‘A whole generation of young people is growing up believing they don’t have to pay for music’ and technology is letting them get away with it. That’s the number-one reason why music sales are plummeting around the world, says Brian Robertson, president of the Toronto-headquartered Canadian Recording Industry Association (CRIA).

But desperate circumstances often produce desperately creative counter-measures, which is why marketers are coming up with a fascinating variety of fight-back efforts, from anti-piracy education campaigns to a slew of premium and incentive schemes.

How bad is the situation they’re addressing? Very bad. Music sales fell 9.2% in value and 11.2% in units worldwide in the first half of 2002, according to the International Federation of the Phonographic Industry.

In Canada, Robertson says annual retail sales have decreased from $1.4 billion to $1.2 billion in the past three years. During the same period, sales of pre-recorded CDs plunged from 58 million to 52 million, while sales of blank recordable CDs tripled, from about 50 million to 155 million.

The consumer behaviour and attitudes behind these numbers were illuminated in a report released last month by Toronto-based Jupiter Research. It concluded that at least a third of music fans collect and maintain digital music libraries on their computers by burning, ripping and sharing CDs.

All of which, says Robertson, is ‘pretty compelling evidence that people are buying less and downloading more,’ accounting for two-thirds of the disappearing dollars.

The other third of the blame belongs to wobbly economies, competition from such other leisure products as computer games and DVD videos and other business factors. Meanwhile, record labels say their revenues are being further eroded by spiraling costs to get their music played on radio.

But the consensus is that the major culprits are cyber pirates. These include the commercial music-swapping services such as KaZaA, Morpheus and StreamCast that are taking over where Napster was forced to leave off when U.S. courts shut it down this March. Says Toronto-based Dave Morris, national marketing manager of Virgin Music Canada, ‘it’s like wholesale looting.’

Maybe so. But in Canada it’s no longer a crime to obtain music without paying the artists who create it and the companies that produce and distribute it, so long as it’s done for strictly personal use.

That situation has prevailed since 1998, when a record industry coalition called the Canadian Private Copying Collective (CPCC) convinced Ottawa to slap a sales levy of between 21 and 77 cents on all ‘blank media’ that might be used to copy music. CPCC is now proposing that the levy be roughly tripled for audiocassettes, CD-Rs and MiniDiscs and extended to MP3 players such as Flash media cards, which are used in digital cameras and Palms, Apple’s iPod ($21 per gigabyte) and blank DVDs ($2.27)

And that, says Vancouver-based Kevin Evans, western Canada VP of the Retail Council of Canada, which is working with other organizations to repeal the levy, is like saying it’s OK to break the speed limit and injure others as long as you pay a fee for driving your car. ‘The legislation is an inefficient analogue solution in a digital age.’

Evans says that ‘not a penny of the $28 million collected to date has been paid out to anyone but CPCC’s lawyers, advisors and infrastructure.’ CPCC spokeswoman Laura Davidson recently confirmed that the earliest this money will begin to be paid to artists and labels is some time next year.

Here are some of the major ongoing efforts to combat the music industry’s decline. They are basically happening on three fronts.

Hearts and minds

‘The problem we really have to tackle is the consumer perception that piracy is a victimless crime,’ says Lisa Zbitnew, president of the BMG Canada record label.

In the U.S., a coalition called Music United for Strong Internet Copyright recently launched a campaign starring such popular stars as Madonna and Britney Spears to try to dissuade fans from downloading instead of buying.

In Canada, a similar coalition is rallying around a CRIA-spearheaded campaign called the ‘Value of Music’ which, among other activities, is producing a video and teaching guide called ‘Listen Up II’ for distribution in 6,000 middle and high schools across Canada.

Julia Ann May, president of Toronto’s Reddington Communications, who is piloting the project, concedes that ‘we may have lost a whole generation’ of techno-savvy youngsters. But now the plan is to educate four million younger kids. ‘The whole idea is not to scold or even talk about downloading or purchasing behaviour, but to help them understand and value the creation of music.’

