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

image from www.lifepurposediscoverysystem.com 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 api.ning.com 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.

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  1. Our company makes $600,000 a year from digital music downloads. That is money we would have no way of earning before 1994 (when we created our first website and sold our first CD)
    I’m pretty sure the guy you are quoting doesn’t have a clue about the modern digital world. There are lots of success stories out there but the publicists seem to love the old skool guys and their tales of woe.
    Mark Lewis, CEO
    Partners In Rhyme Inc.

  2. Until the likes of Spotify, MOG and Pandora are avaiable worldwide as opposed to just the US and parts of Europe, streaming is just not an option for the rest of the world. I can still buy and download pretty much anything I want though.

  3. Saying that digital music has failed because the Labels haven’t embraced it is ridiculous. That world is crumbling because the people that control it don’t understand their customers. They aren’t providing content people want, in the manner in which the want it. Creating artificial release windows and other tactics just alienate the fan.
    On the other side, there is a whole different world where musicians are connecting with the fans directly- selling music, merch and even tickets. It’s working, and even though it’s not easy, they are doing it.
    There are 2 music businesses out there, one is failing, the other is thriving.

  4. I have to agree with Mark. Whoever you chose to quote in this article is obviously clueless about the goings on in the industry. Lets use the Beatles going on iTunes for example: Apple and the Beatles made millions by releasing music that has been around almost 50 years. In addition, streaming services will in no way match the revenue that places like iTunes and Amazon bring in with digital music sales, not including the ability for small labels and independent artists who can use digital downloads for unprecedented exposure and reach audiences that they would otherwise be incapable of reaching.
    Once major labels can learn to leverage these ideas, maybe they will stop complaining.
    I’m sick of the doomsday talk.

  5. All I can say as a former music indsutry student and music lover….the last time I purchased music was probably at least 5 years ago and I will never go back to purchasing it again. All the wasted money on hundreds of shitty cds pushed by labels who just wanted another 9.99 makes me laugh now. Check out audiogalaxy….stream my own music anywhere I want at any time… for free. Music is art and art should be free. Just my 2 cents

  6. Your IP address has been logged. We’re sending the RIAA Copyright Enforcement Death Squad… I mean… Squad… over now. Prepare to be assimilated. Resistance is futile.

  7. Should only be free (or at least no payment enforced) if you’re talking about digital files. I still believe in CDs (better quality), and as physical objects you should have to pay for them.

  8. I’ve been using Rdio for the last couple of weeks. It doesn’t have as extensive a library as Spotify (which I’ve been using for several months), but it is a reasonable alternative until Spotify gets here. If you’re interested, they offer a two week free trial. Plus, they offer a collaborative option that Spotify does not.

  9. I think the future is going to be made up of solely two different types. Listeners and fans. The listeners will stream and the fans will own. At the moment, we’re still just getting there. As time moves on, less and less people will pay for entertainment that they can get for free via the internet. As the technology grows and becomes easier and faster to use, so will its users. This isn’t a problem, it’s evolution. The major companies have forced new format after new format upon its consumers and they have purchased them. Now we are in an age where there is no NEED to purchase a format. Yes, people at times like to do things, but most of the time they do things because they need to, because they are FORCED to… If I were to say to anyone 20 years ago that in 20 years they could use a computer to get just about any movie, tv show, music, literature, or picture for FREE they might ask questions or debate the ramifications of such things, but deep down inside they wouldn’t believe such a thing and they secretly would wish to be in that time.
    I think the jury is in. When trillions of people are downloading content for free a year compared to a couple billion purchasing the same content… Well, the consensus is the winner. At least that consensus is telling us that they don’t value that same content at the price that the makers are selling it at. I have to admit that in the past year alone I have come to think of the products I buy and reviewed their worth compared to how much I spent on purchasing them. I’ve come to realize that there are SO many products I have over paid for because the makers of said product were in a position to charge what they wanted. That position is slowly eroding away…

  10. Quality arguments aside, what is amusing is that China has virtually eliminated digital piracy by outlawing servers that carry torrents and tracking illegal content. My bands can make more money there now than ever.
    Given the crap we hear about freedom of speech in the US yet cannot pass net neutrality, seems like the ones who profit from piracy are the ones selling the bandwidth and the same ones who lobby congress, and the labels in their stupidity and arrogance thought they ran the show with the RIAA. Funny who is in charge now….

  11. “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.”
    Or, how about take the radical approach of making it EASIER to download/stream music legally…

  12. “Music is art and art should be free.” If you value the work, then the worker should get paid. Artists need to survive if you want them to keep making art for you to consume. I’m all for dancing on the graves of major labels, but artists gotta eat, and they tend to do better work when they don’t have to work a shitty day job.

  13. Its failed in terms of the old business model. A radical rethink is required. You can use free digital music to build an online community and its a lot easier to make money from music once you have an audience.
    You just need to cut all the middle people out of the equation, cut all the costs and do a lot of the jobs yourself.
    Here is something we posted on using free content to grow your audience:

  14. One thing that is rarely mentioned is the dj/producer industry that are NEVER going to want to stream music as they need copies to create a set in a live environment

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