Napster/Other disasters
Magazine
Lessons to be learned by the publishing business from the mistakes made by the music industry
This article is based on a talk given by Tim Renault at the London Book Fair
The barriers that restricted entry to publishing and the music industry have been lowered. The music industry was the first to experience the impact of digital technology because it was used by the young who were early adopters of various innovative technologies.
The data space required to store a song was much less than that required for a book, so in the days when memory was measured in thousands rather than billions of bytes, size mattered. All of this meant that the music business had to comes to terms with the digital revolution first – and had to make all the mistakes. According to Tim Renault, they managed to muster the wrong response to every development. But it seems that the book business is determined to repeat, rather than learn from, the mistakes made by the music business.
The arrival of digital technology was welcomed by the music industry. Christmas’ went on all year. In fact it lasted nearly two decades. The music industry was able to sell us a second copy of all the artists whose music we had bought on vinyl. No whingeing then about copyright being ripped off, because it was the industry itself that was doing it. You had already paid the artist and the whole food chain for the copyright. When you bought the CD version you paid them again. Somehow the industry managed to persuade people that they even had to pay a premium for a piece of plastic that was cheaper to make and market than the vinyl disc it replaced.
Napster
But the young are simultaneously avid consumers of music and rather impoverished. So pricing was an issue. These youthful innovators were looking for ways keep the cost of their music habit as low as possible. The development of peer-to-peer (P2P), and especially the Napster phenomenon of 1999, were the big wake-up calls for the music business. Because a generation gap separated those exploiting the new technology and those marketing music, file sharing was not spotted until it hit the sales figures. The trend was not easy to spot. The same year that the Artists against Piracy initiative was launched, album sales in the US increased by 16% compared to the previous year.
The industry moaned to the media that the wonderful work they were doing to promote young artists was being undermined by the ‘pirates’. However, this claim came at the end of an era dominated by an industry that had for years been turning out ‘bests of’ and remixing old titles. So the music industry’s claim that its revenues protected the interest of new artists was suspect.
The real problem with the music industry of the 90s was that the CD itself was dying. After 15 years as the media of choice, there was suddenly a challenger to the CD. It might be unkind to remind the music industry that you could only buy music CDs in electronics shops for many years, as they kept the record shops stocked with vinyl disks. So no change there when it comes to adopting new technology.
Napster had been around for nearly a year before legal actions began and it was effectively out of action within two years. According to the speaker, some music sales fell by 50% in 7 years. P2P technologies were already demonstrating how they could be successfully used to promote the work of new artists. The Internet is now the way used by unknown artists to promote their work by allowing people around the world to sample their music. Many analysts suggest that the advent of the ‘pirate’ radio stations around the coast of England in the 60s was the touch-paper for the music explosion that followed. Exposure is the key to sales.
First among the lessons to be learnt was that you need to make sure you look after the retailers. They are the people who interface with your customers. The music industry set up branded outlets to sell their own labels, but quickly learned that the customers wanted shops where they could find a range of music. The record label has never been a major factor in the purchase decision of a music buyer. Similarly, book browsers are not noted for seeking out the work of a particular publisher with a few notable exceptions. So any attempt by the record companies to use their shops as a showcase for their own products was a non-starter for consumers.
The big record shops duly took over the high street and the local record shop went into decline. The music industry had lost the independent eyes and ears on the shopping front. Instead there were store managers with corporate targets. And, in the book world, what is the publishing industry doing to help the small bookshops? They too have thrown in their lot with a few big major booksellers.
Using their retail outlets, the European music majors tried some aggressive pricing during 1998 to stop the discounting by new Internet sellers. It failed and CD shop prices never fully recovered. This suggests that the omens for the big publishers are not good. Competing on price devalues the product, permanently.
Now that it is so easy to publish, the role of the publisher as a guide to quality might now come to be appreciated. Publishers are geared up to deal with bestsellers, so why don’t they get on the Internet and start harvesting the best of the self-published works so that their production, marketing and distribution facilities can be usefully employed?
