Prof. Peter S. Menell, Director
Berkeley Center for Law & Technology
University of California at Berkeley School of Law
July 26, 2011

In the 1989 sports drama, “Field of Dreams,” struggling Iowa corn farmer Ray Kinsella hears a whisper: “If you build it, he will come.”  Rebelling against his father’s lack of spontaneity and following his own muse, Ray plows under his cornfield and constructs a baseball diamond to the astonishment of his neighbors.  “He” turns out to be Shoeless Joe Jackson, the tarnished baseball star idolized by Ray’s father.  Shoeless Joe magically emerges through the corn stalks as the baseball field is completed.  He is soon joined by the other White Sox players banned from the sport for rigging the 1919 World Series.  Joe and his teammates are thrilled to be playing again.

This fantasy provides a fitting metaphor for technology companies, music companies, songwriters, recording artists, and music fans today.   Following Napster’s meteoric rise nearly a dozen years ago, a sizeable chunk of the music industry’s core demographic – teenagers and college students – as well as many “over-the-hill” fans dispersed into the peer-to-peer cornfields.  Record labels and technology entrepreneurs have struggled to lure them back into the marketplace with little success.  Those intrepid entrepreneurs who tried to do things “by the book” found it difficult if not impossible to “compete” with free (and obtain viable license terms with the many copyright owners).   Apple was able to succeed – but only with iTunes as a loss leader for the iPod cash cow.  Rhapsody, Rdio, SiriusXM, Pandora, and Mog struggle to achieve profitability.  And many of the music fans are still hiding out in the cornfields.

Record sales have dropped by nearly half since 1998, with digital revenues replacing only a modicum of that decline.  The recording industry’s efforts to sustain sales of their copyrighted works through education campaigns, digital rights management, and lawsuits against peer-to-peer companies and file-sharers have proved ineffective.  Even when copyright owners succeeded in stomping out a parasitic corn stalk here or there, three more cropped up in their place.

It is not surprising, therefore, that apart from Apple, Silicon Valley has been hesitant to place large bets on digital music services.  Competing with free severely constrains the types of deals that they can cut.  And record companies and music publishers have been reluctant to cut “bargain basement” deals out of fear of undercutting their existing revenue channels – declining CD sales, stagnating download sales, and anemic subscription services.

Yet the past few months have witnessed an explosion of energy and excitement in the digital music marketplace.  The big players – Amazon, Google, and Apple – have announced cloud-based music services.  Facebook is rumored to be on the verge of a big announcement. – which is seeking licenses – has rekindled the imagination of music fans.  And Spotify, which has achieved some success in Europe, recently crossed the pond with much fanfare.

After a tumultuous decade, what is different now?  Technology companies are seeing music as a two-fer.  Web companies recognize that music storage and access can complement the shift to cloud-based storage, which tightens their hold on web users and enhances their advertising networks.  Device manufacturers see convenient music access as a selling point in the competition to win the handset and tablet marketplaces.  Facebook has shown that social networking is the next big thing.  Not surprisingly, Internet giants see music as a key competitive asset in building their social networks.  Music copyright owners are increasingly realizing that they need to be more open to working with tech companies.  ISPs have committed to working with copyright owners to discourage online piracy.  Music fans are increasingly coming to see the value proposition in ubiquitous, reliable, on-demand music services – which tilts the playing field toward authorized sources.  Music fans might also realize that “free” comes at a price – in terms of inconvenience, malware, and possibly pangs of guilt.

But can the tech sector lure music fans out of the cornfields and back into the marketplace in large enough numbers and with high enough margins to restore a healthy creative ecosystem?  There is little question that the offer of free or inexpensive cloud storage will entice many music fans to partake.  But unless these fans acquire music through legitimate channels, these cloud storage models will do little to change the current pathology.

Apple’s iCloud iTunes Match – which charges just $25 a year for users to gain access to their favorite 25,000 ripped and/or illegally downloaded songs – extends a bridge to the cornfields.  Spotify’s premium and unlimited subscription services – starting at just $5 a month – offer a compelling reason to come out of the cornfields for good.  Other companies will work harder to innovate and compete in this space.  The allure of a competitive, user-friendly, less parasitic marketplace promises to restore balance between creators and fans, as well as copyright owners and technology entrepreneurs.  And just maybe, music fans will come back to play.