Music for the Masses

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You're finally getting the hang of it, Sony (NYSE: SNE).

The fourth and final major music label to offer downloadable tunes in the unshackled MP3 format will be available in the virtual aisles of Amazon.com (Nasdaq: AMZN) later this month.

It won't cost you a trip to the store to get some stupid, plastic, encoded gift card. I mention this because earlier this week that's what Sony BMG expected music fans to do. Fellow Fool Alyce Lomax was spot-on for bashing the record label and its new convoluted system. With it, consumers would have to go to a brick-and-mortar music retailer and buy a $12.99 plastic card that would unlock a limited amount of potential purchases from the Sony BMG library. What part of "digital distribution" did Sony not grasp, exactly?

It will be a shock if Apple (Nasdaq: AAPL) doesn't have a similar announcement about selling Sony tunes in DRM-free format during the upcoming Macworld conference.

Unleashed, for better or worse
So where does the industry go from here? Now that all four of the majors have succumbed to selling MP3s that music fans could have created for free from purchased CDs in the past, everything is on the table.

The market will watch and see if this last-ditch effort can save the struggling labels. Will prerecorded music sales finally inch higher in 2008? Will piracy become a bigger problem given the wider availability of high-quality MP3s? Will there be more sales and more piracy?

Don't laugh at the final point. We still don't know if the two are mutually exclusive. Remember when Radiohead gave away its digital CD last fall? The band wound up topping the charts this past week with the release of the non-virtual disc.

One can argue that the days of the multiplatinum superstars are toast. It was easy to funnel eardrums toward major acts when only MTV and a limited number of local stations were around to dictate what tunes the masses would hear.

It's a brave new world now. Music consumption is about much more than what's on terrestrial radio these days. Aficionados can now dig into specific genres, thanks to options like Internet radio and satellite radio; Sirius (Nasdaq: SIRI) subscribers have several dozen commercial-free stations to choose from.

Without commercials and with narrower niches, satellite radio subscribers are hearing deeper playlists, being exposed to more new artists along the way.

Beyond the programmed content, on-demand streaming is even more available. Hitting up a music discovery site like Pandora, Slacker, or CBS' recently acquired Last.fm is easy and free. Then you have the growing number of garage bands on MySpace and guitar-strumming crooners on YouTube. Trust me when I tell you that unsigned stuff on MySpace and YouTube is better than what's playing on your terrestrial radio station now.

Next stop isn't free
TechCrunch's Michael Arrington says music will eventually gravitate toward being free, but that's naive. Just because music files are swapped en masse doesn't make it legal or permanent. If labels are cut off, so will the lavish recording productions that consumers crave.

Yes, I sung the praises of the hungry indie artists on MySpace two paragraphs ago, but most of those productions are subsidized and inspired by the dream of one day landing a major record deal. Kill the spigot and you've dammed the water.

I'm not a fan of the music labels. My own band was signed to Sony nearly 20 years ago. A pair of Billboard-charting club singles later, we were tossed out. Maybe we deserved it. We were victims of a major-label system that only had room for huge sellers.

That will have to change in the future. Labels will need to dole out small contracts, taking larger financial stakes in non-CD revenue streams like touring and merchandising in exchange for bankrolling production and promotion costs. Some labels are starting to make headway there; even concert promoter Live Nation (NYSE: LYV) is moving in that direction.

The biggest threat to the four major labels isn't piracy. It's ignorance. Where are new acts being broken these days? CKX's (Nasdaq: CKXE) American Idol and Disney (NYSE: DIS) are behind some of the biggest sensations in recent years because they have the promotional machinery in place to put their stars on a series of multimedia platforms, and they focus on young audiences that still hero-worship.

Without that, labels that want to live will have to get savvier about online promotion, settling for several moderate successes instead of the occasional homer within a growing number of strikeouts.

The industry is being reinvented as we speak, but sorry, Arrington -- it's not going to zero.