A wild ride: the digital music industry

The digital music industry goes legal.

What happens when major players in an industry start suing their customers?

The advent of MP3 files, file-sharing technology and digital gadgetry such as the iPod means music lovers have more freedom to share music than ever before. But there's no consensus among industry executives on how to cash in on this brave new world.

For more than two years, the Recording Industry Association of America has brought suits against illegal file sharers, reasoning that downloading music for free is stealing. Legal digital sales are booming–the digital music industry had revenues of US$1.1 billion in 2005, up from US$380 million the year before. But the RIAA continues its strategy.

Last August, the RIAA targeted David Greubel, a Texas man accused of having 600 illegal songs on his computer. His daughter sent a protest e-mail to MC Lars, the rapper who wrote “Download This Song.” The e-mail reached Terry McBride, CEO of Vancouver-based Nettwerk Music Group (who represents Lars). McBride is helping Greubel fight the suit.

“Litigating your fans, who are your best marketing and promotion people, is not the answer,” says McBride. While most major label executives are staying quiet, he says they agree with his position.

Not Rob Brooks, vice-president of marketing for Toronto-based EMI. “Many countries have launched litigation,” says Brooks. “In all cases, legal purchases increased once litigation started. If, following litigation, legal sales increased, that's the answer.”

Increasing sales is important for an industry that's lost a lot of money in recent years. But, Nettwerk's McBride says, this decrease isn't a result of illegal file-sharing. He thinks it's to do with competition from other entertainment media, and the replacement cycle–CDs don't wear out. If anything, he says, digital downloading, which made Nettwerk more than US$300,000 last December, has started to offset losses.

McBride isn't the only industry exec to acknowledge that “digital is the future.” According to Janis Nixon, senior marketing manager for Universal Music Canada's New Media department, “[Digital] is completely open to new possibilities.” The industry was criticized for not reacting; Nixon says that's because labels “didn't have a partner we could sell legally through.”

Now, the industry has hundreds of partners. There are more than 335 legal download sites–up 570% from two years ago. In Canada, consumers can choose between pay-per-download sites such as iTunes and Puretracks, or subscription/pay-per-download sites like Napster and iMesh, which use industry-sanctioned peer-to-peer file-sharing. Telecommunications companies such as Rogers and Bell also want to cash in. “You're going to see more convergence between music and wireless,” says John Boynton, Rogers Wireless's senior vice-president and chief marketing officer. “A significant portion of new customers buy MP3 phones.”

In Asia, the mobile-phone-related music market has exploded–cellphone downloads accounted for 96% of Japan's digital music revenues in the first nine months of 2005, and last May, SK Telecom, South Korea's largest cellphone operator, bought a controlling stake in a leading independent Korean record label. And in a report released January 2006, the International Federation of the Phonographic Industry, a global industry association, points out that, with more than 1.5 billion cellphone subscribers worldwide, “the sheer size of the mobile market presents the music industry with enormous opportunities.” That, says Nettwerk's McBride, is music to his ears.