Net levels playing field

Twenty-five years have passed since Bob Dylan proclaimed to the world, "The Times They Are A-Changin'," and now, it seems, those prophetic words are rumbling down the halls of the traditional record industry, calling into question the very ways in which that industry has operated for so long.

Ovid, another great poet, could not have concocted a more extraordinary metamorphosis such as that which is about to occur in the distribution of recorded music. The result of these changes may be easier for some to predict than it is for some to accept, but, as in every transformation, there will be winners and losers, and the losers might as well prepare themselves for the inevitable.

The most obvious change to arise from the digital download revolution will be the wholesale dismantling of traditional "bricks-and-mortar" music retail operations. If Dylan were to write the song, he may well title it the "Disintermediation Blues." Retail sales of music, however, will not go away; it will, instead, reemerge in a different form: the Internet kiosk, which can be placed just about anywhere that music buyers are likely to be when they want to purchase a recording. This change alone will be one of the most visible benefits to consumers and, in my view, will be the single most important factor leading to an overall increase in music industry revenues.

A related change, which will have profound implications for the music industry, is the demise of the manufacturing and distribution infrastructure that currently supports traditional music retail stores. This support, the physical manufacturing and movement of CDs to and through retail channels, is currently controlled by the Big Five record distributors--WEA, Sony, Universal/Polygram, BMG, and EMI. Eighty percent of the resources of these five organizations is devoted to the manufacture of physical objects, such as CDs, and moving them from one place to another. The demise of this infrastructure will be quick and sure, "Like a Rolling Stone." It's not a matter of "if," it's only a matter of "when."

Because the so-called Big Five will see 80 percent of their operations undergo a forced evaporation, what's in store for the remaining 20 percent? Here may be found the proverbial silver lining for many record industry executives, because that remaining 20 percent represents the critical functions of (a) developing the careers of talented recording artists--called A&R, for "artist & repertoire"--and (b) promoting those careers through radio and television promotion, tour support, and the like.

These functions are not only here to stay, but, in my view, will become more important as the digital revolution evolves. With greater access to the Internet, aspiring recording artists will need the kind of experienced guidance, financing, and promotional resources necessary for them to create the kind of quality product worth listening to and to rise above the noise level that the Internet helps amplify. A&R executives have reason to sing, "I Guess I'm Doin' Fine."

Some more good news: While traditional bricks-and-mortar retailers and distributors will be singing the blues, commercial counterfeiters of unauthorized CDs will be singing their last refrain. Without the filing of a lawsuit or government raid, these guys will soon be "Blowin' in the Wind," as there is no way they can compete with the digital downloads. If they try to sell on the Internet, they are soon discovered and will be summarily shut down by lawsuits filed by the music industry trade associations.

So what's all this about piracy? About the only "pirates" left are the consumers who illegally post music on the Internet for others. In other words, these pirates also happen to be the music industry?s customers. The approach to these customers by the Big Five record companies, using the Recording Industry Association of America (RIAA) as their mouthpiece, has been to seek to deploy technologies that purport to prevent the copying of music, the so-called SDMI (Secure Digital Music Initiative).

Recent announcements by a cafeteria of companies, including even the bad boys of Redmond, promise nothing but great new ways to inconvenience the consumer without any promise of real copy protection. The dirty little secret of these companies--you can read it in their disclaimers--is that encryption will not work to protect music on the Internet. So what's all the fuss about? Is it really worth inconveniencing the consumer with something that will not work to begin with?

GoodNoise, the source for downloadable music, believes that, if you make it easier to buy than to steal, people will buy it. With thousands of high-quality recordings being made available on our site each month, we are making it convenient for fans to buy their music--just the way they want it. Dylan was right: "The Times They Are A-Changin'," but they are changing for the good--for the good of the artist, for the good of the record label, for the good of the consumer, and, ultimately, for the good of the music industry as a whole.  

Bob Kohn is chairman of the board of GoodNoise. Kohn is a seasoned high-tech executive, member of the California Bar, and coauthor of the 1,500-page book Kohn On Music Licensing, a practical guide to business and legal issues in the music industry, which he wrote with his father, Al Kohn, retired vice president of licensing for Warner Bros. Music. He served as chief legal counsel for Pretty Good Privacy, Borland International, and Ashton-Tate. Prior to joining Ashton-Tate, he was an attorney at the Beverly Hills law offices of Rudin & Richman, whose clients included Frank Sinatra, Liza Minelli, Cher, and Warner Bros. Music. He lives with his family in Pebble Beach, California.

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