EMERGING SOUNDS IN IP COMMUNICATIONS FOR MUSIC BUSINESS Vol. I No.
9, (Rich Text version) August, 15, 2004 Contributing Editor: John Penn for InspireMedia PART I: INTRODUCTION: Last May, Mix Magazine a leading pro-audio publication presented “The New Means of Production.” a highly read and talked-about themed issue that rocked the audio community. Change is a constant in any technology-driven industry, whether you're talking about cellular communication, the Internet, GPS navigation, medical scanners, electronic cinema, digital photography or DAWs, and these days, digital is definitely the force behind the revolution. Audio pros are no different than other techno-artisans, who after years of creating with analog tape recorders analog instruments, out-board boxes, TT patch-bays and the like are resistant to give up their analog tools for a box of chips, RAM modules and an endless smattering of storage formats, but the lure of digital is great: DSP file manipulations can transform usable vocal performances, unimpressive images and lifeless wire-frame animal creatures into masterpieces of digital art in music, vivid film epics and heart-pumping action in interactive gaming. This article will be presented in two parts to give a comprehensive overview on two industries the music and the communications industries that are close relatives of each other and are both predisposed to the same disruptive technologies that has played out in rampant internet downloading of music and now in bypassing traditional long-distance telephone switches and related fees that is striking to the core as consumers discover the benefits of IP communications specifically peer-to peer and VoIP. This article is not intended to delve too deeply in any one subject or issue as there are many excellent research papers, articles and expert opinions available on any subject discussed here, but begs the question of IP communications as a viable distribution and broadcast model for the music industry. Let’s step back and look at the “big picture” and eaves-drop on a new conversation and fresh perspective on the challenges and opportunities ahead to start building bridges between both industries. Audio capabilities in music recording were a close cousin of the telephone communications and broadcast industries steeped in technologies derived from both and once defined by signal routing through tinytelephone patch-bays like phone operators used to use before automated switching and recorders defined by track capacities of 8, 16, and 24-track,-yet such terms are of little relevance in a world of digital virtual tracking, virtual consoles, virtual instruments and plug-in equivalents of racks of hardware outboard gear, where the limits on system capabilities may be simply a matter of CPU architecture, power, speed DSP and RAM. The evolution in the relationship between record companies and artists should include a new vision of the role of the label as service providers. The well-publicized troubles in the music industry have claimed many victims: artists, producers, studio owners, and publishers to name a few. However, few sectors, have been hit as hard by these uncertain times as the record companies themselves. Over the last several years, labels have experienced double-digit declines in CD sales, stiff competition from emerging forms of entertainment and an adversarial climate in their relationships with artists, content producers and consumers alike. The majority of record executives blame the causes of the industry's woes on piracy — whether in the form of unauthorized CD burning or file sharing — as the biggest threat they face. Their first priority, was to create a legitimate and compelling online music marketplace that would attracts the very audience that is now downloading illegally. So far, barring the success of a non-record label entity, Apple’s I tunes and iPod, the major labels have failed miserably in giving consumers a legitimate alternative for online music, and they have gotten frustrated and have opt to get their dose of music from other forms of entertainment, including peer-to-peer networks than to buy music through traditional or legitimate channels. The music industry has to create a viable, legitimate music-distribution environment along with creating better content. The knee-jerk answer is to curb or stop illegal downloading through strong-arm legal tactics and lawsuits, but many agree the music industry as a whole need to embrace consumers instead of sue them and give consumers a secure, safe haven to download as many songs as they want — for a reasonable price. Many believe that downloading right now is hurting us, but in the end, it might save us. ALL ABOARD THE INTERNET Slow adoption of new technologies means that convergence will be spread over a decade or more, and there will be continuing competition from traditional media, as well as increasing diversity of delivery mechanisms for content. This may mean that writers and artists will get a bigger share of the pie. That appears to have been the trend over the last few decades, with movie actors and professional sport stars increasing their share of the revenues their work brings in. It is less certain whether carriers will manage to improve their share of the content pie to the same extent. There will certainly be a shift of revenue towards broadband services, but content distribution may not be the largest contributor to it.
