Is there a future behind digital music, or should we as an industry focus our efforts on alternative services? Interesting article/idea...

By choyler1

There's good news for a media industry forced to trade analog dollars for digital pennies. According to Jeff Zucker, the NBC Universal chief who coined the famous conversion rate, digital pennies are now migrating towards dimes. "We're at digital dimes now, we're making progress," Zucker said last week during the McGraw-Hill Media Summit in New York.

Overly optimistic? The updated assessment appears rosy, at least according to back-of-the-envelope calculations. Zucker refused to discuss Hulu-related financial figures, though estimates peg annual revenues at $70 million. In 2008, NBC Universal revenues landed at roughly $17 billion, yielding a ratio (4/100) that beats a penny, but falls short of a dime. Whether that gap narrows over time remains unclear, though Zucker admitted that digital assets may never reach dollar-to-dollar replacement parity with analog.

Of course, Zucker is most concerned with the evolution of television, though his dollar-to-pennies comment resonates with related industries like music. But in music, specifically the recording industry, the ratios are quickly moving in the wrong direction. Paid downloads were once considered a high-growth category, though annual volumes seem to be plateauing. Other digital formats and concepts are struggling, and CDs are enduring a double-digit freefall.

The broader music industry - including touring, publishing, and licensing - is in better shape, and majors are wisely pursuing more diversified artist agreements. Still, labels are heavily rooted in recordings, and some are broadening better than others. Universal Music Group, for example, has been benefiting from aggressive acquisitions into publishing (BMG Music Publishing) and artist services (Sanctuary).

Perhaps Universal Music Group crosses the chasm, and successfully transforms itself into a different type of music company. But does a successful transition involve ditching attempts to monetize the recording? Instead of fighting a complete lack of scarcity, simply allowing the recording to move towards zero? Not a digital dime, not a penny, but simply nothing?

In reality, the transition happens with or without UMG - or EMI, Sony Music, or Warner Music. Sure, a download costs 99-cents on iTunes, but averaged against the immense volumes of file-traded music, the effective valuation is just above zero. Indeed, the disruption is already well underway, and labels are left weighing short-term, protectionist strategies against less-certain, longer-term bets. Either way, selling overpriced downloads against a backdrop of zero-scarcity is a difficult play.

So why the slow-footedness? A recent interview between an unnamed major label executive and TechCrunch suggests that the short-term could be a better strategic bet. Instead of rushing into a sea of digital pennies or worse, why not protect and prolong a dwindling pile of billions? That means litigating, restricting, and maximizing licensing fees on ill-fated companies like Spiralfrog, while worrying about the future later.

Perhaps that makes sense for an exiting executive, one whose strategic roadmap includes a golf course in 2012. But it makes little sense for the twenty- or thirty-something executive, and even less sense for artists attempting to build sustainable careers. That would explain why many artists are increasingly moving with market forces, and building their careers around moneymakers like touring, publishing, licensing, sponsorships, and other, cash-generating assets.

Or, simply rolling with what the market offers for the recording. Radiohead and Trent Reznor spring to mind, though artists across all tiers - developing, mid-range, and superstar - are crafting homegrown business models that make sense for them - and more importantly, the broader changes happening in music and media consumption.