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Uncertainties Remain About the Future of Online Music

Chris McGrady | Wednesday, September 12, 2007

In an increasingly complex digital world, the vast majority of worldwide business industries are running full speed into the Internet revolution. While some businesses around the globe cope with the technological advances in stride, others drag their feet reluctantly. The music industry stalwarts, namely the “Big Four” – Universal Music Group, Sony/BMG, EMI and Warner Music Group – continue to slowly find a way to adapt to (or is it resist?) the changing world of digital music.

The “fight” started in 1995, when most of the proliferation of MP3 music files began on the Internet. By 1999, with the advent of Napster, users had access to vast libraries of music through shared peer-to-peer networks. The small size of MP3 files enabled widespread distribution of music, and once record companies noticed a profit-dip from – and a reduction in – CD sales, lawsuits were filed. Ultimately, the free Napster closed down, but the digital sharing of music was cruising along at an unstoppable pace.

So where do we find ourselves today? To combat the illegal sharing of MP3 files, many record companies are encrypting their music with a technology called DRM, or digital rights management. This encryption limits the capabilities of digital copies of songs. Think of the files you might have downloaded from iTunes. Unless the files are DRM-free (as recently some iTunes songs are), you can only burn a certain number of copies, and the files will not play on someone else’s computer. Some songs are even encrypted with personal information, such as your name and your e-mail address.

But, as with most processes, there are loopholes. Once a song is burned onto a disc, unlimited copies of that disc can be made and shared. It is still illegal, but hard to trace for record companies seeking royalties for using their music. So what can record companies do? Realistically, nothing. And just now are they starting to realize this.

Some record companies, such as London-based conglomerate EMI, are starting to realize that, while they may catch people sharing music here and there, the spoils are not in proportion to the fight. EMI is now releasing DRM-free music through outlets such as iTunes. The files are offered in a higher quality format than the other MP3s and come at a premium price. As these tracks spread, EMI hopes, listeners will be more likely to want to buy the whole album and attend concerts, leading to increased profits.

So far, the experiment hasn’t had time to mature, and EMI is reluctant to give any substantial data – which suggests things aren’t going so well. However, how this plays out won’t be apparent for a substantial amount of time. EMI, however, is to be admired for at least taking steps to adapt to a changing digital world.

While music execs crumble under the explosion of file sharing and the corresponding, inevitable decrease of CD sales, the companies are seeking profits from other areas of the music world. One of these areas is Internet radio stations, which largely flew under the radar for years, playing thousands of hours of music to millions of listeners around the globe. The problem the record companies had is that the fees for playing music on the Internet were minimal – hardly worth collecting on. But that was soon to change.

SoundExchange, a company responsible for collecting Internet royalties, proposed a huge royalty increase, more than doubling the current rates by 2010. The increase is only a fraction of a cent, but on a per song, per listener basis, the fees can exponentially increase. The increase went into effect July 15, and Internet radio stations around the world are already feeling the effects, closing by the dozen. It is ironic, in fact, that the radio stations closing down are the ones who probably do the least harm to record sales – these are the “mom and pop” Internet stations run out of the basement of houses across the world.

So the question is this: What is the direction of the current music scene? There is a certain level of contrasting steps being taken by those at the top of the music empire.

While companies are making an effort toward admitting that attempting to limit file sharing is largely ineffectual, they are at the same time putting an immense strain on the Internet radio medium. The record companies are simultaneously promoting the free share of music while limiting those who can spread the audio joy.

It is undeniable, however, that the music culture is becoming fully harbored in the digital world. Just as records gave way to cassette tapes, and cassette tapes gave way to CDs, the digital proliferation and transportation of music is well on its way, firmly established in the modern culture. Digital music remains on a continued path to widespread implementation, one that will continue despite any and all efforts from the top of the music industry to stop it.