Recording Industry Gets It? Not.

This article previously stated that the RIAA is lowering the rates for artists for digital content. In fact, it is attempting to lower the rates for publishers for this content, but in the author's opinion, that would still have an impact on the artists themselves.

When it comes to what consumers want these days, is the recording industry starting to get it, or not? Judging by some news headlines last week, I'm still leaning heavily toward "not."

An Associated Press article pointed out that despite the recording industry's traditional paranoia about copyright issues, particularly online, it is slowly starting to experiment with making online content available using the unrestricted MP3 format. Despite the ease with which users could copy it, since MP3 doesn't include restrictions to guard against piracy, its major benefit would be that the content is compatible with a multitude of devices, most notably Apple's (Nasdaq: AAPL  ) dominant music player, the iPod.

Limited content from a handful of artists here and there has been made available in MP3 format through venues like Yahoo!'s (Nasdaq: YHOO  ) online music store. If the experiment is a success and expands, it could be helpful to the online music services that would like to compete with iTunes, but have little traction given the fact that the iPod is such a popular device -- and maybe they could give iTunes a bit of a run for its money.

This experiment, while tentative (the article mentions only a few tracks and artists distributed using this approach), may show that the recording industry is starting to get it, in terms of recognizing that compatibility, not to mention compatibility with the top dog in MP3 players, is an important part of online distribution. But then again ...

I also ran across news citing HollywoodReporter's claim that the Recording Industry Association of America (RIAA) is attempting to lower the royalties its members pay out to publishers for digital content, including ringtones, which should trickle down to the payments the artists themselves are getting. Songwriters, composers, and artists can be one and the same and often participate in royalty-sharing agreements with publishers, and even if third-party publishers' payments were lowered they would be likely to charge the artists more. The RIAA is the trade association for the recording industry, and major labels EMI, Sony's (NYSE: SNE  ) BMG, Warner Music Group (NYSE: WMG  ) , and Vivendi's Universal Music Group are all members.

The recording industry always contended that piracy hurt not only its own profits, but in effect took money from the pockets of the artists themselves. Lowering the royalties the major labels pay to artists would, of course, in effect mean the recording industry is shooting itself in the foot once again.

Industries that don't present themselves as particularly friendly to customers and suppliers are tasty candidates for disruption, and that's been abundantly clear regarding the recording industry for years now. Regardless of copyright law, let's just face it: Consumers don't seem to think highly of the major labels, and the RIAA in particular. Why should they, when it tries to keep the status quo and avoid innovation by filing lawsuits against children and grandmothers? I recently wrote about SNOCAP, created by Napster (Nasdaq: NAPS  ) creator Shawn Fanning, and its deal with News Corp.'s (NYSE: NWS  ) MySpace, and I can't help but think artists will increasingly form direct relationships -- and commerce -- with fans. In the not-so-distant future, will we really need the major labels as middlemen, hit machines, and tastemakers? The Internet's making distribution and payment easy, and users are coming to the conclusion that with the help of technology and like-minded fans across all niches, they can find what entertainment they like among countless choices without the labels' marketing schtick and tired avenues like banal Top 40 radio.

The AP article pointed out that the well-known MP3 format some labels are experimenting with is, obviously, one of the oldest digital music formats. Maybe that's an ironic way to end this piece; what do you make of an industry that's still looking backwards to "innovate"? And seeks to cut payments to its bread-and-butter talent -- who's ripping off artists again? Maybe one day some of these old-school industry execs will be forced to pick up some instruments, because they'll be the only ones left at the labels, singing the blues.

Do they get it or don't they? It's hard to tell sometimes. Here's a flashback of related Foolish content:

  • Warner Music made a deal with YouTube.
  • I had to admit, Universal did come up with one bright idea. then it went after MySpace.
  • I thought the recording industry guys should quit their whining way back in April 2005.

Yahoo! is aMotley Fool Stock Advisorrecommendation. To find out what other companies David and Tom Gardner have recommended to subscribers, click here for a 30-day free trial.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy is singin' doo-wah-diddy-diddy-dum-diddy-doo.


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