Music exec regrets going "to war" with consumers

Edgar Bronfman, head of Warner Music seems to be acknowledging that the music industry's traditional business model is dead, and that record companies cannot litigate it back to life.

Speaking at the GSMA Mobile Asia Congress in Macau, Edgar Bronfman told mobile operators that they must not make the same mistake that the music industry made.

"We used to fool ourselves,' he said. "We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find and as a result of course, consumers won."

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Bronfman appears to be experiencing an epiphany when it comes to digital music. From threatening to withdraw from iTunes and suggesting that to drop DRM would be "without logic or merit", he is now heaping praising on Apple and recently opened a DRM-free section on Warner's own Classics and Jazz music store.

I remember watching with astonishment as the RIAA began suing file-sharers in response to P2P downloading. Remember, this was pre-iTunes (it seems like we have always had it, doesn't it?). The record industry took exactly the wrong lesson from the P2P phenomenon. They had been gouging music consumers for years, and were determined to continue earning their profits in exactly the same way.

Steve Jobs got it, and took advantage of the opportunity. With iTunes, a revolution was born. People could purchase the music they wanted at a reasonable price. They were no longer forced to buy entire CDs, marked up by an order of magnitude, containing songs they might or might not want.

DRM was another silly, misguided attempt at controlling something that would not, and should not, be controlled. If I buy it, it's mine. I can do what I want to do with it. Eventually, DRM will go away as people cease to purchase copy-protected music.

It is just amazing to me that it has taken the music industry so long to accept the inevitable.

Is free music inevitable?

TechCrunch says it is.

The DRM walls are crumbling. Music CD sales continue to plummet rather alarmingly. Artists like Prince and Nine Inch Nails are flouting their labels and either giving music away or telling their fans to steal it. Another blow earlier this week: Radiohead, which is no longer controlled by their label, Capitol Records, put their new digital album on sale on the Internet for whatever price people want to pay for it.

The economics of recorded music are fairly simple. Marginal production costs are zero: Like software, it doesn’t cost anything to produce another digital copy that is just as good as the original as soon as the first copy exists, and anyone can create those copies. Unless effective legal (copyright), technical (DRM) or other artificial impediments to production can be created, simple economic theory dictates that the price of music, like its marginal cost, must also fall to zero. The evidence is unmistakable already. In April 2007 the benchmark price for a DRM-free song was $1.29. Today it is $0.89, a drop of 31% in just six months.

In 2000, at the height of the Napster hysteria, I observed that the very business model of the music industry had become obsolete. The cost of CDs - twenty dollars for a plastic disc that cost pennies to produce - was outrageously overpriced. It was inevitable that someone would find a way to circumvent the record companies at some point. The technology which the music industry introduced, digital music files, provided the means for people to acquire content outside of the business model.

This is not to say by any means that ripping files and trading them online was legal, or even morally defensible, but the behavior was not surprising. And once the precedent was established, absent the outlawing of digital media consumer technology, there was no going back. You could argue that it wasn't fair to the music industry, just as you can argue that it isn't fair for the wildebeest set upon by a pride of lions, but there it is.

With artists adapting to the collapse of the music industry business model, even the record companies strategy of litigation against file-sharers is going to lose momentum. It really is nothing more than a futile effort to postpone the inevitable, not unlike the smashing of textile machines in 19th Century England.