Making Money Selling Music Online

Stop the music. 

After years of attempting to battle illegal downloading of musical tracks on the Internet, the recording industry has taken its case to Washington. The industry backed a bill, which was introduced in the US Senate last month.  The bill would shut down sites facilitating illegal downloads, and this idea that fans should actually pay for music seems to be gaining traction, both legally and among consumers. 

It won’t be easy: only one in five digital music tracks is downloaded legally.

Now, the combination of legal progress, coupled with a shift in listening patterns, appears to support a system where consumers would ultimately pay for the privilege of listening to music. It also begs the question: Is a truce in the battle between fans who support free content, and an industry that wants to monetize music, on the horizon?

Even if it is, the road to harmony will be a long one. The Senate went on recess before the industry’s bill could be voted on, thus prolonging the debate about whether or not legislating curbing file sharing will be able to stop the problem.

“It’s convenient, it’s right there and no one is watching. So what you’re saying is that if somebody is watching you, it will stop you?” said Michael Wood, a former recording artist who’s now a music professor at Algonquin College in Ottawa, Canada. “If they can’t illuminate something so vile as child pornography on the Internet, then where does file sharing fit in?”

Musicians’ core complaint is that the illegal distribution and download of musical tracks violates intellectual property rights.

“We’re a country where manufacturing has gone south, customer service industries have moved abroad, so what do we have left? We have intellectual property,” said Rich Bengloff, president of the American Association of Independent Music, a nonprofit trade organization for independent music labels. “Intellectual property needs to be protected because that’s all we have left to make a living in this country.”

Record labels argue that piracy diverts more money away from the label, which leaves less funding available for the label to spend on the development of new artists.

“You need the sales of your current artists to invest in new artists,” said Jonathan Lamy, senior vice president of communications for the Recording Industry Association of America, a trade organization representing artists.

Finally, there’s the question of whether file-sharing is actually a hindrance or a help to artists, since more downloads — legal or not — help to promote artists’ music further. For all of the difficulties the Internet has caused for the music industry’s traditional business model, many musicians have certainly benefited from the array of websites that help with promotion, merchandising and fan connections.

Nevertheless, momentum seems to be turning against the tide of “free,” Internet content, as musicians, as well as artists from other creative fields such as writers and video producers, seek methods to assist them in monetizing their creativity. 

Many fans argue musicians and labels are still making money. Live performances, endorsement deals and merchandise sales are all valid sources of revenue, but the industry says that those revenue sources are not enough to make up for the loss of album sales.

Lamy concedes that legislation isn’t the only solution and that the music industry needs to be able to offer fans a “compelling legal experience” in which to consume music, but he thinks having the ability to shut down illegal sites would go a long way in restoring a stable revenue stream to the industry.

Pay to Play

In the attempt to devise a new strategy for monetizing the music itself, a plethora of new ideas have been bandied about. The Internet has clearly emerged as the designated location where music is, and will continue to be, consumed, and many tech companies have attempted to create a legal model for consumption. Apple, Inc. (NASDAQ:AAPL) and Amazon.com (AMZN: 164.71 ,0.00 ,0.00%) both have pay-per-download systems, which have succeeded in getting some consumers to pay for their tracks, but have yet to eclipse peer-to-peer downloads.

Pandora, an online streaming radio site which has become immensely popular, hitting 65 million registered users earlier this month, has helped generate revenue for the industry. The site provides exposure for new artists and encourages listeners to pay for songs they like by linking to legal purchasing sites.

Spotify is another music service that looks promising. It exists now in Europe, allowing fans who subscribe to a free service (or low-cost premium option) that permits unlimited playback of favorite songs, stored in a “locker” in the cloud, and also promotes legal purchase and downloads. The company is working to bring the service to the United States, but it is not yet available. MSpot, a similar idea, facilitates web-streaming of Android users’ music once they upload it to the cloud.

Google (GOOG: 602.20 ,0.00 ,0.00%) is unveiling its own music store, according to a Billboard magazine report last month. Google’s marketplace would offer pay-per-download as well as cloud storage, or a music locker that consumers pay $25 a year to use.

Even LimeWire, a site which for many represents the enemy because of its history as a facilitator of peer-to-peer file sharing, has its own “legitimate” music marketplace called LimeWire Store, offering downloads to users on a subscription basis. The company is also pursuing a music-streaming service permitting users to listen to music stored in the cloud.

Beyond music marketplaces, the online venues where artists can promote their music, image, merchandise and correspond with fans are too numerous to count. Sites like The Orchard and Reverb Nation allow artists to list their tracks for listening, while others like iFanz make it easy for artists to correspond with their fans. Ruth McCartney, step-sister to Paul McCartney, and herself a musician, created online fan management platform iFanz after spending years helping her brother manage his fan mail. McCartney, like many in the industry, supports efforts to protect artists’ and labels’ copyrights.

“With the last name like McCartney, my step-brother grew up and paid a lot of people and he was fortunate enough to have copyrights available to him — so I can’t dispute the importance of copyrights,” she said.

While the industry seems poised to see legal sales of music increase, some say its reluctance to adapt to a changing consumer landscape is still a hurdle, which may further delay the “truce” many fans and artists seek.

Wood, the Algonquin College professor, said when he and a business partner tried to set up a system in Canada that would make digital music available for legal pay-per-download, they ran into difficulties. He said the record companies wanted too much money for the sale of the track.

“They still wanted 73 cents a track and other royalties to be paid on top of that,” Wood said. “You’re trying to negotiate a deal with a bit of an archaic system that’s not willing to bend.”

LimeWire chief executive George Searle agrees that the music industry’s reluctance to change its business model has added difficulty as it tried to combat peer-to-peer sharing.

“If as a community we have achieved nothing else, we’ve come to recognize that containment is a red herring,” Searle said in an email to FOXBusiness.com. “We’ve got to do more than stop people from sharing copyrighted files. We’ve got to provide advanced, legal alternatives.”

Source: Music Industry Report