Thanks for Sharing

According to most major label record executives, illegal file sharing is largely responsible for the great decline in the sales of their products over the past twenty years. Beginning with the original Napster in 1999, the practice of electronic transfers of music in the form of mp3 files to non-paying customers has been widely villified, leading to legal action against the companies behind the programs and sites, as well as members of the general public allegedly engaging in copyright-violating behavior.

This argument actually goes back to the 80's, when cassette tapes rose to prominance, leading to what would become the first of a long battle against the practice of sharing music. Those of us who were working in record stores at that time will remember the "Home Taping is Killing Music" campaign which was originated by the British Phonographic Industry (BPI). Never mind that studies also showed that the folks who did the most taping also happened to be the consumers who spent the most on buying their recordings. The precarious position of identifying your customers as criminals was established, and there was no turning back.

Then came the compact disc, a format so wildly successful and popular that the industry apparently was more than happy to overlook the fact that it was handing its "criminal" customers a digital copy of the original recording master in the form of unprotected data files on very stable media. Mp3's further compressed the data into a more efficient and portable file format, which made electronic transfers quick and easy. Copius free file sharing then ensued.

A few years later, with the record labels busy suing everyone in sight, it took the folks at Apple (of all people) to prove that people would actually pay for the ability to get their music this way, legally and without having to be a tech nerd. Even the record labels' initial demand that Apple employ "DRM" to the files so that they could not be endlessly copied, eventually was dropped.

While it is indisputable that file sharing has a direct, negative impact on record sales revenues, what seems to be constantly undervalued in this discussion is its marketing value. The record industry has always given at least lip-service to the value of "word of mouth." Now, with a few years of internet social networking under our belts, there is no longer any question of just how powerful this phenomenon can be to recorded music. There are countless examples of musicians who have successfully launched careers through MySpace, YouTube and Facebook. Record company A&R executives are now far more likely to find their company's next big pay-off through these services than by scouting clubs or listening to demos.

And here is where the emergence of cloud-based subscription services poses some challenges. In that world, those files are no longer in your possession to share. Most of these services make it easy to "share" music with other subscribers to the same service. And you should be able to "share" (by simply telling folks about it) most of your discoveries to subscribers of other services, where they can stream it as well (although, for competitive advantage, I'm sure we'll see plenty of "exclusive" content only available on a specific service). Ultimately, this is what the record companies say that they want: consumers have to pay to play. But it's possible (and would be ironic) that this increased control over who gets to hear the music proves to be such a disadvantage in the free flow of the marketplace that it actually suppreses some music's ability to find a wider audience, and ultimately, generate revenue.

*   *   *   *

I'd like to take Veronica's price-comparison model from her recent post and provide the perspective of the musician's part of the earning process. With the three examples, at E-Music the total purchase price was between 18 and 34 cents per track. I'll take the best-case scenario for the artist here and go with the 34 cent model. Here's how that revenue would split if all of the deals involved were "standard":

E-Music (30% commission):     11.1 cents

Songwriter(s) (per statute):        9.1 cents

Record Label (50% remaining):  6.9 cents

Artist (50% remaining):             6.9 cents

Under the best-case scenario for the artist with iTunes or Amazon at 99 cents, here's how the it pays out:

iTunes (30% commission):         30 cents

Songwriter(s) (per statute):        9.1 cents

Record Label (50% remaining):  29.95 cents

Artist (50% remaining):             29.95 cents                        

Choose accordingly.