You’d be hard-pressed to find an industry that has had a worse decade than the music business. Following seven consecutive year-on-year declines between 2000 and 2006 (the last full year for which there are statistics), music unit sales have fallen nearly 50 per cent from $36.9 billion to $19.6 billion. Like a broken record, 2007 figures will show still further declines.

In 2000, music unit sales referred to the sale of compact discs, cassettes and vinyl. These days, you can add ring tones and downloads to that figure, but the total is still only going in one direction: down.

If the music labels don’t turn things around this year it may be too late to save the industry. Perhaps, it’s already too late.

Because we are all music fans, we all have an opinion on what’s wrong with the industry. The music labels blame internet piracy. Music fans blame the declining quality of pop music, an argument as old as Elvis’s Heartbreak Hotel. And technology advocates blame the business model: selling a plastic disc for £12.99 has gone the way of the eight-track tape.

We’re all right. But there is only one opinion that matters at the moment: that of the music labels.

As the industry’s lobbying group, the IFPI, said earlier this year, 2008 is the year it goes after the internet service providers. Suing individual file-sharers was always a doomed tactic; choking off the exchange at its source would yield a far greater result.

Pressuring lawmakers, as the industry has done with increasing success in Britain and France, to force the ISPs to police its networks is step one. Now, we are seeing step two: a radical all-you-can-eat tax charged to broadband customers allowing them to download all the music they want in exchange for a monthly fee. This is the proposal of Warner Music. Warner is mulling doing away with the per-track fee in exchange for a nominal rental fee – what some are saying would be as little as a fiver every month. Similar measures by Sony, BMG, Warner and EMI in Denmark are a bit further along, as is Universal Music’s landmark deal with Nokia on a new handset, sold at a premium, that will have access to the major’s catalogue for an extra fee.

To be sure, this is the most sensible business move the industry has made in a decade. Any revenue-sharing deal will be eagerly adopted by the ISPs, who are desperate for a compelling “premium” feature to market to customers rather than simply flogging high-speed access. And, ISPs don’t like serial downloaders anyway. Giving the ISPs an alternative to peer-to-peer bazaars, one for which they can charge, potentially solves two of their biggest problems: declining operating margins resulting from bruising competition and escalating bandwidth costs of file-sharing.

To put it mildly, the ISPs are getting a good deal here.

And consumers? Well, that’s another story. The details are sketchy at the moment, but it appears the labels are going to leaden down the tracks with restrictive DRM that dictates where and for how long you can play your songs. If true, expect another consumer revolt.

Another worrying matter is that it’s not clear how the fee would be structured. In order for the labels to regain lost ground, they’d most certainly need to introduce something equivalent to a universal tax on the globe’s 350 million broadband customers. Collecting, say, $60 per customer per year would add over $20 billion to annual revenues, about where the industry would have been, one could argue, if it achieved even paltry growth over the last seven years. No doubt, this is what the more zealous industry negotiators are aiming at. Unless the fee is mandatory, it will hardly make a difference. And, a smaller pie is not nearly as appealing to your local ISP either.

This is where the proposal gets troubling. Make no mistake, a universal fee is a tax, a “sin tax”. It puts music downloads in the same category as cigarettes, alcohol and petrol. Without a doubt, there is no economic rationale for a tax of this nature on music downloads. Tax levies from alcohol and cigarettes subsidise, in part, the associated healthcare costs of consuming too many cigarettes and too much alcohol. What would a tax on downloads pay for? Would it amount to a subsidy for the musician? And, if we’re paying this tax, does that give us a right to object to whom the labels sign and whom they let go? If I am paying a fiver every month, I expect something in return – like the home phone number of the exec who decided to resurrect the career of the Spice Girls.

Now, that would be a way to sell this tax plan to consumers.

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Bernhard Warner, a freelance journalist and media consultant, writes about technology, the internet and media industries. He can be reached at techscribe@gmail.com

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