Will bundling save the music labels‾

Whatever you say about the recorded music industry today, there's no shortage of choice. 
You can buy millions of DRM-free tracks from iTunes or Amazon. You can get a year's free downloads with a Nokia phone. You can listen to streaming audio on LastFM. You can download, stream or buy from any number of indie label websites.  You can swap files via P2P.
Or you can buy a CD. Last year CDs accounted for four-fifths of all music sales worldwide, according to the International Federation of the Phonographic Industry (IFPI).  The problem is, CDs were worth 90.1% of sales in 2006. Revenues fell from $17.5 billion to $15 billion in 2007. And while digital downloads soared 40% to $2.9 billion in 2007, that's nowhere near enough to make up for the slide in physical sales.

The traditional recorded music business is in freefall. According to an anecdote in the Economist, recording label EMI offered teenagers a table-load of free CDs after a recent market survey session. They took not a single one. 'That was the moment we realized the game was completely up,' the Economist's source says.

It's a story that, even if it weren't true, would surely be invented. With their bullying of customers, their never-ending war against the internet and inability to create a 21st century business model, the music chiefs are an easy target.

If you're working for, say, a fixed-line telco, simultaneously at war with cable TV, mobile and VoIP companies, you're doubtless feeling even less charitable. You would see that labels are no different from newspapers, government departments, software companies, retailers and banks, all of which have been survived disruption by the internet without suing a single customer. 

Clanking curiosity

The EMI experience above reminds us that young people today look on CDs in the same way as they see the desk telephone - a clanking curiosity that their parents had to endure, but nothing to do with their own lives.  P2P file transfers are worse than illegal - they're uncool. So, rightly or wrongly, CDs will play no part in their current or future buying habits.

The other reason for not pitying the barons of Universal, Sony-BMG, Warner and EMI is that they still have plenty of muscle.

They may well take up the suggestion from U2 manager Paul McGuinness of legal action against telcos and ISPs.  'I suggest we shift the focus of moral pressure away from the individual P2P file thief and on to the multi-billion dollar industries that benefit from these countless tiny crimes,' he told the Midem music conference. 'We must shame them into wanting to help us. Their snouts have been at our trough feeding free for too long,' he said.

McGuinness pointed out - correctly - that ISPs have the technical smarts to identify unlicensed audio traffic if they desire.

If legal push came to shove, carriers would make the case they have always argued: that they are mere humble bit transporters who carry all traffic regardless of source or content.


The problem is that it is increasingly untrue. Many operators are not merely ambitious content players themselves but are also actively seeking to differentiate the content they carry. The days of the 'dumb pipe' defense are numbered.

What's important is the other side of the McGuinness argument, which is that carriers are potentially the music industry's best chance of survival. He envisages a model where a music subscription is bundled with the monthly ISP fee and revenues are shared.

That's how Nokia has structured its free music deal with Universal and, reportedly, mobile operators. It's simple and conceptually fair, though it would be a mistake to underestimate the difficulties, such as an agreed DRM model. 

Historically, telcos have been notoriously reluctant to share airtime and subscription revenue. They may well embrace music subscription bundles willingly, or they may do so under the threat of a lawsuit. But it's hard to see the music industry letting this one go.