The music industry is poised to reinvent itself for the Internet era, and that has caused upheaval, excitement and anxiety. To mark the moment and discuss the future, Calendar assembled a round-table of some key industry voices: Gary Arnold, merchandising vice president for Best Buy; Jonathan Davis, lead singer of the rock band Korn; Mark Geiger, founder of Artist-Direct and a leading online advocate; Larry Kenswil, president of e-commerce and new technology for Universal Music Group, the world's largest music company; and Donald S. Passman, attorney and author of "All You Need to Know About the Music Business." The panel discussion was moderated for The Times by writers Steve Hochman, P.J. Huffstutter and Geoff Boucher. An extended transcript of the round-table is at http://www.calendarlive.com/internetmusic.
Question: Why should music fans be excited by the profound technology changes ahead?
Mark Geiger: Three things: No. 1, more choice in the way that they consume their music products and how to access to them. So it's not just an album with 12 songs for $13, now you have all these different ways to consume music. No. 2 is a direct connection to the artist. Throughout history, people want to go backstage, they want to meet people like Jonathan, they want to get his autograph, and part of that emotion is now somewhat possible through the Web. No. 3 is probably a reduction in price . . . the same way video rental is cheaper than going into the theater and pay-per-view. . . .
Gary Arnold: If you go down the road 10 years . . . , you go to a multimedia emporium, where there's a great experience and you're exposed to lots of different music, eclectically and serendipitously, and you stick in a device the way you gas up at a fuel pump.
Or you're sitting at home watching television and a music video comes on a broadcast channel and you push a button and say, "I want this," and it suddenly, miraculously appears. I think your music will be stored invisibly on a home storage device, and you'll be able to get your music by any means you want. You'll be able to get it by taking your portable device and loading up the music you want that day.
You'd be able to copy it onto something which would hold 50 hours of music or probably more by then, and then take it to your car and just have it in your car all the time.
Jonathan Davis: Something we started doing with [the] "Life Is Peachy" [album] was bringing in fans to our recording studio and they took a camera and [after the recording was posted on the Internet] you could virtually walk through and see every nook and cranny of the studio. The technology is going to get better and you're gonna actually be able to check us out in the studio. I'm just excited that there's more choices now, it's not just holding the CD and listening to it. You can go and actually interact with the band. Every night before I go to bed I talk to my fans [online].
Donald S. Passman: I also think it can only be good for the industry. In the short term there will be disruptions, because if you get the majors [the music industry's conglomerates] to move to something it's like turning a gigantic ship and there's a lot of vested interests. . . . None of us can really know what shape it's going to take, but there will be the opportunity to get as much information as you want--or more information about bands and artists than you've been able to get in the past--whenever you wanna get it.
It will undoubtedly grow the industry when it takes shape, but we're going to go through some rough seasons before we get there. . . . Anything that finds a new way to deliver music is going to enhance the industry ultimately. Whether it's going to supplant something or not, it remains to be seen. In the short term it's not gonna supplant CDs. In the long term it very well may and it probably will.
Q: How will pricing be affected by these new delivery methods?
Larry Kenswil: Music is by the hour the cheapest form of entertainment available to people. The price of a CD now in real dollars is unchanged from the price of a vinyl album in the late '60s, and the amount of music available on a CD is half again as long.
There isn't much price sensitivity. . . . Raising or lowering the price a couple of dollars on an album doesn't really affect its popularity all that much. What it affects is the amount of stocking you get in the stores. In reality, if an album is no good, it won't sell at any price, and if it's a huge hit, it will probably sell at higher prices.
So I don't really know that prices overall will change all that much. . . . The price someone is paying for the music itself really shouldn't be a factor of the delivery system at all, and it shouldn't be a factor of the storage. It should be a factor of what that music's worth to them. And I think musicians shouldn't particularly be in favor of the lowering overall of prices of music.
Passman: The other element in the question is, how much of that are the artists going to get? Historically, every time there's a new technology, the artists have been worse off. . . .
That's not true for all the companies but, for most of them, the reality is when we get to a true electronic download, there's not gonna be any manufacturing costs, there's not gonna be any inventory risks, there's not gonna be any shipping or handling. And yet the calculation in today's contracts, which you cannot break with a wrecking ball, is basically you'll get paid as if it were a CD sold at retail. I mean that's really not fair to the artists.
Q: The artists also have to contend with piracy undercutting their revenues.
Davis: That's scary because you can go on the Internet and you can download every one of our songs, and that's a sale taken away from us. And we get screwed to begin with--I know because we have a little record label now, and I make more money off my bands than I do with my own band. . . . When I see our songs posted [illegally], I track it down and I call the kid and say, "I'll give you some T-shirts signed, whatever you want if you take these off." I just bribe them.
Q: You must be busy. There seems to be a growing sentiment in the industry that the piracy issue will fade into a mere subplot in a few years. Do you agree?
Passman: I think it's a mistake to gloss over the piracy. I think it's much more serious than we may be making it sound. In the not-too-distant future it's gonna be real convenient for me to take a file and hit a button and send that album out to 25 of my friends for no cost. It's different when you have to search all over to try to find it, but it's not so difficult if I've already got it on my computer and I can take it and I can send it around. Also you know we're thinking the [Recording Industry Assn. of America] is doing a pretty good job of shutting down piracy sites, but suppose a piracy site isn't in the United States. Suppose it's in North Korea or China or someplace where they really don't care about copyright issues. No. 2, we've got all these CDs out there that are perfect digital copies that anybody can pick up, copy and send it around. . . . I'm not sure we've already lost this war, but I do think it's serious.
