Thoughts on Hypothetical: Pay for One and Take Another

Jason raises an interesting question about the propriety of a consumer downloading a free MP3 when s/he already pays for subscription music in perpetuity. Was this perhaps spurred by a "Kooky" Facebook exchange? But I digress…..

My answer: I don’t think this is fair right now given the current state of the music industry. Here’s why:

For decades, part of the recording industry's business model was built around packaging and repackaging artists' work to generate recurring revenue streams (The Smiths - "Paint a Vulgar Picture".) Every artist, song, album can potentially be sold in unlimited ways - single, album, Live album, "Best Of" album, 20th Anniversary album. Add the various formats created and pushed over the years - vinyl, 8-track, cassette, CD, and you have a very lucrative money making machine, with consumers essentially buying the same music over and over again. Until now, the labels and their distribution companies have controlled the value chain end-to-end -- manufacturing, marketing, branding, licensing, distribution and ultimately revenue.

Individual artists, meanwhile, get a small slice of the recorded music pie, and make the bulk of their money on merchandise sales and touring.

Digital music and the Internet are now changing the game, which gives artists more control of the value chain than ever before. They can create their own brand, generate their own buzz and even distribute their own music. But, to be financially successful takes work and the ability to scale. For most artists, climbing on to the record label machine is still the best way to make an income.

At the same time, these new technologies have made it easier for consumers to find and enjoy music. While the recording industry has always viewed change in technology as a new opportunity to generate revenue, the irony is that the shift to digital is having the opposite effect. Many consumers appear to be fighting the system by looking to acquire music for free. So the availability and accessibility of music for the masses is increasing while music sales and revenues have begun to decrease.

Subscription music services are one way labels are attempting to gain some stability and predictability in revenue streams for themselves and artists. To many consumers, including me, subscription music services also provide a great value. For the going rate of $14.95/month I can stream, download, and transfer to a compatible portable device any music I want, whenever and wherever I want, within the boundaries set by the service. I know when I sign up that there will be some limitations on what I can do with the music (e.g., I cannot burn the track to a CD), but that’s ok because I understand I am paying for a service, not ownership of every song in the catalog. The artist, through the music service, has granted me a license to enjoy their music under a certain set of conditions for an agreed upon price.

If I want more control over what I can do with the digital track, I can purchase a song or an album from my subscription service or another. In this case, the artist is transferring ownership of an asset to me with a different set of rights (e.g., I can now burn the track to a CD) for another agreed upon price, typically $.99/track.

I don’t think this system is perfect by any means. In fact, it can be downright confusing to most consumers, and many people take issue with the restrictions that are currently in place.

But, if I subscribe to a music service, then download a track from outside the service without paying, who am I really hurting? I am hurting the individual artist who stood to gain from the sale of that track and the additional rights that go with it, and for whom the loss of pennies on the dollar in revenue hurts more than it does the record label. Again, this is what I think right now, based on the current model.

The bottom line is: the current system has to change. The constraints and complexities of pricing and usage rights are far too complex in the digital world for consumers to truly understand and fully embrace. Artists want to be compensated fairly for their work and consumers want reasonable prices, freedom and flexibility.

As for the labels, perhaps they should stop trying to repackage a tattered business model and start embracing some new ideas.