If the major labels give the impression that they'll be dragged onto the information superhighway kicking and screaming, it's because the Internet does pose a threat to the way they do business. But it isn't so much file-sharing as the low-cost, decentralized distribution avenues the Internet offers. Just below the surface of the recriminations directed at peer-to-peer file-sharing networks, such as Kaza, is a smelly bit of peat that's rarely overturned -- the fact that the major record companies in this country control several crucial bottlenecks in reaching consumers. Their desire to dominate is prompting them to suppress technology that could have as dramatic an effect on the industry as the introduction of compact discs, which fueled the industry's growth in the mid-eighties and early nineties.
While independent labels have proliferated since the nineties, relative shelf space is shrinking as big-box retailers from Best Buy to Wal-Mart displace record stores as the place where most people get their music. (Wal-Mart currently sells one-fifth of the country's retail CDs.) The major labels also control four of the five largest music distributors to retail. During the same period there's been unprecedented consolidation in both the radio and music business, such that there are now only four major labels and the four largest radio conglomerates control as much as two-thirds of the nation's listeners in any given format. Prior to the relaxation of ownership caps with the passage of the Telecommunications Act of 1996, the most stations one company could own was twenty. (Clear Channel now owns in excess of 1200.)
The size of the majors gets their artists into these outlets and in so doing puts their music into the hands of the most consumers. An Edison Media Research study last year found that 75% of consumers who bought a CD in the past year were influenced by what they heard on the radio. Rare is the independent artist who garners significant radio airplay, let alone a hit.
This allows the majors to operate in their profligate way, taking handfuls of shitty artists, throwing them onto the radio and surviving on what sticks. As with radio, advertising money secures premium placement in retail stores, on end caps and listening stations. But just as the airlines' highly-centralized, hub & spoke system began to look cumbersome and unwieldy when the economic pie began shrinking the past few years, so too has the music industry's practice of having their few million sellers pay for their large balance of bombs (anything that doesn't reach the quarter-of-a-million sold break-even point).
Even as the RIAA pursues illegal file traders blaming them for the industry's contraction, it's worth noting that the number of albums selling 10-100,000 copies has increased the past few years. It's the top end that's suffered. (According to the RIAA, shipments of the top 50 albums are down 16.7 percent from 2001.) Suddenly cultivating rosters of one-hit wonders driven largely by radio play without establishing audiences or long-term viability has dug into the bottom-line, and it's becoming difficult to get by on volume. Without career artists, there's no catalog sales which contribute enormously to profits -- one unnamed major label boss told The Economist that "while catalogue accounts for half of revenues, it brings in three-quarters of his profits."
Don Van Cleave, president of the Coalition of Independent Music Stores has suggested that, "any industries that sue their costumers are idiots." In a rapidly shifting market, alienating your future customers certainly is at least bad form, if not suicide. Indeed, file-sharing may have cost them money (particularly among the teens to whom they market much of their music), but they're also competing against a growing wealth of entertainment options from video games to live performances to the Internet itself. The poor state of radio doesn't help. Hell, peer-to-peer file trading developed partially in response to the difficulty finding out about new acts when the radio's as clogged with crap as an old tenement building's pipe sewage system. And when most of the hits on the radio far outshine their accompanying album material, can you blame people for downloading rather than forking over nearly $20?
There's no bucking the tide. While the labels resist the idea of digital downloads, worried it will compromise their ability to control the marketplace, the sidewalk beneath their feet is moving. Forbes reported last month that iTunes had sold 200 million songs since its launch, and while it took a year to sell its first 50 million songs, they sold that many in just the last two months on accelerating interest.
Couldn't it be that their fear has put the cart ahead of the ass? Rather than shoving lame bands down our throats, branding them like a "Lovin' It" commercial to sell us on them, how about actually finding unheard music that people like and market that? Here's the beauty of MP3s, and the industry's possible redemption, in the form of that old chestnut, the single. Without the physical difficulties associated with terrestrial distribution, singles can be made quickly and easily available to fans through online stores, potentially piquing interest in the album. Perhaps it (in conjunction with increased pressure from Internet and satellite radio) could push traditional radio toward more adventurous programming and stop the inexorable slide toward 25 minutes of commercials every hour. (If not, iPods connect effortlessly to your car stereo system.) Even the big retailers might feel a draft and be unable to wrangle the kind of concessions and tribute they've extracted by virtue of their importance to the majors' terrestrial distribution system.
Meanwhile, instead of whining about piracy (like they did when tape decks appeared) or pursuing legal recourse, maybe the labels should put that money toward marketing the superior fidelity of CDs versus MP3s, like they did in the sixties with stereo and quadraphonic sound. Already they've seen the advantageousness of creating value-added packages that include DVDs, special booklets and live tracks, appealing to the dedicated fan willing to spend a little extra money. The creation of dual DVD/Music CDs in the near future promises even more value that digital downloading can't replicate. It's merely a matter of the labels embracing the technology and seeing where it can help them -- instead of how it undermines their position. Certainly it does, but isn't good business about innovation as much as cartel?