Sunday, June 02, 2002

Music labels try to adapt to new copying technology

By Nekesa Mumbi Moody
The Associated Press

        NEW YORK — A new technology lets people copy music for free. Lawsuits are filed. Music sales dip. The viability of the recording industry is in doubt.

        The technology? Not the CD burning and Internet file-sharing that's currently revolutionizing the way people listen to music. No, it was the cassette tape that had record companies worried about their future when it gained popularity more than three decades ago.

        “This was heralded by the record industry as doom,” said Stan Cornyn, a longtime Warner Bros. executive and author of the new book Exploding, about Warner Music Group.

        But predictions of the end of the music industry didn't pan out: New musical styles and the new technology of the compact disc allowed it to flourish. And many record executives look to that time in hopes they can respond creatively to overcome the current crisis.

        “What cures business at a time like this is innovation — thinking what the customer wants, giving the customer what they will buy — and I don't feel a lot of that is going on right now,” Mr. Cornyn said. “(But) record companies will come around to redefining themselves. They've done that again and again through history.”

        The labels have taken some steps to reposition, even reinvent themselves. They're putting music online themselves, offering rebates and experimenting with new ways of promoting artists. They're also filing lawsuits, trying to exert pressure on technology manufacturers and floating copy-proof CDs.

        They argue that their role as filters and promoters will be ever more important as the universe of online music expands.

        But can they adapt fast enough to slow the erosion of their audience?

        “The challenge to our business is how do we co-opt the file-swapping world to become a part of our business?” says Charles Goldstuck, president and chief operating officer of J Records, home to artists such as Alicia Keys, Luther Vandross, O-Town and Busta Rhymes.

        File-swapping could be “a positive for our business, because it has raised the awareness of music among the consumer base to an unprecedented level, and that cannot be a bad thing,” he says. “How do we use that as a positive?”

        The doomsayers certainly have a lot on their side. After 10 years of growth in the music business, 2001 marked the first year that music sales declined, by 5 percent overall. Sales this year are down approximately 12 percent from the same period last year.

        While some of the drop can be blamed on the burst of the teen music bubble, another obvious culprit is the growth of Internet piracy and recordable CDs.

        “For the first time ever, our end-of-the-year survey of heavy music buyers showed that 23 percent of our heaviest buyers actually said that they bought less music because they were able to get what they wanted for free,” said Hilary Rosen, chairman and CEO of the Recording Industry Association of America, which has led the legal fight against Napster and other file-sharing services.

        More troubling, the downloading trend is creating a new generation of fans disengaged from the music-buying process, said Geoff Mayfield, director of charts at Billboard magazine.

        “We're used to kids being an avid part of the music business,” he said. “This is exactly the age of consumer that's interested in getting their music for free now.”

        Many believe the industry has hurt itself by virtually killing off the single, a low-priced product that is usually the port of entry into music buying for children.

        Some fans still prefer to buy music in a store. “I'm too lazy to download it,” said 28-year-old Chris Winns, listening to his headphones at a bus stop in midtown Manhattan.

        But more and more listeners are like Angel Hernandez, 21, who was standing in line recently at an FYE store in New York City to see Latin singing star Thalia. He said he downloads music for free every day.

        “I'd rather download it because I save money,” he said.

        One way record companies are seeking to reverse that trend — besides suing file-swapping Internet services like Napster — is getting into the game themselves. There are several music sites now sanctioned by major labels in which fans can download their favorite tunes — but for a price.

        On pressplay, for example, a service offered by Universal Music Group and Sony, users can listen to streams of singles, download selected tracks available to subscribers and burn them. The whole CD isn't offered, and plans begin at $9.95 per month.

        Bertelsmann recently purchased Napster's assets in hopes of converting the now-offline file-swapping service into a fee-based system.

        So far, however, the industry admits these plans have been slow to catch on.

        “There's been so much online piracy that people has come to accept it as these are free goods,” says Ms. Rosen. “So the legitimate services that are starting to come into their own are having to both sell the consumer on how good their offering is and sell the consumer on paying for something online. So it's a double challenge.”

        Grammy-winning music producer Jimmy “Jam” Harris says the official sites' problem is simply that they are official: They're not driven by fans and they don't seem as cool.

        “Part of the reason why those (unofficial, Napster-type) sites worked is because they're not corporate.”

        Another strategy tried by some labels is distributing copy-protected CDs — so far on a limited, promotional basis. Fear of alienating already disenchanted consumers has made companies hesitant to roll them out, however. The CDs' image also has not been helped by recent reports that they create glitches in certain computers.

        And some in the industry believe copy-protection is just a stopgap solution anyway. “We always know when it comes to technology, there's always a way for someone to override the copy protection,” said Mr. Goldstuck.

        Some fans say they already have found a way, using nothing more than a magic marker.
       @SubHed:Better and cheaper

        Many in the industry say the only way to lure back music-buyers is to produce better — and cheaper — product.

        With the teen-pop boom over, there is no new trend that has captured the public's attention, and fewer acts seem able to keep the public's attention album after album — or even single after single.

        “There's nothing that's crossing over, that has that mass appeal,” says Mr. Harris.

        Mr. Goldstuck suggests the industry may have to reduce prices for newer artists across the board. But Ms. Rosen doesn't believe price is an issue and insists that in comparison to other forms of entertainment — movie or theater tickets, for example — music prices have remained relatively steady.

        “Everybody would like everything cheaper,” she said. “It doesn't mean that it's not expense to produce and it's not expensive to market.”

        Yet the recent success of singer Ashanti — who sold more than 500,000 albums of her self-titled debut in her first week, unprecedented for a new female artist — was partly because of a $2 rebate offered by Island/Def Jam, some say.

        Ashanti's breakthrough represents just one way in which the industry is trying to adapt to the new sales climate.

        “The ideas of the labels becoming irrelevant is laughable to me. Do they have to rethink how they do things? Of course,” said Mayfield. “Expecting to do business forever the way that you've done it for the last several years — that would probably be folly in any business.”

        Musicians have the power in some ways
        MP3 format boosts music options

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