Music industry anti-piracy lawsuits may become history. Disputes and aggressive actions against those who download music and songs without paying for them is most likely a thing of the past.
The music industry is adjusting to new market realities and finding smarter ways to fight against piracy, according to a recently released Knowledge@Wharton article "From Confrontation to Experimentation: The Music Industry Is Playing a New Tune." (Knowledge@Wharton is the online business analysis journal of the University of Pennsylvania's Wharton School.)
"Even as the courts have made it clear that downloading music files without paying for them is illegal, the recording industry has been searching for new business models," the article states.
"The music industry is showing greater willingness to experiment," said Wharton professor Peter Fader.
London's EMI Music Company
London-based EMI Music, a division of EMI Group Plc, is one of the world's most prominent recording companies. It recently announced that it has developed a more innovative business model that includes profit-sharing with entertainers.
The EMI Group, through its Hollywood-based The Firm, formed an "artist-friendly music company," according to a recent press release. The mission of this new undertaking is to move from the "traditional royalty structure" to an arrangement in which the performers and the company share earnings over the life of the recorded music or song.
"The new music company will take the unprecedented step of splitting all profits with the artists," according to the press release.
"This is an opportunity for The Firm to create a new music business model that shifts power back to the artists and the focus back to the music itself," said Jeff Kwatinetz, CEO of The Firm.
The first to be taken into the fold by The Firm were Mandy Moore, an American singer and actress, and the Army of Anyone, a U.S. rock group.
The Army of Anyone is thrilled to be part of such a profit-sharing arrangement. A spokesperson for the group said in the press release: "We are so excited to be a part of the building of a new business model. We have been looking for a way to regain some artistic control … For the first time in our career, we are in control of our own destiny."
According to the release, The Firm has been instrumental in restructuring the entertainment industry. In 2005, it arranged a venture between EMI, Live Nation, and Korn, a heavy metal band from California. All parties in the venture share in the earnings of all undertakings of the group.
"Korn's first record under the agreement, 'See You on the Other side,' is fast approaching 2 million units sold worldwide, and the band's touring numbers are exceeding expectations," The Firm announced.
The Firm continues to be innovative in developing and finding new playing fields. It arranged the recording of "Laugh Now, Cry Later," an album financed by Ice Cube, an American rapper, actor and film director. This album was released June 6 and has been successful: No. 4 on the Billboard 200 chart; No. 2 on the R&B/Hip-Hop chart, and Gold for its most recent RIAA certification. (RIAA, the Recording Industry Association of America, awards gold certification when 100,000 copies of a song have been legally downloaded over the Internet.)
Vivendi's New Strategy
Paris-based Vivendi (formerly Vivendi Universal), an international media and communications conglomerate is changing its pricing structure, according to a July media release.
In September, Vivendi will implement a CD pricing scheme that takes into account ability and "willingness" to pay, but only in Europe at this time. Wharton's information technology senior director Kendall Whitehouse believes this to be a very reasonable strategy and not another marketing gimmick.
Whitehouse said that there are different desires and expectations and that there is a market for everyone; one just needs to understand how to tap into it. "CDs mean different things to different people. Some people only want the music while others will pay more for extras, such as dual-disc media with audio on one side and DVD video on the other."
According to P2PNET, People to People, an online digital media news Web site, Vivendi tested its theory—repackaging older albums to interest a less discriminating customer—and sold over 3 million albums in the European market last year. Vivendi expects their "basic CDs" to sell at about 75 percent less than deluxe recordings. These CDs are similar to no-frills paperback books.
Should this business model draw a great number of European customers, it will be tried in the United States. The American consumer, used to paperbacks and fast food, will be more than happy to buy into something that costs less and still provides entertainment value.
Moving Away From Digital Rights Management (DRM)
Sony BMG Music Entertainment Inc., a joint-venture between Sony Corp. and Bertelsmann AG, ran afoul of the law in 2005 by attaching DRM software to CDs. DRM software protects copyrights by preventing the sharing of music and songs over the Internet. Sony's software left the user's computer exposed to security risks such as hacker attacks.
"The aim of DRM is valid, but critics find most current implementations as too draconian," according to a Knowledge@Wharton article.
Mark Cuban, entrepreneur, founder of HDNet and owner of the NBA's Dallas Mavericks, told Knowledge@Wharton that any "DRM is a waste of time." According to Cuban, there are many computer-savvy people who can circumvent restrictive software with ease.
Sony, with Yahoo! in tow, is rethinking its DRM strategy, and released the latest song from pop singer Jessica Simpson in mid-July for less than $2, with no DRM attachment. The song can be played anywhere, by anyone, and even shared among friends and family.
Wharton's Take on the Music Industry Trend
A major cause of the music industry's about-turn was most likely the roll-out of Apple's iTunes software, which allows sharing of songs for less than $1 a tune. And it appears that industry watchers agree with this analysis.
Wharton sees in the Internet a way for changing the music industry. What else can it do?
"The recording industry has a wonderful opportunity and is in a better position than any other industry," said Fader.
Wharton professors suggest subscriptions, innovative business models, and a mixture of business models or "hybrids" of existing and newly developed business models rather than following the leaders' models.
"Given that it's not clear what online music formula ultimately wins, it only makes sense for all involved with the music industry to try a little bit of everything," said Joel Waldfogel, professor at Wharton. "Since we don't know how [things] will play out, this is a good time to experiment.
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