digmus08

Issue #62

Last Update February 28, 2009

Business Digital Music Forum 2008 by David Katz February 27, 2008 At the annual East Coast version of the Digital Music Forum, held February 26 and 27 at the Holocaust Museum in downtown New York City, industry insiders once again grappled with the impact of digital media and the internet on their industry. The change in attitude from the previous year’s Forum was clear: the bewilderment over the demise of previous revenue models had given way to an active search for ways to continue to make money in the music business, and an embracing of the advantages that digitization and mobile transmission of data could provide for artists, labels, distributors and consumers.

One of the significant changes in attitude was the embracing of the “long tail”. Previously, records and CDs whose sales had fallen off from an initial peak were moved from the record labels’ inventory, and were difficult to place in record stores and other distribution venues; the cost of manufacturing and storing slow-selling items meant that capital was being tied up for little return. Digital music, however, has no cost of storage and almost no cost of distribution. Under these circumstances, keeping slow sellers available for sale represents additional revenue and additional profit. Picturing the sale of any album as a graph, with a tall hump soon after release representing large initial sales and a long tail representing slowly decreasing sales gives a visual representation of long term profits from no longer current items.

Another change visible at the Forum was the realization by record labels and music packagers that the day of the album was waning, and that singles was becoming the preferred mode of purchase. Consumers are no longer willing to buy a collection of ten or twelve songs in order to get the one or two they really want. Digitization brings with it the ability to allow the customer to buy music one piece at a time, or to construct an album from the singles in which the customer is truly interested.

Other trends discussed including the willingness by record labels to market directly to the consumer, rather than going through a retail outfit as had been past practice; flexible pricing; allowing the customer to sample the music before buying; and the ability, through interactive feedback, to collect more information on consumer wants.

The industry has also begun to realize that digital rights management, or copy protection, only annoys the customer without making serious inroads on those who do mass counterfeiting of an artists work. Once a customer buys a piece of digital music, he or she feels entitled to play that music on any playback gadget he or she may own, at home, in the office or in the car, and even to be able to share the music with a spouse or friend, as one could previously do with a record or CD. Acceding to the clearly stated wishes of the marketplace, music companies have been releasing more and more music in DRM-free formats, and are using common formats that can be played on almost any machine.

Plenty of problems remain. The industry has not quite sorted out the roles that record labels, music publishers, packagers and distributors will play, or even how the music will be monetized. In addition, there is consensus that the copyright system is a mess and needs to be reformed (a forthcoming New York Stringer article will provide a fuller discussion of the copyright problem).

New York Stringer is published by NYStringer.com. For all communications, contact David Katz, Editor and Publisher, at david@nystringer.com