Vol. 24 Issue 1 Reviews
4th Annual Music Industry Forum
19-20 July 1999, New York City, New York USA

Reviewed by Mike Thorne (New York City, New York, USA)

The New Music Seminar was initiated in the early 1980s by three enthusiasts gathering in a lower Manhattan loft. Despite a healthy downtown performance scene, musicians were feeling shut out of the mainstream music business. The Seminar’s formation was a clear attempt by artists to take the initiative, to refocus the industry on music and its development.

The annual convention grew quickly, and eventually comprised three days of panels and discussions oriented toward enthusiasts and budding professionals who wanted to develop a music career. A new generation of musicians, managers, and related functionaries drove its size to where it filled the new Times Square Marriott Marquis Hotel. Just as importantly, the music filled six long nights in many New York clubs, with a fair balance of commercial ambition and idealism. In the possibly over-sentimental view of the veterans, the music came first.

From the collapse of the New Music Seminar after its final Summer 1994 meet, annual sponsorship was taken over by, among others, Apple and Intel, and the new-technology component burgeoned. The meeting developed into one of the major world-wide combinations of popular music and new technology. With the ascent of Jupiter Communications to major sponsorship in 1996, the style of the event has come full circle. Where enthusiasts would once compare online streaming technologies, and even guitar strings, now they now analyze IPOs (Initial Public Offerings).

Commerce is clearly the driving force, fueled by music’s long-time online presence and the new financial tide. Panel discussions are now heavily biased toward process rather than the development of effective "content." There were more business suits than tattoos, and a surprising male-to-female ratio greater than 12:1, far more out of balance than the practical music sector.

Reflectively, there was little interest in technical developments at Plug.In '99, but there was feverish activity in establishing new forms of online delivery and streaming, in conjunction with new ways of collecting and presenting music. However, some established technologies are coming into their own as wider implementation of broadband delivery approaches. Lucent offered an impressive demonstration of E-Pac, its streaming codec, with several music types, comparing compact discs with its broadband (128K) version. With installed cable modems approaching one million in the USA, and Digital Subscriber Line (DSL) telephone connections increasingly on offer, promising technologies from large companies might now start to deliver after laying dormant (like ISDN). At present, there are three prominent, broadband-streaming music codec contenders: E-Pac, AAC (the audio section of MPEG-2) and Sony’s new, proprietary system, although the situation is changing rapidly. All was not quiet with the upstarts, though, with market leaders RealNetworks now claiming over 70 million registered RealPlayer users, 160,000 players being downloaded from their site daily.

In addition, a quiet move toward cross-compatibility is developing among several streaming and download formats, particularly those which address the issue of copy protection. For example, Liquid Audio announced their 5.0 player which can read mp3, RealNetworks, Dolby Digital and AAC. a2b and RealJukebox (the new program offered by RealNetworks to convert Red Book audio into mp3 files) have some common inter-operability addressed to rights management. QuickTime 4.0 will play mp3 files. Clearly, this trend will eventually minimize application confusion and streamline browser use.

A growing class of application, offered at the show by Intertrust and Reciprocal, is not locked to one player or media company, and addresses the growing concern with the clumsiness of the user experience when copy protection is incorporated in music downloads. With current systems such as Liquid or a2b, music can be purchased and downloaded, but it is typically stuck on one computer, unable to travel with the licensee. Reciprocal, a new company which "acquired the AT&T a2b music team," offers an integrated, cross-platform streaming and rights-management system, and announced their system’s adoption by, among others, BMG Storage Media, and RioPort. Their more portable system, however, depends on constant access to software keys and therefore a steady online connection. Regardless, these companies are responding to demand for operational transparency. Initial copy-protection systems have often caused trouble, either through file incompatibilities (as with the recent embarrassment to Microsoft over the highly-hyped Public Enemy album download) or by being just plain time-consuming. Intertrust claimed a similar and growing number of alliances (which are not exclusive for either party).

No executive of MP3.com was present, since their IPO was proving another runaway fortune-builder in the same week and they were serving out their mandatory "quiet period." This company, less than two years old, has established itself as the clearing house for mp3 file downloads, and has provoked blind rage in many established record companies simply by aligning itself nominally with a format which can be copied and disseminated without restriction (the music industry overlooks the fact that all music at the site is non-pirated). "Ripping" Red Book audio into mp3 format is a simple process that delivers conveniently compressed files (at a ratio of around 10:1) for computers and a widening range of portable flash-memory players (it is expected that approximately 20 different products will be available by the end of 1999).

