New EMI Boss Says 'Downloads May Be Good'

warrior_s writes "Douglas Merrill was just installed as CIO of EMI (one of the big four that forms the RIAA). The ex-Googler recently stated it is a 'poor business model to sue your customers. I don't think that's a sustainable strategy.' Quoted by the Guardian, he was referring to Warner Music, EMI, Vivendi Universal and Sony BMG's current practice of trying to use legal systems around the world to force their customers into buying products rather than using the free P2P networks and independent music sites and services. 'Previously, the music industry has rubbished studies that claim file sharing can have a positive effect on music sales. "I think people will pay," Merrill said. "There is evidence that people we think are not buying music are buying music. They're just not buying it in formats we can measure."'"

Comments

Duh

[explosivejared]

poor business model to sue your customers

It's sad that has taken this long for "insight" like that to surface in the industry. You would think that would be an important topic in business 101, but I guess not.

Re:Duh

[Em Adespoton]

What it took was investors, via the board, hiring a CIO from outside the industry who had a clue. Now the trick is: will he actually be able to change things? He's only the CIO, not the CEO or CFO. It's good PR for EMI, but his views don't necessarily translate into company policy change. PR must love him though -- he can help offset all the negative publicity Legal is sending their way (at least in the short term).

Only about 10 years too late!

[Gat0r30y]

Wow, the music industry decides fighting the inevitable isn't a viable business strategy, and only a decade too late!

Re:Only about 10 years too late!

[pxuongl]

actually, and sadly, i think that these changes in attitude have more to do with: 1) people starting to successfully counter RIAA litigation 2) the success of music stores like itunes and amazon thank it has to do with them deciding anything or reading any of the writing on the proverbial walls.

Re:Only about 10 years too late!

[ajs]

Wow, the music industry decides fighting the inevitable isn't a viable business strategy, and only a decade too late! No... the music industry hired someone who already knew that. This does not mean that the music industry has learned their lesson. They just knew that hiring someone with Google on their resume was a PR win.

The good news is that this guy was hired to be their CIO. The only time you hire a CIO and send him on a press tour is if you plan to introduce new tech to solve your problems. We'll see what they come up with, and perhaps it won't suck.

Then again, I doubt he's going to be allowed to turn EMI into YouTube.

Sad Mentality Indeed

[eldavojohn]

It's sad that has taken this long for "insight" like that to surface in the industry. Sometimes I wonder how another industry would react if a magical technology dropped in their lap that made duplicating their product instantaneous and nearly free (people already pay their ISPs) to nearly instantly deliver it to customers. What would an automaker think of something like that? They would probably rejoice and drop their pricing to pennies on the dollar.

Unfortunately, this was not how the music industry reacted to this same method of magical delivery. I realize the analogy has flaws but one would think that this would be a gift to marketing and profits. Instead, they've reacted in possibly the poorest way possible. Ignore its existence and sue the hell out of anyone doing it.

Re:Sad Mentality Indeed

[HarvardAce]

Sometimes I wonder how another industry would react if a magical technology dropped in their lap that made duplicating their product instantaneous and nearly free (people already pay their ISPs) to nearly instantly deliver it to customers. What would an automaker think of something like that? They would probably rejoice and drop their pricing to pennies on the dollar. Yes, because you can now buy software for $10 or movies for $2.

The problem with your analogy is that there has never been a high cost of duplicating product in any of these industries. In economic terms, the marginal cost of producing an additional unit is low. However, the fixed costs (paying the artists, recording studio, etc.) here are proportionally much larger. It may cost $1 million to develop a piece of software, and then $5 per unit to put it all in a box and ship it out. Let's say the software costs $50. Now, you create a better way of distribution and the marginal cost is now $0. This doesn't mean suddenly the company is going to be giving them away for free...in this simple scenario, in order to get the equivalent amount of profit per unit (ignoring changes in supply or demand), they would be able to sell the product for $45.

Now let's take a look at the auto industry. Here, marginal costs make up a much higher percentage of the total cost. To make things simple, let's say each car costs the company $10,000 to produce (in materials and labor costs), and they sell the car for $12,500. If you suddenly can lower the costs (due to your magical technology) for each car to $100, then to get the same profit per unit (again ignoring changes in supply or demand) they would only charge $2,600. In one case we only reduced the price by 10%, in the other we reduced it by almost 80%.

The problem is that people in general expect to pay near the marginal cost for an item, but in general do not take into account the fixed costs with producing a particular product. For this reason, it's easier for a person to justify spending $100 on an object they know costs about $95 in materials to produce, while they hesitate to spend $15 on a CD they know costs only pennies to create.

For more information on marginal cost and how it applies, I highly recommend taking a look at the Wikipedia article on Marginal Cost.

Re:Sad Mentality Indeed

[Idiomatick]

Oh god... open source cars. Car analogy definitely not working this time. While there would still be drivers and crashes i don't like the idea of having a car designed by people comfortable with a command prompt.

Re:Sad Mentality Indeed

[Wheely]

Sometimes I wonder how another industry would react if a magical technology dropped in their lap that made duplicating their product instantaneous and nearly free You mean like the industry that used to deliver ice to peoples doors or maybe you were thinking of traveling minstrels. Perhaps you mean scribes or the mummification industry. Maybe you speak of the people who used to walk in front of cars with a big flag.

Things move on, industries lose their relevance others move abroad and the people left behind have to adapt.

In my view it is important to remember there was music before the recording industry and there will be music after it. These businesses are not a music industry, they are a recording and distribution industry. Thanks but we can record and distribute things ourselves now.

