Music exec: "Music 1.0 is dead."  

By Nate Anderson

Five hundred top members of the music business gathered today in New York to hear that "music 1.0 is dead." Ted Cohen, a former EMI exec who used the phrase, opened the Digital Music Forum East by pleading with the industry to be wildly creative with new business models but not to "be desperate" during this transitional period. But what is music transitioning to? No one seemed quite sure, except to say that it won't look much like the music business of the last several decades.

Consider the statements that were made today without controversy:

* DRM on purchased music is dead
* A utility pricing model or flat-rate fee for music might be the way to go
* Ad-supported streaming music sites like iMeem are legitimate players
* Indie music accounts for upwards of 30 percent of music sales
* Napster isn't losing $70 million per quarter (and is breaking even)
* The music business is a bastion of creativity and experimentation

Only a few years ago, none of those statements would have been true, but perhaps none is more striking than the last. Panelists from every sector of the digital media marketplace were in agreement that the major labels, under the pressure of eroding profits, have been forced to become experimental in their business dealings and to do deals that would have been deemed too risky only months before.

Just within the last year, we've seen an array of experiments that include ad-supported streaming, "album cards" from labels like Sony BMG, and allowing Amazon to offer MP3s from all four majors. Some labels even allow user-generated content to make use of their music in return for a revenue share from sites like YouTube—unthinkable a few years ago to a business wedded to control over its music and marketing. YouTube's Glenn Otis Brown says that the labels now have less of a "standoff mentality" and are ready to deal.

That innovation has been paying off. Interscope now rakes in 40 percent of its total revenues from digital sales, while Sony BMG makes 30 percent (in the US), but this hasn't been nearly enough to offset the loss in revenue from plummeting CD sales. While the majors once held all the cards when it came to licensing music (and they used their power to negotiate revenue splits on the order of 85/15), they aren't quite so powerful any more. In fact, several audience members and panelists even questioned whether major music labels brought much to the table besides their back catalogs.

Who needs a label?

Ted Mico, the head of digital strategy at Interscope, defended the majors by saying that "anyone who has spent an hour or a day listening to demos understands the labels' place in the food chain"; that is, labels provide both filtering and then marketing of music. Without their help, promising artists would be lost in a sea of noise and would be almost impossible for music lovers to discover.

This attitude was deconstructed during the very next panel, where the CEO of social music recommendation site iLike pointed out that labels, in fact, don't actually need to spend their time listening to demos; customers have already done it for them. Social networking sites like MySpace show that it works. Do music labels still need expensive A&R staff when they can simply listen to works of any band with over 50,000 MySpace friends? The message, in other words, was "Music 2.0, welcome to Web 2.0."

The contrast between these two ways of looking at the world—one rooted in a more elitist and expensive model, the other open to the "wisdom of crowds" and its democratic ideals—underscored a broader theme that emerged from the first day of the conference: the music business is a complicated place. Internecine warfare was the order of the day, so much so that the disagreements from one panel of music luminaries drew an impassioned plea for the infighting to end.

David Del Beccaro, the president of Music Choice, laid out a clear case for change and for labels to focus more on building long-term partners than on short-term advances and profits, but he sees the music industry's fundamental transformation as taking ten to twenty years to complete. In a business changing this quickly, that could mean death.

Greg Scholl, boss of indie label The Orchard, pointed out that the music business is not just four companies, and that indie music's market share is now approaching one-third... and it's growing. Indies have also been more open, historically, to experiments such as selling music without DRM. If the major labels take more than a decade to turn the ship around, they risk running a ghost ship with little in its cargo hold but a valuable back catalog. The indies could instead become the place for fresh new music and even for established artists who want more control (we saw that last year with Paul McCartney, John Fogerty, and James Taylor, for instance).

But no one quite knows how it will all shake out at this point. As Sony BMG's Thomas Hesse put it, "the next big thing is a dozen things." That's a scary thought to labels that pursued only one thing—the sale of recorded music on pieces of plastic—for decades.