Earlier this month I had the good fortune to attend a wonderfully informative conference: Digital Distribution and the Music Industry. Put on by First Conferences out of London, this conference was far beyond the average industry shmoozefest. DDMI offered ultra-valuable information, presented by those at the very forefront of the digital music industry. So here you have it, a summary of the notable points covered at the event. Keep reading and you will know what I now do:
in the music industry, the future is now.

by jodi sax

The collection of data is one of the most important functions of downloading sites and will provide an incredibly valuable function in the future. It gives the bands a long-term connection to the fans. Also allows for direct marketing and cross promotion. We might also see the artist's statistics becoming valuable in negotiation of record deal ‚ perhaps record label will want to see artist's "stats" before they are signed.



All of this talk about the revolution of the industry may lead one to believe that record labels will become obsolete in the coming years. The consensus among industry experts was definitely that this will not be occurring. Rather, almost all who addressed the topic at DDMI believed that labels will be performing an even more important function in the future.

As Michael Roberston and other industry experts, indicated, in the future, in some ways it will be harder for unsigned bands to be found, even though obviously their distribution channels are opened up by virtue of the internet. This is so because self-distribution through the internet necessarily creates more competition between bands, and there is much more music to choose from. It will be harder to distinguish one's self. For this reason, as eMusic's founder Robert Kohn noted, record companies will survive, and will come to serve and even more important marketing and promotions function than they do at present. This will become the inherent value of a record company.

There was some discussion at the conference, however, about the fact that major labels do seem to be threatened by the perceived loss of control over their product, and the inevitable changes in the structure of the industry. Some comentators noted that, to combat this, we will see a lot of grass roots marketing efforts by the major labels. E.g., employees going into chat rooms and talking about a release.

Another interesting point brought up during a legal panel on contract renegotiations was the value of digital downloading rights, and how this will become an increasingly important point in recording contracts. Because of the promise of digital downloading, Artists might be in a very good position now if there is no new media clause in their contracts, but traditional formats are set forth with specificity. This way they can argue that new media (e.g. digital downloads) weren't contemplated under contract, and thus try to get higher rate for digital rights, or negotiate digital rights directly themselves.

Similarly, Artists need to have their representatives carefully examine their contracts, to be certain that they do not contain clauses that should not apply to digital distribution. For instance, there should be no packaging deductions for digital downloads. It is also important to try to make sure that a record company does not try to retain ownership rights in the artist's domain name, which can become an incredibly valuable asset to the band. There is one label that presently tries to own the domain names of its bands. Aside from the fact that this practice deprives the band of a valuable property, it raises a host of problems regarding trademark rights, and the questions that would arise when an artist tries to switch labels. It is unclear how this somewhat questionable practice will pan out in the future.



Given the apparent "leveling of the playing field," represented by digital distribution over the internet, many independent labels may be wondering why they should do digital distribution deals? There were four general reasons repeatedly given at DDMI: money (some digital distribution sites offer advances), marketing and cross-promotional opportunities, collection of data, and the effect of drawing additional traffic to your own site. The value of data should not be underemphasized. Knowing who your audience is offers important marketing and promotional opportunities not available when purchases are made through traditional "brick and mortar" (i.e., not online) music stores.

There are some music download sites (e.g., eMusic.com) that offer exclusivity, while others (such as mJuice and riffage.com) do not require labels to sign exclusive deals. Jeff Price, General Manager of SpinArt records, is a huge proponent of exclusivity with online distributors, such as eMusic, which seeks long term exclusive contracts with its content providers. Jeff noted that there are problems with non-exclusivity: No control over pricing or presentation or marketing; accounting nightmare; no control over distribution/sublicensing.

There are, however, some inherent drawbacks for indie labels in the online arena. Specifically, if your label doesn't have the money to offer bands advances, bands won't give you digital rights, but might contract directly with the digital distributors.



There was much discussion at the conference about what file format will prevail and become standard ‚ MP3, liquid audio, or some other type of format. The consensus among the experts was that customers don't care what format their music comes in, as long as it works. The differences in qualities are nearly imperceptible to the human ear.

Most of the industry people at the conference seemed to dislike encrypted formats, and feel that non-encrypted or "open standard" format will prevail, since people won't download something that is a pain in the ass. Streaming may be the new business model ‚ as bandwidth increases, this will become increasingly more feasible.

Another point that was repeatedly made at DDMI was that for the digital distribution model to be commercially successful, decoders/players need to be operable for different platforms. The industry simply won't succeed unless there is compatibility, because it is too inconvenient for the consumer.



The encryption/non-encryption debate was one of the hotly discussed topics at DDMI. Mp3.com and some of the other digital music sources using unencrypted formats are not ultimately concerned about piracy ‚ they believe that the free files have proven to be valuable as promotional tools.

The Secure Digital Music Initiative (SDMI), on the other hand, believes the opposite to be true. SDMI, which is largely a consortium of record labels, brings together the worldwide recording industry and technology companies to develop an open, interoperable architecture and specification for digital music security. SDMI's objecive is to answer consumer demand for convenient accessibility to quality digital music, enable copyright protection for artists' work, and enable technology and music companies to build successful businesses. Michael Robertson of MP3.com, and the vast majority of others at DDMI advocating unencrypted formats, believe that the reasoning of the SDMI is flawed. The thought is that the Initiative could curtail to distribution of music by making it too cumbersome for consumers to want to utilize the files. Further, the organization has no artist representative and no music fan representatives.

Robert Kohn, founder of eMusic.com, concurred with Robertson's sentiments. Basically, the consensus at the conference was that encryption doesn't work. People not use something that is difficult or cumbersome, or interferes with their ability to simply listen to music. Also, once file is de-encrypted, it can be freely copied and passed on. There really is no technological solution to prevent piracy.

A very valid concern, however, was raised at the end of the conference by Dean Kay, who wrote the song "That's Life", and is also on Ascap's board of directors. Creators of musical works need to be compensated for there artistic endeavors. As as Dean Kay indicated, the promotional value of the free downloads does not compensate the songwriter who perhaps does not have another track on the album, who will not be remunerated through concert sales or the sale of merchandise. Thus, a system does need to be put in place to accurately track and compensate artists for songs that are downloaded over the Internet. This is a thought that was largely overlooked at the conference.

First Conferences will be hosting additional digital music conferences in the future. If you are interested, I heartily encourage you to contact First Conferences for more information about upcoming events in your area.

For more information on digital distribution, you can visit the Digital Music Association site.

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