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“As Things Stand Now, Digital Music Has Failed.”

image from That "delightful" quote comes from Forrester Research analyst Mark Mulligan. 

In a recent article in the New York Times, he states, "We are at one of the most worrying stages yet for the industry. As things stand now, digital music has failed."

An entire decade is behind us and there hasn't been much progress. Record company executives are starting to worry that the digital music business is already is big as it's going to get. Of course, many say that there's still hope to be had. As long as they can continue to curtail music piracy and make it harder to download music illegally, many think that the record industry can still rebound.

Killing Sharks

Basically, these executives still foresee a future where any infringing site can be blacklisted from the Internet or denied access to by ISP providers. They're still hoping for a "graduated response" system to be implemented in the US wherein users are warned and eventually banned from the web if they continue to engage in unfavorable behavior. They're still eager to take every torrent site operator into court and sue them for everything that they have like they will do with LimeWire.

It seems like this is what we have to look forward to in 2011: enforcement.

As Mulligan points out, this will only work if record labels embrace digital services that meet the needs and interests of fans. That means supporting Spotify and whatever else some hopeful college student is cooking up in their dorm room.

Sadly, as Jay Frank, who is SVP of music strategy at CMT, said last week, the music business is still in the CD to download transition while fans are clearly in the download to streaming transition. In other words, young fans are warming up to the idea of Spotify and Grooveshark and moving to access over ownership.

image from Meanwhile, the record labels are stalling the launch of one and preparing to shoot the other in the head with a spear gun.

Managing Decline

The young and the digital barely consider iTunes to be a business model and the record labels are still hoping that Apple will carry them back to CD-era profits.

In a previous interview I conducted, one executive told me that he thinks the business of selling copies is over and that all the major labels are doing well is managing decline. To quote business consultant Jim Collins in his latest book:

“Not all companies deserve to last. Perhaps society is better off getting rid of organizations that have fallen from great to terrible rather than continuing to let them inflict their massive inadequacies on their stakeholders. Institutional self-perpetuation holds no legitimate place in a world of scarce resources; institutional mediocrity should be terminated, or transformed into excellence.” 

That's the cold impression that my interview subject left me with. It's over.

In the terms of Collin's model of institutional decline, the major labels rest somewhere in between stages 4 and 5, which are aptly described as "Grasping For Salvation" and "Capitulation Towards Irrelevance or Death". While the record industry executives believe that piracy enforcement will be their path towards "Recovery and Renewal", it's hard to say if that's really their way out of decline.

Too Late

One thing is for sure. There's another major revolution over the horizon. The iPod reinterested an entire population in music again. Spotify has the potential to do the same. Once Pandora is enabled to go global – that will be a game changer.

Once every music app you can imagine from Slacker Radio to MOG is available in the car – that will shift the radio landscape. Once a music service becomes as ubiquitous as Netflix and twice as hated by those in charge – that will influence how the average person consumes music. Once your grandma is giving "Thumbs Up" and "Thumbs Down" commands to her music service – we'll be back to good.

There's still reason to believe that the next decade in digital music will be more exciting than the last. I can't promise that success will come soon enough, but I certainly believe that fans will continue to win. However, the damage they and piracy advocates inflict on the major labels in the meantime may be too great.

One day, what the fans want and the labels can give will match up. Maybe.