RIAA Releases Year End Stats

According to the RIAA, the losses were higher than reported elsewhere.  I had read about CDs dropping 2% with overall sales down 3.6%.  The RIAA reports 7.1% and 7.2% respectively.  I wonder where the discrepency is coming from – it can’t all be from the fact that digital downloads are not included.  If you take the RIAA at its word, the industry’s down over 1.3 billion dollars net (assuming labels take about 54% of gross). 

Digital Music Forum: What the Industry Players Do and Don’t Get

The Digital Music Forum featured many people who “get it.”  It also featured many who clearly do not. (For a good discussion of the conference, see this radio program.)

There were online music vendors who understand that they must meet many different consumer types and provide a variety of options.   While the vendors debated the merits of a la carte v. download subscription services, they made the more general point that they should not try to squeeze people into narrow options.  All vendors also commented on the interoperability problems caused by competing DRM standards and expressed doubts that the problem would be solved this year. 

But some still hadn’t internalized  this problem.  What was most amazing to me was hearing RealNetwork’s Sean Ryan talk about how awful the standards fragmentation is while Real implements its own Helix DRM standard.  The subscription services are also all waiting for the next step of increased portability, with services capable of delivering files direct to any digital media device – but what about the flexibility of consumers getting to port and manipulate files as they wish? And when is this next step going to occur?

I also was surprised that several vendors consider the size of the services’ catalogs only a minor stumbling block.  DiMA’s Jonathan Potter was the only one to really focus on that, giving an insightful speech about the challenges of mechanical licensing and “doubledipping” for mechanical and performance licenses for online music.  The services still cannot provide whatever you want whenever you want it, and Potter argued that any gap in the catalog will detract from the entire service’s value, because it will frustrate consumers.

In general, the vendors were optimistic in a somewhat realistic way. The legitimate music market certainly is going to grow, and some of these services are going to make some money.  At the same time, many are going to fail – there’s not enough volume right now to support them all.  Each individual was hyping his/her own service, but they all at least implicitly realized that this market could squeeze them out.

Unfortunately, no record industry execs were involved in the panels with the vendors.  The market might grow, the vendors might do well, and the industry might still be losing money – the vendors might succeed simply as some people switch from the CD to the online market, without actually shifting P2P downloaders over to legit services.  So, in this sense, the conference’s overall tone of optimism about the current online music market offerings was a little misleading.

When the music industry execs were involved in the panels, they showed me that, to a large extent, they still don’t get it.  I didn’t understand why the third panel “The Death of the CD?” had a question mark in its title – isn’t it somewhat obvious that physical media will die?  Yes, some people will still buy physical goods, and estimates do vary as to when digital downloads will supplant CDs.  But, I thought, no one really looks at the growth of P2P and the online music services; the great cost savings possible online; and digital media and technology’s flexibility, and thinks that CDs are here to stay for a long while, right?

Apparently some do.  From time to time, the BMG representative said that the CD would eventually fade, but he said it almost as a joke, adding that it was so far off that it wasn’t really too important to discuss.  He talked about how people don’t want hard drives full of music, they want CD cases that they can display in their living room.  And, if you can’t give an MP3 as a gift like you can a CD, then how can you deny the CD’s viability?  The ASCAP rep said that he saw the online market as complementing the physical market, but not really replacing it in a meaningful way for awhile.

Maybe I should have expected such sheer illogic.  After all, the music industry’s backwards-thinking, pretending that P2P would just go away or would be sued out of existence or reduced through DRM, has been ever present.  But I thought that, with the new music services, that thinking was starting to abate.  And, I had never heard their thinking in-person.  Until the forum, it had always been in a third-party’s criticism, but on Monday it was there right in front of me.

It was scary and funny at the same time.  If this panel was at all representative of the industry as a whole, they are still a long, long way off from adjusting to the online market.

Similar backwards-thinking occurred on the ringtones panel.  Here’s what I don’t get about the ringtones market: when phones can also have the hard drive space of an iPod, why won’t people simply put their own MP3s on the phone instead of “truetones”?  Why wouldn’t they use some software to convert the song into a ringtone themselves?  Really, where is the long term sustainable market for this?  The people on the panel mentioned these issues at the very beginning, but quickly moved on to hyping their services and the market as a whole.

My favorite part of the conference was the luncheon sponsored by the DCIA.  Apparently, they’re not just Sharman and Altnet – they are myriad DRM and secure payment vendors hocking magic pixie dust and hornless unicorns.  One company selling ever-updatable, totally secure, fully portable (fits in your briefcase) DRM said, don’t worry, we’re no SDMI – I hope no one took his word for it, because all they had was a bunch of flow charts and nothing of substance that set them apart from any current DRM offerings.

The other top DCIA moment was on the second panel on deriving revenue from P2P.  Altnet’s Derek Broes turned to P2P United’s Adam Eisgrau and reminded him that the DCIA came first.  It’s too bad that these two groups are in competition with each other. It’s even worse that the DCIA seems to have such relatively impractical ideas, and that they are often taken just as seriously as P2P United.

Adam Eisgrau was quite well-spoken and had some good things to say about compulsory licensing.  Indeed, the whole panel on P2P was great – it by far had the most people who get it.  Jim Griffin also talked about collective licensing, while Eric Garland and a representative from Berklee Shares discussed how P2P can be a promotional tool for selling copies.  Garland discussed how people most often downloaded singles but would buy the album.  I’m not so sure it’s that simple, particularly given that Apple is selling so many singles relative to albums.  On broadband, it’s really not too inconvenient to download 11 songs instead of one single.  But it was an interesting point.