Is the Music Industry Driving Itself Out of Business?

Ars Technica ran an article yesterday about Pandora, the popular Internet radio service.  The article discussed how royalties being charged by Sound Exchange had risen steeply and were set to double again by 2010.  As a result, Pandora can’t make money and may pull its own plug.  Sound Exchange offered a potential loophole to Internet radio stations by requiring DRM in exchange for lower fees.   They argue that Internet radio can pay these higher fees.

SoundExchange also argues that Internet radio stations could do a lot more to increase their revenue, become profitable, and pay their (arguably high) fees. As much as it pains us to say it, there may be a point here.

I think a bigger issue here is whether the music industry really represents musicians anymore and how disconnected they are from modern paradigms.

 Sound Exchange justifies higher rates to Intenet radio stations (rates that are almost double what satellite radio stations pay) by claiming that there are larger volumes of songs being played on Internet radio.  This is due to the capability of Internet radio stations to customize their play list per listener.  But is this really a good justification to charge more?  It seems to me that this is an opportunity to expose listeners to more artisists in a similar genre, a genre that you know the listener likes thanks to Internet customization.  Wouldn’t it seem logical that this would translate into more opportunities to sell music to listeners?   This would be music that the listener would never have heard before.  I know that when Radio Free Virgin’s goth channel was free, I discovered several new artists that I liked and I purchased CDs by those artists.

 This seems to be yet more in the same vein of strong arm tactics like the RIAA lawsuits and the war against file sharing.  While these tactics may make some short term cash for the music industry, I think it does long term damage to their image and ultimately hurts the artists the most. 

What I think this will lead to is Internet radio stations becoming the new record labels.  Artists will no longer need or want to deal with labels who will be perceived as bullies and “old school”.  In fact, among Indie artists, I think this transition is already happening.  Intenret radio services like Pandora and music buying services such as iTunes are making it much easier for artists to put their music out there for consumption and to allow the consumers to decide what sounds good.  The old days of dreaming that a label will sign a contract with your band may be gone.  Popular law and technology blog Groklaw reported the other day on the publication of The Indie Band Survival Guide, a book that teaches bands how to directly take their music to the masses. 

Maybe the next few years will see the music industry finally “fee” themselves to death.  Then we’ll have Internet radio stations like Pandora where we can listen to artists without dealing with the middle man and the artists will have more control over their work.  It certainly seems like we’re heading that direction. 

Tags: music industry, online business models, Pandora