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Internet Drastically Reshapes the Business of Music
Participants in the SXSW Music and Film Festival held in Austin every March are more likely to be sallow-cheeked punk rockers from the United Kingdom than erudite scholars of business and law. However, this year the two seemingly disparate groups crossed paths in a panel discussion presented jointly by the Berkman Center for Internet & Society at Harvard and the Center for Business, Technology & Law (CBTL), a new research center for e-business strategy at the Texas Business School.
The panel included a former lyricist for the Grateful Dead; U.S. Representative Lloyd Doggett; Sirkka Jarvenpaa, co-director of the CBTL; Charles Nesson, Harvard law professor and the Director of the Berkman Center; a marketing VP with a major record label; and the president of a live music Website.
Representing widely diverging beliefs about the legality and business feasibility of such new music forums as Napster.com (indexes and makes available music from the hard disks of anyone connected to the Internet) and ClubCastLive (broadcasts live audio via the Internet), the panel explored two central questions: 'Is music different from other Web content, warranting different treatment by the law?' and 'How can musicians remain in control of, and reap financial gain from, their creations?'
Free music is out there, said Nesson, now new business models and income flows need to be worked out. "We need new innovative thinking and experimentation on open business models," agreed Jarvenpaa. "There is a war going on between open and closed business models in the music industry. The traditional record companies are limiting themselves to closed business models, which control and protect access to goods and services via pricing, customer information, copyright, patents, and domain names."
Open strategies, on the other hand, give away the underlying product or service and make money on complementary products or services. "Much of the initial value in the open models comes from creating the market in the first place," explained Jarvenpaa. "For example, live webcasting is creating new markets, and we need to get as many players in the sandbox as we can to see what will be sustainable in the long run."
Jarvenpaa believes that micropayments will be the way of capturing value in the new economic order. "Consumers will eventually listen over Palm Pilots, mobile phones, and other wireless devices, and there will be new corporate partnerships with artists," she predicts. "Auction pricing will come into play where people will pay what the market will bear for single tracks."
Jarvenpaa added, "There are many different ways to look at this, but it is the consumer who will be the winner. Consumers will be interacting in various new ways with the artist communities that are not even imaginable."
The Center for Business, Technology, and Law is working on two research projects related to digital music and digital goods in general. One study tracks the evolution of business strategies and revenue flows in dot-com firms that sell digital goods in an open environment. The second study focuses on the way digital music is changing customer-brand relationships.
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