Music Industry Wins Some, May Lose More

The music industry has had its ups and downs in the past week.  One up was the Jammie Thomas trial in Minnesota where it won a $220,000 judgment for file sharing of 24 songs.  Members of the jury commented afterward that they were trying to send a message.  They did, but it's likely to fall on deaf ears.  The number of people sued (about 26,000) compared to the numbers downloading music (between 6 and 9 million depending on the source of the statistic).  Miss Thomas and her lawyer plans to appeal the verdict.

Another up is the establishment of an alternative download store to Apple's iTunes by Amazon.  They have good depth in catalog (although not near what Apple offers), priced lower than Apple, higher quality and DRM free.  It sounds ideal for the consumer and for the labels except, perhaps, for some of the terms of sale.  The Seattle-Post Intelligencer is reporting on how contractual terms are restricting what consumers can do with their music files.  As quoted from the article, a consumer has to "agree that you will not redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, sub-license or otherwise transfer or use the Digital Content." Some of these restrictions, such as "sell" wouldn't affect physical CDs thanks to the first sale doctrine.  As to "use the digital content," does that include listening to it?

This language makes sense from the industry point of view.  Without DRM all they have is a contract as a legal option.  The question is not whether the terms are viable, but rather how a violation would be detected.  If tracks showed up on a file sharing network they might be identified by some type of individual watermark that would trigger an additional breach of contract count beyond copyright infringement.  As always let the buyer (and sharer) beware.

And then there's Radiohead.  This extremely popular band made a lot of money for EMI over the course of its contract with that label.  They have a new album but no contract to distribute it.  No problem, sell it directly from a band website.  The problem for the labels, however, is the terms of sale.  The band has told its fans to pay whatever it wants for the download.  That can include nothing, nada, zip, or free.  Anyone who pays over $2 to $3 will probably give the band more money directly than what the artists would have received as a royalty from a label per unit sold.  And while some fans will download the album for free, many are quite willing to give the band more than a fair amount of money in exchange for the music.  The net effect is that if this is a successful business model for bands, then the labels will have fewer acts to promote.

Nine Inch Nails no longer has a label and is considering direct marketing.  New reports indicate that the band Oasis is also thinking about direct marketing.  This can't bode well for the labels.  Yes, these are name bands with their brands established and they can consider moves like this because of their fan base.  Smaller bands, though, can do this over time by making a name for themselves through touring and other self-promoting ideas.  Sure there's competition between performers, but that's nothing new. 

It's well known in the industry that the real money for bands comes from the road via ticket sales, concessions, t-shirt sales and the like, not unit sales.  The labels know this and complain that they get no cut from tour revenue stream.  At the same time, they have little to do with taking risks for the success of a tour.  Newer artists understand this.  There are perennial predictions that the Internet will kill the business model of the labels.  The Radiohead move may be significant by cutting out the middle man.  If they're successful, look for more artists to do the same.  That can't be good news for labels when artists become businessmen, especially if they offer a better deal to consumers than the labels.