Research: File Traders And Music Purchasing

An anonymous reader writes: "Like a TV preacher taking excerpts from the Bible to support a contrary thought, the results of research can be similarly interpreted in opposite ways. Edison Research just released a pro-record industry report stating '10.1% of 12-17s are actively downloading/not purchasing music.' Richard Menta over at MP3 Newswire noted that this also means 90% of file traders are buying music, a positive result that supports the virtues of trading. Menta then goes through the study's findings one-by-one, questioning Edison Research's conclusions. This includes their recommendation to the industry to fight the 'downloading problem.'"

Comments

It's a broken business model

[spongebob]

The interesting thing that came up in a conversation the other day was that there is an entire generation of people who are growing up not paying for music.

I come from a generation that has been totally used to paying for things. For me there is a "guilt" syndrome about knowing that the music is made with profit in mind. So I am more willing to make purchases or delete .mp3s

How do you stay in business when no one sees a direct reason to pay you for the information they can readily get for free? It's a broken business model for sure and they are really fighting to stay alive in more ways than the average guy realizes.... It will be interesting to see what happens.

Interesting..

[neksys]

I don't know about anybody else, but my purchasing habits have changed quite a bit as a result of having the ability to download music. I actually purchase fewer cds than I did before - not because I'm cheap, but because I now have the opportunity to listen to albums before I put my hard earned cash into them. So yes, the record industry gets less of my money from poor purchases - conversely, the bands I truly enjoy and wish to support get more money from me than they would have previously.

I like to consider my money an investment into a band I support - the more money they have to spend, the more music I get from them in the future. And just like any investment, one must have research tools on hand to ensure that your money is going to get a good return - It just so happens that in my case, its gnutella. Its not piracy - its good business. Surely the RIAA understands that.

Re:Interesting..

[Moofie]

No, you're not depriving content distributers of the revenue that they are "entitled" to: You are forcing them to provide a quality product, instead of a slickly-marketed one.

If I buy a stereo, take it home, and it sounds like ass, I can take it back. If I buy a CD, take it home, and find out the only good tracks are the two singles I heard on the radio, I'm screwed. That business model only works if the customers are forced to be ignorant (IE by limiting their exposure to a new band to the two singles that are "free" to listen to).

I don't care if it's illegal. (I happen to think that it is not) I will not pay $20 for a CD that some marketroid packed with crap because they wanted to save some "good" songs for the next disc. Not going to happen anymore, especially since I've got a superb alternative.

Precision

[plumby]

Inappropriate precision really bugs me. The figure "10.1%" suggests that their reseach is accuruate to 0.1%. There is no way that that is true. Why don't they stick with "approximately 10%"? It just suggests to me that people are trusting the conclusions far more than they have a right to given the raw data that they started with.

Let's see an up-to-date business model

[stevens]

Blockquoth the poster:

How do you stay in business when no one sees a direct reason to pay you for the information they can readily get for free?

I'm with you. I keep hearing about the "outdated business model" that the RIAA are using. Ok, I'll stipulate that, so what's a model that works?

I'd like to see someone start a label that signs artists, gets music recorded, books tours, and gives away mp3s without worrying who copies what. If there is a business model in there somewhere that takes mp3 copying and makes it remunerative, then the first guy to do it will be well rewarded.

Plus, it'll end all this bickering as the RIAA members fall over themselves to be the first to copy it.

Re:Let's see an up-to-date business model

[Rasta Prefect]

How did the Greatful Dead do it? They made money from concert tickets, t-shirt sales (Hey, that's the sweetest pie! quoth Krusty.) and probably a little from album sales. But they never really cared about concert bootlegs. Don't know how they felt about trading actual albums.

I'm not a deadhead by any stretch of the imagination, so maybe someone can explain.

Concerts are where most bands make the vast majority of their money. The only people making real money off CD's are their labels. The only reason bands need the albums at all is to raise awareness for their concerts. So if they can use the Internet to make others aware of their existence, the labels are no longer nessecary. Excellent business model, but theres no place in it for the RIAA, and hence they'll fight it every step of the way.

Re:Let's see an up-to-date business model

[alienmole]

You're asking the wrong question, with faulty assumptions: that the amount of money that can currently be generated from a very successful album is somehow a necessity. It's not. Your question is a little like asking how the buggy whip manufacturers are going to sell as many whips to car owners - not a perfect analogy by any means, but my point is that there's a discontinuous change here, and "business as usual" will have to change as a result.

