In a keynote address to attendees of the fourth Plug.in Forum music and technology conference in New York on Tuesday, music industry veteran Danny Goldberg was frank and honest about how he thinks the Internet will affect the music industry.
"Will things change significantly? Yes," Goldberg said. "How?" he elaborated, "I don't know."
Formerly both chairman of Polygram's Mercury Group of labels and president and CEO of Mercury Records, Goldberg is currently president of Sheridan Square Entertainment and the recently formed Artemis Records, a label that he has said will fully exploit the marketing and distribution power of the Internet. He said that nearly every aspect of the music industry could change, as labels and artists take advantage of the marketing and distribution power of the Internet.
Goldberg maintained, however, that despite decades of experience, he is not in a position to describe how the 'net will change relationships between artists and labels, fans and artists, labels and distributors, or any other combination of involved parties.
"The future of the music industry is known only by 16-year-olds. They're the creative geniuses," he said.
Goldberg said that existing corporations and the best financed start-ups are most likely to survive the current period of uncertainty, because such ventures can afford to experiment, and occasionally fail.
Plug.in panelist Thomas Hoegh, founder and managing director of venture capital fund Arts Alliance, which has invested in Internet music ventures including music webcaster Spinner.com and news and retail site Launch Media, said that too many budding web enterprises are working hard to develop revenue models, at the expense of devoting resources to the creation of new user experiences that take full advantage of the Internet's potential.
"In the early days of the Web, nobody had a business model, they just had ideas. It was far more interesting than now," Hoegh said. "Things have become somewhat boring."
Hoegh said that when hungry businesses pitch him ideas he listens as a potential end-user, rather than as a potential investor. "I want to be shown something really cool that excites me as an Internet user," he said.
Panelist Jason Olim, president and CEO of online music retailer CDnow, said he hopes to do just that in coming months, as CDnow evolves since being recently acquired by major label partners Warner Bros. and Sony [see 7.13.99 Sony and Time Warner Merge Ecommerce Operations; Acquire CDnow]. The labels will adapt CDnow into a retail outlet that continues to sell music from all of the Big Five music companies (in addition to Sony and Warner Bros., BMG Entertainment, EMI Recorded Music and Universal Music Group), as well as independent labels, but showcases and extensively promotes releases from its owners.
Olim said that CDnow will incorporate multimedia programming, including AllStar music news, an online publication once maintained by N2K, the online retailer against which CDnow most closely competed until the two companies completed their merger in March.
The new CDnow will compete most closely with retail giant Amazon.com, but its most similarly modeled competition will be GetMusic.com, a cooperative music selling venture maintained by BMG and Universal. Both GetMusic and CDnow plan eventually to sell downloadable music from their respective sites.
Major music companies have approached the Internet as a music distribution channel with caution because technologies such as MP3 data compression recently adopted by music fans make it easy to use the Internet to trade manageably-sized files that sound almost as good as CDs. Record companies fear that selling insufficiently secure music files online will exacerbate the problem.
Labels have placed hope in technologies like watermarking and encryption systems that provide not only security, but also compelling new ways of selling music, such as pay-per-play, limited play, or tracks that are free until a given date, when they become unplayable until the user pays for a "key" that makes the track playable again.
Dave Goldberg, chief executive officer of Launch Media, pointed out, "The only thing that works in pay-per-view is boxing, and that's a business model problem, not a technology issue. We may be barking up the wrong tree, trying to figure out how to sell music on the Internet. I think it's going to be given away free to consumers."
Launch.com has recently given away free, downloadable music by the Beastie Boys, to generate mailing list contacts, and collect contributions to the Milarepa Fund, a Beasties-founded charity that aids citizens of Tibet.
"There are going to be opportunities for secure distribution, and there are going to be opportunities for non-secured distribution, just as the traditional marketplace is run today," explained panelist Hilary Rosen, president and CEO of the Recording Industry Association of America (RIAA), the Washington trade group that guards the corporate and legislative interests of record companies. "There is more music given away today off-line than online, as promotional items."
Critics of so-called free music business models say that music enthusiasts are happy to pay for the music they enjoy, and that artists shouldn't have to give away their artwork and be forced to draw income from only merchandise sales and live appearances.
"Plus, consumers are far more eager to pay for music services than be bombarded by advertising," added Rosen.
The Secure Digital Music Initiative (SDMI) is an ongoing project involving music and technology companies joining to develop security specifications for commercial music, both online and on traditional media such as CDs. SDMI plans to develop new specifications for music on compact discs that will prevent MP3 files from playing on computers other than the one on which it was originally created.
Arguing against security systems for music, Andrew Rasiej, president and CEO of Digital Club Network, a network of nightclubs wired to webcast live performances on the Internet, said, "I believe people are fundamentally honest. Why is it necessary to protect music that presumably honest people have purchased on CD, to keep and use forever?" Rasiej asked Albhy Galuten, senior vice president of advanced technology for Universal Music Group, who has extensively tested security methods and music encoding systems for that label, and as part of SDMI.
"If they're honest," Galuten replied, "they shouldn't mind, or even notice, that I've made it difficult for them to copy and email it to 10,000 friends."
Galuten suggested labels might be best served to consider, as much as the concept of portable music, the concept of "portable rights."
"If I am a fan of Bob Dylan's I might be happy to spend $40 per year so that I could be in any hotel room in the world, let it recognize my name or my fingerprint, and allow me to listen to all of the Bob Dylan music I want," Galuten said.
Rasiej offered a prediction consistent with others made at the conference, comparing music business apprehension toward downloadable music to the development of the home video industry during the 1980s. Initially film studios feared home video and pay TV services would find consumers taking movies for granted, and that revenue would be lost because people would stop going to movie theaters. Instead, video cassette sales and rentals eventually tripled total motion picture revenue.
"Today, 60% of the movie industry revenue currently comes from the sale of video cassettes," Rasiej said. "Our industry is going to be bolstered by digital distribution. There will be more artists, more music, more choices. We're going to have a huge industry here."
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