Produced by a MuchMusic team and starring Canadian artists including Chaos and Remy Shand, the video also features ‘other people who influence kids,’ May says, such as MuchMusic VJ George Stroumboulopoulos. It is actually a much more sophisticated version of CRIA’s first Listen Up video, which was distributed in schools in 1996. The new video is digital so it can be periodically updated and re-posted to a publicly accessible CRIA Web site.

How effective is this project likely to be in persuading youngsters to buy more and burn less? May points out that the first-ever dip in Canadian sales of blank audiocassettes occurred in the year following the release of the first Listen Up video. She says she’s optimistic that an attitudinal turnaround similar to that achieved by Mothers Against Drunk Drivers can be sparked.

Technology

Technology fostered its financial disaster, so the music industry is mounting a technological counterattack in the cyber cat-and-mouse game. Many techniques for preventing copying are being developed, including encrypting, or ‘watermarking,’ CDs so they either cannot be copied or can only be copied once or twice.

A more advanced digital technique, known as ‘fingerprinting,’ may soon be scanning computer networks to detect unauthorized copies of music files as well as still images, movies and software. To date, however, many of these efforts have resulted only in ‘pissing off consumers,’ says BMG’s Zbitnew, especially because they are inclined to damage music equipment.

A better solution, in the opinion of CRIA’s Robertson and others, is ‘responding to the fact that consumers want to enjoy music online by letting them do so legitimately’ via Internet subscription services that, for a monthly or annual fee, provide music for downloading. Several of these services, including Rhapsody, Music Net and Press Play, are already up and running in the U.S. and Bell Canada launched the first industry-backed pay-per-use Internet service in Canada in September.

Incentives

The liveliest fight-back efforts employ carrots rather than sticks, as the following list attests.

Like its industry colleagues, BMG Canada ‘has been brainstorming about what it will take to make people buy music instead of blank CDs and burners,’ says Zbitnew. The result at her company was ‘a major promotion with unanimous retail support’ that kicked off last month, when the label’s biggest year-end releases began rolling out. All the new albums of such top artists as Santana, Rod Stewart, Foo Fighters and Christina Aguilera will contain a mail-in coupon for a free movie pass at a Cineplex Odeon, Galaxy or Empire cinema across Canada – a value of about $12, or roughly two-thirds the cost of the album itself.

‘Official’ artist Web sites are another hugely effective way of nurturing relationships between artists and consumers, says Rob Brooks, VP of marketing and operations at Toronto-headquartered EMI Canada. ‘With several recent releases, including Coldplay, K-OS and Beth Orton, [we] have successfully built artist micro-sites that contain audio/video footage, exclusive behind-the-scenes content, contesting and special pre-orders and buy links. These sites are then co-branded with national media partners and e-tailers.’

Incentives being developed by other record labels include discounts, rebates and add-ons. Interscope Records, for instance, included a free DVD with the first two million copies sold of a new Eminem album.

Some albums, including Jon Bon Jovi’s recent Bounce, include serial numbers which enable fans to join a database and receive such band-related freebies as concert tickets and merchandise.

Another carrot-type technique sprang from research done by U.S.-based Arbitron and Edison Media indicating that people who watch or listen to streaming media online tend to buy more music. Hence, in late September, MTV.com’s community chose a new Mariah Carey single as its first exclusive online debut.

Similarly, launching new albums via 24-hour-only online previews – as Coldplay, Beck and Peter Gabriel recently did – is happening more and more, often in the Windows Media 9 Series format.

TV is the new radio

There’s a lot of buzz suggesting that TV is becoming the new radio. Congloms are leveraging their assets directly, as AOL Time Warner is doing with its WB TV shows – showcasing its artists’ music not only within the programs but in promotional blurbs during the credits, as in ‘The music you’ve been listening to during the Gilmore Girls tonight was sung by Ryan Adams.’

Canada’s Barenaked Ladies appeared on a recent episode of The West Wing. And an even more dramatic cross-over is now happening to Tamyra Gray, an American Idol competitor whose TV exposure landed an RCA record deal that achieved a number-one single in the U.S. Then she doubled-back to TV to tape four episodes of Boston Public.

