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Record Labels Will Consider the Unthinkable

The New York Times reports that sometimes even the most unthinkable change can become acceptable when you allow yourself to let go of obsolete and self-destructive biases. Apparently, the major record labels are moving closer to releasing music on the Internet with no copying restrictions -- a step they once vowed never to take.

Executives of several technology companies meeting in Cannes, France at Midem -- the annual global trade fair for the music industry -- said that at least one of the four major record companies could move toward the sale of 'unrestricted' digital files in the MP3 format within the coming months.

Most independent record labels already sell music tracks digitally compressed in the MP3 format, which can be downloaded, e-mailed or copied to computers, mobile phones, portable music players and a compact disc (CD) without limit. The independents see providing songs in MP3 partly as a way of generating publicity that could lead to future sales.

In contrast, instead of harnessing low- or no-cost consumer 'word-of-mouth' momentum to stimulate awareness and demand, the major labels have stuck to their expensive and less effective traditional mass-marketing and promotion models. The majors, as a result, have witnessed a diminishing return on investment from the denial that their own conventional wisdom was responsible for their woes -- not unruly consumers.

For the major recording companies, however, selling in the MP3 format would be a capitulation to the power of the Internet, which has destroyed their control over the worldwide distribution of recorded music. Until last year, the industry was counting on online purchases of music, led by Apple's iTunes music store, to make up the difference.

But digital sales in 2006, while 80 percent ahead of the year before, grew slower than in 2005 and did not compensate for the decline in prerecorded CD sales, according to an industry report released in London last week.

Even so, the move to the MP3 format is not inevitable, some insiders warn. Publicly, music company executives say their systems for limiting copies are a way to fairly compensate artists and other copyright holders who contribute to the creation of music.

But privately, there are signs of a new appreciation in the music recording and distribution industry for unrestricted copies, which could be sold as singles or through subscription services or made freely available on Internet sites that support advertising.

The marketing lessons learned here can be applied to the legacy film industry, but I doubt that they will allow themselves to benefit from the experiences of their music sector peer group. Unfortunately, old memories of a bygone era tend to linger in the minds of these industry heavyweights that proves a point worthy of repeating -- it's so much more difficult to unlearn old market truths than it is to learn and embrace new ones.

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