Resnikoff’s Parting Shot: Griffin’s Burden

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Love it or hate it, the concept of an overarching fee for unlimited music is still a theoretical discussion.

On paper, the ideas are absolutely worth debating, but building the vision is a massive and unenviable task, one whose success is hardly guaranteed.

For the majors, an industry evolved around discrete, physical purchases, shifting to a broad-based, all-you-can-eat model is like starting an entirely new business.  And that is an incredibly difficult challenge, especially when the traditional business mostly conflicts with the newer path.

Forget about the negative reactions surrounding the Griffin initiative for one moment.  In stateside politics, this would translate into an Inside the Beltway discussion, and politicos frequently lose focus on the broader populace.

But it is extremely difficult to ignore the broader consumer trends currently plaguing the recording industry.  Plummeting CD purchases.  Serious questions about broader buying volumes on paid digital formats.  Alarming volumes of illegally-obtained music, either from P2P, BitTorrent, or other person-to-person channels (email, IM, shared drives).   A marked shift away from bundled albums into one-off singles, paid or unpaid.

This reality is now causing profound financial disruptions at major labels, and opening a void for other players to fill.  Against that backdrop, labels are now forced to examine an entirely new path, one that transforms music into water.

Not expensive, bottled water, because music fans never warmed to over-priced downloads and subscription offerings in the volumes required.  The Griffin concept is closer to tap water, paid for in advance, and placed into the container of your choice.  Credit industry thinker Gerd Leonhard for putting this idea into print years ago, and credit the major labels for finally recognizing its potential.

But while Leonhard was one of the first to advocate a shift towards this model of delivery, he also recognized that consumers and entrepreneurs were quickly creating their own delivery systems.  Music fans were thirsty, but they didn’t need an outside group to create a well-constructed pipeline and delivery mechanism.  It was being created organically, so well in fact, that few have issues related to acquisition.

Instead, they are bloated and hyper-hydrated, drowning in multi-thousand, totally-portable download collections.  And the pipes of this water supply are already mature, they already deliver the product … for free.

Speaking in Germany at Popkomm last year, Leonhard noted that the entire internet has simply become an ad-hoc subscription service for music fans.  If you want music, you just go get it, right now.  So why pay $12.95 for the privilege of a better manicured, but ultimately more limited version of that selection?

And that is the environment that labels find themselves in.  Call them visionaries, call them technophobes, call them whatever you want.  But the reality is that recording labels are mostly becoming survivalists.  Because a story that starts with 15 percent year-over-year sales declines on a bread-and-butter product never has a happy ending.  Another path must be created.

But forging that path through the dense jungle of the internet, ISPs, lawsuits, artists, fans, publishers, and everyone in-between is not a lightweight challenge.

The first problem comes from the artists themselves.  Sure, labels can recruit an industry-respected firm like BigChampagne to monitor the action, and provide reporting for ultimate revenue distribution.  But why should artists trust that they will receive their fair share?

After all, they are routinely ripped off.  Simpler subscription versions like Rhapsody and Napster have already been subject to inept royalty distribution.  Why should artists blindly believe that a broader, more complicated version will suddenly result in crystal-clear accounting?  Trust issues will undoubtedly present a serious hurdle for labels to overcome.

And who says independent labels will play along?  Many of them are bleeding too, but others are forging more successful online destinies.  So, what is their place at this bargaining table, and who says the majors get to run the show?

Then, serious issues surround buy-in from the ISPs themselves.  In the United States, providers like AT&T have indicated a willingness towards network-level monitoring, reporting, and action against infringing users.  But what about Verizon?  That behemoth has begged off in public comments, unhappy with an unnecessary big brother role.

How does that translate into the broader, ISP-level surcharge?  What if only some access providers jump on board?

An uneven competitive landscape results, and consumers are left with an obvious choice.  Bury a surcharge into existing ISP bills, and a significant number of subscribers will react.  And in most areas, consumers have choices.

Empowered consumers can easily switch from one provider to another, and they will if aggravated enough.  And that plays poorly into aggressive moves towards triple-play (television, internet, landline) and and even quadruple-play (television, internet, landline, mobile) strategies.  The bigger dollars come from protecting continuing, happy customers, not pillaging accounts.

Perhaps the government will offer a stick to prod the ISPs?  That is already happening in areas like the United Kingdom, France, and Australia.  In fact, France represents an early victory for major labels, but what about the rest of the world?  Will ultra-powerful access lobbies simply fall in line with recording industry interests?

Pound-for-pound, this is a boxing match of endurance.  One executive from a massive, US-based ISP told Digital Music News that the longer this drags on, the better it is for the access providers.  Because the recording industry, already a smaller lobby, is getting weaker by the moment.  That invites a simple war of attrition.

Then, publishers present another major roadblock.  Remember, labels and publishers are currently battling over licensing percentages, definitions, and payment issues related to far simpler offerings.  Want a headache?  Simply listen to a group of label, publishing, ISP, and consumer electronics executives duke it out.

Sure, Steve Jobs corralled the industry into the iTunes Music Store in 2003, considered an impossible task at the time.  But now, with so much more at stake, can everyone just get along and bless something so grandiose?

Then, retailers – both physical and digital – present another serious problem.  For physical players like Trans World, a more aggressive shift away from music is the obvious strategic reaction.  And make no mistake, Trans World and others are already diversifying away from CDs.

And big-boxers like Wal-Mart and Target?  Overall floorspace will start to shrink more aggressively, and that will naturally accelerate the already-rapid decline in physical purchases.  The result is a much narrower window for major label transition, and even more pressure to execute.

Online music retailers, forced to trudge through lengthy and ultra-expensive licensing requirements, will suddenly face a difficult choice.  Because the minute the industry starts feeding daunting, illegal competitors – BitTorrent, LimeWire, and other sharing channels – retailers can either become part of the newer model, or they become further marginalized.

So, love it or hate it, this is still an early-stage discussion.  Griffin and others pursuing this new sales model have an incredible challenge ahead of them, one that could take years to successfully implement.  And that is before the ultimate jury – consumers – lay their hands on the beast.

Paul Resnikoff, Publisher.