Perhaps the demise of the CD will come more rapidly than first thought. Over the Christmas holidays, the number of downloads on iTunes skyrocketed, proving Apple’s smart tactic of selling iTunes gift cards at retail outlets. Since then more indicators are emerging.

Last week, Trans World announced their Q4 2007 financial results. Music sales dropped 28% in Q4, the top 50 music titles dropped 35% in Q4 and for the entire year the store’s music sales dropped 23%.

Two weeks ago, the NPD group released a report indicating that “consumer music acquisition increased by 6 percent in 2007, but average annual per-capita music spending fell by 10 percent”. The report also indicated that one million consumers dropped out of the CD buyer market in 2007, led by younger consumers. According to the press release, 48 percent of U.S. teens did not purchase a single CD in 2007, compared to 38 percent in 2006. Also NPD ranked Apple’s iTunes as the number two US music retailer, only behind Wal-mart.

Also last week, JupiterResearch announced that the digital transition was well underway, but digital sales are not enough to save the music industry. The announcement went on to say that “Yahoo! became the third big player to drop out of on-demand subscription services”.

Is Apple going to be the recording industry’s nemesis? Who will step up to the plate and provide consumers with a healthy alternative? Yahoo! couldn’t do it. Tower Records couldn’t do it. Trans World isn’t doing it.

Apple really understands the entire music experience. Apple also understands how to make it “just an Apple experience” and how to “lock us in” to their approach.

As far as the CD is concerned, its time has passed, just as vinyl and tape cassettes. This is the time for digital music, either as downloads or streams. As the market evolves, I hope that we have more than one choice of digital retailer to purchase and experience music. Competition not only maintains a healthy price point, but it also helps create interesting innovation.

In his Midem blog post A Very Taxing Situation, Ted Cohen suggests we should consider a flat rate levy/tax/tarriff imposed on ISPs to compensate for unlicensed downloads and transportation of media.

“There’s a lot of discussion these days about the idea of a levy/tax/tariff on ISPs to compensate copyright holders for the unlicensed transport of music, film and television content across the Internet and mobile carriers. Whether or not these proposed revenues would offset the 15-20% drop in physical sales this past year, it is an interesting concept to consider.”

For me this brings to mind a situation we still live with today. In some countries, the recording industry benefits from a “tax” on the manufacture and distribution of blank magnetic tapes and CDs. I wasn’t supportive of this idea, and I’m not supportive of applying it more broadly to Internet access.

If the recording industry were to get a tax imposed on ISPs, then surely other industries, with alleged copyright violations, would want a similar ISP tax. This would include: television, movies, software, book publishers to name a few. Of course, these so called taxes would be passed onto the consumer. Consumers may ultimately end up paying more in Internet copyright tax than for monthly access. Surely there has got be a better way.

I’m all for an “all you can eat” approach - but on a voluntary basis. If the ISP or mobile operator I use, offer this service at an additional monthly fee, then I should have the choice whether I want to sign up for it or not. There are many people who have a hard time paying the $9.99 NetZero price to get to the Internet each month.

Let’s not impose additional reasons to create a divide between those that have access to the Internet and technology and those that don’t.

Dr. Elmo (of the mega-platinum Christmas hit, “Grandma Got Run Over by a Reindeer”) stretches his talents to include other holidays on this Halloween CD.

“Pointy The Pyramid Pumpkin” (mp3)
from “Dr. Elmo’s Halloween Heebie Jeebies”
(Laughing Stock)

Buy at iTunes Music Store
More On This Album

Black Buddha provides a twisted soundtrack to one of our most beloved holidays - Halloween, evoking images of Frankenstonian pipe organs, medieval ceremonies and things too gruesome to mention.

“Sizsahvirium - le Canticle pour Halloween” (mp3)
from “Sizsahvirium - le Canticle pour Halloween”
(Ultraviolet Productions)

Buy at iTunes Music Store
More On This Album

Universal Music Group along with SonyBMG and potentially Warner Music will join forces to provide a new subscription based music service targeting the iTunes and mobile consumers.

