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Is Coke It?

Legal downloads may be sorting themselves out in the form of Napster, iTunes and mycokemusic, but much of the market is dominated by companies who use music as a sideline, rather than a primary revenue stream. As these companies continue to ignore the taste of the dominant audience in order to appeal to the kids, Michael Nutley from NMA asks 'Is Coke It?'

By Michael Nutley

Online music has been the big story of the past few weeks. First we saw the relaunch of the revamped, legal Napster; then Apple's iTunes made its UK debut, selling more than 450,000 downloads in its first week of operation; and finally the Official Chart Company unveiled the first digital download chart as a taster for the formal sales charts due to be launched in September. (For anyone interested in such historical footnotes, the first official download number one was Bam Thwok by the recently reformed Pixies, released on the band's own label outside their UK record deal with independent label Beggars Banquet).

Napster's company policy is not to publish sales figures, but the company says it is "very pleased with sales, which have been in line with our expectations". What is clear from this and from Apple's sales figures is that those who predicted the existence of a market for paid-for downloads and an interactive future for the music industry were right. But the precise shape of this future is far from obvious.

The first point to make is that the fledgling legal download market is dominated by companies for whom music is a sideline. Apple's iTunes is a device by which to sell more iPods and computers, while Coca-Cola's mycokemusic service is simply the latest stage in the company's strategy of associating itself with music in order to appear cool. This is already creating problems for the music industry, not least of which is that the price per download has been set by people for whom the margin on music sales is irrelevant.

And there is another problem looming for the record companies. They would dearly love to use the Internet to disintermediate the music sales business, cutting out the retailers and thereby making more money for themselves. But until the download market becomes the mass-market, they can't afford to alienate their dealers. In the meantime an entire alternative distribution network is emerging, established by brands such as Apple and Coke, and the labels have little control over it.

Beyond this there is still the vexed question of falling record sales. The music industry would have us believe that this is entirely due to piracy, either illegal file sharing by individuals or bulk copying of CDs in countries where copyright laws are not recognised or not enforced. However, it's still far from clear that this is true. Other research suggests that P2P file sharing acts in a similar way to radio, allowing customers to sample music that they then go out and buy, thus helping sales. And it's also clear that, in the industry's key target demographic of teenagers and twenty-somethings, music is no longer the dominant force it once was. It now has to compete with games and mobile phones for discretionary spend. No wonder record companies are so keen to exploit the market for ringtones.

Meanwhile those people for whom music is still a huge part of their lives, the over 30s, are being largely ignored by the business, despite the fact that recent research shows they are now the highest spending group on music. They are also much less likely to use illegal download services, and more likely to pay a premium for sleeve notes, cover art, extra tracks etc. Word magazine's "£50 man" is now the dominant force in the music market; it's just that the business hasn't recognised him yet.

And this, of course, is the true promise of the interactive future. The record industry has historically been very bad at identifying who its customers are. Download services, especially if subscription-based, offer a chance to change that. So it may turn out that, to misquote The Rolling Stones, in the future you will always be able to get what you want. What's not clear is who will be selling it to you.

About the author:

Michael Nutley is the editor of New Media Age