Warner Music Group’s recent announcement about wider losses in the third quarter, due to an increasing trend of consumers switching to digital downloads, highlights the changing nature of the music industry.
Even as Warner posted higher overall losses due largely to the decline in CD sales, its digital revenues were up 29% from the same period last year. The sharp increase in digital downloads at the expense of CDs presents significant challenges to both recording companies and artists.
First, digitally downloaded music makes peer-to-peer file sharing far easier compared to music on a CD. However, the file sharing problem has been around for a while and, according to a recent column by Michael Geist, law professor at the University of Ottawa, it is only a minor reason for the decline in sales. Record labels have a far greater reason to worry, because in the digital information era artists are increasingly bypassing the traditional record deal in favour of new, innovative ways of marketing themselves to fans and generating income.
A quick news search nets many examples. Led Zeppelin are “at last” going digital and making their entire back catalogue available for digital download from online music retailers. Radiohead have made their latest album downloadable without any copy controls from their web site on a pay-what-you-want basis, where you can pay from nothing to £100. While any financial returns for Radiohead from this unprecedented move are as yet unknown, Geist notes how other high profile artists like Oasis, Nine Inch Nails and Jamiroquai are also reported to be looking for new ways of commercial gain that don’t necessarily involve their existing record labels. In her latest move, Madonna is ending her 25-year career-long relationship with Warner for a “ground-breaking” all-in-one contract worth $120 million that gives tour company Live Nation rights to her new albums, tours, merchandise, DVDs, even television shows and films.
If current trends are any indication, more artists can be expected to abandon their conventional record deals, or at least supplement them with online digital sales and other options like direct artist-retailer commercial relationships.
Reliance on suing thousands of individual music fans for copyright infringement through file sharing is not the solution for recording companies who want to turn around dwindling sales and rising losses. According to BBC, most such lawsuits are settled privately for a few thousand dollars. Even the recent (and so far only) victory for recording companies against a file sharer – a lower-income, single mother from Minnesota – sends the wrong message to music fans and the general public about the recording industry, and that can’t be good for business in the long term.
Similarly, as Geist contends, recording companies will not benefit significantly from copy protection technologies and government intervention. The decade-old strategy of placing copy controls (backed by legal measures) on music files has not worked; never mind that copy controls can be argued to be an unjustified restriction on the personal property of those users who have legally purchased music, whether online or in the form of CDs.
Digital downloads are here to stay. They provide greater accessibility to music to a wider range of people. Many of these people may not want, or be able to afford, entire CD packages but would benefit greatly from cheaper online options. In this sense, the availability of digital downloads amid pioneering moves by artists like Radiohead would arguably discourage file sharing and copyright infringement, because fans may be more willing to pay for the music to support the artists they like.
Rapidly advancing technology has transformed and continues to transform the way we obtain, store, transfer and enjoy music. Continued innovation is perhaps the only viable option for the recording industry, especially considering that government-imposed levies, legal sanctions and forced copy restrictions are all unfriendly to the ultimate user.
Artists seem to have already realized the benefit of new and creative ways to market and distribute their work. Warner Music Group (and its counterparts) will also have to develop and invest in new and innovative business and research strategies in order to return to profitability. Warner’s chairman and CEO Edgar Bronfman Jr. is already talking about the need for the recording industry to develop a new higher-quality platform that provides more value for consumers than the CD.
The music industry is indeed changing, but it is a change that is breeding entrepreneurship, creativity and innovation, and that can ultimately only be a good thing for everyone involved, including us as consumers.