The difficulty of building a self-supporting business around mp3 persists. The music files that are posted are typically either by artists in search of a conventional record deal or promotional replacements for the classic single, an enticement to purchase the CD. Some mp3 files are available for straight sale, but those run a risk of further copying and dissemination at a level unknown. Current watermarking proposals would help trace the origin of a pirated file, but this does not slow the quick spread of freely transmitted copies, contrasting with the mechanical brake inherent in the limited speed of home taping. Free mp3 releases will always be a calculated risk to generate sales. The Offspring claim to have transferred 16 million downloads to sell 8 million CDs, figures which seem exaggerated but indicative of scale. Speculation at the Forum was whether 32 million downloads would sell 16 or 4 million records. Early days yet…

All of the panelists were obliged to speculate about when online delivery of music might supplant CDs, the latter from either bricks-and-mortar or online stores. Jupiter’s own projections were curiously downbeat: download sales are expected to rise from 0.3 percent of the online market in the year 2000 to 5.7 percent in 2003. Admittedly, this is a large proportionate increase, but the reciprocal of this ratio is that, in three years time, over 94 percent of online business will still be distributed in physical form. Out of a 40 billion dollar worldwide business, though, this will still be a significant turnover. It also remains to be seen whether music sales are a zero-sum game: online download sales might not necessarily detract equivalently from CD sales. Although the internet is an "international" medium, local connections and restrictions vary. National laws pertaining to privacy and copyright can be very different. Confusingly for the major record companies, 65 percent of their business was generated outside the USA last year, whereas commentary and analysis is generally American-centric.

Predictably, the "Standards, Technology and Rights" forum provoked the most excitable audience, and was served by an articulate panel. Leonardo Chariglione represented the SDMI (uncharitably dubbed by one panelist "Society for the Defense of the Music Industry" in lieu of the official "Secure Digital Music Initiative"). Once again, he was obliged to explain that SDMI is a format framework for download and copyright protection, and does not specify the codec or encryption to be used. In principle, there is room for technical improvement, although the proliferation of present and future standards, as with any computer format, is a major concern.

Like mp3 for the majors, SDMI is a lightning rod for independents of the "information wants to be free" persuasion who, it was pointed out, often overlook the cost of the creation of that information. Individual formats may engage in marketplace competition, uncomfortably reminiscent of the material waste of the VHS versus Beta battle, but they promise a little more virtual efficiency. In response to a remark that software piracy was a vehicle for sales (of upgrades), Bruce Polichar (IBM) had to point out the obvious: music does not have a lucrative upgrade path. He also reminded us that film-projector standards wars used to be fought in the street with baseball bats, and that in the early 1980s there were five competing laser disc standards. The large-scale consolidation of content that resulted in the big five global record companies might eventually be echoed in large server and communications structures that are more economical for online music distribution.

Software standards, as RealNetworks and Liquid Audio demonstrate, drift toward compatibility if it suits the interested parties. Hardware has no such option. Microsoft, with the dominance of their Windows operating system, will have a different business strategy from an applications company. The commercial competition for provision of the dominant standard for rights protection in digital download will be decided in a marketplace colored by shifting alliances as well as basic user reaction. The longevity of mp3 may be shortened by compatible formats that include rights management (a.k.a. copy protection).

Although the whole Plug.In week was filled with Manhattan club activity, there was almost no panel discussion of music and its creation. In contrast to previous years, proceedings were sometimes invested with a refined, almost abstract marketing aura. "Content consolidation" was an oft-used in business presentations by the media-streaming internet sites. The number of these was up markedly, recalling an unfortunate piece of advice that to "enhance your site" you should look for "compelling audio content." Analysis sometimes veered dangerously close to irrelevantly abstract jargon.

The proliferation of streaming sites anticipates broadband service, and has produced some flexible and innovative potential replacements for traditional radio stations. A 56K browser is currently a minimum for adequate playback, but keeping up with data demand via a scalable server system is a constant technical issue. The distinction between online record companies and online radio becomes less clear when the former are streaming media and the latter are selling digital downloads. The increasingly feasible option of streaming video, offered live and in archive by such companies as EMusic and the Digital Club Network, parallels established news feeds: it's the same process, with a different content orientation.

The forum "MP3 and Digital Distribution: Threat or Opportunity?" combined members of many camps, and suggested further blurring of previously clear boundaries between artists and record companies. Traditionally, the majors have owned everything about a signed artist, from exploitation of their image to (in some cases) their Website domain name. ArtistDirect, who have developed through the Ultimate Band List, turn politics upside-down by inviting artists effectively to invest in their company, which is in the business of servicing and enabling. A decentralized structure may result, to the benefit of new and niche artists who (it is claimed) are served by the democracy of the Web but who find themselves blocked when they have to deal with services and distribution. The idealists who insist that "if you build it, they will come," are still faced with the need for a mass awareness in order for the audience to come to their sites in sufficient numbers. Unsurprisingly, many of the business discussions rested on the current model of the "hit-driven" market, where a few hits carry many unsuccessful projects.

Perhaps the newest issue to be broadly recognized is the upcoming fight for control of databases. With a large enough database of people, target sectors can be identified and alerted, so that niche marketing (the opposite of "hit-driven") might develop more successfully. For example, on the independent side, a free agent might buy a one-shot email (for 12 cents per unit) to a list of consenting people who are focused on the bassoon: truly a narrow niche! Conversely, the refining of a large company’s database, particularly with data gathered from download sales, can address the specific interests of a large sector of the online marketplace.

The advantages of the Internet for niche and new artists have been touted for years, but we are only now starting to sense a viable small-scale existence online. Dissemination in a narrow music sector is becoming easier, and the high fixed and distribution costs of making a limited-circulation CD are dropping. The developments of the last year or so suggest that, at least for smaller, tight-knit music communities, promised advantages may yet materialize.