The recording industry is to this day entrenched in its industrial-age manufacturing business model. This model was initially based on the manufacture and retail sales of the vinyl single and album. Today, the recording industry has maintained this model while replacing the medium, a 10 track, or thereabouts, CD, and using technology to improve its production processes.

When a new album is created we often wait several months before it is available for purchase. Digital download versions of the songs are usually not available until the CD has been manufactured and has shipped to stores. Sometimes a single is available for digital download as a teaser for the whole album.

We hear that illegal music downloading via P2P networks is a major contributor to the decline of the recording industry. A recent survey noted there has been a decline in illegal downloading of digital copyright material by 24% over the last 3 years. Perhaps, the real issue with declining music sales is the recording industry’s fascination with its 10 track CD business model.

Let’s think out of the jewel case. New ideas for packaging music just might get the recording industry back on track. For example:

1. Stop thinking the CD is a 10 track album. Create 3 or 4 track albums!
2. Spend less time recording an album or spend the same amount of time on 3 to 4 different smaller track albums.
3. Spend more time in production, sequencing and combining songs in each smaller track album. Duplicate songs from one album to another if the sequencing makes sense.
4. Sell the single tracks and 3 song albums on digital download sites first, even before they are available as a physical medium. This is also a way to test which combination of songs works for the consumer by geographic region.
5. Price a 3 track album on digital download sites at a price that makes it attractive — say $2.49.
6. Market the music earlier, not just when it’s available as a physical medium.
7. In some cases, don’t even bother to deliver a physical album to brick and mortar retail stores.
8. Use internet streaming as a marketing medium, work with social networking web sites, recommendation engines, and sharing services to create viral adoption of new music — well before it’s available in a physical package.

Last week, Trans World Entertainment, which operates over 972 retail stores, announced their Q1 earnings — music sales were down by 21%. Music which represented 53% of their business a yaear ago, now represents 44%.

Late last year, Tower records closed their doors for good.

It was reported in January, that 2006 overall CD sales fell by 5% from approx 619 million units to 588 million, with Independent stores feeling the brunt of the change, down by 18% and mass merchant sales down 4%. On the other hand, digital track sales in 2006 increased over 2005 by 65% to 582 million tracks. We all know that this was not enough to overcome the drop in CD sales.

Regardless of any other business management issues, retail music stores are victims of the larger issues around consumer interest in traditional CDs. It will only get worse unless the labels and artists deliver new approaches to the traditional CD.

Here is another data point showing that people think that music and video piracy is ok and not much worse than cheating on their taxes. There is a widespread belief that the people surveyed in any of these kinds of studies tend to say the “right” thing, so there is probably a larger margin of error — meaning that most people view illegal downloading more like speeding rather than cheating on taxes.

The study found 69 percent of American households believe it is wrong to download pirated music and video from the Internet. By comparison, 77 percent believe it is wrong to cheat on taxes, and 44 percent believe it is wrong to drive a car over the speed limit.

While at Musexpo a couple of weeks ago, I was lucky to hear a relatively new band, called “A Fine Frenzy”. Their songs were fresh and well written. Upon returning to the bay area, I decided that I wanted to purchase a couple of the songs I’d heard, so I went to the band’s website and to their myspace page only to find that the CD wasn’t going to be available until July 17, three months from now. I checked iTunes and they only had one song from the new album and it wasn’t the one I was looking for. I considered using a stream ripper on the band’s website, but realized it was not appropriate. For a few seconds it also crossed my mind to use Limewire or other torrent sites to see if I could find these songs. Now I understand one of the reason’s for music piracy — not that I condone it.

What’s amazing is that the songs are being used for promotion, at live venues as well as on the band’s website and myspace page, but the ability to purchase this music is still several months away. Maintaining this manufacturing business model will ultimately be the downfall of the recording industry. Moving to digital economics where music is available for download even before it’s availability on CD (or even on CD at all) will go along way to increasing music sales. A modernization of the business model where digital economics are at the forefront may ultimately save the recording industry or at least morph it into a new substainable business.

Yesterday we had a lively discussion on the future of music. Topics included: the issues facing the recording industry, the artist as a brand, the value of music to the consumer and music within a subscription model. A video of the complete panel discussion is available on fora.tv. A series of photos taken by Stephen Hill can be found on flickr.

Today, I was talking to a collegue about how his 19 year old daughter gets her music. He told me about that a few weeks ago his daughter had 4 friends over to the house and they were on her computer using limewire to download their music and then sharing it with each other via usb flash drives. I asked him whether they understood that they were stealing the music. He told me they didn’t believe they were stealing - its coming from Limewire and it’s not as if it’s a real CD. He explained to me that he asked them the same question about movies and they all believed that downloading a movie was stealing – because they see it in a mini commercial on every DVD and whenever they go to see a movie at the theater.

I believe this is prevalent in the thinking of today’s youth. Removing a physical CD from a store is well understood as stealing, the same goes for removing a DVD from a store. Even with music download sites like iTunes, where you have to pay to download music, there is still a belief that downloading music is not stealing. The movie industry has gone a long way to educate people that downloading is stealing. The RIAA prefers to file lawsuits as its method to educate. Perhaps if it took the money made from settlements with consumers and invested it in ways that help educate consumers such as TV commercials, billboards, and other mass communications, there would be less people using peer-to-peer download sites and more people buying music from legitimate download sites.