One model that can work has already been mentioned by someone else: to focus more on making money from live performances, a la Grateful Dead. Not everyone gets to create something and stamp out millions of copies very cheaply, making huge profit margins on each one. The music industry is actually something of an anomaly in this respect.

Providing convenient and cheap downloadable music would also help, so that it's easier and preferable to pay a small fee to download a high-quality recording than it is to copy a crappy one. No-one has yet actually done this, the middlemen are all too busy resisting the inevitable reduction in their revenue stream.

The fact that middlement are being disintermediated doesn't mean that there's no future for the industry as a whole, just that there's no future for certain kinds of middlemen.

RIAA members won't fall all over themselves to copy whatever successful model arises, because that model will not involve them at the profitability levels they currently enjoy. However, I'd bet that consumers and artists will both find the end result more congenial, on average, with the possible exception of the likes of Maddona, Britney, and the Back Street Boys.

Re:Let's see an up-to-date business model

[DarkZero]

I'm with you. I keep hearing about the "outdated business model" that the RIAA are using. Ok, I'll stipulate that, so what's a model that works?

The problem with this question is that no one will ever accept anything as the right answer. The current situation with the RIAA is like a gasoline fuel company trying to keep their profits up when everyone has switched to electric or hydrogen cars. The market is simply gone, and the best that the company can hope to do is sustain itself by changing to a new, smaller business model that serves the few customers that prefer their product. Like or not, it has become a solid fact that people now regularly trade music between each other and burn mix CDs for their friends. From here on, the RIAA can hope to keep themselves from dying by finding a newer, smaller business model, but they cannot get back the annual profits that they once had.

I'd propose a new business model for them, but I'm one of the people that just thinks that the RIAA is doomed and that the music "industry" is bound to join the art and book "industries" as small but popular businesses that offer a good product at a sane price. I believe that the days of musicians being huge superstars and their companies making billions of dollars are reaching their end, and that that is not as bad a thing as many people think it is.

Re:Let's see an up-to-date business model

[namespan]

so what's a model that works?

There are a couple of local artists in Utah that seem to be doin' just fine for themselves. Peter Breinholt is the quintessential example.... he played a ton of shows, built up a following, produced his own records (from $3200 to $10,000 for the recordings), and sold them (at $10-$15 a pop). Since he's sold well over 10,000 copies on each of 4 almbums, he's not doing half bad. Certainly better than the musicians discussed by Steve Albini and Courtney Love. This leaves aside the 1,000-2,000+ seat venues that he consistently packs.

He testified at a field senate hearing a while back. He was pretty pro-P2P .... because he figures it's a high tech version of the same sort of word-of-mouth which won him local fame.

"So far," stated Breinholt, "my music has been a cottage industry. I paid for CDs to be made, found people to distribute them, designed covers, booked concert halls, took out ads in the paper... So I've stayed independant. That's not to say I'm anti-label...there's a lot a label could do to make my music available to more people. And if a fair deal came along, I might do it. I've just never seen a deal that would be fair to both parties." He spent some time delving into math of record deals, comparing his self-produced work (which makes $7-9 per CD sold) with that of a friend who went the label route (and makes $1 per CD sold, after all the record label's costs are covered, and doesn't own the rights to the CD anymore).

"It's a lot of work, but I like doing it. Not only that, but I think I understand my audience, and I get to be protective of them. I like being able to decide ticket prices for shows, who is goign to open for us, what the next CD will sound like, or how aggressively I'm willing to advertise," Breinholt said.

So there's your business model. Play and write like a maniac, keep the rights to your recordings so that when you sell copies, you actually see a couple of bucks.

Incidentally, Breinholt is not the only doing this. recently turned down a $250,000 recording contract because the terms sucked, but they seem to do just fine. Ryan Shupe and the Rubberband have won lots of attention at SXSW, and similarly sell out 1000+ venues on a regular basis, and have a couple of good recordings that people buy (even though they're really a jam band and mostly worth listening to live).

Re:I stopped buying them

[neksys]

Another possible option is to download the songs you want, or a whole cd of you so desire... then find the band's contact address and send them a bit of cash. Perhaps it'd only be symbolic, but I know for a fact that the $2.50 you send them in the mail would be substantially more than what they'd get otherwise - plus, the band might just get that "playing music for the sake of music" feeling again. It's worth a shot *shrug*

Get it right, damnit!