Q: What do consumers want from these new technologies and the new marketplace?
Arnold: Today's consumer is about interactivity and, whether it's interactivity with a preexisting piece of software or the Internet, that's the model for the future. I think what you're going to find is that bands are gonna be able to have a much more aggressive schedule of product flow to the consumer, because of the Internet. It won't be releasing an album, and then a year or two years go by before another piece of content comes up. It'd be filled with pieces in between over that course of time, so it's an exciting period.
There were 31,800 albums released last year. Of that release flow, there were 192 albums that sold quantities of 100,000 or greater. There's no lack of supply, but there is a lack of success from the supply that's being generated. I think that we're in the period where great technology is going to bring about great change for the consumer and for the artist, and the thing that I'm excited about is that this change that's coming really is going to help connect the artist and the consumer much differently than they have been in the past.
I think the music business as a whole has gotten stale. They now have much competition from things like computer software, video games and other forms of entertainment. And I think that the Internet in part is going to help the music industry reinvigorate itself because I can tell you that it needs to be reinvigorated.
Passman: I'm interested in everybody's opinion as to whether, in the future, albums are going to become obsolete, and by that I mean consumers may only want one or two songs off an album, and as the Internet gets further along there's gonna be a lot of pressure to deliver one or two songs, probably at a higher pricing model. . . . Therefore maybe people don't make albums in the future.
Geiger: I meet with a lot of artists, and it works two ways. Some groups, like Korn, have really loyal fans that will still want to hear the whole album. Some singles pop artists, I think, will be affected. . . . It's about options. I met with James Taylor, who's a wonderful artist, obviously, and he wrote a song after the bombing in Dublin and wanted to put it out instantly because it had relevance. . . . He couldn't do that. His record company said you've got to wait to write nine more songs, then six months of setup time and, meanwhile, that song is completely outdated. Artists want to have multiple choices. It's all about choice and how to release records or music. It could be one song at a time, four songs. . . . I think albums will always be here, and I don't think CDs are going away for a very long time. I think people do want tactile touch. They want to see the artwork. I think the price points will stay healthy. I don't think artists' royalties will be reduced. But I also think we're going to an era of more choice. The whole thing of the Internet is the age of the consumer.
Kenswil: I think it's a redefinition of the palette that the artist has to work with. I sort of laughed a little bit when you said the artist may be able to deliver things more often--it's usually the other way around: The record companies are asking for product from the artists. I think the last thing any of us can do is sit here and think, "Well, what is this gonna mean to the artistic work?" That's going to be up to the creative talents of the people working in it at the time. But I think there's no doubt about it, as the art changes, maybe you'll have some artists going to a subscription--you can subscribe to us and get everything we're doing over the course of however long you subscribe. You can listen to every concert, you can listen to what we're doing in the studio if that's what they choose to do. . . . Maybe what the artist puts out the next month is a change in direction of a song they released in the previous month, and it's a totally different mix or a totally different layering of sounds. It's an infinite amount of possibilities, but you know you have to think about what the palette is they're working on and what they're then gonna be able to produce.
Q: How do these shifting methods of delivery and new mediums affect the struggle between artists and the music industry for ownership of the art?
Passman: Well it's a completely changing landscape, [but it is somewhat similar to other] periods of time in history--for example, when they went from motion pictures to television and there were issues about whether a motion picture rights grant covered television and the same thing later with videotapes. I think knowing this lesson, the [music] companies have taken every right they can think of. But it gets to be tricky as to what they're doing. I mean, an artist wants to go on and do a broadcast on the Internet. Is that a violation of their record deal? It may be. . . . No record company is going to give up these rights, because it's clearly the future.
Geiger: In five years, 10 years, whenever, is an established artist going to need a Sony Music or a Universal? Or is it going to be possible they could finance their own recording, own it from the outset and distribute it [via the Internet]? . . . The question is how realistic is it for a major artist to accept going from 3 million records where he's making a, let's say, $1.60-a-pop royalty gross, to a quarter-million records making $8 on a certain amount and $3 on some other things, and 50 cents on a digital stream.
Kenswil: And the fact that you're only selling a tenth of the number of records: What does that mean for your touring income? What does that mean for your future income? Publishing income?
Geiger: This probably comes down to databases. One of the things that we happen to be doing with Korn [one of ArtistDirect's clients] is building up their database. If Korn can find a million and a half of their fans over the next couple of years and, five years from now when Jonathan's contract expires, those fans get sent an e-mail with a song clip from Jonathan, saying, "The new album is coming up, buy it directly from us for 10 bucks" or whatever, then, no, you don't need [a major label]. What you do need though is that marketing clout, you need that place in the marketplace. . . . There will probably be hybrid deals because you don't want to cut out the label. The label gets you into Best Buy.
To get into any major retailer with any real campaign takes a sales force and an amount of dollars being spent in price positioning and merchandising, getting it on MTV, etc., things that artists today aren't equipped to do on their own. So I think there's a lot of ways that the contracts will be hybridized to reflect that if Jonathan sells things direct he might get paid one amount. . . . It may just matter where the money goes because there may not be that much asset value at the end of the day. The asset value I think moving forward is the artist's brand and "channel." It's no longer just the record.
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Marc P. Geiger, founder of Artist-Direct, is sometimes mentioned in stories with an alternate spelling: Mark Geiger.
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