Page last updated at 13:46 GMT, Monday, 19 January 2009

Music industry scrambles for cash

By Ian Youngs
Music reporter, BBC News, in Cannes

Music on computer
The entertainment industry says illegal file sharing costs it millions

The music business has finally come to terms with file-sharing, according to executives at the Midem conference in Cannes. But now they have a different problem.

Until recently, the music industry was in a blind panic about illegal peer-to-peer downloading.

Millions upon millions of fans are spreading music around the world, and the people who made and own it don't see a dime.

A vast 95% of all digital music comes from unlicensed sources, according to a recent estimate from the global trade body the IFPI.

But the blind panic now seems to have stopped.

The Recording Industry Association of America, which represents US labels, has traditionally been the most aggressive in chasing file-sharers.

But it has just announced that it will no longer sue suspected offenders.

Digital rights management (DRM) - the lock placed on a track to attempt to stop you from sharing it - was once the central tool in the fight against "piracy".

But now Apple is removing DRM from iTunes, the leading download store, marking a resounding defeat in that particular battle.

'Hottest currency'

The industry seems to have reached a conclusion that the strategies for fighting file-sharing will not work.

It is now a fact of life.

But now there is a new panic.

It's interesting to be in a business where there's no issue about creating demand for your product. The issue is finding a way to get paid for it
Howie Singer, Warner Music

If we are not going to stop file-sharing, and with sales falling, the dilemma now goes "how do we make money now?"

That is the question dominating Midem, the main annual industry talking shop.

Howie Singer from Warner Music said his company wanted to see "compensation and not simply control".

"It's interesting to be in a business where there's no issue about creating demand for your product," he said. "The issue is finding a way to get paid for it."

That view was echoed by Marcel Engh from Sony Music Europe. "The good thing is we're sitting on the hottest currency in the digital age - music," he said.

"Lots of the web 2.0 destinations are driven by music - MySpace, YouTube, there are tons of those destinations. The bad news is it's damn hard to make money."

'Exceedingly challenged'

Former EMI boss Eric Nicoli said revenue needed to be generated in different ways.

"Any company that relies on music sales will be exceedingly challenged," he said.

A growing school of thought says that if you can't beat them, join them.

If file-sharing is not going to go away, then some leading figures favour finding a way of getting paid for it.

Feargal Sharkey, head of the pan-industry body UK Music, said 80% of file-sharers would be prepared to pay for a legitimate peer-to-peer service.

"We as an industry have to seize upon that agenda," he said.

Kanye West
Kanye West makes money from his prolific blogging activities

"To paraphrase Dr Strangelove - 2009 should be the year the music industry learns to stop worrying and love the bomb."

The industry's joint goal, he said, was to "unlock the true potential of digital music and give music fans what they want, legitimately".

Author and self-styled "media futurist" Gerd Leonhard said fighting file-sharing had been fruitless, and it was time to grant permission and collect royalties.

As well as asking fans to pay, Mr Leonhard suggested money could come from advertising, sponsorship, subsidies from internet service providers or portable player manufacturers.

There are high hopes for a raft of expected new legal services from internet service providers (ISPs), which would see an all-you-can-eat music service offered as part of a broadband, TV and phone package.

A couple have launched in Europe and BSkyB is expected to be the first to launch in the UK.

Geoff Taylor, head of the BPI, which represents UK labels, said: "The record labels are in discussions with a number of major UK ISPs about licensed deals and I firmly believe that's the future."

Other solutions, like advertising, are not that revolutionary.

But a number of people plan to make advertising more sophisticated, using technology to help sell individuals stuff they are more likely to actually want.

'New currency'

And if the music itself will not be the main money-spinner, then more emphasis is being placed on selling music-related products.

The head of the new MySpace Music download service, Courtney Holt, said as well as being a music store, his site would sell ringtones, concert tickets and merchandise.

Lil Wayne
Lil Wayne's track Lollipop was the most legally downloaded single last year

It would also stage events and exclusive concerts that could be sponsored, packaged up and sold in ways that might be attractive to fans, he said.

Some artists have been taking matters into their own hands, reaching out to fans with new ideas to get paid.

Rock band Marillion have long asked their fans to directly fund their albums. But they also put their last one onto peer-to-peer networks, with a piece of software that asked anyone downloading it to give their details so they could offer them T-shirts and tour tickets.

Keyboard player Mark Kelly said e-mail addresses were "the new currency".

Some singers offer fans an annual subscription fee, in return for which they get live and rare songs. Josh Rouse, for example, charges $30 (20.50) a year and has so far sent out more than 100 songs in nine months.

Kanye West, meanwhile, makes money from his prolific blogging activities, the conference heard, with his website turning a profit thanks to advertising and sponsorship.

The industry is still in the turmoil, and no-one knows how the future will look. But some are not convinced that the answers have yet been found.

"Let's face up to it. We're in a crisis, which is not getting better," said former Pink Floyd and Marc Bolan manager Peter Jenner. "The last 10 years have consistently got worse.

"The reality is that people are downloading for free. We've got to compete with free. I can't see that anything that's going on at the moment with the record business is going to solve what's happening."

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