Perspective: Working past Internet file-sharing frustration

Once media-hungry consumers get a taste of free music, video and games through file sharing, there's no turning back. File sharing offers consumers the complete package: rich media delivered directly to their computers, phones and e-mail addresses at no charge. Why would anyone want to return to a linear distribution system that requires more effort, more money and more limitations?

The millions of people now sharing music and video via computers, cell phones and e-mail represent an unprecedented distribution force. This viral super-distribution model is fast and efficient, and consumers love it. The proliferation of file sharing has produced a market that is now flooded with "free" media. While media consumers revel in their bonanza of digital goodies, the entertainment industry struggles with the question of what to do about file sharing.

The entertainment industry is all about change and is usually pretty agile when it comes to adapting to new developments, but file sharing has been an endless source of frustration. Reeling from the initial shock of seeing profits drop, the entertainment industry's first response was reactionary. Even a novice marketer should have known that lawsuits were not only an unsustainable strategy, they would alienate the fan base--never a good idea. Seeking new ways to promote and protect old mechanisms such as CDs hasn't worked, either.

Apple rallied with iTunes, a solution dependent on sharing content through one vehicle, the iPod. File-sharers thought it was cute, for about a minute. Today, consumers want access to all portals (Web, cell phone, MP3 players) and all media. They refuse to be locked down to one platform. While iTunes continues to be the best-known site for downloads, its popularity may have peaked.

According to analysis by Forrester Research, iTunes experienced a collapse in sales revenues in 2006. From January to December, monthly revenue plummeted 65 percent, and the average transaction size reportedly dropped 17 percent. If consumers are not turning to services like iTunes for their music, where are they going? The store? Hardly. CD sales have fallen 20 per cent over the past five years.

The good news for the industry is that a huge fan base with a potential for extraordinary profit has emerged. Opportunities for profit lie within the P2P distribution model, including an inexpensive path to market for lesser-known groups and new music.

Entertainment companies need to start where any good business model begins--with the consumer. To find profit in the realm of super-distribution, media providers have to follow the one thing that crosses all media and all portals, and that is the file itself.

As music and video files travel from Web sites to social networks, and from phones to file-sharing services, there are means to track it every step of the way. Like an electronic E.T., a digital media file can phone home at each new location, providing a data portrait of the types of consumers who have an interest in that particular medium. The information captured creates a clear picture of a market and allows companies to develop campaigns to reach specific target audiences. Advertisers, for instance, will pay big bucks for a well-defined market like that.

Here's an example. Let's say a college student downloads a music file by 50 Cent to his cell phone. At the beginning of the file, a screen pops up that offers some other value-added media that might appeal to a 50 Cent fan. This could be a preview of an album by Jay-Z or a review of Dreamgirls. The names of the movie and the other artists will at least be glimpsed by the consumer. This is focused and in-your-face advertising to the extreme.

Unlike lawsuits and decoy files, ad-supported downloading is just one of the many promising ways to bridge the digital divide. The super-distribution model carries content from one consumer directly to more similar consumers. This opens the door to a new breed of advertising, promotions and even targeted selling. Advertisers won't have to conduct surveys to determine where they should send a piece of direct mail or in which cities to purchase airtime.

The Internet continues to be a very good place to do business. The top five global online market leaders (Google, Amazon, Yahoo, Yahoo Japan, and eBay) have a 46 percent higher market value than they reported in 2000. The peer-to-peer (P2P) market, however, has barely been tapped. If P2P is the next big thing, investing in a new advertising and distribution channel at the beginning of its growth curve could be more profitable than the entertainment providers have yet imagined.

Entertainment companies looking for a way to monetize their content need to stop chasing the consumer dollar. That ship has sailed. As consumers become more comfortable morally and technologically about file sharing, they will be less and less willing to part with their cash for content. However, market opportunity abounds for those who adapt and embrace two criticl strategies: First, embrace file sharing and adopt creative new business models, unlocking adjunct revenue from sources with deep pockets. Second, be willing to pay for an innovative inroad into increasingly well-defined markets.

The future of music is peer-to-peer file sharing. Consumers have opted out of the old system, which they found cumbersome, slow and expensive. They will never return.

Biography
Les Ottolenghi is CEO of Intent MediaWorks.

More Perspectives

[thouben]

New business opportunities??

So as consumers do not want to pay for content, what exactly are these new business opportunities?
What exactly will they want to pay for if not for the content????

