J. Chris MontgomeryPrelude, Fugue and Allegro: Harmonic Transformation or Digital Dissonance?
MP3.com and the epic transformation of the music industry
As one looks back over the past five to ten years noticeable themes related to the music industry have been stated, some even developed, and a few resolved, but along the way have encountered much dissonance. Electing to title this overview of the past few years, “Prelude, Fugue and Allegro” is deliberate. Those readers familiar with these musical forms of composition will recognize, hopefully, that trying to create analogies related to current consumer or business cycles helps to gain an increased understanding of the situation. While this it not conceived in the same musical discipline, these few pages aim to expose and draw parallels between formal musical composition and the industry that attempts to deliver it to the world.
Definition: An introductory piece or movement before a fugue, an act of an opera etc. Chopin and other later composers wrote preludes as short, independent piano pieces in one movement. Source: Chambers Pocket guide to Language of Music ©1991
I remember in the late 1980’s asking myself while watching cable television in Ontario, Canada, “If I can get cable TV, surely cable music will come some day, right?” As a schooled musician from a very early age I’ve always been aware of the power of music. And even as a young Elton John fan in the 1970’s I knew the power of commercial music. But it wasn’t until I spent some time in a record company that I realized that the music industry was in for a big change.
Following graduation from university with a music degree I spent some time in FMCG food and the record retail sectors before jumping on board BMG Music (Bertelsmann AG) in the mid 1990’s. I received a great foundation into understanding of the music industry. After years of receiving email, the idea of receiving music via an email became more obvious. And then that fateful day occurred when I received via email, an image file from a designer who was creating an album cover for us. The file was big and took a long time to download, but the resolution was good and I knew that if you could do this with an image, you should be able to do this with a song. It didn’t take too long.
So, after three and a half years at BMG, I left the business in pursuits of a harmonic exploration of sorts. I decided to take my MBA at the University of Edinburgh (UK) – away from the North American influence of the record industry – and try to explore the possibilities of this industry. My output from that time was my master’s dissertation entitled, “Electronic Distribution and Strategic Change in the Music Industry” ©1998 University of Edinburgh. Following that period I returned to North America and accepted a position with Diamond Multimedia, owner of the controversial RIO PMP 300 portable mp3 player and RioPort.com (an Internet start-up division of Diamond Multimedia). In June 1999, I left Rioport.com and joined another start-up Internet music technology company, MP3.com.
I have been witness to this seismic shift in the music industry from the eyes as a musician, a retailer, a marketer, a technologist, an “Internet Guy”, and as part of Vivendi Universal’s technology team in Europe before rejoining MP3.com to head its European operations in mid-2002. Needless to say, this musical creation that many have all entered into – be they a consumer, a musician, a technologist or a record label, is creating some of the most compelling sound heard in decades. Despite all the dissonance, tension and release, the compositional output of these times will hopefully result in a new business and musical era. As Beethoven left the Classical era to forge the Romantic, so will technology, music and the industry lead us to a new era.
Definition: A contrapuntal composition for two or more voices or parts built around a theme, which is successively imitated by entries of each voice at the beginning and developed throughout the piece. Source: Chambers Pocket guide to Language of Music ©1991
During the mid 1990’s many new firms began entering the market. Perhaps the greatest concentration of players came to the hardware, software, and Digital Rights Management (DRM) sectors. Traditionally, music labels had very little corporate culture revolving around technology and the opportunity was soon exploited by outside firms. Companies included Liquid Audio, Real Networks and Diamond Multimedia. All of these companies recognized an opportunity to exploit what many saw as an emerging new music market. By the end of the 1990’s hundreds of companies existed hoping to cash in on this new music economy.
As with most new emerging markets we were witness to an incredible number of new entrants. But soon web sites catering to a “new music experience” opened shop faster than sixteenth notes in a glissando. As you expect, most of these web sites failed to produce a sustainable business model and have since disappeared. Many operated on an advertising-based model with outsourced technology, while others attempted to build a unique model merging the advertising-based web site model with a technology platform capable of delivering thousand of music files per day to consumers. MP3.com aimed to provide this all-encompassing experience. Subsequently, MP3.com was one of the fortunate businesses that, through acquisition by the French company Vivendi Universal, has been able not only to remain, but to help drive the new chapter in the music industry.
