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Original URL: http://www.theregister.co.uk/2007/10/19/vrs_value_gap_report/

Apple, Tesco 'most to blame' for music biz crisis

By Andrew Orlowski (andrew.orlowski@theregister.co.uk)
Published Friday 19th October 2007 10:49 GMT

A new report suggests that Apple and Tesco, not P2P file sharers, should take the most blame for the woes of the British music industry.

The report, prepared privately by consultants Capgemini for the Value Recognition Strategy working group, set out to examine the "value gap", the amount sound recordings revenue has fallen in the UK since 2004. The report remains confidential, but details are starting to emerge.

The consultants suggest that "format changes" and price pressure from discounted CDs on sale in supermarkets, are most to blame for this "value gap".

However, the report gives lie [not "life", as a typo suggested - ed.] to the idea that P2P file sharing stimulates demand for sales, or is even a neutral factor. This idea has given comfort to the powerful anti-copyright lobby, backed by internet users who want digital music for free (http://www.longtail.com/the_long_tail/2007/05/my_next_book_fr.html) - and find endless justifications to avoid paying for it.

Capgemini calculates that of £480m lost to the industry since 2004, £368m was the result of format changes: principally the unbundling of the CD into an "a la carte" selection of digital songs. Of the remainder, 18 per cent was lost to piracy.

And that suggests that simply going after illegal downloaders won't save the British music business.

The Value Recognition Strategy working group was created last summer - largely at the impetus of the indie labels and collection societies, but backed by all sectors of the industry - to examine alternative revenue opportunities for digital music. The growth of MP3 has seen large hardware manufacturers such as Apple and media companies such as News Corp's MySpace prosper from music, but returning little or nothing to composers, songwriters, and sound recordings owners.

It's what economist Will Page, of the MCPS-PRS Alliance, calls a "broken supply chain". Revenues from telecoms companies and service providers dwarf the revenues from the beleaguered music business.

The conclusion that unbundling is the chief factor is richly ironic. When Apple launched the (then) iTunes Music Store in 2003, it did so with the backing of all four major labels. The labels had failed to see digital music as an opportunity, and launched only small scale and piecemeal commercial offerings. At iTunes, consumers chose one or two songs from a performer's repetoire for 99 cents a song, rather than pay $9.99 for the CD.

However, if Steve Jobs hadn't unbundled the CD, then someone else would have done it anyway, Jim Griffin pointed out (here (http://www.theregister.co.uk/2004/02/11/why_wireless_will_end_piracy/)) three years ago.

"One disconnect the iTunes model has with reality is that what works for IP is a bundled price, and what doesn't work is granularity, historically. Do you think Edgar Allan Poe could have made money if he sold The Raven separately from 30 other poems?" he asked.

The trick for the music business is to find a "bundle" that consumers are happy with - and that's not an easy task.

Bittorrent P2P trades of Radiohead's In Rainbows are now far outstripping legitimate downloads - even when the legitimate version is free, DRM unencumbered, and the legal downloader need only provide a fake email address.

However, unbundling works both ways.

Paying $9.99 for an album for which you only want a couple of tracks is rotten value. But so is paying $0.99 20 times for the contents of a greatest hits album. And a flat rate, all-you-can eat bundle is the best value of all. ®

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