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Free content: Why not?

Venture capitalist Greg Blonder says there are hard-headed business reasons that support the notion of giving away music.

"Ripping" a copy of a friend's music CD, or grabbing a track from a Napster-like service on the Internet, is stealing, plain and simple.

Music fans, seeking to justify this casual act of larceny, claim they're really supporting an economic boycott of a usurious and uncreative music industry. "Cybershoplifting," reply the record companies, seizing the opportunity to impose their opaque and onerous copyright schemes on the listening public.

While the battle rages on, piling up legal fees and taking the joy out of music, a simpler solution is on the horizon. The best way to stem this tidal wave of thievery is to give the music away.

Free content, by itself, is not at all that unusual. Broadcast television is "free"--at least to the viewer--courtesy of ad-supported subsidies, as are radio, many concerts and sporting events. But even those services commanding a fee today should become free tomorrow as the economics of music distribution take radical new shape.

To understand how, we would do well to look at a very different industry, but one with surprising parallels to music: 19th-century fuel delivery. In the late 1800s, when a tenant sought to warm a cold apartment, she had to buy her own coal from passing coal wagons and then haul it in coal buckets up to her fourth-floor kitchen. This apparently straightforward transaction brought with it considerable challenges for wagon drivers.

Theft was endemic. Stories abound of coal wagons stripped of half their load by street urchins before a first delivery could be made. Various solutions to improve security were proposed, including various patented coal locks. The ultimate solution, however, proved to be something quite different: a new distribution model that made coal theft irrelevant. It was called central heating.

Coal distributors sold their product efficiently in one large delivery to apartment landlords, at the same time removing the incentive for individual tenants to steal. Landlords could pass a significant part of the savings on to tenants in their bill for monthly rent. Everyone benefited, even the families of the coal-stealing urchins.

Similarly, it is the power of low-cost distribution, combined with subsidized free services, that will save and transform the music business. Stealing will become equally irrelevant.

It is the power of low-cost distribution, combined with subsidized free services, that will save and transform the music business.

To understand how, consider these statistics: The U.S. music industry collects $12 billion per year from CD sales to about 50 million active fans. That means each person spends an average of $250 per year to purchase around 15 albums a year.

Now, $250 per year is a very interesting number. By next year $250 will buy an MP3 player with a 100GB disk. That disk will hold over 2,000 CDs. Even strapping on headphones 15 hours a day, a listener would still need over four months to cruise through every track. For many people, 2,000 CDs is all the classical, jazz or rock music they will ever care to collect. For others, it's just about enough to fill a summer vacation with tunes. But it's a lot more than 15 CDs.

With these economics, distributing music on flashy plastic disks one album at a time seems, well, like heating your kitchen with coal. And $250 is not too high a price for a marketer--even those outside the music business--to spend acquiring customers, especially those dedicated fans holding an ad-supported player in their hand 15 hours a day.

Imagine the possibilities. Buy a new Kia? Get 1,000 albums with every car. Purchase a lifetime subscription to the Boston Symphony Orchestra? Receive an MP3 player with a library of the world's 2,000 most important classical music selections. Sign up for a new cellular contract? Get unlimited access to music from over 30,000 indie bands.

The economics are such that it would take only one leading company to break the music distribution mold. Among MP3 player makers, Apple Computer, with its pioneering iPod and remnant counter-culture customers, is one possibility. Sony--rumored to earn more from player hardware than from its own music division--is another. Or it might be a local brand in China, with less to lose.

The economics are such that it would take only one leading company to break the music distribution mold.
A workable payment plan?
But how will artists and their agents and lawyers get paid? This time we can turn for answers not to coal distribution, but to an industry much closer to musicians' homes: the American Society of Composers, Authors and Publishers. ASCAP licenses, collects and redistributes music royalties from music performance venues (like radio stations, concert halls and so on) to the artists. It determines who gets paid what by polling these venues to see whose music gets played and how often.

To determine reimbursement in an MP3 player world, a small sample of users could be invited periodically to voluntarily, and anonymously share their listening history stored in the player. Then, just as in the ASCAP model, payments collected from the music player distributors (Kia, the BSO and the like) would be split among the copyright owners. No fuss, no complexity and no secret CD police.

And we consumers would finally have the freedom to play music where we want it, when we want it, how we want it.

This is the future of music, if anyone is listening.