DIY, not DRM

Digital Rights Management (DRM) is dead, at least as far as music is concerned. The news is that the last of the four majors, Sony BMG now plans to sell DRM-free music downloads. This comes soon after Warner became the third of the four majors to offer downloads without DRM, in collaboration with Amazon.

The industry scoop seems to be that the major labels can make more money from selling DRM-free music then they can from fighting it. Apparently, DRM-free downloads are very useful for promoting smaller artists. I guess the idea is that you promote a smaller artist, they become a bigger artist, then you fleece fans for as much money as you can get. If this rationale helps record label execs sleep better at night after they consign their business models to the dustbin of history, that is fine with me. Put simply, the theory that record labels will be better off by selling music without DRM is rubbish. They will be worse off. People will copy songs instead of buying them. Revenues will fall. Big stars will not command premium prices for selling songs. If they sell expensive songs without DRM, people will copy them. If they sell expensive songs with DRM, people will just listen to other acts for free. It is supply and demand. If supply is plentiful and cheap, then manipulating demand is not going to make much difference. Some business execs think they can manipulate a few media and distribution channels, and that the masses will pay out because they are too lazy to look elsewhere for entertainment. Wrong! Sure, some customers will be lazy and will buy whatever product is most pushed at them, but they will be the pitiful minority. The majority will simply listen to whatever their “friends” recommend via Facebook or MySpace or (heaven forbid) when they have a traditional conversation (you know, the kind of interaction where two people are in the same room and they use their mouth and ears to talk and listen). Chances are people recommend things because they have time and inclination to try things and then time and inclination to recommend them. This means they also have time to muck around on the internet and search for freebie stuff.

Of course, there are some amazing people who will spend insane amounts because they simply love one or other music act. It was reported that 15 people chose to enter the maximum possible amount of UK£99.99 (US$200) for Radiohead’s In Rainbows download. Another 50,000 or so may buy the CD this week (presumably at a more normal retail price, though I suppose there is nothing to stop them leaving a tip). However, lots and lots more people will have copies of the album for free, either having downloaded it for free, or because they copied it from a friend. However, the thing with an act like Radiohead is that they cultivate a loyal following. They are not interchangeable in the minds of the fan. A Radiohead fan is not going to spend 100 quid on a Coldplay album just because a music exec considers the two bands to fit into the same genre. Contrast that with pop music, which is by its nature transitory and interchangeable. Any four attractive young people bouncing around in a video whilst singing a cover of an old song will look and sound much like the next group of four attractive young people bouncing around and so on… Supply and demand says one act can easily substitute for another. They need to make money from selling songs because chances are they will struggle to make money from performing live. For a start, nobody can see their dance moves from the back of a football stadium. It also does not help if the music sounds identical every time it is performed because the act is only lip-synching. “Take That” I hear somebody shout. Fair play to Take That who many years on still seem able to able to garner a substantial audience, but then do actually sing live and everybody knows that Gary Barlow actually writes the songs, which helps a lot. In contrast, I am perplexed as to who is paying for Spice Girls tickets, though I trust the information given in the comments at the bottom of this story more than I trust the headline at the top. And anyway, those are bands that built their popularity in the past, and now I am talking about how bands will build their popularity in the future. The main thing is that musical acts that appeal to people who generally like to go listen to music, talk about music, share music with pals etc have little to fear from a world free of DRM and music labels. People will like their music, recommend their music to friends, and pay to see them perform live. In contrast, acts that rely upon the media and selling songs because their fans are people too young to go see them perform or have only a marginal interest in music are going to fall on hard times. Sob, boo hoo… I feel for a world with fewer Will Youngs…

The internet is ideal for getting rid of middlemen, or at least for reducing their margins and importance. Buy a book from a retail store with limited stock or get it online from a huge warehouse that posts it to your home? Arrange your insurance through a broker or buy direct? Book your holiday with a travel agent on the high street or check out the cheapest deals on the web? Some of the changes have taken place sooner, others later. But they are inevitable. Quick review of the music industry: fans at one end, artists at the other end, music labels in the middle. Can you see where I am going with this?

The good thing about proper artists is that they are just so bolshy. Once again, the best current example of the outspoken and sincere artist is Radiohead’s Thom Yorke, who slagged off EMI because EMI implied Radiohead was greedy. It is hard to see how EMI expected to get good PR: adored music act gives away music for whatever fans feel like paying, former music label accuses music act of being greedy in recent negotiations, bands says that is nonsense. Well, who would you believe? No need to call in Sherlock Holmes to detect who is talking cobblers here. Artists want things their way, which is not the same way as the middlemen moneymen. The great thing about internet distribution of music, is that it means you can Do It Yourself, instead of relying on a music label. After all, chances are the musician has already had the wherewithal to learn to play or sing, to compose some songs, to play live in front of an audience, and to pull together a demo, before they get signed to a label. The label was needed for publicity and distribution, but the internet means the music act can now do that as well, without needing the label, and without needing lots of financial backing. DIY is the ultimate in creative control, which is why you can expect more and more bands and artists to turn to DIY as the way to sell themselves and their talents, and turn their back on the labels. In turn, that will depress the margins earned by labels, reducing their financial firepower, their control… and the value they can add. This should lead to a vicious downward circle, potentially only bouyed up on a temporary basis as the labels copy the cigratte manufacturers and refocus their efforts on the third world to compensate for the loss of first world earnings. But it will prove fatal to the label’s core business model in the end, although the music labels will doubtless try to survive by shifting focus to the peripheral areas of their existing business model: merchandise, touring, and venues i.e. anything that cannot be copied electronically or sent over the internet. The future of music is DIY, not DRM. Which means music fans will get more and pay less, and the popularity of artists will depend more on whether their music is likable, and less on whether execs think their music is marketable. That sounds like a good deal to me. Win-win for fans and artists, lose for the labels. Sorry you middlemen and moneymen, nobody will be copying your business model in future…

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.