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Wanted: A Survival Plan for the Music Industry - Napster and the Consequences
'This is the end, my only friend, the end'
By Isaac van Deelen, Diebold Deutschland GmbH
(more articles from this author)
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The crisis in the music industry is, briefly, a very wide field. Not only because it is losing the basis of its business. This crisis has dimensions.

1) The 'Napster' crisis for the business model is the subject of this White Paper. Why should I go on paying? A few more general aspects are to be mentioned later on.

2) The crisis of demand: 'ubiquitous listening': Music and sounds are omnipresent. Is there anywhere left without radio, whether 'wireless', by cable or through the Internet, without MTV or Viva screen, without easy-listening sound? Is there still any music at all that isn't there all the time and quite legally free of charge? So if I the consumer, the final objective of the value chain, am expected to want to pay, what I pay for has to generate a demand with added value of some kind.

3) The crisis of supply: it is manifest in two forms. On the one hand, music has become so confused that the target group has its hands full finding what it is looking for. And searching is tiring, it wears you down and makes you bad-tempered, and costs the most valuable commodity in our epoch: time. On the other hand, and this is cause of the one hand, the supply is so freely interchangeable, so endlessly lacking in differentiation that the target groups are acquiring a slimy coating in the middle ear with all the entropy, all the garbage.

4) The crisis of eroticisation: Mainstream music is so bound up with our archaic driving forces that it has lost all the meaningful, abstract, wordless added-value superstructure of which music was capable under Beethoven or Mahler. Tits-and-asses: The arousing boredom at least helps us to get a grip on the population growth.

5) The crisis of the music itself: The current genre is exhausted. For 40 years, or let's say 25 years, only derivatives, copies, samplers. A crisis of culture, possibly the most dangerous of all the crises mentioned here, because it is also a crisis of youth. This refuses the intellectual effort, the debate on the laws and norms of the future. It celebrates a brainless, decadent, life-long ecstasy party, a sweaty, senseless trance. Just no reality!

6) The crisis of copyright:

Napster, Gnutella, Freenet – this is how the Lord punishes a grasping (music) business. For years and decades the music industry has fallen out with all its clientele – with everyone, because it affected the music consumers of all shades, and the artists of all genres. There are countless instances and still more stories for the crude and questionable nature of the music industry's dealings with its 'content partners' ('Breaking Glass' got to the heart of it with Brechtian clarity). If it was only the condoning passivity about drugs and drug abuse; if it was only the exploitation of the naive, inexperienced and generally uneducated shooting stars with unfavorable terms and enslaving contracts.

Likewise the consumers. The prices for new record issues had – at that time, at the end of their life cycle - already been beaten down by the competition to 14.99 DM [US$7.03]. The system changeover to the CD came just in time. But instead of passing on the economies of scale to the public at some stage, a knowing cartel had long ago agreed conversely to drive the prices up: 29.99 DM [US$14.06] for the charts; 34.99 DM [US$16.40] and 38.99 DM [US$17.82] for lesser known groups – as revealed by the (non-representative) city investigation last weekend!

Honi soit, qui mal y pense! [Shame to him who evil thinks]

So much for the polemic, which has only one objective: it should show that there are causes and effects. The music industry is no longer legitimized. If today's top performers had not stumbled into their careers with such unrestrained commercialism, such stupidity and simplicity, they would have known from even the most casual general study of philosophy, politics or sociology that a structure that is not legitimized will sooner or later fall victim to revolt. The customers, the mob, the rabble, simply won't put up with constant increases in the 'price of bread'. A wicked, cynical industry! But shouldn't the topic be treated quite differently?

The mythical, harmless flower-power revolutionaries of 68? The 98 ones are of a different school! While the old fighters preferred to prowl around the streets, mainly shouting slogans at the tops of their voices, the 98 group, the dissidents of the old economy, have started a quite different, massive attack on the familiar world. A non-political generation?, that's today's slogan: it's hardly ever heard, and yet is responsible for the air sovereignty over the data highways. This is devious inasmuch as a truly uncontrolled gang of revolutionaries fillets the terrain on the sly and settles facts, while the forefathers are still sorting the past.

What lies behind it?

The 98 group, when they were still children, looked at the finished world. There was nothing more to do. The houses and streets stood there complete, the land was divided up. Why live? Either – an analysis more felt than expressed– either you molder in this life, or you break out! Revenge! - Children think like that! Revenge for the finished world. Revenge for the lack of prospects.