This model also allows for easy integration with special hardware for intellectual property protection. With value proportional to the number of users. That is already the model we see emerging with iTunes. commercial users have subsidized residential ones." said Michael Hentschel. and even TiVo. Gnutella.e. released by Datacomm Research Company and Techvest International. However. The total market value for services using VoIP is forecast to grow almost ten fold over the next five years. $85 billion. the moves represent a positive step. Traditionally. "Traditional business models will be replaced by new models based on electronic information chains. were initially devoted almost totally to business uses. including the phone. even in their “new-and-improved” versions. While early versions of the labeloperated online music systems were limited to portions of those companies' recorded catalogs. legitimate music listening environment. Sometimes this was done involuntarily. and the increasing availability of tools to fill that storage with video clips and other material. or some 12% of revenues. that may turn to be less important than its ability to facilitate sharing of files. it is possible that tools like Kazaa and Gnutella may become more important to the Internet than the Web. and consumer spending. but initially often slow) download to local storage. will solve all of the industry's woes. "but the inexorable drive towards cost and below-cost pricing will compel vendors to discover new paths to profit. and is also centralized. it still appears that business spending on telephony is far larger than that of households. and voice usage in cellular systems is low. and many communication services. Napster itself was too limited. The data that will be generated is likely to be shared using programs descended from Kazaa. thereby leveling the playing field.) We may very well end up with a system in which the largest monetary contribution will come from commercial users. Juniper Research reports in March that by 2009 the global VoIP market will contribute $32 billion to a total worldwide telephony market of $260 billion. The advantages of this model include the ability to implement it now. then the Internet would function primarily a broadcast network. During that time. and the smallest by the transport component of charges for content." he adds. there would be strong economic incentives to a unified network without barriers. the main function of 3G wireless systems is likely to be in stimulating more voice calls. Nevertheless.. Internet-based e-commerce in general will skyrocket. and Napster. Given the growth of local storage. ones that will work on the user's hard drive but cannot be transported to another device. Although social uses are important to the telephone industry. Since connectivity is key to the growth of VoIP. than is reported in the $85 billion figure. and thus will be most useful if they can get data from local storage. General connectivity is likely to lead to demands for symmetrical links on the Internet.The dominant mode of operation is likely to be fast (eventually much faster than real time. especially for cell phones. If content were to dominate. Currently services vary widely in terms of their specifics. It is possible that consumers spend somewhat more. fast transfer to whatever display device one wishes to use (often a mobile information appliance). The "content is king" position is shared by many people. Household spending on phone service brings in only about a third of the total revenues. $256 billion in 1997. even if one makes the most likely adjustments. whereas others permit only “tethered” downloads — i. new licensing agreements opened up a pool of approximately 250. Napster2. as in paying for toll-free 800 numbers. most of the revenues historically come from businesses. No one is pretending that these label-operated online systems. broadband usage and IP communications as a whole. which will often have small storage and low bandwidth over wireless links. These peer-to-peer sites attract huge attention because of the disruptive technology threat it poses to conventional music distribution channels. "The Internet is the most efficient market ever devised. which are much more general and decentralized. but they generally offer a subscription on the order of $10 per month for streaming and approximately 99 cents per downloaded track. (The figures for total revenues. VoIP will evolve from being a replacement service for the public switch telephone network
. Hence fiber to the home may be needed sooner than is generally expected. It appears probable that similar subsidies will also play a large role on the Internet. Portals to Profit: E-Commerce Business Models and Enabling Technologies.000 tracks to all the major services. allow downloads to be burned on CDs. as in higher rates dictated by carriers or by government regulators. Some services. That is one of the conclusions of the new 231-page study. as it is designed to handle just MP3 music files. (That is also why toll-free numbers for wireless calls may be very important. veteran venture capitalist and principal author of the report. RIGHT? Whether content is king or not has direct relevance for the question of whether the Internet will continue to be an open network. However. who identified and analyzed the 20 most significant Internet e-commerce business models. or whether it will be balkanized. come from different sources. before the Internet can be made ready for real-time streaming media. but only companies that develop and implement entirely new business models will succeed. The sum of the values of several completely or partially separate networks would be the same as of a unified network. if point-to-point communications were to dominate. the second largest for households paying for point-to-point communication. On the other hand.) That has been the historical trend. Content data services are likely to function primarily as enticements to induce more voice usage. “Investments are starting to happen to create a more sophisticated. there would be few inherent advantages to an open network. and sometimes voluntarily. and not just in the content industry." IT”S ABOUT THE CONTENT…. and then playback. E-mail and the Web may not be flexible enough. It also accommodates gracefully the forecasted explosive growth in small mobile devices. Yet it has already inspired creation of tools such as Gnutella.
