The Sound of an Online Revolution

Above: Dennis Falcone (B.F.A. '79) serves as a programming coordinator for Sirius XM Radio, but as a disc jockey for WNYT, he created his own radio show inside the studios of Education Hall.

NYIT alumni on the future of music, creating revenue in a world of free content, and what it will be like to own something that doesn't exist.

By Michael Schiavetta (M.A. ’07)

If video killed the radio star in the 1980s, then the Internet devoured everything the music business had left.

Digital audio files flooding peer-to-peer networks … hard drives replacing record collections … cell phones transforming into portable music players … consumers satiating themselves with free online content. For music companies that had operated for decades as the masters of production and distribution, the online revolution rocked their world.

Bob Frank (M.B.A. '04)

“Once music went digital, it became like water; you just turn on the faucet and it runs,” says Bob Frank (M.B.A. ’04), former president of E1 Music (previously Koch Records), the largest independent music company in the United States.

Frank attended NYIT while working for Polygram Records in Manhattan and, along with his colleagues, foresaw the future of the music industry once the Internet became a permanent fixture in households around the world. From LPs to cassettes to CDs, consumers have always flocked to the technology that offers the most convenient access to their favorite music. And what’s easier than simply turning on a computer?

It’s a scenario that places many record companies in an unfavorable position, as the business models that once served them well no longer apply, and consumer preference has become the driving force behind future sales growth. Online music services such as iTunes and Amazon MP3 have helped legitimize and monetize the downloading of music, but the days of hearing your favorite band on the radio, walking down to your local record store, and buying an album have become obsolete.

Fortunately for the industry, sales of global digital music continue to increase each year, in contrast to the steady decline of CD sales. The International Federation of the Phonographic Industry (IFPI) reported that total sales of digital music in 2008 grew by 25 percent to $3.7 billion. Conversely, physical album sales in the United States alone fell 20 percent, according to market researcher Nielsen SoundScan. Ironically, the current business model for digital music downloads is not unlike the one that existed in the 1950s during the golden age of 45-rpm records. Single-track downloads around the world increased 24 percent in 2008 to more than one billion units, according to the IFPI, compared to digital album sales, which accounted for only 66 million units. Much of this is due to consumers wishing to sample tracks before buying an entire album, or buying only one or two tracks and mixing them with other songs and artists to customize their own albums.

“We’ve almost completely shifted back to a singles business model,” says Frank. “The age of selling six million copies of physical albums is over. And that’s OK, if there’s a way to replace it.”

Whatever digital solutions emerge will have to contend with online pirates who take a huge chunk out of music industry revenues. Despite steady sales of digital music, the IFPI reported that 95 percent of the music downloaded last year—more than 40 billion files—was not paid for and obtained illegally.

“It’s an everyday fight,” says Chris Amenita (B.S. ’81), senior vice president of the American Society of Composers, Authors, and Publishers (ASCAP) Enterprises Group. “In a lot of ways, it’s a game of cat and mouse to the extent that you’re dealing with a digital product that is easily transferable and more portable than ever.” Public awareness campaigns, DRM-encoded audio files, and lawsuits have done little to curb piracy, says Amenita, and the industry itself has done a poor job of articulating its position. “Now with many people acquiring music for free, it changes the economics,” says Amenita. “It has a dramatic effect on how the music business will sustain itself.”

Chris Amenita (B.S. '81) is a senior vice president of ASCAP's Enterprises Group, where he oversees the development of new technologies that impact the music business. He played a key role in the development of Mediaguide, a joint venture of ASCAP and ConneXus that uses digital fingerprinting technology to collect data on broadcasts in the United States and other countries.

ASCAP is particularly concerned with songwriters receiving compensation for their works. The company collects royalties for more than 300,000 publishers and songwriters, many of whom, Amenita points out, are not the performers of the music. “That’s why we want to make sure there is a revenue stream,” he says, as performers can at least generate additional revenue from live concerts and merchandising—something many of ASCAP’s clients cannot do.

Amenita’s primary role at ASCAP is to look at changes in technology, its effect on the distribution of digital music, and how such processes can improve efficiency. He was instrumental in ASCAP’s creation of Mediaguide, a company that uses audio fingerprinting technology to collect data about songs played on radio stations across the United States. This is accomplished by using complex algorithms that break down a song into binary code and allow a computer to identify songs that are performed, ensuring payment for the writer and publisher of the identified work. The technology also eliminates the time-consuming process of manually listening to radio stations and creating logs and recordings to produce the same data. An added benefit of Mediaguide is that the company also analyzes which advertisements are being played over radio. This data is then sold to advertising agencies and other companies.

Mediaguide’s fingerprinting technique is one example of how the music industry is adapting and generating new revenue streams using technology. Embracing the opportunities brought forth by the online music revolution and eliminating the silo structure of the traditional recording industry is what defines much of its future growth. Companies have found that expanding into other forms of digital entertainment, such as rhythm-based video games like Rock Band and Guitar Hero, have proven to be unexpected doorways to new sales. The 600-plus songs available for download on Rock Band, for example, have generated more than 40 million purchases. The New York Times Magazine reported in August 2009 that the Rock Band and Guitar Hero franchises have generated more than $3 billion in sales, much of it coming from songs that are downloaded for $2 each.

