Last week's deal between the recording industry giants Warner Music and BMG and the online music upstart MP3.com is the first signal of a rapprochement between the old and new models of distributing music. The deal permits MP3.com to store consumers' digital record libraries and provide access to them. In return, MP3.com will pay roughly $20m to each company, along with a licensing fee for use of the music online.
Although the agreement hardly settles the music industry's pressing concerns about digital music piracy, it does at least show that both sides of the digital divide have recognised that they will be better off working with each other, rather than in opposition.
The settlement means consumers will be able to listen only to music they have already purchased and posted on the site. It does not give them carte blanche to download or swap music they do not own - an issue that many believe will threaten the very survival of the industry unless it changes fundamentally.
Two recent reports have shown that digital music piracy is a real threat to revenue. According to a study from Reciprocal, a digital rights management company, sales of recorded music near US university campuses were down 4% percent last year compared to a 12% rise in music sales nationally.
According to Soundscan, a company that provides sales data to the music industry, this disparity is a clear indication that wildly popular online services like Napster, Gnutella and Scour.net that allow consumers to locate and download music files for free are having an impact. Most worrying for the industry, of course, is that today's students are tomorrow's earners and the habit of free music may be hard to break.
Worse, a second study showed the practice of mass piracy is not restricted to students. According to the Pew Internet Project, an estimated 13 million Americans have downloaded music for free. That figure represents 14% of all US internet users nearly half of whom are aged 18 to 29. By comparison, fewer than 2 million have paid to download music.
"Millions of Americans have joined the online music revolution in recent months because it's simple, it's free, and so far nobody's stopping them," says Lee Rainie, director of the project to study the internet's effect on society. Freeloading, he added, is a "huge threat to the music industry and it is a harbinger of the trouble the internet will pose to other forms of entertainment". Though neither of the findings is unexpected, they have added to the pressure on the industry to develop a new business model at a time when many analysts predict technological advances could render copyright laws unenforceable.
The big four music conglomerates are now pursuing "pay-for-play" or related schemes that would allow them to retain some sense of control even though, as is widely perceived, they cannot expect to sustain the role of sole gatekeeper to music.
The dilemma facing the music business is typified by the divergent attitudes to the new digital world expressed by those who have profited greatly from the old system. The high-profile lawsuit bought by Metallica against Napster and digital piracy has found an opposing champion in Kurt Cobain's widow, Courtney Love.
At a seminar last week, the outspoken rocker - who is trying to terminate her contract with her record company - sided with Napster, saying: "Stealing an artist's music without paying for it is absolute piracy. And I'm talking about major-label recording contracts, not Napster."
She is not alone among musicians who see the enemy as record companies that offer contracts with single figure royalty rates and insist on owning copyright to most songs. Others in a loose pro-Napster coalition include rock bands like the Offspring and Limp Bizkit and rappers like Chuck D and the Beastie Boys. Some mid-career artists like Aimee Mann have found liberation in ditching their record companies in favour of selling directly to fans via the web.
Only artists with a proven market value can expect to survive in the clutter of the internet, say record execs, and even then could hardly hope to muster the marketing muscle to produce a big hit. "They don't have the clout as one artist to get the kind of broad-reaching breakthrough on the internet on a worldwide basis," says Kevin Conroy, head new technology at BMG Entertainment.
This is true, but the rules of the game are changing and, with the partial acceptance of the industry that it must change or be left without a business, the settlement between MP3.com and two of the largest music concerns is significant progress.