On the Canadian scene, Toronto-based animation house Decode Entertainment recently premiered a show on YTV, called Girlstuff/Boystuff, which features some 300 rock tunes licensed from various independent U.K. labels.

Fashion rocks

Arguably the largest-scale strategic alliance, albeit ad hoc, is between music and fashion, spanning star-driven extensions like actor/singer Jennifer Lopez’s J.Lo apparel and Glow perfume and veteran musician Carlos Santana’s Carlos clothing line.

The big news now is that the impetus for joint music-fashion promotion is coming from manufacturers and retailers that are setting up their own entertainment divisions. So says Susan Nunziata, executive editor of the New York city-based Entertainment Marketing Letter, who lists youth-oriented companies as Dallas, Tex.-based Limited Too, California-based Vans and Huntington Beach, Calif.-based Quiksilver as well as such major retailers as Payless Shoes, Macy’s, Saks and Victoria’s Secret as some of the prime movers.

In Canada, of course, the Roots chain has hooked up with musical artists including Haydain Neale, lead singer of Jacksoul. Proliferating extension opportunities for other young artists are exemplified by the Canadian all-girl trio Untamed’s deal with Rock Hard cosmetics, which includes having a nail polish colour named for the group.

Books, games and more

Various marketers are exploiting affinities attributed to music lovers. These include book promotions such as Scholastic’s ‘Hip Kid Hop’ series, which are a series of children’s books packaged, in both Canada and the U.S., with an LL Cool J CD single.

And computer games are another obvious affinity product. In mid-November, Sony will release its ATV Offroad Fury2 game for PlayStation 2, which contains an ‘in-game soundtrack’ including the music of such artists as Filter, Korn, Cypress Hill, Garbage and BT. Additionally, a recent X-box game featured tracks from the Canadian group Treble Charger.

McDonald’s is also hip hopping onto the music scene, at least in the U.S., by offering CDs from such musicians as Lil’ Romeo, Devin and the Beu Sisters as premiums in kids meals. Neil Everett, marketing VP at McDonald’s Canada, declined to disclose whether this is now, or will ever be, happening here.

Getting one-on-one face time with fans via the creation of street teams is increasingly being seen as a loyalty builder. An especially innovative version of this was dreamed up by Virgin’s Morris to promote a recent Boomtang album called Wet. Street teams called ‘the Wet Women,’ were costumed to resemble the red-uniformed stewardess character on one of the tracks and sent to the hottest clubs in major Canadian cities to hand out early releases to DJs and other Boomtang paraphernalia to dancers. They also appeared at key events such as MuchMusic’s Electric Circus. ‘The whole thing created a tremendous synergy to get the ball rolling even before the advertising hit,’ Morris explains.

Incentive-type campaigns, rather than more punitive methods of battling piracy, are definitely the right way to go, according to someone who has worked in pretty much every possible capacity within the music industry.

John Donnelly, started out in a successful ’80s group called the Queen City Kids out of Regina and has a couple of gold records hanging on the wall of his Vancouver office to prove it. ‘I was the bass player with the briefcase, the responsible guy who ended up on the business side of rock & roll.’

He founded a recording studio, then an independent label, then became a record distributor and promoter and, for the past 10 years, has been a producer of large musical events including the Molson Snow Jam in his position as VP of music and entertainment at Masev Communications.

How has the music scene changed over those years? ‘It used to be so simple,’ says Donnelly. ‘We heard a song we liked on the radio and we went out and bought the record. But things are a lot more complicated now because of technology and because of attitudes.’

What does Donnelly see as the bottom-line solution to music stealing (legally or otherwise)? He likes the concept of Internet subscription services and approves of the recently launched CD singles to provide music buyers with sampling opportunities, although he believes that, at $5-$7, they’re too expensive for most kids.

‘But I think what really needs to happen is for everybody in the music industry to get more creative. The fans today are more educated and more demanding and we just have to figure out how to get them excited.’