Will the Digital Music Industry Survive?

Has peer-to-peer (P2P) file sharing made the idea of making money from the distribution of intellectual property dead? If so, are there new opportunities that can rise from its ashes? And should any of us care?

These aren’t such academic questions anymore. As the whole Napster hoopla has shown us, intellectual property can be an incredibly contentious issue and one that I don’t intend to rehash this week. At this point, we’ve all heard enough about Napster to last a lifetime. (Check out my last piece.) But after buying a new MP3 player over the weekend, I’ve been doing a lot of thinking about what it actually means to “own” intellectual property and how we as marketers need to be thinking about the whole issue.

One of the biggest issues surrounding the digital music wars these days is that digital media doesn’t degrade from copy to copy and from transmission to copy. Essentially, when you make a digital copy you’re making an exact copy, indistinguishable from the original. This is very different from analog copying, where each generation degrades perceptibly from the original.

Because of this decline in quality, intellectual property owners didn’t really care all that much (at least compared to digital transmission) if copies were made. A cassette tape recording of a radio program would never be mistaken for the original, and a teenager’s mix tape didn’t pose much of a quality threat to the records it was made from. This all changed when digital came into the picture.

Now when a kid burns a copy of a CD borrowed from a friend or downloads an MP3 file off the Internet, the “product” he or she receives is essentially indistinguishable from the original. Possessing the “product” and being able to use it (that is, listen to it) provides the same experience as if the person had purchased the product from the publisher.

Given this fact, it’s no surprise that music publishers feel they have a problem. The means of distribution have been made available to anyone and have essentially eliminated the control music publishers had on the marketplace: the control of the distribution of the product (the music) they were selling.

In the past, bootleggers could be found out on the Internet and punished fairly easily a search engine could lead you directly to those distributing copyrighted materials. But now P2P distribution has made this essentially impossible, allowing millions to open their collections to each other without having to “publish” them on the web. Instead of tracking down a few sites and prosecuting violators, there are now millions of “sites” to enforce and shut down.

And it’s only going to get more complicated. While efforts are in full swing to eliminate Napster, upstarts like Gnutella and other systems that don’t depend on a central server (like Napster) are coming down the pike.

As the software industry found out long ago, no matter what type of protections publishers put in place, somebody who’s determined enough is going to find a way to circumvent those protections. How much copy protection do you see on software these days?

Regardless of what the entertainment industry would like to think, there is going to be no long-term solution that relies on the control of the means of intellectual property distribution. Now that anyone can make perfect copies of any piece of intellectual property and distribute these copies instantly, anywhere around the globe, there’s no way that people aren’t going to make copies and distribute them worldwide. It’s a done deal. Debate over. There’s no going back.

But maybe we shouldn’t care. Maybe we shouldn’t try to fight this trend and instead look for new ways to make it work for the artists, those who promote the artists, and the fans who support them. Maybe the time has come to re-evaluate what the “product” is and consider the new opportunities that these changes have brought us.

One of the most interesting things that’s happened to the web lately is that, from a demographic standpoint, it has begun to look almost identical to the U.S. population. This means that any information gathered about users online becomes applicable to the general population, vastly increasing the usefulness of online market research. Instead of a skewed sample, you get access to a population that can be measured in real time, with real numbers, on its real behavior, not inferences extrapolated from small samples.

What does this have to do with marketing or intellectual property? Lots. Because maybe we should stop thinking about the intangible entertainment as the “property” and start concentrating on where the real value is: the people who are consuming the entertainment.

Think about broadcast for a minute. The reason that so many of us pay so much money to advertise on broadcast is because broadcast media gathers large audiences to put our messages in front of and conducts market research to identify the characteristics of those audiences. We don’t seem to care that most of the numbers are based on projections from ridiculously small samples and aren’t measures of any sort of real usage. We make our choices, pay our money (or our clients’ money), and take our chances.

But what if the consumption of that entertainment could be measured exactly in real time? Instead of relying on indirect measures to judge the effectiveness of our ads, or using indirect measures to find out about the audiences, we would be able to know exactly who is watching and/or listening, exactly what each person is watching and/or listening to, and when he or she is watching and/or listening.

Imagine knowing in real time what the hottest recordings in the world are and exactly who is listening to them and when. Imagine in the future, when broadband becomes a reality, knowing what videos people are watching (and they will) and who is watching them. Instantly, you have access to pinpoint user data that can then be used to market the stuff that people can’t transmit across the Internet the tangible hard goods to the people willing and waiting to buy them.

If the entertainment industry is going to survive, it’s going to have to start looking at alternatives that position the entertainment as an inroad to the consumer, not necessarily as the end product itself. Imagine if BMI (Broadcast Music Inc.), ASCAP (The American Society of Composers, Authors, and Publishers), and the recording industry embraced Napster, using it as a way of gathering real-time info about consumer usage patterns. Of course, to be successful, such a system would have to require that users register their basic demographics to use the system (aggregate data, not individually identifiable data). It’s the same basic tradeoff made by users of free ISPs – you give us the data, we provide the valuable service.

Does a future where the exchange of intellectual property is encouraged by those who currently want to restrict it sound far-fetched? Maybe it does, and maybe it is. But considering where things are going, something’s going to have be done if the industry is going to survive. And don’t forget: If the entertainment industry goes away, so does a lot of advertising. It’s in everyone’s best interests to figure out what the future’s going to look like.

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