The future of music is free

Where are we going to get our music once the music industry is gone? This is not a hypothetical punt nor a jittery response to the troubles at EMI. It is, on the contrary, one of the most vital and uncertain questions of the next few years, a conundrum that is preoccupying some of the sharpest business brains from Seattle to Shanghai.

It is generally accepted that the dogand-horn type organisation that has controlled the distribution of music for 110 years is on its last legs. A decade ago, six labels held 77 per cent of recorded music sales worldwide. Today, those six are down to four - Universal (31 per cent), Sony-BMG (25 per cent), Warner (15 per cent) and EMI (9.5 per cent) - and none has got to grips with the internet revolution that has ravaged their complacent and often collusive dominance.

In the first half of 2007, CD sales slumped 19 per cent in the US, the biggest marketplace, and paid-for downloads fell far short of predictions. EMI is not alone in its turmoil. Warner Music has lost 72 per cent of its peak share value, Sony and BMG are either splitting up or going for full merger depending on the day's mood and French-owned Universal is a heartbeat away from its next convulsion.

High-profile artists are deserting their record companies in droves - Paul McCartney to Starbucks, Radiohead to their pay-what-you-like site - and the public is choosing pop idols from TV reality shows rather than from the music establishment. Guy Hands, the privateequity chief whose firm Terra Firma bought up EMI last year, was right to identify the label's best assets as its publishing and past copyrights. Few expect the old dog and horn to deliver new tricks for the 21st century.

There were two points where it all went wrong. During the first internet wave in 1997, record moguls took up a Canute pose and ordered it to recede. A marketing man of my acquaintance asked the heads of all major labels what they were doing about the internet. The response was: "We've put the lawyers on to it." There was no plan B. So set was the music business in its ways, so wedded to the physical object, that it did not recognise the download culture until too late.

The lawyers, for their part, shut down or seized swap sites such as Napster, doing more harm than good. As they prosecuted peer-to-peer home users - 20,000 so far, most of them teenagers - public opinion turned against an industry that criminalised its customers. Attention is presently focused on the state universities of Washington and Oregon where deans, citing academic freedom, have refused to pass on threatening letters from the Recording Industry Association of America (RIAA) to students in their care. The RIAA is talking of suing the universities. Altogether 4,400 students at 158 US campuses are facing demands to pay $3,000 to $5,000 for alleged piracy. No industry has ever devised a more conclusive way of destroying its customer base.

The second point of downfall was October 2001 when Apple launched the iPod and made light (and legal) work of downloading on iTunes. More than 120 million iPods have been sold, along with other portables. In the process, music lost its gift status. Where, for much of the 20th century, you could have gone to any dinner or birthday party with a shrinkwrapped record for the host, music on iTunes is not giveable (except as a pitiful voucher). The loss of this "giveability" represents a loss of objective value: if you can't give it away, what's it worth? That may explain why downloads are growing so slowly.

In recent months major labels have changed their tune, dropping anti-copying DRM (digital rights management) chips and building their own sites to claw back custom from iTunes. But for every major label launch, 100 websites spring up overnight to offer music directly from the artist or from some nonmusic enterprise, often for free.

Last month, Universal struck a landmark deal with Nokia for "Comes With Music" mobiles, allowing customers to download music free as part of their annual phone subscription, and letting them keep the music to transfer to other phones once the subscription expires. The new handsets will go on sale later this year.

"Even if you listened to music 24 hours a day, seven days a week, you would still only scratch the surface of the music that we're making available," said a Nokia boss. Universal will earn a few pence on each phone subscription in a deal which, wittingly or not, signals the start of where the world will get its music once the music business is gone.

In the very near future, we can expect to receive music free with our phone contract. We will plug in portables for instant downloads at Starbucks as part of the price of a coffee. Facebook and MySpace are being targeted by artist managements as routes for launching new talent and introducing albums to likely fans. Music will come free with advertisements attached: a man in Melbourne, Australia, has patented an Intelbacked device for delivering fixed commercials with free music tracks.

Live music will continue to thrive. Three of the largest US event operators have announced that they are extending tours by the likes of Eric Clapton, the Rolling Stones and Christina Aguilera into the heart of China. No one doubts that there will always be a demand for music, popular and classical alike. Nor is there any question whatsoever that its appeal is growing fast in two-thirds of the world's population that it has never reached before. The music will play on and on. All that will change is the way we receive it and whether we have to pay for it at the point of delivery. On the business models that are presently being tested, the likelihood is that we won't - and that shortens the life expectancy of old labels such as EMI to a limit of single figures.