Will We Ever Pay for an Album Again?

May 9, 2008 — -- Has the music industry reached a tipping point?

Unless you're a fan of industrial grunge, you may not have read this week that the group Nine Inch Nails — which these days is basically musical prodigy Trent Reznor with a whole lot of time in the recording studio — has just released its new album, The Slip, for free off the NIN website.

"As a thank you to our fans for your continued support, we are giving away the new Nine Inch Nails album one hundred percent free, exclusively via nin.com," Reznor wrote on the site to his millions of fans. He has also reportedly said: "This one's on me."

Just as interesting, on the same page, Reznor tells the downloaders: "We encourage you to remix it, share it with your friends, post it on your blog, play it on your podcast, give it to strangers, etc." In other words, Reznor is not only giving the album to his fans, but also giving them carte blanche to pass it around, cut it up, mash it … heck, even sell it if they can figure out a way.

I'm not a NIN fanatic, but I have been a big admirer of Reznor's work (and the videos even more) for many years. And I know that he has long railed against the record industry, and has had more than his share of disputes with his record company. So, it's good to see him stepping up and literally putting his money where his mouth is.

Better yet, the early reviews suggest that The Slip is a very good album — maybe not Pretty Hate Machine, but perhaps as good as Broken … which is pretty impressive, and easily makes the case that Reznor is giving away the very best he can do at this point in his career.

And that too says something important. Late last year, when Radiohead set this new wave in motion by giving away In Rainbows, I used this column to cheer their move as the arrival of Web 2.0 thinking to music. But at the same time, after listening to album a few times, I wasn't sure Radiohead had really given us its "A" game.

Several months of listening have changed my mind: In Rainbows isn't The Bends (or, heaven knows, OK Computer) but its rhythm-driven tracks are both mesmerizing and addictive. Radiohead, like Nine Inch Nails, not only gave away a record, but some of its best stuff.

Now, add to that the news last week that Coldplay was offering a free downloadable track, "Violet Hill," from its upcoming album Viva La Vida or Death and All His Friends. So great was the demand by downloaders that Coldplay's Web site temporarily crashed.

Nevertheless, this Wednesday the band announced that two million downloads of the track had already taken place — its spokesperson proudly announcing that "It would have outsold the whole of last week's top 40 [singles] four times over."

In other words, in the last six months, the world's greatest band, the world's most admired cult band, and the world's most popular band have all decided to give their creations — worth tens of millions of dollars — away to their fans. That's the trifecta folks: popular music will never again be the same.

You might have dismissed Radiohead's move as just the latest of leader Thom Yorke's wacky anti-capitalist crusades, and Coldplay's move as just clever PR for its new album and tour (and, somehow, Chris Martin's own Fair Trade crusade) — but with NIN now in the game, its hard to argue that this is anything but a harbinger of the future. Had only Mariah Carey given away part of her new album E=MC2 — yeah, like that would happen — this wave would have become instant tsunami.

Still and all, I now think there is no going back. With bands this big now pursuing a whole new "open source" business model with their music, it's going to be very difficult for any group to try to market their new albums through traditional distribution channels using standard retail pricing schemes. And that, in turn, means that the death of the established music industry, which until now seemed like a long slide to oblivion, is now much more imminent.

The simple fact is that you can't compete with free, especially if you are locked (through heavy capital investment in facilities and recording and manufacturing equipment, as well as traditional hierarchal corporate models) into the old way of doing business.

If you can't sell your core product — i.e., recorded music — then you have to make money from secondary sources. In the music world, that secondary business includes tours, promotional items and specialty packaging … all of which are owned by the bands themselves.

The record industry thought that it was the core business and the musicians were merely replaceable content. It was the same mistake made by the newspaper industry … and both have discovered to their dismay that, caught between the bands and Steve Jobs (or the journalist and the reader) they were in fact merely the middlemen. And technology has rendered their role obsolete.

Who's next? Probably magazines. Just look at how Time magazine is now recapitulating the mistakes made by the newspaper industry: getting rid of its best talent, bleeding advertisers, and reverting to shock covers and increasingly biased coverage to hold onto its core readership (and thus compromising its core competency). If you think Time and Newsweek are shockingly thin now, just wait.

Meanwhile, back in the music industry, it's interesting to speculate who will be next to adopt the free download model. Wilco is all but doing it now with its live recordings, as are a number of other indy bands. But if we really are at the tipping point in the story of the music industry, then some really huge pop act will take the plunge next.

Perhaps it will be a teen act, such as Miley Cyrus or the Jonas Brothers. I'd go with Cyrus — in part because she's already made a ton of money, but mostly because she now needs to cement her connection to her adolescent audience as she (and they) transition into adulthood. And, the Vanity Fair shoot aside, dad Billy Ray has been a pretty shrewd manager of her career so far. Hillary Duff should be doing the same. And Britney Spears should have done it with her last album (though she probably needed the bucks).

It's a long ways from Trent Reznor to Miley Cyrus — but then again, it was a long ways too from LPs to MP3. If the music industry has indeed reached its tipping point — and I think it has with this week's news — things will only accelerate as we race into the new, free, music world.

This is the opinion of the columnist, and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNEWS.com "Silicon Insider" columnist since 2000.