Resnikoff’s Parting Shot: Can the Recording Be Revalued?

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Everywhere you look, the value of the recording is being diminished.

In the physical realm, less consumers are paying for pre-recorded albums.  And stores overly-focused on recordings are either losing money, going out of business, or diversifying into other, more profitable entertainment areas.

Meanwhile, mega-retailer Wal-Mart is pushing album pricing into sub-$10 territory, a price range that more closely matches current consumer valuations.  On a broader level, top-line album sales are facing serious declines in the United States, Europe, and most other countries.

In the digital realm, the story is even harsher.  iTunes has accumulated more than four billion paid downloads since mid-2003, though file-sharing networks deliver several billion transfers every month.  The result?  A marginalized, paid market means something, though average download pricing is much closer to zero than 99-cents.

Meanwhile, ringtones are ebbing, and formats like OTA downloads are encountering difficulties outside of countries like Japan.  And overall, digital and mobile formats are failing to compensate for broader physical declines.

Against that snapshot, different players are concocting different strategies.  A number of artists are simply positioning the recording as a teaser towards other moneymakers like touring, merchandising, and sponsorships.  Or, they are developing strategies that segment consumers through name-your-price or tiered pricing plays.

That includes artists like Radiohead and Trent Reznor, who are collectively attempting to realize recording revenue from die-hard fans – without sacrificing exposure and word-of-mouth.  Those are interesting experiments to watch, though the bigger question is whether the recording industry can revalue its core product, one that is shedding billions annually.

One strategic approach attempts to force value into a devaluing commodity, either through litigation, legislation, or both.  Amazingly, the RIAA is still chasing individual file-sharers, and trudging through the paperwork, legal bills, and negative press that comes with it.

Of course, the major labels are still paying for this campaign, thanks to a stubborness at the top.  Meanwhile, swapping volumes and consumer indifference remain strong, through another approach to the problem involves the monitoring and enforcement of subscriber accounts by ISPs.  But that initiative, which has gained some initial traction, requires near-total participation by access providers to work.

And that spells a difficult, country-by-country, region-by-region march through legislative, diplomatic, and legal options.  Meanwhile, some major ISPs are simply disinterested in playing nice, or playing bad cop with their subscribers.  And a fight against the labels might be worth it, especially given the weakening lobby that is the recording industry.

But what if the recording industry could shave a portion of monthly subscriber fees for access to unlimited recordings?  The ISP-level buffet is one concept being explored by Jim Griffin, tapped by Warner Music Group to pursue more progressive solutions to the problem.

Universal Music Group is also pondering the possibilities.  The company recently pulled the trigger on Comes With Music, a concept that pre-populates Nokia devices with content, and kicks revenues back to the label.

Whether that idea takes flight remains speculative, especially given the use of DRM-protected content.  Consumers will have access to as many downloads as they please, but according to information detailed by Sony BMG’s Thomas Hesse, the songs are only playable on one device, and one PC.  Then, after a year, selections go poof without a proper renewal.

But what about revaluing the core commodity itself, specifically the song and the album?  After all, consumer interest in music continues to grow, independent of the business backdrop.  Still, it remains difficult to get those listeners to open their wallets.

Part of the problem comes from a suddenly-crammed entertainment landscape.  The late 90s produced the comparably-priced DVD, with its content extras, quick navigation, and crystal-clear playback.  Meanwhile, gaming has absolutely exploded over the past decade, thanks to an interactive renaissance that has attracted legions of addicted fans.

Have you played Grand Theft Auto IV yet?  The complexity of the streets, vehicles, sounds, characters, and driving is simply stunning, but this game is about more than just carjacking and shooting cops.  Rockstar Games creates a near-cinematic experience, and the gamer is playing a central role.

Granted, gaming characters and plots are not the stuff of Hollywood blockbusters.  But dig deeper into this game, and you start to strike relationships, unlock entire parts of the city grid, and find dazzling new weapons.  And the deeper the friendships, the more favors granted.

That offers a stark contrast to the CD, a comparatively flat format.  Instead of a living, breathing collection of songs, buyers receive a fixed, pre-determined playlist with minimal artwork and extras.  Sure, various experiments related to CD-based extras have been happening over the years, but the net result remains minimal.  Perhaps the focus has been elsewhere, pulling energies away from greater interactive experimentation.

And the contrast is glaringly obvious.  The game is breathing, changing, evolving, and totally interactive – offline or through connected, multi-player experiences.  The flat, pre-recorded song or album represents the polar opposite.

Then again, music is an entirely different form of entertainment, one that allows multi-tasking.  That means playback during driving, jogging, working, and even sleeping.

A game can never emulate that unique soundtrack.  But it can steal away disposal cash available for entertainment purchases.  Want Grand Theft Auto IV?  That’s $60, on top of a $400 console purchase.  And millions are willing to pay the price, even if it involves scraping together scant funds to do it.  That leaves little leftovers for the recording, which is easily available and effectively free anyway.

That represents a serious problem, though the industry is starting to consider revaluation ideas related to the bundle.  The recording industry is now losing the tying solution offered by the album, which effectively bundles 10-12 (or more) songs into a marked-up package, the CD.  Charting singles once drove the broader purchase, until Napster presented easy options for cherry-picking tracks.

But the picture is more complicated than that.  Because the recording industry now services more formats than ever before, across more platforms than ever before.  The song is available in a physical or digital format, chopped up into a ringtone, ringback tone, bundled into a subscription plan, or reformatted into an OTA download.

The recording industry now considers these multiple formats from the onset, as do many artists and producers.  But most of these assets are separated from their cousins, part of a fragmented group of goods that screams for a bundling play.

On a simple level, that could mean coupling a download with a ringtone, though more complicated examples are easy to concoct.  Elsewhere, entrepreneurs and industry executives are pondering more creative packaging of aspects like album artwork, lyrics, and videos.

Is that worth something?  Consumers could return to a smartly-packaged bundle that offers a healthy collection of assets at a great value.  Of course, that sounds simple on paper, and licensing and usage headaches await any pioneering packaging attempt.  Technological hurdles also await, though labels are actively considering experiments that tie various assets together – and potentially revalue the recording in the process.

Paul Resnikoff, Publisher