Sales of digital music surpassed disc sales for the first time last year, spurring the music industry’s dawning awareness that this digital thing isn’t going away. Executives at Universal Music Group (home of Gotye, Kanye West, Lady Gaga and numerous other hit makers) and EMI (for whom the Beatles are one of many cash cows) told the U.S. Senate last week that they need to merge in order to complete the transition. Meanwhile, a blog post by a 20-year-old National Public Radio intern pointed out the obvious: For the most passionate music fans, the transition is ancient history.
When the Senate Judiciary Subcommittee met Thursday afternoon to discuss Universal’s $1.9 billion bid for EMI’s record division, the talk never really moved away from what digitization has done to the industry. The industry has shrunk to half its size in 2001, senators learned. Amazon and iTunes account for 90% of the download business. The union of EMI and Universal, EMI Group CEO Richard Faxon said, would yield greater resources to invest in the digital future. Indeed, Lucian Grainge, Universal’s chairman and CEO, proposed to make “a courageous investment” in EMI. “Digital is our future,” he said.
As the hearing was in progress, Emily White’s 517-word post on NPR’s All Songs Considered blog was ricocheting around the Net. The message was simple: White, who was born circa 1992, has bought less than two dozen CDs in her life. She has an iTunes library of thousands of songs. She never had to make the transition from physical to digital music. That happened long before she started listening to music in a one-two punch: first the Fraunhofer Institute’s release of the MP3 specification (1993), then the introduction of Apple’s iPod (2001).
“I’m almost 21, and since I first began to love music I’ve been spoiled by the Internet,” she wrote. “As I’ve grown up, I’ve come to realize the gravity of what file-sharing means to the musicians I love. I can’t support them with concert tickets and T-shirts alone. But I honestly don’t think my peers and I will ever pay for albums. I do think we will pay for convenience.”
White’s post attracted hundreds of comments and emotional reactions throughout the blogosphere. Responses ranged from moralizing to outrage to outright support. David Lowery, founder of the alt-rock band Camper Van Beethoven, composed an impassioned 3,800-word open letter in response to White focusing on the human impact of illegal downloading.
But illegal downloading is a sideshow. The real issue is the industry’s relationship with its customers. Like it or not, people like White – whether or not they pay for the music they download – are potentially the music industry’s best customers. They’re dedicated fans who care deeply about the interaction of culture, commerce and individual behavior. Yet none of the record men who spoke before the Senate said anything to suggest that they understood where she’s coming from. They talked about forming a digital strategy – a step in the right direction, to be sure – but they didn’t talk about serving their customers.
I’ll leave the details of the Universal-EMI merger to someone else to argue over. The bottom line is that nearly two decades after MP3, more than a decade after the iPod, in an era flowering with the likes of Pandora, Last.fm, Spotify and SoundCloud, these guys still don’t get what they’re up against. They’re arguing about how best to make the shift from horse-drawn buggy to automobile – when their customers have been driving Ferraris for years. Growing market share should not be the industry’s end game. The record company execs need to focus on understanding that the world has changed, and change with it.
