L ike many teenagers, Josh Wilson, the 13-year-old son of the New York venture capitalist Fred Wilson, has on occasion visited the Internet’s peer-to-peer file-sharing services to download music and television shows.
But recently, as Wilson recounted last week on his popular blog, A VC, Josh has started streaming television shows from Netflix under the family’s US$24-a-month subscription plan and listening to licensed, ad-supported music videos from YouTube on his iPhone. Asked by his father why he was not using file-sharing services like BitTorrent to download shows like Friday Night Lights, Josh replied, “BitTorrent takes too long.”
The answer neatly encapsulates the remaining hope of beleaguered media executives everywhere, especially those in the rapidly deteriorating music business. After a decade of rampant digital piracy that has helped to gut album sales, a raft of new streaming music sites is making the experience of legally finding and listening to music just as seductive as downloading it free.
Many music industry observers now believe that there is a fundamental shift under way: from illegal downloads to licensed streaming services like MySpace Music, imeem and Spotify, where users can play any song, anytime and — coming soon — on any device. These sites are free, supported by ads, and with an expanding catalog of songs, they are finally ready to overshadow the more cumbersome, unauthorized services that can be hard for newcomers to navigate.
“We have been on this endless hunt for a decade trying to accumulate both our all-time favorites and the new hits,” said Bob Lefsetz, author of the Lefsetz Letter, a music industry newsletter, who believes that the future hope of the music industry lies in charging people monthly subscriptions for access to streaming sites on the Web and their phones. “Why are you going to steal if all of a sudden you can check it out quickly on a streaming service?”
Two recent studies of online behavior back this optimistic view. In June, two British research agencies, MusicAlly and The Leading Question, generated a wave of headlines in the tech press after reporting that the percentage of 14- to 18-year-olds using file-sharing services at least once a month dropped to 26 percent in January of this year from 42 percent in December 2007.
Similarly, a survey by the NPD Group in the US this spring found that teenagers aged 13 to 17 illegally downloaded 6 percent fewer tracks in 2008 than in 2007, while more than half said they were now listening to legal online radio services like Pandora, up from 34 percent the year before.
There are some good reasons to keep a salt-shaker handy here — some teenagers may not be honest about downloading, for example. But there are also some indisputably positive factors at work. The streaming music services are providing not only an authorized but also in some cases a superior alternative, and may be the first obvious stop for a generation that is too young to remember when the original Napster revolutionized the music industry.
MySpace Music, introduced in September, now makes millions of songs available for free, accompanied by ads and links to buy concert tickets and merchandise. Nielsen recently reported that the number of visitors to the site grew to 12.1 million in June, from 4.2 million in September.
YouTube also streams millions of songs under agreements with three of the four major music labels in the form of music videos — Warner Music is a holdout — and is increasingly available free from mobile phones like the iPhone. In the weeks after Michael Jackson’s death, for example, 12 million people played his Thriller video from pages on the site with display ads and links to buy the songs.
But perhaps the most-discussed licensed service is Spotify, a two-year-old Swedish start-up that has amassed 6 million users in Europe — and a few hundred lucky media and music industry insiders in the US who have been given early access.
Spotify users download a software program to their computers that allows them to quickly search for a piece of music and play it instantly. Spotify’s innovation is subtle, embedded in its intuitive user interface and efficient design. Anyone familiar with iTunes can figure out how to navigate Spotify’s s 5 million songs and add them to playlists.
The free version comes with ads, or users can upgrade to a premium version for US$14 monthly. Daniel Ek, a co-founder, was in New York this month, talking to the American music labels and preparing to introduce the service here later this year.
“Piracy is essentially the consumer’s wish to have everything on demand. It’s not like people want to necessarily have it for free,” Ek said. The problem is that there have not been commercial services “that allowed people to discover new music and easily share music with friends.”
Even if people are abandoning free downloads for ad-supported services like Spotify, the industry will keep facing larger existential questions. Companies like MySpace Music, Pandora and even YouTube — though thick with ads and links to paid downloads — cannot yet (if ever) replace depleted revenue from physical CD sales.
They might even be exacerbating the problem. “The big question is, are we not just fighting piracy, but also taking away the industry’s most lucrative customers, the ones that were buying 30 or 40 CDs a year?” Ek asks. “If so, the music industry is in worse shape than it was before.”
Lefsetz believes that the answer is for the music industry to nourish the streaming sites and then push users toward subscribing to them for a monthly fee. “The key is to just get US$10 from everybody,” he said.
That, he said, might finally vanquish the demons of music piracy. Lefsetz uses himself as an example of this salvaged future. He used to turn to file-sharing sites to quickly sample new music he wanted to write about. Now he just streams songs free from Spotify.
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