[hrm]

The statement made in the article isn't what's quoted in the summary,
"10.1% of 12-17s are actively downloading/not purchasing music",
but it's rather
"10.1% of 12-17-year-olds who actively download music from the Internet did not purchase a single CD or cassette in the last 12 months"

The real statement allows the conclusion that 90% of downloaders still buy music media. The one in the slashdot summary, as too often is the case, is plain wrong.

No business model

[Mad Quacker]

Perhaps there isn't a business model to be had, that may be a better than any business model. How much money did musicians make before records that you could sell? Not much, but they did anyway, and we have a rich and diverse history of music. After the record industry got started, musicians still made almost nothing, just a few fatcats who had the money to invest anyway. With better contracts and sales of multi-million units, some artists have made a decent amount of money, but this is an infinitesimal number of all musicians. All the while some pseudo-anonymous fatcats with little talent but a large pile of cash, are making their pile larger.

The time for super-stars and immense amounts of wealth for the few may be at an end, at least for this industry. I welcome it. How many bands that have gotten silly, filthy rich produced a good album afterwards? Exactly.

Re:No business model

[omnirealm]

How many bands that have gotten silly, filthy rich produced a good album afterwards?

That's the funny thing about our capitalistic system. The possibility of becoming a monopoly is a powerful incentive for innovation and production in the first place. However, once a monopoly actually occurs, then the system begins to fail (specifically, that which follows leaves much to be wanted).

I submit that the dream of becoming a multi-millionaire superstar (in the area of music), or the dream of producing the de-facto desktop operating system (in the case of Microsoft) gives motivation to struggle in the market and to produce. Take away the mere possibility of ``striking it big,'' and you affect the number of people that are going to try.

Maybe people just aren't buying music + suggestion

[0x0d0a]

I never bought a single CD before MP3s...I just didn't listen to music. Now, I have some MP3s that I listen to. If those MP3s went away, I'd just go back to not listening to music.

Because "10.1% of people downloading music are not buying music" does not mean that the music industry is losing sales from all those (though I'm sure it is from some).

I wonder how feasible it would be for someone like Borders (trying to compete with Amazon as a music retailer) to directly sign for tracks with artists. Then they maintain at each location a fat data pipe (if this isn't economically feasible, it will be -- small credit-check data lines are already in place and data gets cheaper and cheaper, whereas CDs stay the same). Then they have a really fancy burner or press or whatever at the location. They download losslessly compressed tracks from the Borders central server and cache them at local locations (to avoid retransferring popular tracks). Then people can simply say "I want a CD and I want track X, Y, and Z on it". The money goes directly to the artist, aside from Border's profit.

So lets see why this makes sense:

* Artist gets money, users have less incentive for piracy.
* User gets to specify what tracks they want/don't want and get better quality than they would pirating MP3s.
* The user can buy CDs more cheaply -- by eliminating the middleman, they pay maybe $3 to Borders per CD (you automate the thing, with a little Borders card reader, and there's very little per unit cost) and 10 cents to the artist per track (hell of a lot more than the artists are currently making), and you get a full-quality CD where you're supporting the artist for $5 tops.
* Users would have a much broader selection, not limited to the few hundred titles that might be in the store.
* Borders makes money -- I suspect unit costs after amortization would be about 50 cents per CD, so they get a healthy $2.50 in profit per CD, which is probably more than they currently make.
* Borders risks far less than they currently do -- adding an artist to their central database is cheap cheap cheap. They don't have to risk warehousing and blowing shelf space on CDs that people don't want.
* New artists can break into the market easily -- they simply register with Borders, send in their music to the main server, and start getting money. They don't have to convince much of anyone of their music quality, since there's no massive production/warehousing costs for all the CDs.

There are two drawbacks. One, you don't get extras in the CD. You might be able to print out the cover and the CD label, if this "Borders mini-CD maker" machine was fairly capable, but you might not get other stuff jammed in the case. Second, even with a hefty local cache, Borders still has to transfer 300MB per full CD (assuming lossless compression averaging 2:1) for infrequently requested CDs. This may not yet be feasible -- however, data lines keep getting cheaper, and CD prices stay the same.

Finally, a $100 80GB HD can store about 160 fairly full CDs, and 300 with lossless 2:1 compression. That's a one-time cost -- like incredibly cheaply expandable floor space. At those prices, Borders can afford to have enormous local caches -- one sale of a CD much more than makes back the cost of storing that CD locally.

Broadband makes a big difference

[Animats]

Take a look at the graphs from the study. Only 14% of dial-up model users downloaded 100 or more songs. But 41% of broadband users did. 73% of broadband users are downloading music.

Next the RIAA will want a tax on broadband connections, I suppose.