According to Macworld: As well as launching a rival to the iTunes music store UMG hopes to nurture the adoption of other music players such as Microsoft’s Zune, and develop a new business model in which music for consumers becomes essentially free.

JupiterResearch’s Mark Mulligan believes “the idea of working with device manufacturers to get revenue directly for music is not actually that crazy an idea”, while podcasting news provides us with Five Reasons Total Music Will Be A Total Failure.

From everything I’ve read, I’m of the opinion that Total Music is counterproductive in terms of DRM, consumer rights and business model.

The recording industry needs to agree on a viable approach to DRM that encompasses multiple devices, including the market leading Apple iPod. If Total Music doesn’t interoperate with Apple’s iTunes/iPod it will face an up-hill battle. Removing DRM and using watermark or similar technology will go a long way to overcoming the DRM issue we face today.

Total Music and its association with the big recording giants is likely to confuse people. On the one hand the recording industry is intimidating people through RIAA lawsuits, while on the other hand they want to hide the subscription fee so people don’t know they are paying for the right to legally listen to music.

No business model is free to the consumer. There’s always a hidden price to pay somewhere. It could be built into the purchase price of a device, subsidized by advertising or incorporated into a monthly phone bill - ultimately the consumer will be paying for the service. It seems to me that the recording industry is applying a web 2.0 approach to the Total Music business model and ultimately creating a very interesting experiment.

Clearly, this is an attempt by the recording industry to ensure that Apple iTunes/iPod does not develop a stranglehold on the digital music sector, something the PC industry couldn’t do with Microsoft. I believe that Total Music will be a distraction from the real work, that of alligning the business model with consumer behaviors and market opportunities.

In my opening statement at the Future of Music, Copy Rights or Wrongs panel I talked about the nature of the shift occurring in the music industry.

The music industry is shifting from being a business associated with CD sales to the virtual world of digital singles, consumers with multiple music devices, and a society that increasingly believes that recorded music should be free.

The shift to virtual music is so profound, that it is cracking the very foundations of the recording industry. The recording industry should be fighting for survival by adopting new, innovative ways to make money. And, it should be doing this as rapidly as possible. In reality, the recording industry can’t embrace the digital world fast enough. Instead, it is trying to slow the rate of change by changing copyrights into copy wrongs.

One of the examples I spoke of was how copyright law was being manipulated through proposed legislative changes as well as by RIAA lawsuits. The idea of “fair use” has been with us for many years and has been an integral component of property and copyright laws. It is now under attack. If the recording industry gets its way we may see fair use completely eliminated.

What does this mean? We may be forced to purchase separate copies of every song for every device we own. This would mean If your household owns five iPods, you would buy five copies of each song.

Only yesterday, at the RIIA lawsuit underway in Duluth, Sony BMG’s chief anti-piracy lawyer was asked if it was wrong for consumers to make copies of music which they have purchased, even just one copy. She replied, “When an individual makes a copy of a song for himself, I suppose we can say he stole a song.” Making “a copy” of a purchased song is just “a nice way of saying ’steals just one copy’,” she said.

I agree that the recording industry’s value proposition is under attack by the technology industry and in some cases has been completed hi-jacked. Current copyright laws may not be enough to protect “virtual” music. The answer, however, is not to change the laws or shackle technology innovation. There are still many more ways to make money from music.

We must start by incorporating technology into the business model itself. Instead of trying to maintain an existing business model through lawsuits and legislation, I propose the recording industry and the technology industry work as one in developing a new and successful business model. Until this happens we will continue to see a disenfranchised consumer, technology innovation that abuses copyright and plummeting record sales.

Last week, at the Commonwealth Club of California, we had a lively panel discussion on the future of music. On the panel were Chris Castle, Tim Westergren, Eoin Harrington and David Rosenheim.

Topics included: the clash of the recording and technology industries, compulsory licensing and copyright, new music business models for both the artist and the recording industry, new music licensing models and issues with US versus world wide licensing. We discussed these topics from a legal, technology and musician’s perspective.

