nine-in-10 downloads that are currently unlawful, even with only small per-track fees. But each of the three trade body bosses dismissed Leonhard, some of whose other ambitious suggestions this weekend didn’t exactly endear him to traditional Midem-goers, with aghast faces – still favouring models in which money changes hands and clinging to confidence that warning the lawbreakers will work. Ex Undertones frontman Sharkey berated the “pseudo-intellectual cyber-professors” who propose such crazy schemes from afar, arguing that, on the whole, this clear demand for downloading made the music biz a “successful industry”…

Compete with free: Leave it to another rocker, Billy Bragg manager Peter Jenner, to completely disagree. “What ‘successful’ industry are we talking about?,” he asked. “Let’s face up to it – this is the music industry, which is in the f***ing dumper.” Agreeing instead with Leonhard, he said legal P2P could return “some kind of floor providing income”: “The reality is we’ve got to compete with free.”

Free culture: Sharkey has worked hard to bring the relevant bodies to near-united positions (or at least, united against government regulation) – but, as long as their preferred solutions involve consumers paying money, are they the right solutions? For sure, making all of music free, admitting that law is no deterrant, would have a significant impact on how we consume cultural artifacts generally (when everything has a zero pricetag, who’d bet against it encouraging social selfishness, even shoplifting?). But all kinds of content already come free funded by ads, and the legal P2P model proposed by Leonhard and others is effectively just the same radio model that has operated for decades.

Whether the financials can stack up when applying this model to music downloads is a question for someone with a good feel for copyright economics (and ISPs won’t be happy about paying for content). But even those people know that the majority of online music activity right now is unexploited financially. The prime consideration is ensuring new music can continue to be funded (if music ever gets in to theatre’s moribund state, it will require state funding) – so it’s equally as vital that some workable model is agreed soon. Sad as it may seem, that process must ask: has people’s moral compulsion to pay for music disappeared?