The following is a brief account of the creation of MP3.com by Greg Flores, a co-founder.
“In 1997, my wife had the opportunity to head a division in California and I figured that I could do the computer consulting from anywhere so we moved to San Diego. In August of 1997, I spotted an insert in the Tribune featuring the “Top 25 Cool Companies of San Diego” and a little company called Filez.com was mentioned in the article.
I found the number for the company, called and spoke to Michael Robertson, he and I met the next day for lunch to talk. We spoke about Filez the other concepts involving other search technologies with the main idea being to help consumers easily find things to purchase on the web. The things that struck me about Michael were his different way of looking at the Internet and his belief that traditional business methods weren't going to work on the Internet. One example is the traditional way of marketing a business that does not work when applied to an Internet company. He told me that he thought we could build a great company together and he'd like me to come on board. There was just one problem, he couldn't pay me anything but he was willing to give me some equity in the company and I agreed to take the chance. Bottom line, I didn't buy into a concept or group of concepts, I bought in to Michael.
My two main roles at Filez.com were to generate revenue and find creative ways to drive traffic to the site. In order to generate traffic, I used to keep my eyes out for growing trends in site ranking charts. Instead of looking at the top of the heap and trying to copy what was at the top, I would watch what was climbing the charts and mp3 file sites had really started to move up the charts. I also looked at the search logs for Filez and noticed that mp3 searches were on the rise. I decided to explore the mp3 thing and downloaded my first mp3 file. Since I was on a cable modem, the download process was pretty fast but finding a song to actually download was more challenging.
I emailed an mp3 file to Michael and he was also blown away by the file size and the quality of the sound. We found that MP3.com had already been registered but wasn't live on the Internet. We e-mailed the owner and told him we were interested in buying the domain name. He asked why and we told him we wanted to setup an mp3 site. He emailed back, “what is MP3?” We asked him why he had registered MP3.com if he didn't know what mp3 was and he said that he registered because it was the “handle” that Network Solutions had assigned to him when he had registered a previous name and he thought it would be “cool” to register his handle. His name is Martin Paul and Network Solutions had assigned him the handle of MP3. We offered him $1.000 for the domain name and after a little bit of haggling, we purchased the domain for $1.500. While all this was going on, I set out on the Net to find someone with an MP3 site to run the site for us since we didn't yet know that much about MP3. I compared lots of sites that were giving information about MP3 but weren't actually allowing people to download pirated files and the one that we ended up purchasing was MP3shoppingmall.com. MP3shoppingmall was an information site about MP3 only and the guy running it lived in Scandinavia. We paid him a couple of hundred dollars and a small monthly salary to work on MP3.com.
A few days later after the ownership transfer had taken place and we had the Webmaster for MP3shoppingmall in place, we turned MP3.com on and Michael and I where shocked by the amount of traffic. In the first 24 hours, we had over 10.000 unique users and this was especially amazing because MP3.com wasn't yet registered in any search engines. People where solely finding MP3.com by typing the URL in the address bar of a browser. We knew immediately that we where on to something.”
Dissonance & Resolution
Definition: Notes that conflict, or sound outside of a chord in which they occur. Such notes usually fall outside of the overtones, which are being generated by the note, or chord that is sounding. Source: © 2000 Creative Music Co., Inc.
Resolution: Definition: The changing of a dissonant pitch, usually by stepwise or chromatic motion, so that it becomes consonant with the chord being sounded. Source: © 2000 Creative Music Co., Inc.
But like any interesting and worthwhile music experience must come some dissonance. That wonderful part of the essential “tension and release” that helps to develop initial themes into meaningful art. And the music industry has been wrought with tension and release.
During the late 90’s nearly all of the major recording labels and many large independent labels began working with DRM firms. Their instinct was correct. Trying to understand this new technology, which has never been part of the major label corporate culture, was extremely important – even if the “release” was nowhere in sight. And interesting, most of the major labels didn’t even recognize the tension that was being created, or how their co-operation or resistance would contribute to this new “tension and release” cycle.
Many music executives in the late 90’s brushed off the impact that this new music experience would have on their business. There are a few events that have created “tension and release” over the past few years and further investigation shows that there is still much dissonance and complexity in the music industry. Let’s take a look at a few key events.
