06/24/2006 02:15 pm ET Updated May 25, 2011

Music Industry - Digital Revolution Now!

If you love music and have any business sense, the music industry can be depressing - as a new lawsuit confirms. New technology has the power to revitalize the music economy, create channels for buying hard-to-get music, and open our culture up once again to the unusual voices that once revolutionized music - and society - while helping the business boom.

The whole economic pie could become bigger by bringing underserved music markets back into the marketplace. Instead, music execs are being defensive and reactionary, attacking new technology rather than embracing its opportunities. The result? Less for everybody.

The industry's latest reactionary move is a lawsuit against Pioneer's "Inno" portable receiver, which can record XM satellite radio broadcasts so that subscribers can listen at their convenience. Unlike, say, cassette recorders, the Inno is a shining gift for record companies, in that:

1. The songs are "locked" in the device. They can't be duplicated, or played on any other machine.

2. The songs are "tagged" digitally. Listeners can flag the tunes they want to buy and then purchase them electronically. (And while there's still controversy about it, surveys have shown that people who download music actually purchase more music than others.)

3. XM is paying roughly 7% of its gross revenues in music royalties.

Here's what the execs behind this lawsuit are missing:

1. The more money XM makes, the more money they make. (And these days, they need new revenue sources desperately.)

2. If you can't record satellite radio, far fewer people will subscribe. (This also applies to Sirius Radio, where I'll be co-hosting The Young Turks this Monday from 3-6 pm West Coast time.   Please forgive the shameless self-promotion.)

3. Not only does recordability increase XM's revenues -- and therefore the music industry's - but the diehard fans who record music shows are also the same people who will use that "tagging" feature to buy more music. Surveys have tended to confirm that.

This could be the start of a beautiful friendship. Why is the music industry so loathe to share a bigger pie with other distribution outlets, rather than continue its futile attempt to own 100% of a dwindling one?

Don't get me wrong:  I'm against illegal downloading.  I was once a working musician, and many of my friends still are.  And I'm a business person.  People who create and distribute the art should get paid. 

The question is, what's the best way to make that happen?  There are some working models out there.  Here are two:

The Smithsonian/Folkways music library is a terrific resource for marginal music that could never be mass-marketed, but which dedicated lovers of, say,
Indonesian rural guitar instrumentals are thrilled to have. (I'm one of them.)   It was built from Smithsonian field recordings and the archives of Folkways Records  - a business which, even in the expensive days of vinyl, always made a small profit while selling marginal music.

Rhino Records started out distributed outsider recordings for cult audiences (e.g. William Shatner albums, the then-despised-and all-but-forgotten Monkees).  They eventually found financial success in the CD market, despite the much higher costs of producing a product that was physical, rather than digital.

Here's a new revolutionary slogan for the music business: One, two, three, many Rhinos and Folkways ... Don't see them as upstart competitors, but as examples.

Each established record company is sitting on a treasure trove of unavailable
material that, if released, could dwarf the Rhino model in success.  That's one reason illegal file-sharing grew so quickly. There's a hunger for this material.

How about releasing those Dylan sessions with the Paul Butterfield Band at Newport, or some of Sonny Rollins' improvisations, or the Rolling Stones live at the Brooklyn Academy of Music in 1964?

Not to mention Billy Gibbons' fledgling efforts with rock band Moving Sidewalks, or Elvis Costello singing New Wave versions of old soul songs live in 1978, or ... or ... or ...

You could also find niche markets and distribute through them. For example, there's a growing "liberal Christian" movement, based around sites like Kos's Why not dip into the vaults and introduce their readers to lost gems like Paul Kelly's R&B song "Stealing In The Name of the Lord," or the Soul Stirrers with Sam Cooke singing "Somebody Helping a Stranger Along the Way, That's Heaven to Me"?

I could name a half-dozen people who could go into a record company's archives and, with the right guidance, have a profitable (if small) division running in less than 18 months.

Sure, others have made this point before. But before you once again dismiss these arguments as naive, consider the success that brash and "naive" promoters have had in the music business over the last 50 years: Ertegun, Wexler, Spector, Sam Phillips. Shouldn't the music industry open itself to these types of visionaries again? Technology can help.

Somewhere out there is a band or artist that's so uncommercial, so strange looking, seemingly so unlistenable, that nobody will invest $500,000 to see if they have a hit. The Internet can help bring back the days of competition, experimentation and musical Darwinism, where even the strangest mutation has a chance to survive and flourish. 

In fact, it's happening already through myspace and other outlets, but in a haphazard way.  There's no clear model for ensuring that these outlets can be the kids of profitable, stable businesses that can nurture a steady flow of new talent and older rare material.

If the industry's willing to help change that, then that strange act may have a chance to beat the odds. If and when it does, it could bring a whole new audience into our tired music scene, create explosive growth in revenues, and even change society.

It worked for Elvis. It worked for Dylan. It worked for the Beatles. Why not give it a chance to happen again?  The alternative for music execs is to keep promoting manufactured performers that are losing the audience's interest, while they continue fighting a rear-guard action against new technology.

If you don't mind my asking: How's that working out for you?

A Night Light

(This is a Progressive Executive and Guitars etc post)