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Sixty-five million years ago, a massive meteorite smashed into the Yucatan peninsula. That was the end of the dinosaurs.
The Internet is doing the same thing to a few dinosaur-like business models. I sure hope you're not heavily invested in any of them, because they are taking a few million tons of molten rock upside the head right now. With the old fogies swept out of the way, consumers and businesses alike will then enjoy the flourishing fauna of new-age publishing models that will replace the old ones.
Meet one ancient dinosaur
The music industry at large, such as major labels like Warner Music (NYSE: WMG ) and Sony (NYSE: SNE ) BMG, still expects me to mosey on over to a local retailer to buy a physical CD when I want to hear a song. And if Sony's history is any indication, it'd also like to stop me from moving that precious, precious "content" (a word that most artists probably hate) to MP3 players, home-burned CDs, or mix tapes. Heck, it'd probably stop me from grabbing my guitar and playing along, if it only could. After all, I haven't paid for any of those privileges, have I?
Online downloads are anathema to this school of thought. Sell one unprotected copy of a song, and the 'Net will soon be crawling with illicit copies. CD ripping presents the exact same dilemma.
... and an avalanche of cuddly mammals
But the cat is way out of the bag -- digital downloads of various kinds have opened up a whole new vista of music distribution strategies and tactics. If the old-line music industry won't adapt to this new reality -- and early indications tell me that it isn't exactly open to the idea -- it had better get ready for extinction. Here's a sampling of the new tools at the intrepid artist's disposal today:
- Legal downloads. Convince that dusty old record label to allow your music on Apple's (Nasdaq: AAPL ) iTunes, Amazon's (Nasdaq: AMZN ) MP3 store, and other convenient digital sales outlets. If people are going to download or rip your songs anyway, why not get a cut of the sales?
- Music games. The Rock Band download version of Motley Crue's "Saints of Los Angeles" outsold the iTunes release of the same song by nearly five-to-one in the week it was released. Aerosmith made more money from its Guitar Hero: Aerosmith title last summer than from its last two albums. Are Viacom's (NYSE: VIA ) MTV Games, Electronic Arts (Nasdaq: ERTS ) , and Activision Blizzard (Nasdaq: ATVI ) replacing Sony and Warner in the music world?
- Radiohead famously bypassed labels altogether and handed out In Rainbows straight from the band's home page. Pay as little or as much as you want. Nobody knows how much money the band made that way, but the CD release still topped charts around the world a couple of months later.
- Veteran alternative rockers R.E.M. went really alternative with their latest CD Accelerate, putting audio streams of the whole album on their official site in the weeks before the release. The album then charted at No. 2 in the U.S. This was the band's best chart performance in more than a decade, despite the presumably hurtful free online streams. Let's agree that free downloads can be an effective marketing tool.
Not a hoser, for sure
Canadian record label Nettwerk, with acts like Barenaked Ladies and Sarah McLachlan among its clients, seems to "get it" and is monetizing the new, digital environment. "It took the lawyers years to get their heads around [the Internet business model] because they just didn't believe in it," CEO Terry McBride recently told a PBS reporter. "It's taken time, but now the managers are looking at a very steady cash flow, and the artists aren't fighting for their creative freedom but actually using their imagination -- and those are two very different things."
To me, McBride sounds like an early rodent, set to take over when the dinosaurs draw their last collective breath. Nettwerk is already wiggling its long, furry tail in defiance and looking for a few soul mates. Don't worry, eh? They're coming.
Until Nettwerk goes public or one of the tradable guys figures out this new paradigm, I advise shying away from music producing stocks altogether. Take two of these instead, and call back in a couple of years.