driven by lower operating costs and competition between incumbents and new licensed operators. framework-based architecture is tangible and can be measured in terms of faster development time. contributing to an overall value-added services market of $47 billion. consolidate product lines. the biggest opportunity will be in voice services as broadband IP-voice takes over from traditional circuit-switched voice. the research firm projects that VoIP will have close to 1 million subscribers by the end of 2004. VoIP will morph into PoIP (Presence over Internet Protocol). In fact. Atlanta GA 31107 SkypeMe: inspiremedia1 VONAGE: 678-887-5678
. Broadband Specialist at Juniper. balancing new VoIP revenues against declines in traditional fixed-line revenues as flat-rate IPbased voice charge programs gradually replace time and distance-related charges. with PoIP.5 million US households by year-end 2008. well present the second half and conclusion of new sounds hopefully to include music emerging in IP Communications…. The value derived from a top-down. is broken down in the following chart:
Although much attention has been paid to the more integrated and entertaining value-added services like video-on-demand (VOD) and online games. Mr. If this issue was forwarded to you and you would like to begin receiving a copy of your own. OEMs can place their R&D resources on the forefront of the technology curve and help lead the industry to meet the demands of tomorrow. In other words. the challenge is upon the software vendors to rise to the occasion and establish a new paradigm in VoIP application design. Compounding the issue is the paramount requirement to reduce costs. growing from 131. devices will automatically select the most appropriate form of communication for the time and place. More importantly. however the limitations of the legacy VoIP software have hindered the ready adoption of these technologies." This shift will fundamentally redefine the telephone and bring a host of new options to consumers. and greater protection against obsolescence. To help break this cycle and provide meaningful solutions for the VoIP market. Complete and open system software solutions that view VoIP as an integrated and interoperable platform -not simply the sum of its functional parts -. made by Juniper earlier this year. and serve 17. Cox says.O. says. In a related report from The Yankee Group. The challenge to service providers will be to manage this convergence." A projection of the revenues from those services.
If you'd rather not receive this newsletter in the future click here. As Ian Cox. New technologies and standards continue to arise that offer considerable performance benefits. "Broadband penetration has now grown to a level where the industry is on the verge of a revolution. as it is now economically attractive to launch value-added services to a mass audience. please feel free to send an email to: inspiremedia@comcast. VoIP will be at the center of convergence.000 at year-end 2003. (c) 2004 InspireMedia & Communications.net and add subscribe in the subject line where we will validate your email subscription. Box 5305. According to Juniper. and increase efficiencies wherever possible. higher performance under diverse scenarios. P. Telephones will soon offer services formerly associated only with the PC.(PSTN) market to providing truly converged services to the home and business desktops. by 2009 the VoIP market will also become the key revenue generator for broadband service providers. this new approach will give the OEMs what they need most: The opportunity to innovate. In next month’s issue. "VoIP will bring new revenue-generating opportunities to the telephony market by combining voice services with other IP applications. Unlike traditional telephony that transmits over a PSTN. We welcome and appreciate forwarding of our newsletters in their entirety or in part with proper attribution. By lifting the burden of integrating VoIP components. This will be in addition to the $43 billion spent on broadband access in the same period.offer the most promise for the industry.stay tuned!
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