Sunday, November 13, 2005

The Recording Industry is Committing Suicide

Two things happened this week that will further alienate music consumers and speed the demise of the recording industry. First, the European music industry threatened several podcasters such as Adam Curry with legal sanctions for playing clips of licensed music in their shows. The European analog to ASCAP and BMI in Europe have sent “cease and desist” letters to several European podcasters like Adam Curry and Jan Polet who occasionally play short clips of popular music in their podcasts. Legally the industry does have the right to demand payments for these performances, but the podcasts are generating revenue for record companies’ back catalogs so why upset the apple cart? The industry is shooting itself in the foot by not working with these podcasters on legal uses of their intellectual (the use of intellectual is loosely defined for some of the music) property. Instead of battling the industry, these podcasters have complied by switched entirely to podsafe music totally eliminating any potential sales of music from these sources.

In the eyes of the recording industry, podcasters are stealing their property and depriving them of licensing royalties. Most podcasters do not make a dime from what they are doing. They are doing it for the love of the music they play. This myopic view will cost them in the long run because consumers will spend their dollars on podsafe music instead of the music we are fed by the record labels. The recording industry should embrace this new broadcast medium instead of alienating it. Podcasting offers the ability to time-shift programs just like TiVo. Also, it breaks the shackles of traditional broadcasting by enabling anyone with a computer, headset, and Internet connection to create a show. If the record companies have not figured it out, their infrastructure is becoming obsolete. The Cheap Revolution allows musicians to produce and distribute quality art without an expensive recording studio and equipment. Artists can sell and publicize their music through live performances and the Internet. Podcasters introduce listeners (i.e. customers) through their podcasts just like radio stations. Who needs the record companies with some podcasts reaching a million downloads? Internet music distributors will emerge much like Amazon did to provide an alternative to the traditional distribution process. More record company executives should read The Innovator’s Dilemma because their industry is about to be disrupted.

The second bone-head move of the week comes from Sony’s BMG Entertainment Group. Much has been said this week about Sony installing a rootkit on computers as a method of copy protection. It is bad enough trying to protect computing resources against viruses, worms, Trojan horses, spam, and several other threats from unknown assailants. Now a supposedly trusted source installs malicious software behind your back that allows them or any hacker unfettered access to your computer. This present is all in the name of trying to protect their intellectual property. The news quickly spread and a boycott of all Sony BMG products was initiated. In a CYA move Friday, Sony executives stated that they will stop producing the CD with the rootkit installation. The damage control was a little too late. The impact of their initial decision to install the rootkit will cost Sony sales and consumer trust. What amazes me is how could executives at a once-renowned technology company ever permit the production of these CD in the first place.

This continual trust eroding behavior by the industry is creating a measurable impact on music sales by consumers. As they keep eroding consumer confidence, consumers will look towards alternate sources for their music. The VC community is quietly funding companies that are building an alternative industry to the traditional recording industry. Big technology companies like Microsoft and Apple are investing in them as well. Podcasting is attracting the attention of advertisers. Musicians embrace a new distribution source because it offers them the chance of keeping a greater portion of the revenue from the sales of their work. The recording is not as invincible as it thinks it is. This new disruptive business model will succeed as long as the traditional recording industry keeps making anti-consumer moves like the two this week. I wish Adam Curry and the rest of them the best of luck. It is time for a change anyway.

Tag: Sony, Curry, podcast, rootkit