A quick note to Universal execs, I will buy the entire Cure back catalogue as soon as you release it DRM free at a good bit rate, in Australia. The announcement by
UMG that they are pursuing a limited trial in DRM free music distribution is clearly a compromise between common sense and internal politics. While the exclusion of Apple iTunes as a participant in this trial appears strange, it does show a glimpse of the strategic intent behind the music industries attitude to Internet distribution of music. In this posting I will be discussing how some of these strategies are manifesting for both good and ill, and why. I will also talk about what the recording industry should have done. The strategic game behind all this is control of distribution channels.
Most of the record companies have some very talented people who are creating strategies for working in the new digital age. Unfortunately these people are not in charge so must sell these strategies internally before they can be implemented. As any person who has worked for a big company knows, getting any sort of change accepted means navigating the political interests of people who can have very different views and interpretations of the world. Within a record company, that includes management with entrenched views on the industry based on history, and some that truly believe that any copying is piracy and take it very personally. The internal politics obfuscates the strategic intent behind policies that hit the public eye.
As I have discussed in a previous article (see link at bottom) the music publisher is beholden to radio stations and music television to get their product known to a wide enough market to make their investment back. The reason the publisher has any appreciable power in this relationship is from their monopoly control of artists. Broadcasters want access to the big selling artists, and the publisher wants their next big things on the air, creating an environment for negotiation. If you want to measure the power of players in a negotiation though, follow the money. Now while they need to pay a regular fee to play copyright music, this is through a legislative process that was laid down many years ago when the power balance was much different. Radio and music television pay absolutely nothing direct to the studios for access to their catalogues, and even smaller radio stations get all their music supplied to them gratis. And how many times have you heard of a radio station bribing a record company for access to a song?
Bribe 1, bribe 2, bribe 3, how many can there be?
This is why the iTunes decision actually makes some sense if you look at it from Universal's strategic point of view. With iTunes recently having passed
3 billion songs sold they are the dominant player in the digital downloads market, and as we all know these 3B songs are almost all tied to an Apple platform. The recording industry greatly fears a single player holding a dominant position in the digital download market, even though it was their own insistence on DRM on downloads that enabled this situation. So Universal are trying to shut the gate, unfortunately the horse has already bolted. The ipod was not the sole reason that iTunes was so successful; it was the first online store that was easy to use and is still one of the best. It is also international with
arbitrated pricing. Having a successful trial of digital media without iTunes now is unlikely, in fact Universal is likely to see an overall decline in sales over coming months as buyers wait for the DRM free music to appear on iTunes, you need to be where your customers are, not where you wish they were. There is a solution for the recording industry though, and coincidentally it is the one they should have followed as soon as Napster showed them the potential of digital downloads of music.
So what should they have done? The question of DRM is effectively mute as even the recording companies are coming to the realisation that it was a mistake. The music industry should have taken control of the new channel by building music wholesale sites. Located on their own servers, they would hold their entire catalogues and be available for anyone who built a site to on sell the songs at whatever price they wanted. The music company would control the price they received and ensure that the resellers of the music would be too busy competing against each other to mount an effective challenge to the price the record companies charged. This strategy would have given them control over the encoding, the bit rate, price arbitration between new release and back catalogue, and the direct information about purchase numbers and trends. It would also have allowed them to increase sales of their back catalogue and niche labels. If online music retailers need to create server space for every song they sell, it is only in their interest to stock songs that will sell above a certain volume. If the store can get a margin by linking to the label’s server though, the cost is minimal.
Now this failure can be at least partly blamed on DRM as well. In building an online presence the music industry was not capable to address the complexities of DRM, and the market for DRM was already fractured, and typically linked to a platform/program. Even if they had been inclined to follow my plan, their fixation with using as restrictive a DRM system as possible would have forced them to rely on the IT world to provide them their channel to market. The good news is however, that the nature of the market means it is possible to do this even now, although they would likely have to still cut deals with the existing large players to allow them to continue to use their own servers. It will take time to reign in iTunes, but it would be a better strategy to take than the one Universal is currently following.
Related stories:
Music industry and radio relationship.
