The Digital Music Revolution: (New Music Industry)

By Robin D. Gross
November 1998

The Internet provides an amazing opportunity for the music and entertainment business in the forthcoming millennium.  Its ability to bypass the standardized channels of distribution and dissemination of entertainment and information will change the way business is conducted forever.

For the music industry this means a shift away from a model where a few major record labels act as monopolies or gatekeepers regulating the flow of music from the artists to the consumers.  In its place will emerge an industry where artists and small independent labels can have direct contact with the public and little need for a middle man to manufacture and distribute the product.

In the near future, consumers will regularly download music digitally over the Internet directly from the artist or record label without ever selling a CD or other physical object.  Musicians can market, sell, and distribute their music directly from their own Web page on the Internet to the individual consumer.  By simply uploading a digital version of a work onto their server for consumer downloading, cutting edge bands and small independent record labels are changing the face of the music industry forever.

The mechanisms used for digital distribution are really quite simple.  Free software you can download online will easily digitize music for easy uploading directly onto the Web and to the general public.  Consumers can connect to the Internet site of their favorite musical group or record label and digitally download the group's new song directly onto their own writable CD with no degradation in the quality of the original sound recording, essentially creating their own CDs. Currently, new high-end computers come equipped with the capability to write to a CD, or a stand-alone "CD-R", can be purchased for under $300 and the price continues to drop.  Additionally, files using MP3 compression can be played on portable hand held devices such as the Rio PMP300 music player ($199) which can store up to sixty minutes of digital quality music and up to twelve hours of voice quality audio from the Internet.

The growth of such a digital delivery system will result in the balance of power shifting away from large scale entertainment companies in favor of musicians no longer dependent upon large record companies for manufacturing and distribution of the musician's work.  Under the traditional model of distribution artists earn around $1.50 per CD, while digital delivery garners them about $6 for the same CD.

Another change involves consumers no longer being forced to purchase songs they do not want.  Under the traditional mechanism, consumers pay about $16 for a CD with around 10 songs bundled on it.  Under the new model, consumers only pay for the songs they want, (.99 - $1.99 per song), burning their own CDs, mixing different artists and record labels together on the same CD.

As the Internet converges with traditional entertainment sources such as television and radio, a new multi-media industry emerges to challenge the established order.  Pay-per-view Web casts including live concerts, artist interviews, video graphics, merchandising opportunities, and retail components, are only the beginning.  Fueling the growth of the digital entertainment industry is the market expansion of consumer products such as HD-TV, set-top boxes, and home entertainment theaters.

Today, music is the second most often searched category on the Internet, after sex.  But according to the Recording Industry of America, of the current $40 billion global industry, only 0.3% of music buyers made purchasers via the Internet in 1997.  By 2001 the global music industry is expected to grow to a $60 billion business.  If only 5 oe10 percent of it is distributed digitally, that amounts to a $3 - 6 billion online delivery industry very soon.

Technology rarely creates benefits for all players in society however. Some will stand to gain tremendously from the exploitation and proliferation of new systems of delivery, tracking, and accounting made possible from the Internet.  And there will inevitably be those who lose as the paradigm shifts away from the status quo or traditional means of doing business to the new electronic frontier.  The recording industry is one among many who will be forced to evolve and adapt to changes in technology and wide spread use of the Internet.  The lessen to learn may be "adapt, or become extinct".

Two concerns managing to slow the pace of growth for online music delivery are time consuming download speeds and copyright piracy. However, complaints about lengthy download times due to low bandwidth will gradually disappear.  The continual expansion of bandwidth capabilities through the use of fiber optic cable and satellite technologies clears the path for near immediate transmissions of large files over the Web.  At current Internet download speeds, a typical three-minute- thirty-second song in the common MP3 format takes 3.7 minutes to download over an ISDN line, 18 seconds over a T1, and only 3 seconds using a cable modem.  Teledesic Network, a 288 global satellite system currently in development called "Internet-in-the-sky" promises to deliver the same song for less than half a second from the first day of the network's service.  In terms of the digital distribution of entertainment, songs, music videos, graphics, and advertisements, the possibilities seem endless.

Copyright piracy concerns require more ingenuity before rights holders will be willing to jump into the digital delivery game.  The ease with which digital files such as music can be downloaded, copied or altered, uploaded, and then downloaded somewhere else, causes many to consider cyberspace a "gigantic copying machine".  Effective copyright management systems must be realized before artists will feel secure distributing their works over the Internet.

One alternative for managing licenses includes embedding electronic markings into the code of the digital file that identifies the copyright holder, advises the user of the applicable licensing fees, and indicates if the work has been altered.  The U.S. Copyright Office registers works to be used in a digital environment through its Electronic Registration Recordation and Deposit System (CORDS). By assigning a particular identifier or "tag" embedded in the sub-code of the digital file, the Copyright Office can determine infringement by encoding the tag which carries encrypted information regarding the rights holders and authorized uses of the digital work.

The use of a "digital watermark", also embedded in the digital file, claiming to be invisible, inaudible, and uneraseable, also records the appropriate copyright holders and authorized uses.  By identifying the person who unlawfully uploaded a pirated work, digital watermarks can trace the source of unauthorized distributions.  Additionally, the songs are encrypted in such a way that they cannot be successfully pirated or played on a computer other than the one onto which it was downloaded with appropriate authorization.  Still other technology supports using electronic encoding to seek out and alert rights holders of unauthorized copying of their works.

Because large record labels and entertainment companies are no longer needed to facilitate the manufacture and distribution of copyrighted music, the focus of the industry must shift toward controlling the enforcement of music licenses.  As a result, music licensing may provide the greatest area for growth in copyright law in the world of cyberspace.  In July of 1997, ASCAP began issuing the first licenses for Internet performances of music and now BMI issues broadcast licenses for music performances as well.

The importance of ownership in intellectual property has never been so apparent.  At current levels, intellectual property accounts for almost 4 percent of the U.S. gross domestic product and is growing at twice the rate of the national economy.  Many rights holders claim such valuable assets require additional protection in a digital world.

The Digital Millennium Copyright Act, enacted in late 1998 implements treaties signed at the 1996 World Intellectual Property Organization (WIPO) summit, thereby expanding copyright protections for music, film, text, and software on the Internet.  Although controversial because First Amendment advocates charge the Act criminalizes certain fair use copying, the Act tightly secures the protection of digital works in cyberspace.

The stage is set for a revolution in the music and entertainment industries.  Although the future of electronic commerce and music distribution is uncertain, it is sure to evolve with technology and consumer's expectations and desires.

The future promises "celestial jukeboxes" with the ability to transmit on-line on-demand music and entertainment with the click of a button.  A significant transformation in the music industry seems inevitable, for thanks to the Internet, but where it leads is still up for grabs.

© 1998 Robin D. Gross

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