On a lighter note, Eoin explained how a young starving artist uses “lip balm” to promote his music.

According to Nielson Soundscan, album sales continued to drop in the first half of 2007 by 15% while digital track sales gained 49%. As compared with previous years the decline in album sales is accelerating from 4% in the first half of 2006 and 10% during the same period in 2005.

We’ve gone full circle. The single is back and it looks like it’s here for good. Single digital track sales allow people to buy only the songs they want, and skip buying 10 track CDs, with song they may not want. While it looks like the music business is healthy, the revenue generated from album sales is declining faster than the increase in revenue from single digital tracks.

In an early post, The 3 track ablum and other heresies I suggested that one way for the recording industry to overcome this decline in 10 track albums might be to produce 3 track digital albums for the consumer. Hopefully, the labels are looking at this or other innovative ideas to overcome it’s woes.

Last month, a panel discussion was held at New York’s Tekserve entitled: “The Future of Music: Panelists Discuss Where the Music industry is Headed”. These panelist agreed with many of the points I’ve addressed on this blog, at conferences and in discussions with music executives.

According to the article, there was a heated discussion on how technology has changed the business from being focused around the recording label superstar to the indy artist. The transfer of power away from the labels and into the hands of the artists has already started. However it was noted that even though it’s now possible for artists to create recordings on their own with a few good mics and a preamp, without the major labels as banks there won’t be any superstarts anymore.

We need to find new ways of showcasing our music and unfortunately although independent artists have this power to record an album and make it available worldwide they just don’t have the means to get it to the public on a large scale. No publicity, promotion or tour = small bucks. These major labels are like banks and without their massive reservoir of dollars for A&R, artist development and such there just won’t be any superstars anymore.

In September, I will be mediating the second in a series of panels on the Future of Music at The Commonwealth Club of California. Not only, will we address the key issues raised in this New York panel, but will take it further and address the issues of copyright and new music revenue streams now being made possible.

Celebrate the nation’s birthday this year with a great collection of music from the US Military bands. Whether you are having a cookout with friends and family, or hosting your own fireworks show, all the music you need to celebrate this year’s 4th of July is in this great collection.

Download “America” (mp3)
from “An Independence Day Celebration”
by US Air Force Heritage of America Blue Aces
Altissimo!

• Buy at eMusic
• Buy at Napster

The Commonwealth Club radio program of the Future of Music: Digital Rights or Wrongs panel will air this week on NPR. The program will be broadcast locally in the San Francisco bay area on Tuesday, July 3rd, 2007 at 1 pm on KALW-FM, 91.7. It will air at different times across the country.

Click here to listen to this program using the RealOne Player.

This weeks free music comes from the first official Bob Marley remix album, Roots, Rock, Remixed features several of today’s hot producers, balancing that fine line of respect for the source material and using the today’s digital technologies.

Download “Soul Shakedown Party” (mp3)
from “Roots, Rock, Remixed”
by Bob Marley & The Wailers
rockr / Quango / Tuff Gong

• Buy at Amazon.com

Last week, I was a panelist at Digital Hollywood. As usual I was invited to speak to issues around the intersection of technology, digital entertainment business models and content licensing. It turned out to be a great discussion. I suspect that the panel moderator, Mike McGuire of Gartner, had hoped to pit us against each other, and to a certain extent he did. In fact we did not agree that outdated copyright laws and complex content licensing are a bad thing.

The panel split into two groups, the lawyers and the entrepreneurs. We had very different perspectives on how to solve the difficulties, complexities and time involved in negotiating content licensing, especially for new tech enabled entertainment startups.

Technology now enables us to push the edge of the envelope with new entertainment business models. Consumers and artists are ready to try new approaches. In fact, one audience member suggested that Creative Commons offers a solid alternative to the current approach.

This panel, reinforced my opinion that the greatest obstacle to new entertainment business models may be outdated copyright laws and not content pirates or fear of technology.