Commentary

Future Of Music: Paid For And Free

2008 will be remembered with 1999 as a pivotal year in the digital music revolution. A wide-ranging movement, which includes artists, major labels and entrepreneurs, is pushing new and creative ways to appeal to fans in an era of unprecedented experimentation, driven by Web-based music services and distribution models--from Radiohead's pay-what-you-want release to ad-supported services like SpiralFrog and imeem.

In the midst of all this experimentation, the media have become fixated on finding the "next iTunes killer." That may make for great headlines, but it's a pointless obsession that ignores the diversity of music fans. One service isn't going to satisfy all of the people all of the time. Choice and diversity are essential. A Service for Every Fan

iTunes is the undisputed champ of paid-for downloads, but research shows that iTunes users tend to be higher-income, most aged 30 or above, and subscription service users older still. Of the more than 90 million 13-to-34 year-olds in the U.S., about one-quarter own iPods. That means a lot of folks don't have one. The Limewire set (those who like their music "free") is in high school and college.

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All of these fans will be served in one of two ways, which are already before us.

A year after Steve Jobs and many others called for tracks free of Digital Rights Management (DRM) restrictions, all four major labels are delivering them. Offering paid-for, DRM-free downloads gives consumers what they have wanted for so long--the ability to play their music how they want, where they want and as often as they want without restriction. DRM-free tracks are why Amazon has joined eMusic as a major provider, and we haven't seen the last of such services. Without question, paid-for DRM-free tracks are a good thing.

But paid-for, DRM-free tracks won't solve an important fact of life in the 21st century: A whole generation is used to getting its music for free. The answer to this problem is a model that has worked for TV and radio for decades--a model where DRM still has an important role to play.

Free ad-supported music is what will put a dent in piracy. It's a win-win for younger music listeners, who can get what they want for free, and for labels, because the music will be copy-protected, or DRM'd, providing an ongoing revenue stream through advertising. Besides offering free tunes, ad-supported services can capture younger users by delivering an experience that's better than spyware and adware-ridden P2P services.

The combination of paid and non-paid services makes sense. Just as broadcast television delivers free programming, some consumers opt for the content they can only get with cable. Some access pay-per-view services, others choose to own movies or shows on DVD. Satellite radio now plays the same role for commercial radio that cable TV plays for vanilla broadcast TV.

The desired experience dictates what consumers do, and it will be that way with digital music, too. Fans can listen to Justin Timberlake on the radio, download his tracks on any number of music services, see his special on premium cable channel HBO, get him via satellite radio, or buy his CD. Lots of options for music lovers -- and plenty of revenue streams for labels.

Paid for and unprotected, or free and protected. Between these two music models, there will be enough new services to satisfy the most demanding audiophile. Which one you use will depend on a host of factors. Age. Income. Musical taste. It all amounts to the kind of experience you want.

The bottom line is that the new generation of music services will finally harmonize the needs of different constituencies and open up new opportunities. Music fans will get to experience music the way they want--whether they tune it, buy it, stream it or download it.

Artists will have multiple distribution and promotional channels and, especially important for up-and-coming bands, the unparalleled power of online word of mouth. From all these activities, record labels and music publishers will get multiple revenue streams.

And the file-sharing services? As free ad-supported and paid-for digital music models deliver a better way to discover and acquire music--and in the process steer users clear of legal, privacy and security risks--they will fill a need for those searching for odd bits of content, a song or a video clip, perhaps. But they will no longer be our primary sources of digital music.

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