Smaller, smarter companies are simply out-competing illegal filesharing.

Stand by for the death of illegal music downloads. It is already gathering pace, being one of the fastest growing — or contracting — activities on the web. It is not happening because of the music industry’s rough justice (such as suing customers); nor because of new penalties for people caught downloading illegally — though doubtless they will claim credit.

It is happening because of an explosion of new companies offering tracks free, legally, without having to go to peer-to-peer sites and thereby avoiding the risk of getting bogus tracks or viruses. People are flocking to them simply because it is a much easier way of listening to music. None of these sites were started by the music industry, which has diverted energies, until recently, into propping up the ancient regime instead of preparing for the digital revolution. Virtually all of the payments systems for digital music — from iTunes to Nokia’s Comes With Music (http://bit.ly/vicmus1) — have come from outside the music industry. What a wasted opportunity.

Two of the newbies, Spotify.com and We7.com, alone have gained at least 5 million new users in their first year, mainly people who previously downloaded illegally. They use so called “freemium” business models offering streamed tracks for free if you accept an advert or for nothing if you take out a monthly subscription. We7, a London company which is web-based, gets a lot of traffic from people who don’t know it’s there — they have found it by typing the name of a track into a search engine. This model could have a bright future as long as the music industry doesn’t snuff it out by extracting too much income from licences from each track, something that hinders scaling and worries Spotify and We7. Steve Purdham, CEO of We7, points out that different music services are popping up based on the context in which they operate. He calls his service “better than free” because it is easier than downloading illegally. Other music services launched or in the pipeline include Rdio.com from the founders of Skype, Virgin Media, Sky Songs (http://bit.ly/vicmus2) and mog.com, which plans a $5 a month inclusive service.

The moral is simple. We are not thieves, but if a supermarket leaves its doors open and shuts down the tills, it should be unsurprised if people help themselves. The music industry lets illegal downloading thrive because it didn’t provide an easy, affordable way to pay. That was left to Apple’s iTunes, the likes of Last.fm and now a new generation of sites, which offer music at prices that reflect more fully the near-zero cost of distribution. While the music industry was lamenting that users wouldn’t pay for tracks, the same people were paying up to $5 a pop for ringtones on their phones. Why? Because phones have an easy payments system.

The music industry still complains of a billion illegal downloads every year, but has yet to prove that any significant economic damage is inflicted on it. This is partly because lots of those who have — and will continue to — illegally download wouldn’t be buying them anyway and may not be listening to many of those they do download. It is often easier just to listen to the radio or internet radio (where you can tune into a track playing at that moment anywhere in the world). And some of the heaviest downloaders are the biggest buyers of new music.

While the music industry has been complaining — successfully — to the government and the EU Commission that illegal downloads are destroying it, something rather curious has been happening. Are you ready for it? This year is the most successful in the U.K.’s history for singles sales. More than 117m have been sold — comfortably beating the previous record of 115.1m, set in 2008. And this is with Christmas to come. Yet the industry is still belly-aching about illegal downloads. I rest their case. — © Guardian Newspapers Limited, 2009

RELATED NEWS

Inside account November 14, 2009

‘Blue’ music released on pen drivesSeptember 18, 2009

The impact of decline in iPod salesSeptember 9, 2009

More In: Comment | Opinion