The popularity of MP3 provided a wake-up call to the recording industry and to companies promoting proprietary digital audio formats. Because of the potential for piracy provided by open formats like MP3, the recording industry is attempting to establish a “secure” digital music format before they start releasing downloadable music by major artists.
Millions of people are already using MP3, so any secure format will need to have compelling advantages to convince them to switch. Even if new formats are sanctioned by the recording industry, consumers can still choose to convert songs from CDs (which are unencrypted) to MP3. Or they can use a sound card and a simple piece of software to convert encrypted music to MP3 (or other unencrypted format).
Even with secure formats, piracy will always be a threat. As fast as the industry comes up with security measures, hackers will find ways to crack them. But an even larger threat to the major record labels is the advent of Internet-based labels, and artists leaving the fold to sell their music directly to fans.
This change is driven by economics and a growing dissatisfaction among many artists with the policies of the major labels. Internet music distribution causes packaging and distribution costs to drop to almost nothing, making it possible for just about anyone to set up an online music store or record label. There’s not much the industry can do to prevent the rapid shift to independent Internet labels other than embracing Internet music distribution and sharing a larger percentage of the profits with the artists.
It’s important to remember that technologies like MP3 and the Internet are only enablers. The Digital Music Revolution is really about empowering consumers and musicians. Technology will drive much of the change, but the most significant changes will come once mainstream consumers start using computers and portable MP3 players in place of records, tapes and CDs, and when major artists start switching to Internet labels once their contracts with the major labels have expired.
In the future, more and more music will be sold directly by artists or via Internet record labels. Consumers will opt to download music rather than visit their local record store. Solid-state portable players like the Rio will become commonplace. And consumers will choose to listen to Internet radio instead of traditional broadcast radio stations.
Ultimately, these changes will result in lower prices for consumers, more profits for independent record labels, and more royalty dollars for musicians. These advantages should more than offset any increases in music piracy by bootleggers, or by consumers who now can easily swap digital music files via chat rooms, e-mail and diskettes.
As with any revolution, there will be winners and losers. In the case of digital music, there will be far more winners than losers. The biggest potential losers are the major record labels and retail record stores. If they don’t quickly transition to doing business over the Web, they’ll quickly lose a big chunk of market share to the new generation of Internet record labels and downloadable music sites like EMusic.com and MP3.com, and to online music retailers like Amazon.com and CDNOW.
The use of digital music on personal computers and the Internet will continue to grow rapidly, but it will not replace conventional methods of distribution any time soon. Just as customers of Internet malls and Internet banking will still be able to visit their local mall or bank branch, Internet music distribution is likely to be a complementary market force rather than a replacement for traditional markets. The results will be difficult to predict, but consumers and independent musicians will certainly be among the winners.
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