The eMusic Market: Playing in the Key of "e"

How the internet and digital music is changing the music industry

I admit it. I was a vinyl junkie.

The days of racing home from the local record store, with large plastic bags full of grainy sounding vinyl may be a thing of the past, but the compact disc revolution will seem mild compared to what is coming. New technology and the internet is not only going to change the method of transmitting and storing musical content, but the very way the music industry is structured.

I can remember very clearly walking in the driving rain to a record store to collect the new Throwing Muses' "House Tornado" album, which I had ordered some weeks before, sometime in October 1988. I had waited over a month to get it. It is the last time I can clearly remember buying a vinyl LP. Now it seems that even buying compact discs may become a thing of the past, or at least the conventional manner of buying.

The revolution has begun, and it started on the internet. Like many other technology revolutions, the web is causing shock waves throughout the music industry. The development of on-line digital music, recordable CDs and memory digital playback devices (for MP3 and WMA format) means that a whole new range of ways to receive music is opening up. At the same time, selling music through the web opens the door for many new retailers to enter the market for the first time.

The New Retailers

The effects of this music revolution are being felt already. Like the retail book market, ruled by Amazon.com, music is a becoming a big web seller. Worldwide sales of CD's sold via internet retailers grew by over 400% in 1998, amounting to over $200 million. It is expected that this will continue to rise, reaching $1 billion by the end of 1999, which accounts for 2.5% of global sales. This may seem like a small amount of the total music market, but the sheer speed of the growth and the fact that 80% of the sales in the U.S. , the main purveyor of online CD purchasing, came through only two retailers - neither of them traditional players - speaks volumes.

Could the internet, while offering a new distribution channel for independent record companies and individuals, allow for a freeing up of the medium, dissipating the control of the major industry players? Will there just be new giants controlling parts of the industry, along with the big five of BMG, EMI, Sony, Universal and Warner. Can we envisage a future where small independent labels and unsigned acts will be able to spread their commercial wings as never before?

The Downloadable Jukebox

Another new way of purchasing music will be through off-line downloads. This entails selling music from the internet through kiosks positioned in record stores. In this instance a customer can locate songs from a specific software program, which is also a site on the internet and download the material onto recordable CD's in shops in the space of a few moments. Sony Music has already made a deal with Digital On-Demand to sell its back-catalog through digital distribution in kiosks at Virgin stores. EMI has followed this up with their recent announcement that they plan to make their entire back catalogue available. EMI are hoping to launch this service in early 2000. The other major labels and large retailers will almost certainly follow suit.

So, what will this mean for us, the music punter? Essentially it means that we have a better chance of going into a record store and actually getting the music we want. By keeping their huge catalogues on the net and downloading them via these proposed kiosks, the major labels will provide us with access to a much larger amount of titles and artists than most record stores could possibly hold in stock. It basically cuts out the need to purchase pre-packaged music. It is like having a custom-made pizza - we can program any music that we like onto a CD, not necessarily from the same album or even artist.

Record companies such as EMI are calling it "The soundtrack to your life" but in real terms it means that we can purchase our own greatest hits packages as we see fit. It will probably mean an expansion of the listening post idea, whereby we will be able to listen to some or all of a song by an artist as we "browse" through the on-line inventory, before deciding to purchase. It may be some time, however, before the public adopt the full capabilities of this technology: digital down-loads directly from the net by PC, onto our own CD burners in the privacy of our own home.

Home is where the Net is?

Analysts predict that digital music on the web, which already exists, will eventually become the main method of purchasing music in the future. As a consumer, I will be able to check songs or artists, and then download what I want directly from sites on the web to either a CD burner or load it onto an MP3 player, or similar technology. The MP3 is quickly becoming the standard for digital music, and has led the music "big guns" to set up a Secure Digital Music Industry (SDMI) to agree to formats for the new technology, and to stop piracy.