"actively not purchasing music"

[Dr. Awktagon]

Ah, such beautiful doublespeak. Would you like to hear the sad tale about the twenty-something who is actively not purchasing a new Lexus? In fact, said twentysomething actively doesn't purchase a new Lexus every single day of the year. Assuming a new Lexus costs $40,000, that adds up to nearly $15million per annum, which is a lot of lost revenue for the high-end car industry.

When questioned, this twentysmoething admits he feels no moral misgivings about accepting rides to work in his neighbor's Lexus without the company's express permission, and will probably continue to get free Lexus rides without paying in the foreseeable future.

Something needs to be done about this not-buying Lexus problem!

I'd buy more but they won't let me...

[sootman]

I used to buy an average of 2-4 CDs per month. Less than 1/4 was new stuff, mostly I was just fulfilling my dream of owning every song I ever liked. So, I bought a lot of Greatest Hits discs, Best of the 80s, etc. However, even before I started downloading music, I was already beginning to slow down, not because I was anywhere close to achieving my goal, but because there was less and less good stuff to buy. I won't buy a $16 80s compilation just to get 2 good songs any more than I'll buy any *new* CD just to get 2 good songs off of it. Then Napster came along and life was great-- I got a lot of good old stuff that was either difficult, impossible, or economically unfeasable to buy. Given the opportunity, I would have *happily* paid $1 for _every_single_song_, assuming it's a)in a common format (like mp3) so I'm not tied to any one player and b) mine to do with as I wish--burn to CD, keep on a file server so I can get at it from anywhere in my house, etc. I would have _preferred_ that to going the Napster route and winding up with bitrates ranging from 64 to 320, badly encoded songs, songs that have a second or two of the previous or next track on the CD, etc etc etc. If they would make it easy for me to get the music I want in a format I want, they could hook an IV to my wallet and drain money out of me at a steady rate for the rest of my life. As long as they don't, fuck'em, I'll download whatever I want. This isn't a rationalization for what I'm doing. Stealing is wrong and that's exactly what I'm doing. But like I said-- fuck'em.

BTW, listen.com and rhapsody is pretty good, but not great. AFAICT, they don't have a way to download portable tracks. In the classical area you can download 10 burnable tracks per month, but that's retarded. 1) give them to me in a format that I can use as *I* want--I'm trying to move *away* from CDs, idiots! 2) why limit me to 10/month? Let me download portable files at $1 apiece and I'll spend at *least* $25/month, right now. Probably more like $50 a month to start, then $10-$20 a few months down the road. Hell, if I didn't spend $20 a *day* for the first week or two, I'd be surprised. Remember when Napster was good and you'd get 50-150 songs in a could hours? I'd do it again in a heartbeat, and happily pay as I went along.

And if they *really* wanted to clean up, they'd ship a copy of "The Billboard Book of Top 40 Hits" to every new customer.

Re:Maybe people just aren't buying music + suggest

[handsomepete]

Overrated my ass. That's a quality suggestion. I'll bet someone from the RIAA modded it down.

Anyways, I really like the sound of that. Expanding it beyond the bookstore/coffee shop to radio station ID tags (i.e. listening to the radio if you can remember the time and station you can add it to a collection via the station's website and get radio station burnt CDs for a fee or something) is another possibility (whether it's feasible or not is another story).

I would say that your drawback regarding the extras of a CD (art, etc.) are actually incentives to purchase the actual product, not disadvantages to burning your own. That would justify a slightly higher price for the complete product. Hopefully by the time something like this could be implemented we'll have something that can alleviate those concerns about bandwidth.

Bands cannot accept cash for sales

[enota]

As much as I would love to mail some cash to my favorite band, if they are signed with a halfway intelligent label, there will be a clause in the contract forbidding them from being paid for the music they record while under contract unless it comes through the label. They will nullify their contract with the label if they accept it. yeah, it sucks, but on the bright side, you may give them a sign that a record label isn't 100 % neccessary these days. Perhaps all that is needed is a recording studio, a band, and some way for people to hear the music, ie download site, internet radio, etc.

Loaded questions too.

[moncyb]

Those questions seemed very loaded. Like the one asking if there is nothing wrong with downloading music for free. What? Why should there be anything wrong with it? Maybe if they had asked whether or not it was wrong to download music without the copyright owner's authorization. It seems the cartel's FUD is working. Half the people said it was wrong just to download music from the internet--as if there is some moral dilemma just using the network reguardless of actually committing any illegal act!