The Observer Podcast

The Future of the Music Industry?

Here at the Observer podcast we try to find a good mixture of the disscussion of real issues and a look at werid and wacky news story. I thought that I was over due for a new post and this is a story that we have talked about on the podcast but I thought that I would do an extended post on the issues behind it on the blog.

In the second file-sharing copyright-infringement trial against Jammie Thomas-Rasset, a Minnesota jury ruled that the 32-year-old mother of four owes $1.92 million to the four major labels after downloading and sharing 24 songs, Billboard.biz reports. The staggering ruling comes out to a cost of $80,000 per track illegally shared, a massive amount that the RIAA hopes will finally convince people to stop downloading music illegally.

Obviously this is an over the top fine and it will be rejected on appeal however it is a story we continue to hear over and over again. However these one off court cases cannot save the music industry, there needs to be a fundamental change in the way that music is provided to the consumer. Illegal music is easy to access, you are very unlikely to get caught and most importantly it is free. The only thing that the legitimate provides have is that you are obtaining the music legally. That is why a recent website that I came across sparked my interest, it is called Spotify.com and it offers free music downloads with no legal ramifications.

It can do this by using the money made from the advertisements that appear while downloading the music to pay for royalties of the music that you is being downloaded. I assume then that the left over money is then considered profits for the company. Now I am no accountant or economist, I don’t hold a degree in commerce so my opinions and ideas are purely speculation and i cannot say if there is profitability in the business model or to what scale this can be done, but I do see this as a good alternative to the current position of the music industry and the way in which the music is distributed.

Even though last year the music industry posted a 10% raise in profits there is still an evident decay in the years before. Legal and cheap online stores such as Napster and Itunes have helped to prop the industry afloat through their digital sales however the plummeting sales of cd’s is becoming a large drain. The cause of this has multiple factors and cannot be blamed completely on illegal downloads (however it is a major factor); it is also the transition to digital online sales and the decision by companies such as virgin to sell more books, dvds and other merchandise which has lead to this decline.

I was looking at the profit that Itunes makes in a year and the best I could find was around $161 million to $390 million of operating profit (if any readers have a more accurate answer or if I am completely wrong please comment it in). Google in 2006 made $3 billion with 99% of that coming from its advertising. When I look at that I see no way that a company that runs off advertising profits to pay for music royalties can’t be profitable and because you are offering them the music free instead of 99c per unit you would also attract a lot of traffic making your advertising space even more profitable.

I am only proposing this as an idea and it might just be that it is more profitable to provide music the way in which it is being sold now however I like this because it is taking away the only thing that pear to pear websites and programs have! the fact that it is free. If you have two provides, both are free however one is illegal the logical choice would be to choose the legal one and that way you would be retaining all the sales of digital music only paying for it indirectly.

An alternative way of doing this would be to charge for new releases and then allow for older music to be downloaded for free! However I would like to here what you think of Spotify.com’s idea. Do you think it will pan out over the long run or do you have your own solution to the problems of the music industry and do you even think that it needs a radical shake up at all?