How the music industry blew it

"Sonic Boom" begins with an introduction by Herbie Hancock who -- not surprisingly -- emphasizes this problem. Like so many others, this great musician knows how the industry has always cheated and exploited both artists and audiences. Yet, he fears that the cure of the youth might be worse than the disease of their elders. Musicians could end up the biggest losers if all music files are free. At the end of his book, John Alderman outlines some possible solutions to this dilemma. Even if it might have been possible in the mid-1990s, it is now too late to replicate the buying and selling of music imprinted on bits of plastic in virtual form. Big mainframes serving encrypted tunes to passive consumers is a science-fiction fantasy from the Fordist past. Instead, the music industry must find some way of commercializing peer-to-peer file sharing. Even before the Napster case was concluded, the Bertelsmann corporation broke ranks with the other major record companies to buy a stake in this P2P pioneer. For a small monthly subscription, Napster users would be allowed to break the copyright laws. Soon afterward, its competitors announced their own plans for online music services. Yet even this compromise may have come too late. Why would anyone pay for music that is easily available for free? The old tunes are all available in unencrypted formats and the protection on new tracks is quickly broken. Once they have experienced digital abundance, why would anyone welcome the forced imposition of analogue scarcity upon the Net?

John Alderman believes that more inventive methods must be found to finance online music. Like so many other Californian analysts of the Net, the author looks back to the West Coast's hippie past for potential solutions. For instance, the Grateful Dead -- a prominent late 1960s psychedelic rock band -- pioneered one promising way of creating an alternative economic relationship between musicians and their audiences. Although signed to a major label, its members encouraged their fans to make and trade tapes of their live performances. Contrary to free market orthodoxy, these altruistic ethics proved to be financially rewarding. While their contemporaries faded into obscurity or lost all credibility, the Grateful Dead are still worshipped by a devoted community of fans long after the demise of the band's charismatic leader. Any money lost from bootlegs has been more than compensated by increased sales of their commercial recordings and of tickets for their live concerts. The Grateful Dead proved that musicians could earn a good living out of free music.

John Alderman proposes that the music industry should learn from this tried and tested example. For a start, swapping MP3s should be accepted as the contemporary equivalent of trading bootleg tapes. Instead of fighting this phenomenon, corporate executives should realize that giving away music can be another way of making money. For instance, a tune available for free over the Net could persuade someone to buy a concert ticket or, as long as the sound quality remains superior, to purchase CD or DVD versions. Above all, the music industry must move from selling tunes to servicing fans. Although young people are reluctant to buy individual tracks over the Net, they have already shown a willingness to pay for a more intimate relationship with their heroes. New releases, concert tickets, celebrity gossip, chat zones and other goodies can be made available online for a monthly fee. From being little more than a sideline, fan clubs could become the major source of revenue for the music industry in the future. As one way of making money disappear, another may be opening up.

Being a journalist's tale, "Sonic Boom" can't be expected to provide a sophisticated theoretical analysis of the economics of the Net. Neither Adam Smith nor Karl Marx were ever likely to appear in its index. Yet, John Alderman's populist account is still much more perceptive than most books or articles on the subject published by academics. Above all, this author does get it. No copyright law or encryption system is going to stop the swapping of music files between consenting adults in the long run. There can be no return to business as usual for the music industry. It's over, it's finished. The ideological shibboleths of neo-liberal economics have been broken. Just as important, John Alderman knows that money can be made inside the high-tech gift economy. Free music on the Net will provide wages for musicians -- and profits for their employers. A more evolved form of capitalism will emerge from the advent of ubiquitous file sharing.

Living in California, the author of "Sonic Boom" has to concentrate on the economic consequences of peer-to-peer computing. What has happened within the music industry is already beginning to spread to Hollywood. With a broadband connection, sharing movies becomes almost as easy as swapping music. Lots of jobs and money could be at risk on the West Coast if the leaders of the movie business repeat the same mistakes made by the CEOs of the music industry. "Sonic Boom" has an important lesson to teach them.

However, John Alderman's fascination with the economic impact of the Net sidelines any consideration of its cultural meaning. Over the past few decades, musicians have been using computer technologies to change music itself. Long before people were swapping MP3s, sampling, remixing and home studios had already redefined the sounds heard in the clubs and on the airwaves. Above all, these new ways of creating music anticipated many of the contemporary changes in the economics of music caused by the advent of peer-to-peer computing. The fixed product has long been mutating into a fluid process within house music. Despite living near San Francisco's famous rave scene, John Alderman never discusses this socio-cultural revolution. While the Grateful Dead may have pioneered new methods of rewarding artists, their music never evolved beyond the aesthetics of the electric guitar. Yet, as was pointed out long ago, radical changes in the economic base of society are paralleled within the cultural superstructure. By transforming the ways of distributing music, peer-to-peer computing will also inspire new forms of music.

No book can predict the exact shape of the P2P future. Rather "Sonic Boom" should be praised for providing some important lessons from its recent history. Although they were a minority even among Net users, the Napster subculture successfully pioneered peer-to-peer computing for the masses. As increasing numbers go online and connection speeds keep rising, more and more people will come to discover the wonders of swapping information over the Net. The secret is out. However, as "Sonic Boom" recounts, there are powerful interests who are terrified of the social upheaval being unleashed by peer-to-peer computing. The prosecution of Napster has encouraged more attempts to reverse the evolution of the Net. Repressive legislation and technological fixes are still being used to inhibit the spread of file sharing. There are even plans to outlaw all computers that aren't hardwired to protect copyrighted material! What Sonic Boom does so well is demonstrate the futility of these schemes in the long term. Digital files can't be confined inside bits of plastic forever. Instead the music industry -- and other creative industries -- will just have to develop more sophisticated ways of doing business. For peer-to-peer computing isn't simply a technological leap forward. More important, it's also the catalyst of economic innovation. Now do you get it?

• View blog reactions