During the late 1990’s the initial growth of creating and distributing MP3 files among the technology community begins to show up on the ‘radar’. Musical content from sources like CDs was easily converted and distributed via the Internet. One major factor was that although the file size was roughly 11 times smaller than a conventional CD music file, one had to have a high-bandwidth connection to gain a rich musical experience. But like most things, early adopters helped pave the way and soon even those consumers who were using dial-up modems longed for new and “free” content. The question most people asked was not if a great musical experience would be available via the Internet, but when. This new dissonance began to develop through many new keys until a clear modulation was achieved in late 1998 by Diamond Multimedia with the launch of their Rio PMP300 portable MP3 player.
For the first time, consumers were able to take their music experience off of their personal computer. This was a pivotal point in the music industry’s history. As one might expect, the reaction by the music industry was to resolve this dissonance and bring the music to a cadence of their choosing. With that we witnessed the historic lawsuit by the Recording Industry Association of America (RIAA – who represents the major recording labels) against Diamond Multimedia. Diamond Multimedia won the suit and thus began a long musical exploration between the music industry and the new entrants destined on changing their industry.
The second big event in our musical exploration came with the growth of MP3.com, the music destination web site. MP3.com grew from a file sharing web site to a tour de force on the Internet. The brand has since grown to global stature and is synonymous with music on the Internet. From the historic Initial Public Offering (IPO) in July 1999 is has been the home of thousands of signed and unsigned artists. Numbers have grown from less than 20.000 artists in 1999 to 250.000 artists in December 2002. And the amount of musical content has grown to over 1,2 million audio tracks. They have also amassed a growing consumer fan base of well over 10 million worldwide. But achieving this type of harmony did not come without dissonance. Enter major event number three that has changed the music industry.
In January 2000, MP3.com launched a controversial music locker called MY.MP3.com. This was a music storage locker that consumers could sign up for and though its system, gain access to CDs that they had previously purchased. The consumer process was quite simple: you take a CD and put it in your CD-ROM tray on your computer, close the door, and click on a small application that sits on your computer desktop screen. Within seconds, technology recognized the CD that you inserted and matched it to your consumer profile and allowed you access to that CD. The major advantage for the consumer is that regardless of their bandwidth connection they would not have to spend many hours ‘uploading’ their CDs. The service was also secure, meaning that the consumer could not share their CD collection with others. But there was on major clash of dissonance. In order to allow a consumer access to thousands of CDs, a database must be created to facilitate this experience. With the creation of this database came the second significant lawsuit by the RIAA and it’s members against MP3.com.
The result of this lawsuit was the verdict that MP3.com had infringed on the musical copyrights when creating their music locker database. MP3.com successfully negotiated and settled with all of the major labels except for Universal Music. Yet, following a multi-million dollars settlement with Universal Music, its parent company Vivendi Universal SA acquired MP3.com for nearly $400 million dollars. MP3.com now sits as one of the key Internet companies within Vivendi Universal’s corporate holding.
Some resolution appears to have been achieved with the control over MP3.com. But now enter the new musical theme of peer-to-peer (P2P) networks and its chief orchestrator, Napster.
While all eyes and ears were on MP3.com and its legal dissonance, the growing theme of P2P file sharing began growing faster than anyone could imagine. Within months, everyone knew the name Napster and many millions had experience this new free music sharing experience. By September of 2000, Napster had become conversation in the office and at the dinner table. With that, another lawsuit by the RIAA was filed and Napster was shut down, but not before Bertelsmann had acquired its assets. But it did take many months and consumers began to like this new method of acquiring music. And for many of them the best feature was that it was free! Needless to say other P2P companies entered the market, most notable Gnutella, Morpheus and Kazaa. These latter two companies are still in operation but not without much legal dissonance.
And once again, all eyes and ears turned from MP3.com to Napster, et al and MP3.com didn’t seem, in comparison, to be the dissonant note. But a pianissimo, sustained “pedal tone” had been started many years ago that would complicate more and more the themes that seem to have at least, achieved temporary resolution. This pedal tone was generated by the creators of the CD itself, Philips. They knew what they created when, together with Sony, they launched the CD; but also knew the future potential when they exited the music industry during Seagram’s purchase of PolyGram in the late 90’s. If you can make a CD you can also copy a CD – a la CD Burning.