[bbotzong]

Are you SERIOUS?

"The entertainment industry is all about change"??? Uh, no they're not. They don't just want your change, they want all your money. Seriously, it took forever for them to come into the 21st century. They did everything they could to resist change. They were fat, dumb and happy charging $15 for a CD of dubious worth.

File sharing forced the music industry to change after the horse was out of the barn. They were dragged kicking and screaming and have resisted competition in every sense and in every way.

When CDs were first introduced, we (the gullible consumers) were told that the price would quickly drop. Cassette tapes were selling for about 60% of the cost of a CD and the industry promised once production capacity was increased that the price would fall dramatically. Well, guess what? Prices of CDs continue to rise.

What the industry needs is true competition. Let no music label have a monopoly on any one artist. Let the artist license their wares to any number of distribution networks. Give the consumers a choice and let competition drive out the inefficient distributors. There is a HUGE market out there for people willing to pay a FAIR PRICE for their music. ALLOFMP3.com is living proof. When you have content at reasonable prices, reliable distribution, good quality, you'll have a huge PAYING customer base.

If you have record companies (read SONY) purposefully installing rootkits on home computers that compromise security and control of your own computer, or burden you with draconian DRM systems like Apple where you can't play the songs you purchase on other devices, then you get consumers who will circumvent these evil systems.

And by-the-way, doesn?t Sony sell CD burners and sell CD blanks and sell programs to help copy CDs? And what about the ?tax? collected on the sale of every CD blank? Where is THAT money going? Why haven?t the people who collect that money distribute it to the artists??

No, sorry. Change is not what the entertainment industry is all about. Its about protecting their fat profits at the expense of their customers.

[henebry]

Why would someone download an ad-laden music file?

Why would someone download an ad-laden music file -- when the
same file is available in a pirated version on the same file-sharing
system?

Sorry, but this vision of a way forward doesn't seem plausible to
me.

[jessekanner]

Get your facts right!

I can't believe CNET is running a story with a reference to the now
de-bunked Forrester report on soft iTunes traffic! Guys, get your
house in order. iTunes is doing GREAT. In fact, the URL this story
references itself descirbes that the gloom was mis-reported.

"Gloomy iTunes predictions premature"

http://news.com.com/2100-1027_3-6143555.html

[protagonistic]

RE: Working past Internet file-sharing frustration

Does this guy have a clue? To begin with he cites the Forester
report which even they have essentially said is almost
meaningless. On top of that, Apple just had one of their biggest
earnings quarter ever. And they did this by selling huge
numbers of iPods. Then he seems to be implying that the
average consumer is a crook.

As for file sharing, I still believe most people are honest and will
pay for their music. The reason the RIAA is having problems with
revenue dropping is not so much piracy, that has been with us
as long as we have had magnetic media. People used to pass
their records around to friends to record on their reel to reel
machines. It is no different today.

Most people in this country are still on dialup so downloading
music is very time consuming for them. The real reason we have
rampant piracy is because the RIAA has kept the price of buying
music so high. Most people are smart enough to realize when
they are being ripped off and make no mistake about it, the
RIAA is ripping people off big time.

Of course the RIAA is boing to lay the blame for falling revenues
on piracy. They can't accept that the real reason just might be
that it is not piracy, but people getting fed up with their heavy
handed tactics and are just buying fewer CD's.

I know I don't buy CD's that are put out by the RIAA these days.
There are lots of legal alternatives out there. Sure, I might not be
buying the latest, greatest artist being blessed by the RIAA, but
then their tastes rarely coincide with mine anyway. Some of the
music I collect is free and some of it I pay for.

Are you listening RIAA? It isn't that piracy is much different than
it was in the days of the LP, it is just that people are getting fed
up with you pushing an overpriced product. You want a
monopoly, well the RIAA is more of a monopoly than MS ever
was.

[jimothyGator]

AllOfMP3

The fault in the model is obvious: Neither the record labels nor the
artists are receiving much (if any) money. AllOfMP3 claims they pay
the artists, but the artists say otherwise.

RIAA and the labels could learn from AllOfMP3, but what they are
doing is certainly not "fair" to the copyright holders and artists.

[jevenew]

Working past Internet file-sharing frustration

The concept is great, until you come across a personal computer like I cleaned up yesterday for a client. Until you can find a way to keep the malware and other nasties off the internet, prudent internet users are going to avoid P2P like the plague.