There may be hope yet

[Whuffo]

It's nice to see one of the recording industry "partners" acknowledge that downloading music may have some value. Now all they need to figure out is that music downloads are a fact of life.

Something that even this executive hasn't received a clue about: Where do you and your corporation fit into a distribution system that you do not own, can't control, and add no value to?

Maybe I'm giving this bozo too much credit - since iTunes is currently the number one music retailer, then even this clown could figure out that music downloads "may have some value". I suspect the concept that their target market will obtain their music from the vendor that offers the most convenient product at the lowest price will completely elude him. They'll continue to turn out a substandard product, cripple it with intrusive DRM, and try to sell the digital version at the same price as a physical CD (or even higher).

The record companies need to take a look at the past to see their future. Much as the producers of buggy whips, button hooks, electron tubes (and many more) have had to either find another product to produce or go out of business, the record industry is rapidly sliding into irrelevance. "Record company" - their fate is in their name. Who produces, sells, or buys records these days?

Re:There may be hope yet

[mc900ftjesus]

iTMS was the #1 retailer for a week because of holiday gift cards. WalMart still averages more sales month to month. Also iTMS is the worst kind of download, DRMed. iTMS is as unfair to the artists as any CD deal ever was and you have less control of "your" music. Apple is just really good at pretending not to be evil.

Photo industry?

[Comboman]

Sometimes I wonder how another industry would react if a magical technology dropped in their lap that made duplicating their product instantaneous and nearly free (people already pay their ISPs) to nearly instantly deliver it to customers.

Film companies like Kodak and Fuji faced exactly that challenge. Imagine a world where no one has to buy film to put in their camera and no one has to pay for film processing to print their photos. Less than 15 years ago, Kodak made most of its money from camera film and photo processing supplies, chemicals and equipment. That market has all but disappeared and yes, Kodak has had to lay off staff and close plants, but overall the company is still doing well. How? Rather than fearing the new digital technology or trying to sue or legislate it away, they have embraced it. The music industry could learn from that.

Re:Tag

[Gen. Malaise]

... It's 95%. At least. I don't know anyone that is going ever pay $0.10 for a recording ever again. Do you have a source for this other then your ass? Mind citing it please? You may want to take note that the largest music retailer is now Apples music store which last I looked, was selling tracks at $0.99 cents each. This begs the question, How many people do you know?

Re:Tag

[riceboy50]

I couldn't disagree more. I use allofmp3.com as an example because people were spending substantial aggregate money there en masse in order to use a convenient, non-crippled, reasonably-priced, easy-to-use service. If the industry could manage to open a store exactly like it, they would make plenty of money from the moral majority who don't mind paying for things. But they expect market forces to answer to their demands.

Re:Tag

[edwdig]

Come on, do you know anyone that would actually pay for music today? Someone that uses the Internet? Naa, I didn't think so.

Honestly, I don't know anyone that still does get their music through file sharing unless they have absolutely no extra money. It stopped being convenient years ago. It's not worth dealing with the fake songs, mislabeled stuff, and crappy rips.

Besides, once you get a full time job you tend to value your time higher and your money lower. It also tends to make people appreciate the work put into making the music.

Re:Tag

[English French Man]

Maybe I am retarded or something, but I use the internet, *and* I still by CDs... and I don't really see a problem with that...

Re:Tag

[Garridan]

Come on, do you know anyone that would actually pay for music today? Someone that uses the Internet? Naa, I didn't think so. Did you read this today? ITunes was responsible for 19% of music sales in January. These are people who buy music on the internet.

Re:Tag

[Nyeerrmm]

Amazon doesn't really require you to sign up beyond just having an account with them already, which most people tend to for books and such. As far as the service itself, you click a link, it asks are you sure, and you download an MP3 file, eliminating any dependence on any device.

Also, to download albums, and insure that you don't lose the file if your internet connection craps out, they provide a download program that opens a '.amz' file you download. Note that the client is available for Windows, OSX, and yes, many flavors of linux. The Ubuntu 7.10 deb they provide worked fine for me.

The one proviso for them is that its a one time purchase, if you lose the file somehow you can't redownload it. If you can deal with that I definitely recommend it, its easy and so far problem free. Also the lossy quality isn't enough that I notice, and while I'm no audiophile I still hate anything below about 192kbs mp3.

Re:Tag

[Pointy McButterpants]

This begs the question, How many people do you know? Actually it doesn't beg the question; begging the question is a logical fallacy. http://begthequestion.info/

Re:Tag

[shark72]

"I couldn't disagree more. I use allofmp3.com as an example because people were spending substantial aggregate money there en masse in order to use a convenient, non-crippled, reasonably-priced, easy-to-use service. If the industry could manage to open a store exactly like it, they would make plenty of money from the moral majority who don't mind paying for things. But they expect market forces to answer to their demands."

We're running into a zeitgeist conflict here.

As you know, by law, each track includes mechanical royalties of about eight cents each for the lyricist and composer; this doesn't include the royalties for the perfomer or, of course, the overhead in producing the music.

You'll recall that a few months ago, the record labels were trying to get the law changed so that mechanical royalties are a percentage of the sale price, rather than fixed at eight cents. Their rationale, of course, was that this would allow them to better address a market where prices are falling.

Naturally, this notion didn't go over well on Slashdot at all. If we have our way, the law will go unchanged, and tracks will continue to have royalties of anywhere between $0.08 and $0.25.

Yet we're fond of pointing out that if the record companies were to just sell tracks for a dime each, all their problems would be solved.