Paul Resnikoff, Digital Music News

If the goal of the music business was to successfully transition the traditional, CD-based business into digital formats, the report card looks awful. But business history generally predicts that entrenched companies are absolutely abysmal at handling disruptive change, as described in Clayton Christensen’s “The Innovator’s Dilemma.” In the slightly-broader sphere of media, we can see similar reactions from the newspaper industry (still paper-based and plodding into the internet for the most part), and Hollywood.

Skip the complicated analysis – file-swapping served to decouple the album, eviscerate scarcity, and prevent bad purchases by offering far more sampling. It ruined a great mark-up and packaged product for major label groups. The other variables related to moral responsibility and ethics among consumers turned against the industry. It turns out that most consumers have problems believing that artists are worthy of their money, or that labels are paying them in the first place. Part of that is rooted in reality – remember, Metallica was the one screaming about Napster, and labels are guilty of a lot of financial bad behavior. The finer points got lost. Layer in some file-sharing lawsuits against the little guy, and the cake was baked. File-sharing is now the equivalent of going 75mph in a 65mph zone in the mind of the consumer.

But there’s a much larger issue here. The economics of selling music once revolved around scarcity. There were only a fixed number of recordings created, and their availability was limited and obtainable only with payment. Sure, home-taping helped to work around that, but the prevailing relationship between the consumer and producer featured a controllable, fixed transaction in which money almost always changed hands. No more.

There are serious problems that a collective licensing regime introduces. At one point (earlier 2000s), ISPs seemed more receptive to this sort of thing, but there are some misguided assumptions currently among major label groups. The first is that adding a few dollars to an ISP bill is easy – but access providers are sensitive to this sort of thing, especially in the current economy. And, remember that consumers are totally conditioned to getting media for free – legal or not, moral or not – so ISPs will experience a lot of resistance to a paid replacement.

The other issue is that a collective licensing plan creates a fixed pool of money, and with it, a host of new problems. How is that money distributed? Can we trust that it will be administered fairly, without the need to constantly audit and reexamine terms? The legacy of the recording industry strongly suggests that this is a bad idea, and that artists will get ripped off. Additionally, huge problems currently exist with the distribution of royalties to actual copyright owners – even if the distributions are being conducted by ethical parties.

These are administrative and trust issues that require lots of oversight, and money to maintain (either from the copyright owners, or tax payers, or both). But why should all of this energy be expended to re-value the recording? A fixed pool would invariably tilt towards the more established acts, and could service to disincentivize newer artists – after all, no matter how great the song, it is subject to a maximum based on the existing pool of money.

There’s an assumption that the recording should be revalued, that it should retain its money-producing place in the food chain. Market and consumer dynamics suggest otherwise, and that is shifting controllable revenue-generators towards other assets and experiences, such as live gigs, publishing, and advertising relationships. Currently, the consumer values a song at about 2-cents, if that, averaged across most transactions, so the question is whether it makes sense to fight to aggressively to force a different valuation, and control payment against that valuation.

Based on current systems, a worldwide collective licensing system seems extraordinarily and unnecessarily difficult. Labels, publishers, ISPs, legislators, and technology providers are usually at loggerheads, often to the extreme detriment of the paid marketplace. The track record is poor, though certainly it is possible theoretically. But part of the reason why entrants like the Pirate Bay have done so well is that there are no cross-border rights disputes to negotiate, just technological questions to resolve. And the consumer appetite is enormous for unrestricted media access.

At this juncture, major labels need to seriously consider abandoning the CD entirely, and refocus their business towards smaller, nimbler goals. This means giving up billions overnight, though it also opens the possibility of survival and regrowth in the 2010s. Newspapers also need to give up print editions; it is a ‘cold-turkey’ transition that must happen if traditional media companies want to thrive in the future.

On the recording, the pressing question (no pun intended) is whether the fight to re-value and force purchasing is worth it. Or, if energies are better spend maximizing catalogs across different channels – b2b publishing deals, refining 360-deal structures, etc.

Spotify – and some competitors – provide very close to an ideal music service, though monetization remains the challenge. Total ubiquity is required – any song, any playlist, from the home, office, car, iPod, airplane, whatever. This is better than file-swapping, though monetization is the question. What is that price point? Probably lower than when the industry wants, and it remains unclear how willing consumers will be to pay.

Paul Resnikoff is the founder and publisher of Digital Music News (digitalmusicnews.com), a premier industry source for news, information, and analysis. Digital Music News has quickly grown from its humble roots as a small, executive news service to the most widely read information source in the field.

Prior to starting Digital Music News, Paul Resnikoff headed the digital music initiative at internet portal Lycos. In that role, Resnikoff managed relationships with several major labels, including the former BMG and Sony Music Entertainment. Resnikoff started out at Epic Records (Sony Music Entertainment) in New York, specifically in worldwide marketing.

Resnikoff’s interest in digital music comes from his passion for playing and writing music. He grew up playing French horn and bass guitar and dabbles in music composition.

In terms of listening, Resnikoff prefers Classical (Rachmaninoff, Mozart, Barber, Vivaldi, Mussorgsky), Rap (Styles P., Black Moon, Lost Boyz), Dancehall Reggae (Elephant Man, Buju Banton, Sean Paul), and Metal (Sepultura, Obituary). Other favorites include The Doors.

Aside from music, Paul also enjoys traveling (most recently Iceland, Germany, Sweden, Belize, Costa Rica, and Mexico) and is an avid tennis player. He is also known to eat large amounts of chocolate cake and root for the Washington Redskins, both unhealthy pursuits.

Paul Resnikoff earned his degree in Economics and Music from Stanford University.

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