Digital Distribution: The Light (or the Train) at the End of the Tunnel?

The most surprising aspect of Warner Music's recent sale to Len Blavatnik isn't the price tag over three billion dollars, it's the fact that anyone would want to buy a record label in this day and age.

An Industry Ensnared in a World-wide Web

If ever there was an investment with a cloudy future, it's a record label. The music industry has been hemorrhaging money for years and years now, and from all accounts, it's not getting better. The Internet has brought about a tidal wave of damage to the music industry's decades-old business model. In fact, recently Edgar Bronfman, Jr., Warner Music's CEO, told a grand jury that a popular file-sharing service caused deep damage to his companies bottom line. In the case against Limewire, the Warner executive said the drop in revenue was so severe it caused massive layoffs within the label.

However true this statement may have been, one has to wonder whether these impacts would have been felt if only legitimate on line music retailers like iTunes, Rhapsody and Amazon had been able to make content available on the Internet. The fact is that once the power of the Internet was harnessed to deliver musical content on a track-by-track basis, the game changed for the record labels. The problem is that the labels may have missed the shift completely, and now they are all stunned and reeling.

Slow To React

At first the music industry, and bands like Metallica reacted to file sharing and the Internet with disdain. They sought injunctions to shut down any site that freely distributed their intellectual property. They were of course successful in every case, but as they'd shut one site down, another would spring up. The power of free information is what the Internet wields most strongly, and a game of Whack-A-Mole between peer-to-peer sites and the record labels was the result.

If instead of chasing after every site with the hammer of litigation, the labels had "played ball" with sites like Napster and Limewire could some kind of mutually beneficial deal been struck? Imagine what would have happened if labels and Napster, who eventually went to a pay-service business model anyway, had brokered a deal to get their users to pay subscription fees which could have handled royalties issues. An olive branch would have been extended from Big Business to consumer and maybe a new business model could have been established.

iTunes Revolution - Power to the Artists

Of course, a new model has been established, and the minds of Apple brought it to the foreground. iTunes, the presumed Gold Standard of digital distribution has changed everything. No longer do consumers feel the need to buy a full album from a band they've never heard of. Now they can purchase one track, usually for less than a dollar, and from there they can decide how much they want to support the band.

It's not just larger, more well known bands that can get their songs on iTunes anymore, either. Now most duplication houses that make copies of CDs also now offer a digital distribution package were for a small fee independent musicians can have their latest tracks uploaded to iTunes. The musicians then are the sole distributors and marketers of their music. iTunes does keep a small percentage of all sales, but the power truly rests back in the hands of the musicians.

Yes, the labels still have the capital to push bands out into the forefront, and to essentially make the public aware of an artist. This means that label-backed musicians will still have an upper-hand in the game, but the power is shifting, slightly at least, back towards the bands and songwriters. Harnessing iTunes and social media like Twitter and Facebook can allow a small, unknown band to get their message out into the ether of the Internet and with enough hard work behind a keyboard and a mouse, real sales can be made.

As more and more artists embrace and adapt to the new paradigm, the pendulum will swing even further. A consumer base who is savvy to the new way of getting music will be even more willing to give new artists a spin since they're not committing nearly twenty dollars to do so.

The Fittest Will Survive

Record labels will fold or be sold off more and more in the coming years. However they won't disappear completely from the map. The fact is that they still have the large trunks of cash that can help pay for expensive studio time. As good as the equipment for home recording is, there's still a market for going into someone else's studio with high-grade equipment and staff to record your album.

It will take outside-the-box thinking and a willingness to adapt and even sacrifice some of the obscene sums of money in order for a label to survive. This lean-and-mean approach will absolutely trickle down through the industry from the top, through studios, producers, engineers and ultimately to the bands and musicians themselves. Those that accept that change is happening will find ways to make it work, those that don't will be brought out to pasture.

The Answer

The title of this article poses a question. Is digital distribution a good or a bad thing. The answer is: yes. It's both good and bad for both the labels and the artists they employ. While it has diluted the large pool of money that was once a matter of course for label executives and artists, it has opened up many, many doors to smaller artists, and has once again made scratching out an existence as a musician possible, if the work is put in.

For the labels the shakeup needed to happen. It had become bloated and atrophied. Digital distribution will force a label to tighten the screws and be more judicious in who they hand over large sums of money to. A better quality of artist can be groomed, perhaps the old job of the A/R representative can be brought back into prominence?

The biggest winner of course is the music consumer. Digital distribution gives fans of music more choice for less money. Experimentation with purchases will lead to discovering more and more great music. This is what digital distribution is really all about: change.