With the PR debacle of the year starting to slowly subside, you have to wonder what the next move for the music industry will be. Sony, despite a self inflicted wound of epic proportions, refused to be phased when it said �Sony remains committed to releasing all CDs next year with some form of copy restriction measures.???

Some act of contrition.

The actions of the music industry have remained relatively unchanged since the evolution of the modern CD supply chain. Its like a warm blanket that it clutches to and refuses to let go:

• It controls the artists, what gets played on the radio and how often;
• Who reviews it (and reviewers who give poor reviews tend to be left off the junket list next time around);
• Production & Distribution;
• And even down to where the album is displayed in the store.

The problem is that the music industry fails to realise a very fundamental point, we don�t need them anymore. The CD, as a format, started to die a slow death the day the first MP3 was ripped. The industry itself, started to die the day the first user downloaded an MP3 from the internet. With those two simple steps, the community has effectively replaced almost the entire music industry supply chain. All the Industry has to hold over us is the artists. But even that is changing.

But it doesn�t have to be this way. The industry, could evolve to embrace the change technology has offered them. Instead of looking at consumers, and P2P users, as �pirates??? or �thieves???, they could instead look at them as potential new forms of revenue.

The picture the music industry paints of P2P, or illegal downloading of any sort, is quite stark. The so-called reports, that they commission talk of a Mad-Max like landscape of lost revenue and chaos. The simple fact though, is that just as many open reports (reports not paid for by the industry), describe a far less severe landscape.

If the Industry has any hope of competing in today�s landscape, they need to implement radical change in their business model. If they don�t, in 10-15 years time the concept of a music publisher will seem quaint.

Step One: Know Your Customer
P2P has already become a part of the social fabric, meaning different groups of people use it for different reasons. In a report by the respected Pew Internet & Life Group , up to 31 million Americans, 37% of the population, download music & movies using a P2P service. How could 31 million people all be criminals up to no good?

Until the industry understands this segmentation, they will never be able to change their behaviour.

You�ve got your heavy user, someone who downloads and shares quite excessively. These types of users, however, are probably not the types that would buy Albums anyway. While they feed the networks, stopping them will not exactly increase revenue. Next, you�ve got your student or low-income user. For them, sharing is simply a cost cutting move. Hey, you�ve got to eat don�t you? Alienating this type of user will not encourage that user to go the �golden path� later. Next, you�ve got your enthusiast. This person, generally rips what they own, but use P2P to discover new artists, or to find remixes or live recordings of music they already own. Lastly, you�ve got your genre/niche user. This person probably would buy the CD if it were available, but as their genre is far outside the mainstream, they have difficulty finding the music locally.

I�m sure there are far more groups and sub groups than what was just listed. The purpose was to once again point out the disparity between what the music industry says about P2P users, and the actual reality. I�m no marketing genius, but until you understand your audience, you cannot sell or profit from your audience.

Step Two: Reward Online Sales
Lets face it, the Amazon�ification of the modern distribution system is a forgone conclusion. Instead of punishing this stream, you should encourage it. Lower prices, will effectively lead to increased sales.

The future of the traditional music store is not your worry, making it easier for your consumers to purchase music is.

Step Three: Forget DRM
DRM will fundamentally fail simply because there are an army of geeks committed to cracking it as soon as it becomes available.

As long as this exists, each new variant is doomed to fail. Even the latest fiascos from Sony could be easily negated as long as the user disabled auto-run (or were running OSX or Linux).

Get this point across, consumers want to put music that they own, anywhere they chose, as often as they chose. You attempts to force DRM or other forms of �protection� serves only to annoy and anger your core customer. It does nothing to �protect� your content.

Step Four: Radically embrace P2P
Simply put, release your entire catalogue online, available for download, for free.

Say that again?

You heard me, release it all, and make it available. The caveat though, is to help encourage users to buy the album, or the song, lower the bitrate to something both palatable and fair, say 92 kbs. Users who may not have bought your album will get an opportunity to listen to the music free before purchasing. While the bitrate will make the music enjoyable to listen to, it isn�t high enough to keep someone listening to it over and over again on their iPod.

At the same time, give people an extra incentive to continue buying CD�s. Grant them access to download that very same album in a format of their choosing. Also, encourage them to share the music they just downloaded to interest friends. To help protect your investment, work with the industry to agree on limitations or controls on the software that encodes music on users machines. These controls could be as simple as a name and address of the person who �owns� the file. It is a bit naff like having your mom put your address on your lunchbox, but how often did you actually lose your lunchbox? Same point.

Step 5: The pricing model must end today
We all know that the costs of producing and pressing a physical CD are terribly cheap (some say, less than �0.50 per CD). And, we all know how much less it costs to produce and download the digital equivalent. So why are we paying over the odds to do so?

For example: If I were to buy Madonna�s new album, Confessions on a Dance Floor at Amzon.co.uk, it would cost �9.45 (�7.99 + VAT+ �1.24 shipping). There are 12 tracks on that album, so if I were to try and buy the digital equivalent it would cost me �12! Please tell me any other business model in the world where pricing works like that?

Simply put, if you want to see the online distribution channel flourish (and eventually overtake offline), you must stop handicapping it with a pricing model that simply make no sense.

Conclusion: Embrace change whenever it happens
The biggest problem of all of this, is that the world has radically embraced the online concept, but the music industry hasn�t. Instead of hopping on the hayride and enjoying the show along with the rest of us, the industry has acted like a spoiled child and thrown the toys from the pram. 10 years ago, they could have gotten away with it, but not now. Consumers have learned a lot. We buy online, we date online, we research and move home online, and we even die online.

The question is not whether the industry will embrace the change that everyone is shouting for them to do, the question is if they survive long enough to pull it off.

The opportunity to act is now.