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A music exec who lived through the industry’s darkest period reveals what to do when a technological tsunami is about to crush your business


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To hear the experts tell it, if your business is connected to healthcare, energy, financial services manufacturing or call centers, then there's a chance you'll soon be toast.

A group of companies, including Google, Amazon, Apple, Microsoft, Oracle, IBM, and Intel are investing big money to develop artificial intelligence and other game-changing technology. These new AI superpowers are expected to pay your industry a visit in the not-so-distant future, leaving key parts of your product obsolete and the economics of your business in tatters.

The good news is that some people have faced the dramatic changes brought on by a technological tsunami  and seen their sectors not only survive, but eventually flourish again.

Cary Sherman, CEO and Chairman of the Recording Industry Association of America, the lobbying group for the three top music labels, is one of those survivors. 

The advent of digital music files and online sharing that started in the late 1990s plunged the music industry into its darkest period — in 2009, at the low point, US annual music sales fell to $6.3 billion, less than half of the $14.6 billion posted for 1999.

Now, nearly a decade later, annual music sales are growing again and consumers are paying for streaming services that provide access to an unprecedented trove of music. 

It wasn't easy. Sherman and the record labels endured numerous false starts, surprises and setbacks. They erred. The number of labels fell from five to three. They laid off hundreds of workers and alienated fans. They were mocked and vilified by the tech press

What follows is the story of how recorded music clawed its way back. Sherman's account is a playbook of tips for other industries that may soon find themselves in the fight of their lives:

SEE ALSO: EU lawmakers vote for new online copyright rules

1. Remember, it may take time to grasp the nature of the threat

Napster, the file-sharing service cofounded by Shawn Fanning, launched in June of 1999.

Sherman and his staff immediately recognized it as a threat but didn't appreciate how big of a threat it was.

"I think everybody underestimated the speed at which it would grow and the size that it would grow to," Sherman tells Business Insider. 

Before a court ordered Napster shut down in 2001, the service had enabled maybe as many as  8o million people around the world to share countless numbers of songs, free of charge. 

If a 19-year-old college kid with minimum resources could create a worldwide phenomenon and flip the music industry on its head, what might be accomplished by seasoned technologists who were backed by big bucks? 


2. Accept that the competitive threat may evolve, morph and quickly adapt

Napster was a centralized peer-to-peer service. A central server indexed the users and their libraries of MP3 song files so others could access them. The music industry had seen earlier, clunkier, and far less popular versions, called File Transfer Protocol technology. 

"We started with FTP sites," Sherman said. "Napster was the next form of piracy in 1999 and then a couple of years later came a decentralized form of piracy. Then, came cyber lockers and so on… each generation of formed piracy had a completely different scale beyond anything we had seen before. And so we saw very quickly that things were spinning out of control." 

3. Expect your entry barriers and moats to be breached

The year before Fanning invented Napster, the big recording companies thought they had piracy-proofed their business thanks in large part to the Digital Millennium Copyright Act, which outlawed the cracking of anti-piracy protections on CDs and the distribution of pirated songs by Internet services. 

But the new breed of services let users store music files on their computers, rather than on centralized servers owned by internet providers. That meant that internet service providers weren't liable for the pirated music and it left the record labels with no effective way to stop the problem. 

The DMCA, the record industry's main bastion of defense against piracy, was "obsolete within eight months," says Sherman.



See the rest of the story at Business Insider

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