MARKET MONITOR COLUMN
INTERNATIONAL CONSULTANTS GUIDE
August,2000

Digital music comes of age

Well, Judge Patel has made an interim ruling that Napster should prevent users from accessing copyright material through its index of digital music. While it remains to be seen whether this preliminary judgement will be upheld, I believe it is a pivotal ruling which will help digital music to come of age. For the music industry, the ruling and the subsequent rush to sofware such as Gnutella (which is much harder to shut down as it keeps no centralised index and the software is open source) highlights that you cannot close every loophole. Napster's brief and phenomenal success will spur the industry towards offering the wide range of mainstream music in flexible digital form that consumers have shown they want. For consumers, the ruling shows that the free for all party cannot last forever, and that there is middle ground to be found between the music industry and the freedom pirates.

I believe consumers would be willing to pay reasonable amounts for the right to access music in a flexible and digital form. In fact, as we have seen in the mobile phone industry, I believe there will be a plethora of price plans for music consumption, which may include pay per listen, subscriptions to radio stations or bands, one year licenses for particular music types, or limited use licenses. Effectively, music will change from a product (pay large amount once, own forever) to a service.

However, while we can see this endgame, there are many years to go before the vision becomes a reality. Technology may move in internet time, but industries and humans change more slowly. A number of things need to happen before the switch to digital music 'services' becomes inevitable. Firstly, broadband connections need to reach a significant proportion of the mass market - something which we will not see in the UK for several years. Secondly, the five major record labels (who will own rights to the vast majority of the most desirable music for the foreseeable future), must feel comfortable with the technology platform and must settle on a common standard. Until this happens, record labels will be keen avoid channel conflict and to maintain relationships with partners in the existing physical distribution infrastrucure.