Digital Audio Insider -- the economics of music and other digital content

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Digital Audio Insider is David Harrell's blog about the economics of music and other digital content. I write from the perspective of a musican who has self-released four albums with the indie rock band the Layaways.

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March 20, 2008

The Big Switch: Will It Happen for Music?
by David Harrell
I'm a big fan of Nick Carr's Rough Type blog and I'm about halfway through his new book, The Big Switch: Rewiring the World, from Edison to Google.

Carr begins with the history of power and the transition from water- and steam-based systems to electricity. The pre-electrical systems were, of course, all based on local production of power. And Thomas Edison originally thought electricity (at least for industrial usage) would be local as well -- that the business of electric power would be built around selling generators and dynamos to industrial users, who would them use to create their own energy. However, the grid model quickly supplanted this model, as it turned out that electrical power could be generated less expensively and with greater reliability by a remote supplier, and then delivered via a network of power lines.

The new "big switch" that's the thesis of the book is how businesses (and individuals) are now abandoning the idea of local-installed software in favor of Web-based applications. The same goes for storage and general computing, with the example of Amazon's S3 and EC2 services.

Carr doesn't directly address music consumption trends, but the idea clearly extends itself to digital music. Today, the majority of music listeners are still doing the equivalent of "generating their own power" by listening to digital files (either via CDs or purchased downloads) served up locally -- on home computers or portable devices. Although online music subscription services have existed for nearly seven years, they have so far failed to catch on with the general public.

Why the lack of success? In the big switch examples given by Carr, it appears that the network/grid versions needed to be both economically competitive AND as convenient and reliable as the older products/services they replaced.

On the surface, music subscriptions definitely have economics in their favor. A relatively low monthly fee gives listeners access to an amount of music that might -- literally -- cost millions of dollars to purchase outright. (Though the subscription services' line about "thousands of dollars to fill an iPod" line was always somewhat disingenuous, as it ignored the fact that most iPod purchasers can readily fill their devices with the thousands of songs they already own on CD.)

Yet Steve Jobs famously dismissed this appeal for subscription services, opining that listeners want to own their music instead of renting. The psychology of ownership -- the fear of "losing" your music should you ever stop your subscription -- no doubt influences consumer decisions. But I'd argue that the larger reason for the lack of enthusiasm for subscriptions is that they haven't yet sufficiently matched the "local" listening experience. My own experience with the paid subscription services is that even with an incredibly fast Internet connection, you still have to contend with buffering times, latency issues, system crashes, annoying forced software updates, etc. It's just not the same as skipping around your iTunes library on a PC or listening to an iPod. (To be fair, I've never tried the mobile devices such as the Sansa Connect, which can store files from Yahoo's Music Unlimited service and allows on-the-go updates.)

But just as the early power grid improved, we're seeing continual improvements in available bandwidth, streaming rates, and the storage capacities of mobile devices. Imagine a world in which streaming is instantaneous, updates take place behind the scenes, and there's no perceptible performance difference between streamed music and that stored on your device or hard drive.

I doubt Apple's rumored subscription service will do all (if any) of that just yet. But whatever Apple rolls out, I'm betting the user experience will be a step up over previous systems. And even without any improvements over the current services and devices, just having the manufacturer of the most-popular portable device embrace the concept is bound increase public acceptance of the idea of networked music. (The lack of iPod compatibility, along with P2P piracy, is often cited as the major reason for the relative failure of the subscription services.)

Assuming that the economics can also work for artists, labels, and publishers (Glenn at Coolfer recently noted some of the business challenges here, $20 per iPod probably isn't going to cut it) an eventual switch to networked music of some sort seems inevitable, at least for the generation of music consumers who are sufficiently wired.


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