A – very – short analysis:

First. The world. The value-added principle. Secondly. The elders produce, put in capital and work, make highly ordered products out of raw materials without order. Thirdly. They sell these products for a higher price than they themselves have paid. Fourth. Over the years, decades and longer, the (respective) elders have perfected this process in nearly all areas. Really gigantic added values accrue; that makes them powerful, that improves their life. This is how it looks in the finished world. "You think that you are special, Mr. Andersen, but obviously you're not ... The time has come to make a choice, Mr. Andersen. Either you choose to be at your desk on time from this day forth or you choose to find yourself another job. Do I make myself clear?" (from 'Matrix')

Revenge! Fight, war, attack, glory or death – Revolution! In the end, as in all proper revolutions, it's about the money, about the big money naturally. is a business model that hits the old economy where it is most sensitive, and answers a simple question: "Where is money earned in the old world?" The plan: "We'll change that!" Quite simply: "The price makes no difference – we're going down mercilessly!" Pain and success will build up together. "For every cent, the customer gets two back!" How convincing is that? "We'll make losses – the old people will smile and dream in their glass palaces of power, not long, but long enough. Meanwhile we'll produce the finest things at other peoples' cost." We call this flotation. Once your own pockets are full and the losses are in public ownership, you can breathe easier.

So: "First we get the customers, then we'll fix the rest."

As in any snowball sales system, the initiators make a profit, so it seems as though the principle works. And as in all snowball sales systems, new resources have to be found sooner or later. Und so the 98 group, having a good laugh and "really working hard," demolish a market, a business model, one value after another. After the margins of the middlemen, the margins of the copyright industry are next. The picture of Shawn Fanning, this nice boy-next-door, is deceptive: Legal – illegal – who cares? With all the venture capital after him, this is how the punk looks when he puts on a white collar. A wicked, cynical youth.

But we really should treat the topic quite differently.

The Gordian knot

With such vicious words, we cannot hide the fact that we are lamenting a story of losses here. The old world is being lost, winds of change, no use complaining, even if it was right. Bertelsmann, at any rate, is driven by opportunistic insights. "If you can't beat them, join them!" An attempt, no more, though one of the cleverer attempts. This White Paper makes a number of suggestions relating to the differen-tiation of business -models and especially the expansion of service categories. These are helpful thoughts if it is a question of avoiding the worst disturbances with short or medium term actions. Naturally, these models have a disadvantage: they advise the industry to increase expenditure and suggest supplying more for less money. On the other hand: there will be cost savings of up to 80% in production and distribution!

However, the suggestions cannot hide the fact that the actual (two?) challenges go further:

You can hardly demand cultural innovation. It comes, or it fails to appear. But: one can hope that the crisis of content is heading for its peak. We are on the eve of a change, after which the cultural production will be at the height of the production conditions; to put it plainly, cultural creation adequate for the media is embryonic at best now, and it is within the sphere of social responsibility of the media -industry – this is the view and challenge represented here – to be a supporting influence at this interface to the future: Experiments instead of mainstream garbage! Quality, or at least the search for a cultural contribution: this is a general framework for resisting the signs of the breaking up of copy-right.

So this is also the second, other, actual (?) challenge:

If it is not possible to resolve the copyright crisis and avert the loss of copyright, then larger structures are up for consideration. The creative act itself must (when children become fathers) be rewarded; otherwise society is robbing itself of the conditions for survival!

The concepts and the associated rights have to be determined afresh for this. The individual who generates a copyright with an original idea must be put at the center of these efforts. This individual must be restored in his rights of initiation, creation and disposal. The (media) industry on the other hand finds itself in the role of the service provider again. At the same time, however, indirect auxiliary services (layouters, producers, co-authors) must be qualified and brought up to date, where they are relevant to copyright. Altogether, it's a question of describing and sanctioning authorship for the 3rd millennium. This (at first purely intellectual) definition of work is dramatically gaining in significance; arguments must equally be included to support the view that the valuation of intellectual work (possibly) changes (maybe as fame and honor take the place of money?), as well as those that claim (with a diffuse reference to the 'rights of man') that in principle there can (or should) be no ownership of ideas. In this context, the copyright relationship between employees and employers should be reconsidered too. Possibly the greatest challenge, however, seems to be in establishing qualitative relativity: There should at least be some discussion of whether it is socially desirable that the copyright claims of a folk musician are at the same level as those of a Nobel-prizewinning author – still more, that the copyrights of the mass culture frequently lead to incomparably greater material benefits. This too may be one of the reasons for the indisputable crisis of copyright. And because polemic is also a pleasure, just a play on words to end with: What is worth nothing should also cost nothing.

This 80-page study by Diebold, a leading German management and technology consultancy, provides an analysis of the current Internet strategies of the five largest record labels and their online rivals within the context of the evolving marketplace to challenge while drawing a roadmap to the music industry.

| See Table of Contents
| See Table of Illustrations
| See Testimonials

Purchase this White Paper

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