MP3: The Genie Is Out of the Bottle

If you really start to think about it, buying music in a traditional music store starts to seem pretty silly in this Internet age.

Consider the process. You hear a song on the radio, remember the name of the artist and resolve to purchase the CD. You get in your car, drive to the nearest mall, find a parking spot close enough so that the mall’s not closed when you get there. Then get inside the mall, find the store, paw through the racks until you find what you’re looking for (hopefully!). You grab a disc containing digitally-encoded music that costs approximately $1 to produce, stand in line, purchase the CD, and then reverse the process until you’re back at home. There, you unwrap the CD, place it in a CD player and finally listen to the music as it is digitally decoded from the hunk of plastic spinning in your CD drive.

Not incredibly efficient considering that the music you’re listening to had to make a wild round trip from recording studio to encoding to pressing on a physical object (the disc) to being shipped by a smoke-belching diesel truck to a store staffed by surly alphabetically-challenged sales people and back to your home again.

Now consider what’s rapidly becoming the new paradigm on college campuses. You hear a song, go to your computer, run a search on Napster, find the music you want, and after several attempts to find a server that actually works, you download the music into your MP3 player and are listening within minutes of when you actually wanted the song. There is no physical movement of product; it stays digital the whole way. Very efficient. And very, very scary to those who’ve made their fortunes controlling access to information.

And it’s getting even scarier.

A new study by Reciprocal shows that for the first time, record sales are declining as a result of MP3 downloading over the Net. It bases this assertion on the fact that even though record sales were up 12 percent in the first quarter of 2000 (compared to 1998), sales were down 4 percent in music stores within a five-mile radius of college campuses -stores that normally account for 50 percent of offline music sales. And in areas with the heaviest Napster usage, sales declined 7 percent.

Of course, if you’ve been following the Napster debate or paying any attention to how the Internet is changing the way we consume media, none of this should come as a shock. While record companies are sure to freak out over these numbers, this is yet another indication that the MP3 revolution is rapidly making much of what they do irrelevant. And they’re right, because they (like many other old-line content companies) have been concentrating on selling the wrong thing. In this digital age, it ain’t about the product – it’s all about the experience.

Consider e-books. While many electronic book readers have been available for a while now (check out the list of titles offered at Glassbook for an indication of just how many are out there), they’ve yet to make any serious inroads into the book market except for the blip from a Stephen King novel.

Or look at magazines. Though many have online versions carrying much of the same content as the paper versions, magazines haven’t been killed off by the Net. And radio? It’s still around even after TV and the onslaught of Internet radio.

Why? Why are these old-tech mediums surviving in the age of digital reproduction, transmission, and usage? Because the producers of the analog artifacts have understood (implicitly, if not explicitly) that the experience that goes along with their products is just as important as the product itself. Even though an e-book contains the same information as a paper book, the experience of reading an e-book from a laptop screen is much different from reading a well-thumbed paperback on the beach. And even though a lot of technical documentation is moving toward electronic distribution, the pleasure involved in holding a physical object, browsing for it in comfy bookstores, and savoring your find over a cappuccino can’t be duplicated online. And I’ve yet to find an online magazine I can shove under my arm and read standing up on the train.

The music business hasn’t caught onto the fact that hearing the music is really only part of the experience. And it’s going to be in trouble unless it changes its revenue and sales models to meet the reality of the digital realm.

Sure, hearing the music IS the most important part of the experience, but the pop music industry needs to look beyond the information contained on those discs. While the book industry has responded to the explosion of electronic media by focusing on the experience of reading books (the comfy stores, the book clubs and communities, the packaging), buying CDs has become more and more commodified. Buying CDs in big-box retailers or online has just about as much ambience as purchasing office supplies – except these “office supplies” are marked up over 1,000 percent.

What’s now going on with music at college campuses offers us an instructive and tantalizing glimpse of how the broadband digital future is going to impact the entertainment industry. Today, college campuses are populated by a highly-wired population where the Net is a way of life and high-speed access a given.

Tomorrow, it’ll be Main Street. And in a world where information flows as freely as air and anything can be downloaded in a very few minutes, our relationship to content (how we use it, how it’s distributed, how we pay for it) is going to be radically altered.

Like it or not, the genie is out of the bottle and is being copied millions of times per day. If all the industries that depend on content and entertainment (including advertising) are going to flourish under these conditions, we’re going to have to radically re-examine the economic paradigms. We’re going to have to concentrate on what CAN’T be copied – namely, the experience.

How will we do this? First by examining what can’t be copied: the communities around content products, the ancillary products spun off from these content products, and the value-added physical experience of owning these products. As people become more used to getting their content from the Net, we’ll need to examine new ways of gaining revenue by adding experiential value-like pay-per-view webcasts, access to artists and communities of interest, “subscription only” streaming events that are difficult to capture, for example.

We’ll also have to look at revenue models based not on residuals, but on immediate income from value-added services; for example, making money from sponsorship of the “official” (and presumably more reliable) download site for a new album. Content creators may have to look at ever-widening webs of revenue based AROUND rather than ON their works in order to get paid, including other models no one’s even thought of yet.

If you think that the MP3 phenomenon is only going to effect college students and those who market to them, think again. The ability to electronically distribute all types of content is going to affect all of our industries over the next few years as transmission speeds increase and computers become more powerful. Thinking about how to deal with a world where content can’t be held hostage by physical media and traditional distribution channels is vital to marketers who depend on many of these traditional channels today. In the future, it’ll be the experience that counts (and pays).