Record labels and video distributors had been ticked off by consumers for charging high prices for quite a while. At first the labels got away with it though. This was because they actually added value to the product. They were the only ones who were able to actually deliver the product to consumers efficiently.

However, with the advent of the internet and explosion of file-sharing, they are no longer the only people who can deliver content. It’s even worse than that. They are now woefully inefficient at delivering content.

The big question staring the record companies in the face has been: why should people pay £10 or £20 to buy a CD or a DVD when they could download it for free? Their original answer to this question has been to criminalise the very fans whose custom they depend upon. At every turn, consumers of music are accused of stealing music and killing the record industry.

Not exactly the best way to build a loyal fanbase.

Since that approach didn’t work, the record labels reluctantly dipped their toe into the digital water. But even this was a complete disaster. They insisted on releasing music that was crippled by DRM. This shackled the music, yet again making the consumer feel like a criminal.

The worst instances of DRM prevent people from listening to music on different devices. A high-profile example is music purchased from the iTunes Music Store, which can’t be played on any device unless it was made by Apple. That is like buying a CD released by Sony BMG and only being allowed to play it on CD players manufactured by Sony. It is outrageous, and it is a wonder that the music industry ever felt that it was a sensible approach. Sadly, the most blinkered companies still release digital music in this way.

Incidentally, kudos should go to Warp Records, who recognised from the very start that its fans wouldn’t like to be treated as criminals. Its foray into the digital download world, Bleep, sells music at the highest quality the MP3 format can provide and entirely without DRM.

Some albums are even available as lossless (i.e. CD-quality) FLAC files. And you are allowed to preview the entire track before purchasing. Some albums also come with exclusive artwork, screensavers and so on. Furthermore, a (comparatively) huge cut of the profits goes to the artists, which is where fans like to see profits go.

Now hundreds of independent labels sell their music on the service. Bleep has been a huge success, having sold over a million downloads. The majors should have realised that this is how it should have been done from the start.

The problem facing the record industry remains. Their expertise was in distribution, but this advantage was removed by the internet. Their solutions don’t address the fundamental problem. Why should someone buy a digital download when they can get it for free from peer-to-peer networks?

The worst solutions were never going to work because they made the consumer feel like criminals. The better solutions — like Bleep — work to an extent because they tickle the fan’s tummy, making him feel good.

Regardless of what the record companies would like to think, the internet has greatly improved efficiency and has made consumers better off. Unless they really like pretty boxes, a choice between buying a CD for upwards of £10 or downloading the music for free is a no-brainer.

Sticking plaster solutions such as reducing the price of CDs or releasing DRM-infected MP3s were never going to do. And you can’t un-invent the internet. In their current state, record companies are a complete anachronism. An entirely new business model is needed in order for them to survive. It is the only way. For some of them, it may already be too late.

But I think there is an answer. And I think they are catching on to it. But I’ll write about that in my next post.