CD Levies Go Up for the First Time Since 2001

Just when I thought we were making progress in the music industry, with physical CDs coming down in price and more and more studios and digital download sites embracing DRM-free tunes, the Copyright Board of Canada decides to stick another thorn in our sides. The organization has just approved an increase of the levy placed on CDs by $0.08, from $0.21 to $0.29. This is the first levy increase since 2001.

"The mechanical royalties that record labels pay to record a song onto a pre-recorded CD have increased," claims Secretary General of the Board Claude Majeau. "Because consumers now use compression technology when they record music," she adds, "the average number of music tracks copied onto a CD went from 15 to more than 18."

Huh? I find it difficult to justify an almost 40% increase in levies because three more songs could fit on a disc even though they'd be of lesser quality. To me, it seems like a grasping-at-straws attempt to justify an unreasonable price hike. I won't even get into the arguments about people using recordable CDs to store other types of data, like personal JPEG images or documents.

The Canadian Private Copying Collective (CPCC) says that its royalties will remain "relatively stable at about $30 million/yr", while the rest of the funds will be distributed to authors, performers, and producers of recorded music.

"This is because the sales of both blank audiocassettes and CDs are expected to decline," adds the Collective. (The CPCC has already tried to levy digital media players like the iPod, but that was thrown out this past January when the courts ruled that the Copyright Board had no authority to do so).

Ahh. Now it makes sense. Grasping at straws, indeed, but the motive is now clear: the CPCC wants to ensure that, in addition to composers and producers being compensated accordingly, that its healthy royalties remain in tact. Should this be at the arguably unreasonable expense of the consumer? Absolutely not!

Nevertheless, at a time where pre-recorded CD sales are dropping, it doesn't surprise me that the industry will try to make up for the lost funds through whatever other means it can, including recordable media. But will this drive people further away from "burning" CDs altogether, and deep into the arms of digital files stored on the PC and transferred straight to the MP3 player, or streamed to the home theatre? This seems to be the most affordable method, not to mention the most tech-savvy.

In this sense, while the CPCC and Copyright Board think that the increased levy could offset a drop in sales, more and more consumers might just turn their noses and bark a snooty "so what? We don't want your physical media anyway!"

Record Labels Struggle While Artists Thrive

A new report from IBISWorld paints an interesting picture about the future of the music industry. It points out that, while record labels are struggling in light of the increase in digital downloading and Internet consumption, artists are actually thriving. And why wouldn't they be? They now have a clear line of communication between them and essentially an entire world of music lovers.

"Having initially fought downloading, rather than looking at ways of legally exploiting and profiting from it, record labels are now finding themselves playing catch up," said George Van Horn, Senior Analyst at IBISWorld.

Indeed, what's happening is that new and emerging artists are harnessing the power of the Web to promote their music, and in turn, profiting directly from their own music distribution, since they own the rights to it.

"Digital technology makes it easier to artists to dispense with record labels and publishers," Van Horn frankly stated.

While this may be true, artists will still need someone with good business sense that can steer them toward the right avenues of distribution, whether it be via ad-supported Websites, pay download online stores, or yes, even the creation and distribution of physical CDs. Eventually, the mass craziness that is music all over the 'net will require some proper management. Whether it's a record company, an independent label, or just simply an agent, remains to be seen.

Related to this, IBIS has an interesting perspective on how digital downloading can actually help the music industry, rather than harm it. "Overall demand for music may actually increase as more fans access music by artists they were previously unaware of, creating opportunities and possibly increasing the value of assets held by the industry."

I never understood how record companies could frown upon mass exposure of an artist via the 'net. Isn't that what you're attempting to accomplish in the first place? To get this artist's name "out there"?

Another interesting tidbit of information: reportedly mobile phone ringtone licensing has the potential to become one of the biggest money-making ventures for the music industry. Who knew that the invention of the polyphonic ring tone could pay the rent on that mansion that the latest pop sensation just paid millions for?

The reality is that the entire music landscape is changing, and the sooner all involved realize this, the sooner everyone can profit from the changes instead of trying to prevent them.

Is Apple Biting the Hand That Feeds it?

Is Apple biting the hands that feeds it, i.e., itself? This very question was posed to me the other day by a colleague who was trying to figure out Apple's strategy of offering iPods with massive capacities, yet iTunes songs as paltry 128 Kbps (or, in some cases, 256 Kbps), digital files. It's highly unlikely that the average consumer could fill an 80 GB iPod with tunes of such a small size (it would take approx. 20,000 128 Kbps 4-minute tracks to do so!), so what does Apple expect us to fill these nifty devices with?

The obvious answer is "other stuff". Higher-quality songs ripped from physical CDs, downloadable videos, including podcasts, TV shows, and full-length movies (much of which can be obtained from iTunes), and even photos. Let's face it: iPods aren't just for music anymore, which is why capacities are getting so huge. Not to mention that content loaded onto these portable players won't always be exclusively from iTunes, despite how this might be the ideal scenario in Apple's eyes.

Nevertheless, my colleague, who's a heavy iPod (and iTunes!) user, pointed out the obvious paradox between what's offered in the hardware and what's offered in the software, and how this can be perceived by dedicated music lovers. We'll give you massive storage capacities, like 80 and 160 GB, but the best quality tunes we can offer for you to load within these hard drives is 256 Kpbs ? "The last song I downloaded from iTunes sounded horrible," he told me. "I'm thinking of just going back to buying CDs and ripping the music onto my iPod."

Realistically, if most people thought this way, it would be the answer to the music industry's prayers! Is it all a conspiracy? A strategically concocted plan to offer semi-mediocre content online so that, once consumers get over the initial honeymoon phase of digital downloading, they go back to appreciating pristine audio quality again and buy CDs? I doubt it. But it does leave something to think about.

Going forward, my colleague predicts a significant drop in iTunes downloads as more and more consumers become fed up with the audio quality of digital tunes and move back to buying CDs that they can rip and load onto their iPods. After all, they have to fill those massive hard drives somehow! I tend to think the other way: that, rather than consumers moving away from downloadable sites like iTunes, the tracks offered by such sites will become better in quality as time goes on, and DRM (hopefully) becomes a thing of the past.

As for today, iTunes just surpassed Wal-Mart for the title of number-one music retailer in the U.S. The download site has more than 50 million members, and has sold more than four billion tunes since it launched back in 2003.

Which way will things go? Only time will tell. What's your prediction?