Loss of DRM, Free Access Cloud Recording Industry’s Future, Say Experts
"CDs are dead,” Ted Cohen, managing partner at TAG Strategic, said Thursday at the Digital Music Forum East in Manhattan. “There’s no reason to own music anymore, when there are so many ways to access it” free and through online subscriptions, he said.
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That’s bad news for the music industry, which has seen a slow uptake of subscriptions by the digital download crowd. Russ Crupnick, president of NPD Group’s Entertainment division, understated the industry’s situation by saying, “Music trends haven’t been terrific.” Crupnick said the industry has lost 20 million customers in five years and only 50 percent of music listeners are buying music, as CDs or downloads. Fourteen percent of purchasers account for 56 percent of spending, he said. Crupnick offer a more upbeat view of the CD based on current purchasing data, saying, “Despite every effort made to kill CD, it is still the major music choice for a lot of consumers.” The challenge, he said, is “how do we manage that transition over time?”
Crupnick said the pendulum has swung too far toward the rights of consumers to get music without paying for it. “Is the consumer starting to take advantage of us?” he said on a panel about music trends. “In the last few years we've created ubiquitous music. Music engagement is higher than ever.” In the current model, consumers can pay if they want, “but if you want it for free you have that option,” Crupnick said. Disabling digital rights management is among the concessions that the industry has made to consumers, he said. “It costs less to buy an album than it did a few years ago, and far less than it did 10-20 years ago,” Crupnick said. “What has the consumer done in return? Flipped us the bird.” The value of music, he said, “has collapsed."
Less than 5 percent of the Internet population -- fewer than 2 million people in the U.S. -- subscribe to a music service, Crupnick said. Not only is that number not expected to grow, he said, but “we might see that start to drop.” He said infringement hurts music revenue, and the industry must adopt new models. “We have to demand more from consumers,” Crupnick said. He suggested adopting models from the video industry, including digital rights management and increased product “scarcity.” Crupnick cited the video industry’s “protections” -- including the premium fee for digital copy, standard price DVDs and less expensive rental models -- and said, “Isn’t it time to change the playing field?"
Other panelists said the video industry just hasn’t caught up to the music industry, which has dealt longer with digital infringement. David Bakula, senior vice president of analytics at Nielsen/Soundscan, said: “Studios will tell you that those protections are being eroded. They're losing revenue. They're just not as far along the curve as we are.” He said the way people listen to music has changed, and the business can’t be viewed in the traditional ways. Music downloads may turn out to be only be a means to an end, he said, as labels look at how to translate “X millions fans to revenue.” Getting a company to sponsor a video is one suggestion for “out-of-box thinking,” he said.
Cohen sees revenue-producing opportunities for music companies to steer consumers to the music they want to find. He noted that 10 years ago there was no licensed digital music and now consumers have access to 15 million tracks in the U.S. and 30 million around the world. “How do you get through it?” Cohen said. “The future is going to be about recommendations and personalization.” He said consumers will pay for a service that “turns me on to stuff I can’t find on my own.”