Along with this new revenue stream comes a new source of music promotion. One of the songs on E1’s label, “The Devil Went Down to Georgia” by Charlie Daniels, saw a major spike in sales through online music stores after it was included in Guitar Hero III.

But for the consumer who just wants to listen to music, much of what they want remains free through various online services (legal or otherwise). And trying to sell against free is almost certainly a losing proposition. To counter this, future business models for the music industry will be defined by customer service rather than content, says Abram Poczter, Ph.D., a professor in NYIT’s School of Management.

“Cultural and societal changes are often ignored when it comes to the impact of new technology,” he says. “What really creates the environment is the interaction between those forces. Music companies are no longer competing with just each other. They must also deal with the entire Web community.”

Providing information, adds Poczter, is what will create customer services—“not just facts but service that creates an emotional connection.”

Convenience will also play a large role. The tremendous success of Apple’s iPod and the seamless integration with its iTunes music service is the perfect example. The NPD Group reported that Apple’s online store now accounts for 25 percent of all music purchased in the United States and 69 percent of the entire U.S. digital music market.

Sirius Issues

History Notes:
Rock and Enrollment

NYIT's first home in Manhattan was the historic Knights of Pythias Temple at 135 W. 70th St. But years before the school purchased the building, the temple served as the site of one of rock'n roll's most famous recordings. On April 12, 1954 Bill Haley and His Comets recorded the classic "Rock Around the Clock" for Decca Records, which had been using the building as a recording studio. The song became one of the biggest-selling records of all time and a world-wide phenomenon.

The Pythian temple served as NYIT's Manhattan campus to 1971. NYIT's first senior class graduated in 1962 at a ceremony held inside the temple's auditorium, where Alexander P. de Seversky delivered the commencement address.

Although terrestrial radio remains a prominent fixture of the music landscape, it too has been forced to compete with new innovations over the past decades, from MTV to YouTube to Internet radio services such as Pandora. In recent years, another new player has emerged—satellite radio, which gives consumers easier access to the music they want.

“With satellite, you have channels that don’t exist on traditional radio,” says Dennis Falcone (B.F.A. ’79), a programming coordinator for Sirius XM Radio. “You can choose to listen to only bluegrass, traditional jazz, classic country … it’s very niche.” With so many distribution channels available to music listeners, he says that terrestrial broadcasting is now competing with what he calls “narrowcasting.”

Falcone chose NYIT as the launchpad for his radio career because he wanted to be close to the media capital of the world—New York City. As a student at the Old Westbury campus, he worked as a disc jockey for WNYT in “the analog years,” when he and his classmates developed a top 40 radio show in the studio at Education Hall.

At Sirius XM, Falcone is involved with quality control and produces shows for the satellite radio company’s talk channels. He notes that online communication’s impact on radio stretches beyond music. “Lots of public services, such as school closings and weather reports, were once only available on radio. The Internet changed everything.”

And with that transformation, the radio business has lost much of its personal connection with the audience, says Falcone. Because of consolidation in the industry among major companies such as Clear Channel Communications, many radio stations are using talent in one market to provide voice work across the United States, resulting in a generic listening experience. This leads to local disc jockeys recording less voice work of their own, which then results in obvious disconnects with the radio station’s nearby communities. For example, a local weather forecast recorded at 5 p.m. may air automatically until midnight, says Falcone. “Well, what happens is, at 9 p.m. when a thunderstorm hits, your radio station has no clue what’s going on.”

But, he adds, like the rest of the music industry, both satellite and terrestrial radio are beginning to find new ways to work alongside the Internet. For example, in 2007, Clear Channel’s Premiere Radio Networks division generated new marketing data to help its stations determine the best play lists for their audiences, which in turn helped increase advertising revenue. The research, interestingly enough, came from analyzing the most popular downloads from illegal file-sharing networks.

“I Want My MP3!”

As the music industry evolves and technology opens up new avenues for artists to reach consumers, the concept of what it means to own music is also changing as CDs make way for broadband Internet and hard drives that offer exponentially more storage capacity. A similar shift is also occurring in the movie and video game industries, which offer on-demand and downloadable content in lieu of DVDs to provide unprecedented access to products.

“I think where we’re heading in 10 years is more based in ubiquity,” says Frank, who was named one of the most influential executives in hip-hop music by The Source magazine in 2006. “The notion of ownership is changing. You’ll be able to stream whatever you want at any time. You’ll have multiple players all linked up. You’ll have your own library that will exist in a digital cloud and stream it based on your preferences anytime. And you can also purchase.”

Physical products will still exist, adds Frank, but become scarcer. “They will probably become more of a deluxe product and rise in price, but you’ll get a great package with the higher costs.”

Like everything else in the marketplace, it’s all about being open to new ways of consuming and offering new services, Frank acknowledges. “Some people want to own, some want to stream, and some want a physical product.”

Whatever new technologies and consumer choices emerge, he notes, the challenge will be finding ways to profit from them.

“There’s an old saying in the music industry,” says Frank. “If you only get it right three out of 10 times, you’re a schmuck. But if you get it right four times, you’re a genius.”

Fall 2009 Table of Contents