Indeed the possibility of piracy is one of the main things that has been driving the industry, with pirated copies of music already available downloadable free from the net. The main hurdles for digital music are the slow downloading speed and the low level of adoption of the new technology. With a host of new MP3 devices going on sale this year, it is expected that the price of the technology, like that of the Compact Disc player in the early 80's and the mobile phone this decade, will drop quickly. If the in-store kiosks become a hit with the consumer, then the growth of direct off-the-net sales from the home will grow quickly into the next century.

Punk ethos for a new age?

One of the areas yet to be fully understood is the impact of all this for unsigned bands or small independent labels. The possibilities are endless - we could envisage a world where any new band could sell its wares through the internet directly to a listener anywhere in the world. This would cut-out the need to actually press CD's and gain distribution, the major difficulties for a new band if they wish to release music without label support. This has already started, with sites such as the U.S. based Internet Underground Music Archive (IUMA.com), which specialise in localised, unsigned acts. IUMA.Com turned over $1 million last year selling music through the web. It avails of Liquid Audio to download music directly from the net on to the user's P.C., either to be played using the P.C.'s multi-media system, one of the new digital players such as the 'RIO' (see left), or burning directly onto a CD. All at a price obviously, but through a secure server for credit card transactions.

IUMA.com also highlights the fact that through this method, the artist receives up to 75% of the money from the sale, whereas with most CD sales the artist only gets 8-12% of the total price of a CD to the consumer. Yet there is a negative side - although artists will be able to sell through more direct channels with much lower distribution costs, and possibly more direct revenue per individual sale, the consumer will also have the ability not to choose particular tracks - so instead of selling a whole album, the consumer can choose just one or two favourite songs. This freedom of choice may not be in every artist's interest?

As music kiosks are introduced, the major labels are likely to gain control of this channel, and will want to sell their own artists and acts exclusively. The only possible conflict is where the large chains introduce general kiosks that highlight a range of artists from many different labels. At the same time, it is going to become increasingly difficult to get noticed on the web itself, as more and more sites are added. Having a strong brand name will be critical to getting noticed in the first place, something the major music labels are well positioned to do through their artist rosters.

The times they are a changin'

Although in the long term the major labels will probably have the advantage, the new technology will make it easier for new acts to escape the process of having to be signed to a large music label. The new technology will enable many artists to go directly to the consumer in ways that would never have been envisaged ten years ago. Irish band "Furry Waters" is one such pioneer of the new era, using their own web site to sell music on the internet, and the numbers of unsigned bands doing this is growing.

Whatever the effects of the new technology will eventually be on the music industry, there is no doubt that it's impact will be enormous. It will force the established players to compete with new entrants and also give individual acts more access to the music making process. There are also industry wide developments occurring. The British Phonographic Industry (BPI) has commissioned Andersen Consulting to study the implications of the internet's growth for the music industry. The BPI will debate whether or not to set up a jointly operated online sales system for the industry.

The internet will change the way we perceive entertainment. Live webcasts such as The Divine Comedy at the recent R.E.M. concert through their Irish owned, London-based label Setanta records, has increased the choice of mediums that consumers can view any form of entertainment. Yet to come is digital television, which will be online soon. This is another technology that will have long lasting effects on the whole media/communications industry.

There will be no part of the music industry process, be it artists, publishing, production or distribution of material, that will not be effected in the long term. Industry players are having to quickly align themselves to the new competitive environment. With the benefits, for both industry players and the individual consumer, of digital music, live webcasts of concerts, online videos, artist related chat rooms, direct merchandise sales and a lower cost method of launching new acts, there is little doubt that the internet is here to stay.

Gordon Mc Connell

Listen to songs by unsigned artists on the CLUAS New Music page.
Irish music fans can now have their entire CD collection converted effortlessly to MP3 by Go Digital.

Do you think the change coming to the music industry is good or bad for you, the punter? Post your views to the CLUAS discussion board.