The OECD’s “Digital Broadband Content: Music” Report

August 12, 2005 Dennis D. McDonald

Introduction

I'm reading through the OECD’s “Digital Broadband Content: Music” Report. There's a huge amount of information that's directly relevant to the future of how technology is used for music distribution.

Dr. Sacha Wunsch-Vincent and Dr. Graham Vickery of the OECD's Directorate for Science, Technology and Industry are mentioned as the preparers of the report.

Here's the full citation:

OECD Directorate for Science, Technology and Industry, Committee for Information, Computer and Communications Policy, Digital broadband content: Music , June 2005 (Technical Report DSTI/ICCP/IE(2004)12/FINAL)

To get the full pdf file of the final report, go here.

Initial Thoughts

If all you've been reading is the huffing and puffing of those on opposite sides of the DRM debates, this OECD report is like a breath of fresh air. It is an honest attempt to present a balanced view of what is happening with music distribution.

The intellectual framework is one that has been used before in connection with individual companies and with with other industries: the concept of the "supply chain." That is, the authors attempt to show both how the current music distribution supply chain operates, and how this supply chain is being impacted by new technology, focusing on peer to peer networks and broadband in particular.

What this means is that all participants in getting music from composers and performers to listeners and customers are touched on, and where available, quantitative data are presented describing the scope and nature of the myriad of transactions that take place in the worldwide recorded music business.

While the cutoff date for information appears to be late 2004/early 2005, much of what is presented is still very relevant. There is still confusion about competing DRM schemes, still concerns about the impacts of unauthorized copying and piracy, and still disagreements about what the seeming success of Apple iTunes really means for the industry.

Here are just a few of my initial thoughts as I work my way through this report; I'll add more when I finish reading:

While I myself gave up buying music CD's in brick and mortar stores years ago and shifted to using online retailers (such as Amazon, BMG, Overstock.com, and Musical Heritage Society), I was surprised to learn what a small percentage online CD sales actually are compared with the major physical retailers in the U.S. and OECD countries covered in the report. There are still a lot of physical CD's being shipped.
When the "current" supply chain for music is compared with the "evolving" supply chain for music, it is quite interesting that the "new" players (such as Apple) are outside the music business as traditionally dominated by the big labels. This has both policy as well as financial implications. For one, companies specializing in selling works online don't have to incur the heavy front end costs of the major labels and can negotiate lower rates. Some people would call this "skimming." After all, Apple is primarily interested in selling iPods, not in helping Sony BMG recover the costs for searching for and nurturing new talent.
The supply chains and their operations are marked by highly skewed distributions of numbers of key players. There are a few very large music labels -- and many more smaller ones. There are many many artists -- but only a few that can seriously be considered highly successful and who possess name recognitions. So just because a technological and financial infrastructure exists to get a new song by an unknown artist available to a potential listener doesn't mean that all the other functions performed by the traditional players (publicity, advertising, warehousing, etc. etc.) will not have to be performed by someone.
The authors of the report present a lot of information about various technological schemes for controlling copying, monitoring use, and collecting and transferring payments. This is a confusing area where I predict that much uncertainty will reign for quite some time. The authors distinguish between distribution and payment schemes built around copying and distribution of discrete units (such as individual songs) and schemes built around streaming of series of related products (e.g., current hip hop songs). Since this distinction touches on something I have a lot of personal interest in --- I used to believe that I would always be one to prefer to buy and own discrete copies of albums or CD's or tapes -- I am hoping this theme is explored more in the report.
The authors attempt to bring together as much survey and research information as possible to explore whether or not unauthorized copying does or does not actuall depress the sale of physical CD's. They have mixed success given the wide variety of methods used in such surveys. They seem to come down in the body of the report -- somewhat -- on the side of those who believe that such behavior does reduce CD sales. At the same time, they heavily caveat such comments and put the easy availability of unauthorized downloads into the context both of (a) general economic and socioeconomic shifts away from music purchases by some population segments and (b) the move away from singles by the major labels as a significant revenue source. Right now I have mixed views of my own on this. I see unauthorized copying and downloading taking place frequently among young people of high school and college age. At the same time I know in my own case that whenever I have been exposed to an increasingly wide ranges of music, whether via radio or the Internet -- I end up buying more. This continues to be a tough issue -- that companies like Apple are driving to the bank.