Within the last year, many people in the music industry, from artists to label executives and analysts, have been quietly discussing a new model for music distribution and monetization. While the exact implementation of this model is variable depending on who is describing it, there is a common theme: charge consumers at the point-of-connection level (eg. internet and cell phone service) and give them access to all the music they want.

It’s hard to find major label representatives and other key figures talking openly about this because it’s such a radical concept. However, the model has been gaining support over the last few months. Trent Reznor of Nine Inch Nails fame has endorsed the idea of an ISP tax after his recently released album The Inevitable Rise and Liberation of NiggyTardust failed to achieve significant sales.

Reznor is not nearly alone; Scott Cohen, founder of major digital distributor The Orchard, stated in an interview with Reuters several days prior to MIDEM ‘08 that he also supports such a plan due to the failure of other models. He states that if even a $1 levy was placed on every internet and cell phone bill per month, the resulting revenue would be “bigger than the existing music industry.”

Of all the people rallying behind a point of connection initiative, perhaps the most significant is Doug Morris, CEO of Universal Musical Group. Last year, it was announced that he was working with Nokia on a service called “Total Music” where Nokia customers would have unlimited access to Universal music - for a higher monthly bill, of course. Morris is also looking to internet service provides; Atlantic Broadband, a large east coast ISP, is already touting a “TOTALmusic” premium service for an extra $10 per month, with millions of songs from all four majors and many other labels.

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Is there really reason to believe this is the future of the music industry? A simple Google search reveals a number of forum posts declaring Nokia’s “Total Music” a failure before it has even launched. Michael Arrington of TechCrunch warns that a point-of-connection model will kill innovation on the part of labels, and that it is dangerous to ask the federal government to impose a tax to “prop up a dying industry”. Fred Deane, CEO of radio & music industry mag FMQB, summarized the situation best in a recent talk at Drexel University: a point-of-connection model will essentially transform the music business from a product-oriented industry to a service-oriented one.

If a music tax was levied, in one way or another, on all internet or cell-phone using consumers, I think there is no question that massive profits would result. There are over 200 million internet users in the United States today. Even if there were only 100 million actual internet accounts, a $1 tax per month would result in $1.2 billion dollars in revenue for the music industry per year. Add another $1 per month for every cell phone plan and you’ve got at least another $1.5 billion. These statistics are staggering, considering that only 81.5 million CDs were sold in 2007 (an approximate gross revenue of $1.5 billion, assuming a generous $18.98 average price per CD.)

To me, the question is not whether or not this is a realistic model (it very much is) or even whether the government should get involved or not. Rather, we should ask how the music industry, as an abstract entity, plans to divide the money properly. Imagine for a moment that tens of millions of people are now getting their music through some sort of point-of-connection service. Who is collecting their money? Who determines which artists and labels get which money? Is someone going to be tracking all the downloading of every internet user, and if so, how?

Let me put it another way. Performing rights organizations like ASCAP or BMI currently give licenses to venues such as bars and nightclubs which allow business owners to pay a flat fee for the privilege of playing ASCAP or BMI music. That’s why cover bands don’t need to fear copyright infringement when they play “Stairway to Heaven” at a restaurant in town - the royalties are already covered. One small problem: I personally know a whole lot of artists associated with ASCAP and BMI who know their music is being played at various venues, yet haven’t earned a cent.

Similarly, if you’re an independent artist and your music gets played lightly on a handful of radio stations, don’t expect a check from your performing rights organization, even if you go out of your way to report the usage. The tracking system employed is simply not as accurate as it needs to be to ensure everyone that has earned the royalties actually get them. Even though these situations aren’t of any real concern to major labels and artists whose music is regularly performed or played on the radio, it’s highly relevant to everyone else that creates music.

Yes, when we’re dealing with digital distribution the ability should exist to properly track the downloading and streaming of internet users signed up for “TOTALmusic” style services. But consider that large-scale systems like that take lots of time and money to develop, maintain, and improve. Then consider that historically, major labels have generally done everything they can to take advantage of artists and songwriters at every possible opportunity. People like Doug Morris are faced with a truly difficult choice: sink tons of resources into the creation of a robust system that helps distribute royalties fairly and evenly, or ignore the little guy and keep all the money for themselves.

I’m sure they’ll be losing a lot of sleep over that one.

Tags: Digital Distribution, Point-of-connection

This entry was posted on Wednesday, January 30th, 2008 at 8:33 pm and is filed under Industry trends. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.