Singularity Law

What happens to existing distribution networks when new methods of distribution become feasible? The general rule has been that existing distributors will pressure producers to eschew these new forms of distribution to protect the existing distributors’ business. We saw that several years ago when IBM and Blockbuster announced a service that would allow users to choose songs and burn their own “favorite hits” disk at a Blockbuster store through a terminal hooked to a central server containing millions of song files. Condemnation of this new form of music distribution was universal from the record industry. They sought to protect their existing distribution system (the distributors, rack jobbers, retailers) at the expense of this new distribution model. The proposal was DOA.

Record companies also were saying just a few years ago that they would never sell music downloads since that would interfere with their current distribution networks. But, of course, Napster forced their hand (or some would say gave them an excuse for turning their backs on their distributors and retailers). Napster showed that there was an enormous demand for music downloads, and if there were not legitimate download sites, users would download music illegally. Now we have iTunes and many other legitimate download sites that are putting millions of dollars into the coffers of the record companies, leaving the traditional distributors to fend for themselves. The bankruptcy filings of Odyssey Records, Tower Records, and massive closings of Sam Goody stores and those of other CD retailers was not just a coincidence.

Now the television networks are starting to provide downloads of their hit shows on iTunes and other services and network affiliates are complaining. If viewers can download their favorite shows to their computers for viewing at the user’s convenience, fewer people will be watching the shows on their televisions, which will translate into less advertising revenues for the local stations. Local TV stations (and cable operators) are beginning to demand that they get a portion of the revenues generated from these Internet downloads.

And Disney and other movie studios are planning to allow users to download entire movies from the Internet. Pay-per-view cable channels who make their money by showing recent films are crying foul. They want studios to delay releasing movies online until their contractual window for showing the movies has expired.

All of these problems arise from the fact that record and movie companies are increasingly viewing the Internet as an efficient and profitable means of getting their products to users without having to deal with the hassles and cost of traditional distribution channels.

However, these actions are a two-edged sword. While it makes economic sense in the short term for these companies to utilize the ‘Net for distribution of their product, in doing so they are also creating a distribution channel for songs and movies over which the record companies and TV and movie studios have no monopoly. As the public begins to use (and accept) the Internet as a viable medium to receive entertainment content, it will become easier for independent content developers to distribute their content online as well.

Historically, musicians who have tried to buck the record industry’s monopoly over the distribution channels have found it difficult to create a following online. The public has just not been willing to go online for their music. They were used to getting it on shiny metal disks from a brick-and-mortar retailer. There was something “wrong” with a recording artist who did not use the traditional channels to distribute his or her music (i.e., if this guy is so good, why can’t he get a recording contract?). The same was true for independent film makers, who generally had to distribute their works for free on various “fan” sites.

But once the “big boys” legitimate the Internet as an “appropriate” medium of distribution for their creative content, they will also be legitimizing the Internet as a medium of distribution for everyone’s content. Indeed, a recent news report indicates that a song by the band Gnarls Barkley became #1 on the UK singles list based solely on its downloads online, not from traditional record sales. This is the wave of the future.

So go ahead big entertainment companies. Legitimize online channels for music, movies and TV shows. By doing so you make be sowing the seeds of your own destruction. Why will a band or film director need a major company to distribute their product, when they can do it just as well (and possibly even better) themselves? Once everything is digitized, creative talent will not need companies who produce shiny disks, or ship shiny disks, or warehouse shiny disks, or sell shiny disks from storefronts. The entire marketing and distribution function can be done digitally by an individual from a PC in his bedroom.