SECTION E: THE NEW MUSIC MEN - Record companies are in a spin with the arrival of software such as MP3 and Gnutella, which render recorded music invisible. But internet entrepreneurs are tuned into the revolution, says Graham Vickers

SECTION E: THE NEW MUSIC MEN - Record companies are in a spin with the arrival of software such as MP3 and Gnutella, which render recorded music invisible. But internet entrepreneurs are tuned into the revolution, says Graham Vickers - There is always a c

Last Updated: 31 Aug 2010

There is always a certain fascination in the spectacle of an established industry besieged by the kind of competition it never anticipated and for which it is quite unprepared. In the case of the music industry, the hydra-headed threat of music online represents a bewildering assault involving unfamiliar delivery channels, inchoate business models and a consumer-fuelled enthusiasm for piracy on a global scale.

The urgency of industry concern is new, but the process really began with the arrival of the compact disc. The CD was light-weight, which meant it could be economically shipped, and this was one reason why it would become an early generic product for e-commerce.

It was also digital, which meant that in theory each disc sold was an infinitely copiable master recording.

However, in the UK, online sales of CDs have never exceeded 5% of the market and online traders enjoy no more favourable terms than anyone else, so the new delivery channel seemed to pose only a small threat to conventional record stores, and none at all to the record companies.

It was the arrival of the MP3 file format, capable of compressing digital music by a factor of 12, that opened up the global online exchange of music tracks, both legal and illegal. Suddenly, recorded music was a dynamic and invisible product, no longer associated with vinyl disc, audio cassette or CD. Closer in spirit to radio broadcast than any traditional recording medium, MP3 offered near-CD quality down the line, and anybody could traffic in it. They did.

In turn, the recording industry responded, usually inappropriately. In the US, the Recording Industry Association of America (RIAA) tried to levy extra charges on conventional radio stations that also streamed music to the internet. The National Association of Broadcasters sued them.

The RIAA filed suits against and, both of whose sites encourage and facilitate the free trading of MP3 files. Napster posed a direct threat to artists' rights and record companies' profits, being a virtual swapshop for MP3 files culled from CDs. If you want a Stereophonics track, for example, Napster offers 21 files for free download at the time of writing. There is nothing to pay and no-one is getting rich either.

This is piracy on an industrial scale, even though there is no traditional racketeer to vilify.

However, Napster can be identified as an illegal server and so can be closed down, depending on the flexibility of laws framed before the appearance of such quixotic enterprises. Harder to nail will be Gnutella, a program that resides on a user's machine, catalogues MP3 files and enables free trading with any other Gnutella user. The beauty of Gnutella is that, unlike Napster, there is no central server to throw the book at. Companies would have to prosecute a legion of individual users. With pleasing irony, Gnutella was spawned by Nullsoft, a subsidiary of AOL, which, as a partner of Time Warner, has been a fierce critic of MP3 piracy. Since dubbed by AOL 'an unauthorised freelance project', the program that became Gnutella may prove to have been the one that really let the genie out of the bottle.

The artist, as ever, has been sidelined as the record industry and online adventurers draw battle lines. Ironically, although veteran stars like David Bowie, Thomas Dolby and Dave Stewart were quick to exploit an online presence (including exclusive music sales) as evidence of enduring hipness, and The Who are selling their latest live album track by track online, younger artists have often been slow to realise they are being disadvantaged.

'Most are just starting to figure it out,' says Ron Stone, who manages Tracy Chapman and Ziggy Marley. 'We send them to Napster and they see all their work being given away for free, and they're stunned and horrified. Artists' rights are never discussed in the argument between Internet groups and record companies.'

Black Crowe's lead singer Chris Robinson protests that Napster is ripping him off. Rapper Puffy Combs also complained that Napster 'abuses' artists and should show more respect.

If the tone is universally negative, no-one in the music business seems to know what to do about the online threat. Few echo the words of Alan Kovac, president of Left Bank Management, which represents Motley Crue and the Bee Gees. 'The genie's out of the bottle,' he says. 'Now artists need to let evolution happen. I want to be on the side of innovation.'

