We’ve all heard of format wars. How could we forget the battle of the titans that was VHS vs Betamax, the embarrassing mismatch of Laser-disc vs DVD or the neat knockout blow struck by Blu-ray against the perpetually flagging and unimaginatively monikered HD-DVD. Of course these are all video related skirmishes, but what of the audio world? Well there is an audiophile scrap going on between SACD (super-audio CD) and DVD-Audio, but due to the current trends of consumers caring less and less about audio fidelity and more and more about how many people they can annoy on the bus by playing music directly out of their phone speakers, both these formats are looking set to fizzle out with a whimper, receiving less press attention than somebody doing something of worldwide significance who isn’t a celebrity!

So what about “business model wars”? Granted, it’s not such a snappy title, but it may be dominating music industry distribution for the next few years. So, what’s the craik? Who are the contenders? And, crucially, what does it mean for musicians at grass roots level? Well…

A boxing ring – To illustrate the analogy, see?

In the red corner, weighing in at $18bn, the undisputed heavyweight champion of the world since the birth of recorded music, the one and only, Ownership Model (cue rapturous applause…)

And in the blue corner, weighing in at, well lots and lots of, err… listens, the challenger, the wild card, the new kid on the block, The Subscription Model.

For the purposes of simplicity, I’m going to be assuming that physical distribution is dead and buried. An unromantic statement perhaps. Premature maybe, and certainly inaccurate, but what I’m interested in really is the battle between two different methods of digital distribution. Let’s start with a brief explanation of the two models:

Despite the shakeups and turmoil caused to the music industry by the explosion of mp3 onto the scene, the basic business model remains the same. You may not have to go to the shops anymore, but you pay a retailer some money, and in exchange they give you a copy of a piece (or pieces) of recorded music. It’s now your copy – you own it. That money is then split up accordingly, the retailer keeping a share, the distributer taking their cut, record label, manager and eventually some 10-20% should filter down to the artist and producer (priorities, eh?). As a passing point, it’s becoming increasingly clear to me that the digital distributor is a phantom invented to defraud hard working bands of some well-deserved revenue. Think about it – back in the heady days of full physical distribution a distributer sorted out the logistics of getting your records all around the country, or even the world, as well as negotiating your way into the best retailers with extremely limited and highly competitive shelf space. Nowadays the distributer acts on your behalf (as a small or unsigned band at least) to circumnavigate the made-up, arbitrary, unnecessary and frankly unfair rules imposed by the main digital retailers – but that’s beside the point.

So let’s talk about the current alternative. The Subscription model does exactly what it says on the tin. Users subscribe to a service, for various monthly costs (including nothing), and are given access to the full database of songs offered by the company. You don’t own the music, any more than when you listen to the radio, but crucially, you can listen to what you want, when you want.

Let’s take Spotify as an example. The listener is offered unlimited access to 8 million songs for no charge. So where does the money come from? There are two main revenue streams. Firstly advertising and secondly a monthly subscription fee of £9.99 for those who want higher quality audio and no adverts. Now it doesn’t take a genius to see that this represents excellent value for the listener, but what about the artist? The spin from those championing the subscription model runs along the lines of how wonderful it is for unsigned acts and small labels; that they are able to “get their songs out there”. What’s more, because the data basing is so straightforward artists can be paid for the exact amount of listens they generate, something which compares very well against the archaic system of sampling radio and tv broadcast output currently favoured by the PRS – a system which intrinsically overlooks smaller artists and disproportionally rewards uber-selling major label acts. So we’re heading in the right direction, oui? Well let’s look a little more closely…

The actual deals done between labels (or aggregators) and spotify remain secret, but I personally know many people who have songs on Spotify with thousands of plays who have received no more than a couple of pence in total. You’d be forgiven for thinking that, as usual when there’s a change in the market, it’s the little guy that suffers, but you’d be wrong – in a way. Lady Gaga was reportedly paid $167 for 1million plays of “Poker Face” in a 5 month period. So, in the eyes of Spotify at least, it seems we are all equally worthless (to paraphrase Gunnery Sergeant Hartman).

Gunnary Sgt. Hartman – recently appointed the new CEO of Spotify

This year isn’t going too well for the subscription model with only one company in the world (Pandora) making a profit, raising questions about the sustainability of the model as it stands. So surely iTunes et al. needn’t be quaking in their boots? But perhaps they should? Let’s not forget how the major labels dismissed digital distribution as a flash in the pan back in the ‘90s, and how meteorically it came back to bite them in the proverbial. The explosion of digital piracy was really down to the music industry’s lack of foresight, a massive 80’s cokeover and a desperate but doomed desire to maintain the status quo. They failed comprehensively to take the bull by the horns and develop a legal download system when the technology was first made available to them. The fact that it took a computer technology company to step in and calm the waters while the music industry flailed around in a panic-induced seizure of litigation and deflated lethargy should be an eternal source of humiliation.

Surely Apple have their wits about them and won’t let the same thing happen to them. They have the brand power and capital to take on anyone slyly encroaching on their territory, but they appear a little slow off the blocks. Despite the massive losses made in the burgeoning subscription sector, there are a few telltale signals that things could brighten up for those companies able to ride out the storm. We don’t need to look too far into the future (in fact we only need to look a few thousand miles away, to Japan) to see where mobile phone technology is headed. Phones are starting to look and feel increasingly like genuine complete media centres and with mobile WiFi getting faster, better and more affordable it doesn’t take much to imagine 8million songs in your pocket for £10 a month looking like a pretty tempting for the consumer. Spotify, who most certainly haven’t been napping, released Spotify Mobile in September ‘09, and surely it won’t be long before we are offered the first music subscription service as part of a standard mobile phone contract. As we saw with mp3, it only takes a small leap in technology to bring the incumbent system to its knees. At the turn of the millennium, it was cheap broadband. At the start this decade, will the new breed of media-phones be the game-changer?