By Steve Oppenheimer

(December 1999)

It seems to me that the age of physical delivery media is slowly fading. We are witnessing the dawn of the age of Internet delivery, and not just of MP3 files and other low-quality media. Broadband Internet “pipelines” are being constructed, the commercialization of the Internet is underway, and we will soon have huge amounts of data-storage capacity in our electronic entertainment devices as well as our computers.

Before long, we will be able to quickly and easily download large quantities of digital audio that is either uncompressed or is compressed with algorithms so good that the difference will be virtually imperceptible. We will be able to load this data directly into small consumer devices. At that point, selling audio and video on a physical medium such as a disc will seem cumbersome and costly by comparison.

I can foresee the day when brick-and-mortar record stores could be as rare as drive-in movie theaters are today. It won’t happen overnight, but I think it will evolve gradually over the next decade.

This movement will affect the basic structure of the record industry significantly. Executives of certain Big Five major record labels, such as EMI, claim that they understand what the Internet means to their business. But I think that the major labels are in for a big shock. Once broadband Internet delivery to home-based performance systems becomes a reality, the record-label business model may have to be reinvented, and not because of piracy.

You think that’s too bold a statement? Consider this: in the past, the big labels supplied deep-pocket banking services, distribution, and marketing services. Traditionally, they also offered recording services, but this part of their empire is already suffering from the onslaught of lower-budget personal studios.

If you can bypass the conventional record store and distribute via the Net, you don’t need major-label connections for distribution; independent Web labels can distribute for you. You don’t need to finance a huge distribution effort or stock physical product, because your product will be a (hopefully secure) data download. Selling music could be much like selling software on the Web in that sense (see “Working Musician: Moving Units Online” on p. 102). Furthermore, with the growth of Webcasting, a handful of radio and TV outlets will no longer determine which acts get heard; anyone can Webcast his or her music.

The major labels will still control their superb back catalogs, of course. And if you want to compete at a big-league level, you’ll need high-powered promotion and marketing, whether you use the Web or attempt a multifaceted media blitz. So the major labels could essentially become specialized marketing firms, losing the distribution and banking roles they have enjoyed in the past.

As with the current business model, if you want to be successful in a small niche market, working with an independent label that has a smart, well-focused self-promotion effort could do the trick. If not, you might still need professional marketing help to be heard above the noise floor of thousands of acts.

Either way, we are not talking about traditional record-label models anymore. And that is what the Big Five do not seem to understand.