In two years, a college kids software project has challenged the way the world’s biggest entertainment companies do business. Founder of Napster, Sean Fanning not only made Usenet, the world wide web and Open Source software look like geek revolutions, but also fired the public imagination in a way that not even Linus, Tim Berners-Lee or Marc Andreessen have done.
Napster was the fastest growing web community ever. In fact, with 60-million-plus users in two years, it was the fastest growing social movement in history. And shock waves from it reverberate beyond the music industry.
Driving all this is disintermediation: data links media across format, geography and outlet. We've come a long way since Marshall McLuhan showed the interdependence of media and message and, though the kind of newspaper you read will always shape how you interpret the message, conversion into bits and bytes have allowed ideas to become “platform independent”.
Time was when ideas came in the form of books or CDs, and companies valued and distributed them like toasters; they controlled them. Now one person’s intellectual property can be perfectly copied and distributed worldwide at the click of a mouse. Radical new business models are emerging.
Can cartels adapt?
The recent history of the Internet suggests that big, established companies react slowly to the social implications of emerging technology. This was seen in Microsoft’s reaction to the Web during the “browser wars” of the 1990s, as it was in the music industry’s reaction to MP3 and file-sharing services.
The initial response has been denial; corporations cling to the existing order in the hope that innovation will fail or just go away. When the innovation shows no sign of doing either, obfuscation and litigation are tried. Next, corporations bow to the inevitable and reverse engineer their own offerings, but find they lack the wherewithal to establish them; so they either, try to acquire expertise through mergers and acquisitions or through collaboration. Finally, once-dominant companies become marginalized, as disruptive service offerings and new business models push them out of their traditional market. This pattern is neither universal nor deterministic, but it provides a basis for debate. And a debate is raging in the music industry right now.
Subscription services Much of the recent hubbub in the press has been about attempts by the big 5 labels to set up subscription services (Duet, MusicNet, BMG/Napster) where users pay $x a month to access an “all you can eat” music service.
On current performance, these services are likely to fail because the Big Five music companies (which control 90% of the world's published music) will not make them attractive enough for people to use them.
These systems will depend on fallible encryption systems, like the stillborn SDMI. Such systems are unlikely to work, not because they can be cracked so easily, but because the gap between the price of a CD ($15) and the price of an MP3 ($0) makes that cracking worthwhile.
There are also cultural reasons why subscription systems are likely to fail in the pre-broadband world. In UK especially, most realistic MP3 sharing goes on in a work environment. Two things that make this likely to continue are the speed of corporate local area networks (LANs) and the removal of users from their “home” CD collections. Most MP3 files are currently around 3,000 - 4,000 kilobytes, an appreciable size to download over a 28.8 kbps phone line, especially when like most UK Internet users, you're paying by the minute.
However, users are less likely to subscribe to a paid for service over a corporate network when the activity (listening to music) is frowned on and characterised as ‘play’. Perhaps a combination of un-metered access providers (like Freeserve or BT Anytime) with intelligent content gatherers that run in the background on network down time like opencola.com could make domestic services viable. Alternatively, packaged subscription services where users pay for access to a music channel through a monthly ISP bill could prove successful because they mirror the media payment structures that we are used to from mobile phones or satellite TV.
New model music industry In the long term, record companies will move from being owner-distributors of content to service providers who connect artists with fans.
A movement in this direction is already discernable, with bands like Marillion pursuing a more direct relationship with their fan base without the intermediation of a label. Other artists too are demanding the ability to retain the rights over their own creations that have been so abused by the Digital Millennium Copyright Act and amendments to the 1978 Copyright Act (see, for example: salon.com/tech/feature/2000/06/14/love and tobyslater.com).
During the next 36 months mid-range bands will be the first to disrupt the old order, because they have the most to gain by doing so. These bands typically enter into a relationship with labels in which they give away their rights but are unable to give up their day jobs.
As more bands pursue a direct relationship with their fan base we could see the emergence of a diversity of ‘independent’ sub cultures. In contrast to this, we will also have more manufactured bands being produced by the labels, aimed at big audiences.
The Internet has connected people like no other medium before but has also enabled a social trend towards sharing and participation. This trend runs counter to the idea of passive consumption that most post-industrial revenue models assume. The continuing rise of grass roots peer-to-peer networks will be fuelled by this trend and enabled by the emergence of more and more open (and universal) standards like MP3 and HTML, generally coming from the fringes of Internet culture.
There will be a concomitant rise in litigation around participant-sharing services like BearShare, Gnutella or OpenNap, but if history is anything to go by, the Internet will route around this.
Current European copyright is largely based on post-Industrial Revolution foundations in the 1880s’ Paris Convention on Industrial Property and the post second-world-war Universal Copyright Convention. The standard set of ideas have been built upon by the US legislature which, as the world's dominant content producer, sets the rules by which such content, such as Mickey Mouse cartoons, can be “consumed”.
However, the rise of alternative creative cultures, perhaps starting with South Asian and Asian sovereign states, will encourage the exploration of new forms of intellectual property law that will provide a competitive environment and consequent legislative evolution.
The spread of ideas
The music industry has, for years, assumed that value lies in controlling the distribution of ideas. However, ideas may also become more valuable the more widely they are distributed. We can expect to see a flourishing of disintermediated service models in other industries where content can be digitised during the next few years.
This will ultimately prove beneficial to all because more businesses will have to find ways of monetising distribution without owning the whole chain. Ultimately we should arrive at a system that allows ideas to be free (that is, openly distributed) but valuable (paid for). The spread of ideas in various traditional content distribution industries will encourage value to be derived from alternative models.
In all these possible scenarios and varying degrees of likeliness, one thing remains certain. The next decade will see a fundamental shift in notions of intellectual property, ownership, value networks and legal frameworks, unprecedented since the invention of the printing press.
Copyright © 2001 by Centaur Communications.