The Future of the Digital Content Revolution

Where else will digital content-sharing of music lead? Think electronic sales and personalized compilations.
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More on what I think lies ahead in the recorded-music business. Don't miss the first part of this column.

2. The album, per se, is dead; singles will rule

. For years, you and I have been buying pop albums with one or two tunes we really want, and eight to 10 pieces of filler. Those days are over. And because there is no workable model for ongoing sales of singles at retail -- delivering a physical disc of some sort to the buyer -- this means that recorded-music sales are going to undergo a tectonic shift toward electronic sale by download.

At about 75 cents per cut, this could work. At the $1-plus prices being talked about in record-company boardrooms, it just collapses. (Note that because we still have problems making "micro-payments" economically viable -- the ability to sell things over the Web for less than a dollar, without transaction costs eating up most of the revenue -- there are problems to be solved here beyond sustainable per-item pricing.)

3. In many cases, established artists will control and sell their own work

. The record labels are invaluable for the promotion of new artists, and that's unlikely to change overnight. But for big stars, record labels and contracts have become anachronisms. Increasingly, big names in the music business are gearing up to sell their music online, mainly as downloads, directly to their fans.

They will need some help, and unsurprisingly, that help is there.

ARTIST direct

(ARTD)

, which came public in March at 12 and promptly began a slide to a recent price of around 4, is just one example of a company formed specifically to help established artists manage their relationships with their fans ... and their online music sales.

Founded by Marc Geiger and president Donald Muller, experienced music-industry executives who produced the first

Lollapalooza

tour in 1990, ARTIST direct so far has trivial revenue -- $4.6 million in 1998 and $10.3 million in 1999 -- but has been hired to create sites for acts such as

Pink Floyd

and

Limp Bizkit

, and controls

downloadsdirect.com

, to sell their music online.

Four of the Big Five labels --

Sony

(SNE) - Get Report

, the

Warner Music

division of

Time Warner

(TWX)

,

Seagram's

(VO) - Get Report

Universal

unit and

BMG Entertainment

-- together have invested $97.5 million in ARTD; they may be only hedging their bets, but that's still serious music.

Yahoo!

(YHOO)

and others also have invested in the company.

I have no idea whether ARTD will be among the survivors, let alone the leaders, in online, downloaded-music sales -- it's way too early to call winners and losers in this nascent business -- but it's a good example of the talent and capital coming together to help well-known acts bypass the traditional-record-company swamp.

4. Compilations will be "in."

No longer will albums by favorite artists fill students' bookshelves -- and maybe yours and mine, too. Instead, we'll buy what amount to "greatest hits" compilations -- but compilations based on

our

perception of, say,

Leonard Cohen's

best work, not that of his label. Whether delivered on custom-burned CDs or, far likelier, downloaded as digital files, this fits perfectly with the coming move to singles, because we can add incrementally to our compilations of our favorite artists' works as new singles appear.

5. New forms of music sales will emerge

. Driving down to

Tower

, looking for what you want, then paying an outrageous price for the discs you do find is

so

20th century, as a young friend of mine might say. Instead, new schemes will emerge.

Two of the most popular notions being discussed in the business: First, a subscription arrangement, where for a monthly, quarterly or annual fee, you'd subscribe to all the new releases from your favorite act, which would be emailed to you immediately upon their release. Second, a monthly licensing fee, giving you instant online access -- to either download, or enjoy "live," as streaming media -- to essentially all the music you want, from all or nearly all artists.

I think the subscription idea is pretty limited, and unlikely to succeed. More promising, by far -- especially as broadband access becomes more widely available -- is the monthly fee notion.

Under that plan, a new licensing organization -- akin to today's

Broadcast Music Inc.

(BMI) and the

American Society of Composers, Authors and Publishers

(ASCAP) -- would emerge. You'd sign up for a monthly fee of $10 or $15, which would give you legal access to pretty much all the recorded music extant.

The new body -- let's call it "OMA," for

Online Music Access

-- would function much as BMI and ASCAP do today in calculating and funneling to their members appropriate slices of the annual fees paid by every radio station and television network. OMA, of course, would send those checks directly to artists and songwriters ... and, yes, to record companies.

Note that I don't think OMA would possess some kind of digital pixie dust it could sprinkle over the downloading business, eliminating illegal file-sharing.

That cannot be done.

Rather, OMA would play to our honesty, giving us a $10 per month feel-good fix -- the knowledge that we were treating decently those artists whose work we love so much.

Would that work? Would you pay $10 a month for reliable, unlimited access to pretty much any pop music you wanted to hear, any time you were online? Today, the answer might be no, if only because you don't have continuous, ubiquitous Web access. But a fair number of people do. And soon many of us will.

Sign me up, OMA; 10 bucks a month is cheap for feeling right with the cosmos.

Because even an OMA scheme acknowledges that some -- and maybe a lot of -- music still will be copied and shared illegally, does that mean I think the problem has no universal solution?

Exactly

. I think the ground has changed under the recorded-music business -- we just aren't yet willing to accept that fact.

What about movies? For now, the 5GB-file size of an average digitized movie means downloads are few. I hope that as bandwidth increases by a factor of 10 times over the next several years -- and as that even-more-broadband access becomes more widespread -- the success of models such as OMA will persuade us to own up and pay up in similar fashion.

If not, you'll find me shorting the

Disneys

(DIS) - Get Report

of the world.

If you're particularly interested in these issues, you might want to take a look at two columns of mine that appeared on

TSC

a year ago, when I introduced the problem and talked about what then looked like some workable solutions -- or at least, some inevitable outcomes. I recommend

"How MP3 Will Break the Record Companies" and

"Surviving the Digital Music Avalanche," both from July 1999.

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are, or have been recently, consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.