Another lesson to be learned from the music business is not to reduce the essential value of the product. A well-designed and beautifully produced product is what the consumer wants. If you try to save a few pennies on production, it makes it harder to distinguish your products from the upstarts’.
Several examples were cited where attempts were made to fight the ‘pirates’ with worse offers. When pirate sites offered to download track to burn onto CD, the industry apparently responded by offering a legitimate service but at a premium price when compared with a shop-bought CD. The ‘logic’ was to price the downloader into buying a CD. Definitely the sort of bright idea you would expect from somebody keeping their finger on the pulse of what was in effect a corpse.
The business had moved on.
The music business was very slow to learn that it could not release preview copies of new music because they always leaked. The fact that they could trace the source through a digital signature did nothing to mitigate the damage. With the capacity to deliver digital material instantly, it is difficult to understand why it took so long to stop issuing previews while the music promo men hyped up the market. The kids responded by buying a copy but the profit did not go to the music makers because they were just too slow again.
The many attempts to rely on some type of Digital Rights Management (DRM) will continue to preoccupy the music industry. The history of encoding digital material is one of frustrated end-users. The globe-trotters who find that they can’t play the DVDs they bought in the duty free in Singapore when they stick them in their player in Germany soon found it worked fine if placed in their computers. So they were forced to copy the disk to bypass the regional restrictions, just so they could watch what they had paid for on their DVD player. But soon they started making copies for friends.
The European Commission has had a look at DRM to see if it creates unlawful monopolies. Microsoft has successfully defended its position so far, but consumer groups have not given up their attempts to have DRM outlawed. Consumers often prefer to buy their music from people who do not limit where and how they enjoy their music.
The rate of change is accelerating.
Photography, TV and iPods
The photographic industry was revolutionised in a decade. Film vanished and digital cameras took over. The dark-rooms and fridges reserved to store photographic material have been liberated. The most voracious consumers of film footage were in the news business. Suddenly the time from snap to print vanished, as an image could be sent from the camera to the picture editor in moments. Electronic news gathering (ENG) allowed a new global player, CNN, to emerge because it was quick to appreciate and adopt the new technology. The corporations were once again rather slow on the uptake.
The TV receiving business is going digital around the world. Soon viewers will not be tied to the schedules of the broadcasters. Busy people are queuing to install a black box to capture the programmes they like, so they can organise their own schedules. But it is not the broadcasters who will be benefiting from this premium service. The innovation is being driven by consumers who are now able to edit out all those interruptions to their viewing pleasure imposed by the advertisers. Another wake-up call is going unheeded.
The growth-rate of web-radio is too fast and too diverse to measure. All the controls that broadcast authorities have sought to exercise as national nannies will be redundant within a decade. Access now is only limited by the ability of innovators to promote their products on the established media. Perhaps it is time for the media to learn that they are next.
Their willingness to act as gate-keepers for the established publishers of books and music will increasingly marginalise them. The success of the new publishers is constrained by radio, tv and the bookshops. So, even if it is too late for the music industry or the publishers, the broadcast media might be able to maintain their position as a channel, if they review their role as bouncers for big business, and open themselves to the changes that are going on. If not, they too will be by-passed.
In 2007 we expect to see the first portable reading device being adopted by the market. The uptake of the iPod, which was really just another MP3 player, shows what can happen when a hardware supplier appreciates the importance of providing material. Apple got it right with their iTunes. Will Sony get it right with their reader? If they do, the book business will be changed overnight by the consumer.
The iPod was launched at the end of 2001 and began to reach customers in volume the following year. It took just 3 years to change the music industry again. The ability of the consumer to dictate the pace of change should now be recognised by all the media industries.
This articles is based on a talk give by Tim Renault at the London Book Fair 5 March 2006
