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.

On May 7th, at the Commonwealth Club in San Francisco, I’ve been asked to moderate a panel on the Future of Music. I’ve decided on a few key topic areas to take the panel. They are: Music Sharing - Is it possible to move towards legal sharing methods, where artists and copyright holders are appropriately compensated? What will music rights and creative license mean in the world of new technologies? How will we access and enjoy music? What is the value of Music - Is 30 cents really worth it to eliminate DRM? Is the Internet surpassing radio as a means of music discovery? Will the recording industry business models be forced to change in order for the major labels to stay in business over the next few years?

If you would like me to consider other topics, or have questions you would like to ask the panel during the open Q&A, please comment on this blog post. I’ll post the answers shortly after the event.

If you are in the San Francisco bay area and would like to attend the event, tickets can be purchased online or at the door.

Panelists:
TED COHEN, Managing Partner, TAG Strategic; Former Senior Vice President, Digital Development and Distribution, EMI Music
RICHARD FRENCH, CEO, Avvenu; Former Senior Vice President, Open Source Development Network, Moderator
GERD LEONHARD, CEO, Sonific; Co-author, The Future of Music
LEE SHUPP, Vice President of Business Strategy, Cheskin; Board Member, Association of Professional Futurists; Musician

At Avvenu we recently announce the Avvenu Music Player (Beta), a new service that lets you listen and share your iTunes music collection, from anywhere via a web browser or Windows mobile 5 smartphone. This new service has got a lot of press lately. You can read about it here, here, here and here. If your a “digger”, you can even digg it here.

By the way, you can get a sense of the Avvenu Music Player (Beta) with one click — stream part or all of a 3-hour playlist from Bill Tai via a link at the Avvenu blog. His share expires shortly. It starts with Tubthumping by Chumbawamba, a classic song to kick off your week whether or not you kite surf.

Well before the beta version of the Avvenu Music Player, the Avvenu team came up with the Alpha version — the sporty Avvenu Kazoo. We quickly formed a choir to experiment with our invention, the results of which can now be seen publicly for the first time ever. Here is the video that convinced us to rapidly proceed with our current beta version.

Technology itself will not force the music industry into freakonomics, and legislation will not protect the music industry from ending up that way. However, people want to share music. It’s human nature. And, most people will obey the laws of their land, if they are able. That means, it’s in everyone’s interest to present people with options for sharing music within the boundaries of fair use. Otherwise, we are forcing them to use technologies for illegal purposes.

The same technologies that RIAA wishes to control can be used to foster more effective business models, with reduced costs or higher volumes. Technology enables the creation of entirely new business models when it is incorporated into the business model itself. In other words, technology becomes part of a business process. It’s time that the RIAA drop it’s lawsuits, stop it’s lobbying and spend its money on embracing technologies that can quickly help in the transition from industrial-age manufacturing economics to digital economics.

The music industry needs to rethink their approach and begin incorporating technology into the model itself. Apple understands this very well, and has even begun to overcome the problem of teenagers without credit cards through its gift card approach.

The music industry could create a super eCommerce and music sharing site containing far more than the 3,500,000 songs on iTunes. They could setup music purchasing accounts with banks so that teenagers without credit cards can easily purchase songs. They could implement loyalty programs where sharing music can be used to motivate the purchase of music among friends, these loyalty programs would reward the person sharing whenever an item they shared was purchased by their friends. They could implement a subscription model, similar to emusic, and at the same time offer a purchase model on a song by song basis. They could reward people for volume purchases, or for hitting and exceeding annual targets.

Last week, I asked my 15 year old son why he didn’t join the online fan club of a particular band he is fond of. He told me they wanted to charge $10 per year to join and maintain his membership and all he got was a newsletter and discounts on the band’s concerts, which he knew he wouldn’t be allowed to attend until he was older. He said it just wasn’t worth it. I asked him what if they were to charge $20 and he would also get a free song to download every month in additional to the newsletter and concert discounts. He said that would be a bargain and he would have asked me for a credit card to use. When you consider this, for $20 a year he gets 12 songs, more per song than the 99 cents paid at the iTunes music store, and up to date news about the band he really likes. He would then tell his friends who also like the band about how great the experience is and some of them may sign up too. Unfortunately, this particular band hasn’t embraced this approach. This is just an example of the kind of loyalty program that embraces technology and incorporates it into the business model.

These are but a few of the ways the music industry and the RIAA could quickly gain the respect of the consumer and illegal file sharers while managing its own destiny in its move to digital economics.

I’ve been following the RIAA and its lawsuits against mothers, teenagers and the elderly over copyright infringements. I’ve also been following the RIAA’s lobbying efforts in Washington over the Audio flag and the “Analog Hole”.

The discussion about technology and music business models is getting confused with entitlement. At one extreme, you have some consumers believing they are entitled to use any technology to consume and redistribute any content for free. At the other extreme, you have some music industry executives believing they are entitled to dictate the creation and use of technology in any manner they see fit. Technology has a tendency to settle in the middle of a market, where there is the largest number of users and greatest demand. This is true for products and for specific features.

The music industry is in the middle of a transition from industrial-age manufacturing economics to digital economics. Lawsuits focused on copyright and lobbying efforts to legislate against technology innovation are two ways the industry is using to slow down this transition.

What’s interesting is that technology has already transformed many parts of music industry business models — market research, recording, production, manufacturing, distribution, marketing, delivery, finance. There are only two areas where the industry is citing issues: technologies that play a role in music industry go-to-market strategies, and technologies that enable content sharing.

The music industry is not the first to go through a painful transition from industrial-age manufacturing economics to digital economics. Lessons are clear. The music industry needs to learn from others — banks, insurance, consumer goods, automotive, and the electronics industry to name a few. Right now, the software industry is going through a parallel shift — from proprietary to open source and from packaged software to metered use. In my previous position as head of the open source development network, I saw and participated in the early stages of this last transition first hand.

What’s clear is we cannot legislate innovation in consumer electronics, any more than we can legislate innovation in music.

More about this in Part 2.