CD Burning was for many a means to back up computer files and digital images. But with the new theme of accessing content for free from the Internet and/or friends it is no wonder that the new application of CD burning began to develop from this pianissimo pedal tone to the current fortissimo that we are witness to today. Many in the music industry attribute the severe drop in CD sales worldwide to the growth of piracy through Internet downloading and CD burning.
With this dissonance comes further experimentation by the record label to achieve resolution as quickly as possible. Copy-protected CDs have been released on the market, with some initial efforts proving to be unpopular with consumers due to technical malfunctions. But the industry continues to seek resolution.
One question that arises is that traditionally, consumers understood that when they purchased a musical recording they were in fact purchasing the unlimited personal rights to that recording. If that is the case than creating a copy for personal use a la CD burning, storing it on your computer’s hard drive or loading into a portable device should be permissible.
Will restrictions put on CDs, such as copy-protection, alter that consumer-buying proposition? Will this resolve the dissonance?
Dissonance not only occurs from outside the music industry but also from within. One of the themes of dissonance is currently created by the music publishing and collecting agencies sectors. The music publishers, many of which are owned by the same parent as their sister recording labels, have yet to reach a harmonic resolution regarding the rights and use of musical content on the Internet and other forms of distribution. The collecting agencies or PROs (Performing Rights Organizations) have yet to reach a chord with the industry. As a whole, these players in the music industry and the technology sector have yet to ‘play from the same song sheet’ because each has varying mandates to fulfill for its own organisation. Without this resolution in whole or in part, the dissonance appears to continue.
Definition: Lively and rather fast. Source: Chambers Pocket guide to Language of Music ©1991
Theme I: For the Consumer
Once industry standard formats (DRM or other) and royalty rates are established labels will, together with the distribution outlets, quickly convey the values of the on-line experience to insure rapid consumer adoption. I am quite confident that over the next few years, consumers will be presented with such a variety of interesting product offerings that there will exist, a desire to pay a reasonable fee for a quality music experience.
Before the next market shake out many business models will be explored: pay-per-use, subscriptions (monthly, yearly, other), music rental, pay-to-burn, pay to download, stream only and many others. Content may also be released and marketed in a tiered fashion: premium or first run content, older catalogue titles or niche genres. These music offerings may charge the consumer directly or may be bundled into a larger offering provided though an Internet service provider (ISP), cable provider or an outside firm wishing to provide a complete entertainment experience.
Regarding advertising-based models, firms may find it difficult to exist over the long-term unless they differentiate their offering with a combination of paid-for content and advertising/sponsorship revenues. As with every emerging market, hundreds of new companies will enter but, true to Darwin, only the strong will survive.
Theme II: For the Artist
What is unclear to many is the role of the traditional record company in this emerging new digital music economy. Many argue that the core competencies of the major labels will be easy to acquire since distribution will be wide spread. If the other competencies of a label include A&R (talent scouting), financing recordings, marketing/promotion and distribution, will these be duplicated with a lower barrier to entry by other smaller firms? Others contend that there will always be a role for a record label intermediary between the artist and the consumer. Perhaps the bigger question should be, “Will record companies as we know them today want to participate in this new economy if profit margins and economies of scale are not consistent with their expectations?”
I will argue that there will always be a role for a firm to help manage, market and distribute content. But what is the shape of a record label (if we should even call it that) in 10 years time? Is it more like an artist management company or will brands like Reebok or Nike be “breaking” hip-hop and R&B artists? The only sure thing is that as long as there are musicians there will be those who will try to exploit their talents. True musicians love to communicate through their craft but they will inevitably need help reaching their audience.
Definition: The concluding section at the end of a movement, not usually of structural necessity. However, Beethoven’s codas have great significance in his musical design. Source: Chambers Pocket guide to Language of Music ©1991.
Will there be harmony between the music industry, the consumers and the new distribution outlets that will deliver the music and ultimately, the entertainment experience to millions of customers? Will this harmony be sustainable or will dissonance reoccur resulting in consumers finding alternate way to access major label music content? After all, any good art is wrought with consonance and dissonance, tension and release.