PEOPLESOUND.COM - Ernesto Schmitt

If it is the piracy aspect of MP3 that attracts the headlines, that is far from the whole story. New formats attract new commercial ideas and Ernesto Schmitt's offers one of the most imaginative uses of MP3.

'The internet is revolutionising the way consumers discover music and the way they think about artists,' says Schmitt. 'There is a general trend away from albums towards individual songs. If you look at high street retail, the share of compilation albums has gone from 4% 10 years ago to 33%. We're going all the way back to the origins of the music industry in the '50s, when it was all about singles.'

People now want to think and buy in terms of certain styles of music.

'We run focus groups of almost 400 people to get retail experiences, and they all say the same thing: 'I know what I want, but as soon as I pass the threshold of Tower Records, I'm absolutely baffled and I've got no idea what to buy.''

Traditional record store genre classification is of limited use, Schmitt says. 'There are no reference points. Technically, Fatboy Slim is breakbeat, but, given that he's been number one, does that mean he's pop? What is pop?'

Instead, has asked: What is the common denominator? 'The consumer can type in an artist's name and have some very clever search arguments that we've developed do the thinking. It's not collaborative filtering like, saying: 'Here's what other people bought - you may like it too.' Instead, we can abstract any piece according to about 20 criteria: mood, texture, tempo etc. We use highly trained ears - A&R men from the music industry - to code every piece of music that comes through the door in order to feed the mother of all databases.'

Now certain high street stores are approaching in what may be the realisation that they are going to have to offer the consumer a better service. deals exclusively with unsigned artists, trying to give them initial exposure to the most receptive listeners. 'We pay them for the right to sell their music online, we give away a few tracks for free and if people like what they hear they can order a full album.'

To put the offer in context, Schmitt identifies three steps for a successful artist. 'First they come to somebody like us to get distribution the world over. Then they graduate to a record major, who should be able to invest in videos and the rest. Finally, they become Madonna and say: Thank you, I don't need the record company any more, I'm going to distribute all my music through

'The biggest problem the industry faces is oversupply,' he explains.

'Ten years ago five or six thousand albums were launched in the UK; now it's more like 20,000 a year. There is huge fragmentation of supply, and over-supply. That's what we're all about -recognition that consumers have difficulties discovering music that may be to their taste. In the end, it's to do with the joy of a 16-year-old discovering a piece of music and showing it off to his mates the next day. That's 50% of the music industry, and it continues into adulthood. It never stops.'

AMX - Jack Horner

Jack Horner used to be head of New Media at Warner UK, a job title perhaps symptomatic of the way the UK music industry viewed multimedia as a novelty rather than a threat. Today he is head of Music & Entertainment at AMX Digital. He describes the three stages of awakening for the record industry.

'The first stage of their approach to new media was complete denial,' he says. 'Next, they released the dogs, setting legal departments onto servers, and as they closed down one, 50 more would spring up. Now the companies are all working together to create standards to make sure the music is properly protected with some sort of rights management information store ... which is fine as far as it goes.'

Horner summarises the situation pragmatically. 'One of the key characteristics of MP3 and the internet is that people will do whatever they want. Couple that with the fact that there are millions of master copies of music tracks, and you've got a real problem. You cannot un-invent the CD. So the answer lies with educating consumers. While the industry will try to find new ways to justify margins, the artist depends on a fair payment, and people have to understand that.'

AMX is a full-service company, spanning hosting and database architecture through to building marketing tools and communicating with the consumers.

Horner sees new possibilities for music retailing. 'There is potential for more kiosk and terminal-based ventures,' he suggests, citing TopShop and the Levi's Store as pioneers in introducing the business of the record store into demographically compliant retail environments.

'Meanwhile, the easyEverything chain of Internet stores already has computers fitted with USB ports on the front. Although they are not yet active, it's only a matter of time before anyone can go in with a memory stick and get an album's worth of new material for pounds 1.'

Horner believes that the music industry is not well run and 'prefers paying teams of Andersen consultants to trot round the globe' to changing its structure. 'The record industry is simply not consumer led in the way the music companies are. The result is that it is no longer in tune with managing its own business.'

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