What has a record company ever done for me but humiliate and torment and drag me down?

– Iggy Pop, on why he decided to sell his new album himself

Much of what we saw at CES relates to things we’ll be seeing 24 months out. In my mind, it’s all good: we’ll be able to target better, we’ll be able to segment better. The ads will be delivered on screens that are sharper, look better, larger, which ultimately provides more effective communication. There’s one last element: in the role that we [media buyers] play, we have a responsibility to ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business, doesn’t destroy the content amortization business, isn’t disruptive simply for the sake of being disruptive.

If it does alter the supply-and-demand equation, it needs to do so positively, not negatively. When you have the share of the deal volume that we do, you can’t just be passive about it. You have to try and influence it. The technologies and devices that begin to get manifested at a trade show like this needs to be guided, so that it all works out in the best interests of our clients.

– Irwin Gotlieb, Global CEO, GroupM; originally appeared at TVExchanger

We have a responsibility to ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business.

A bold statement and, it seems, a common mindset for many incumbent business giants in their respective industries; a mistaken belief that they can somehow coax disrupting forces (be they new companies, or larger macro consumer trends) into conforming to their legacy business models and cost structures. As we have seen countless times, the actions of incumbents when faced with technology disruption often is to turn to litigation, legislation or other non-market strategies (i.e., anti-trust investigations, artificial price barriers) in an attempt to delay or block the challenging technology or companies. This perhaps works as a delaying tactic in the short term (Rio MP3 player case, Napster, book publishing agency pricing model with Amazon) but fails in the long term.

Mr. Gotlieb’s apparent belief that he and other advertising agency leaders can “ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business” is futile in the long run, but perhaps more pernicious is the implicit arrogance of thinking the market force of the Web can be channeled into their bank accounts by sheer force of will. Of the many problems with this way of thinking, paramount is the ability to rationalize away making the hard choices and decisive actions to ensure the GroupMs of the world play a vital role in the new economy as they have done in the legacy one. (Cue Scotty from Star Trek… “You cannot change the laws of physics.”) For GroupM and other incumbents, it’s difficult to fathom, given how entrenched and advantaged they are, that they could drop the ball. But many will, as history has so often shown in times of market transformation.

Technology forces that bring greater efficiency and transparency to markets simply don’t care about privilege, access and rolodexes. They disrupt predecessor markets because of structural problems like price opacity and false scarcity that no longer “work” in the new market. Look at Google: its entire approach to advertising is to remove the middleman — just as, increasingly, the media-buying side of traditional agencies is reliant on the inefficient middleman, marketing up the cost of media to provide their services. Google is now selling $40B of media every year, the majority of it without a middleman (or at least with a different sort of middleman, and in any case, getting far lower margins than in traditional media bought by agencies.)

We watched as the music industry delayed its demise by suing Rio, Napster and literally hundreds of others, delaying the adoption of new business models not based on scarcity. We listen to Jeff Bewkes decry Netflix as the Albanian Army, as he feverishly works to reduce its influence with his content. We observe the movie industry fight with everything it has to protect the windowing strategy and defend limited access to content instead of moving toward open and immediate paid access to their movies. (Fantastic post on this from Rich Greenfield here, “Innovate Don’t Legislate” — registration required.)

And, as a microcosm of this larger conversation, we watched, over a very short period of time in the SOPA/PIPA debate, as the Web demonstrated the disruptive advantages of network effects and scale, as over a period of weeks, legislation that appeared all but ratified was shuttered, up to and including an implied Presidential veto.

Heady stuff. Granted, if we extend the metaphor and use SOPA/PIPA as a microscope, there are extremes on both sides, and it will be messy and require compromise if the big media incumbents and new technology disruptors are to learn how to co-exist. For big media companies and the service businesses that cater to them, this means recognizing the practical realities of changed business models — probably for the most part that their cost of production needs to drop dramatically and they need fundamentally to re-think distribution and customer relationship management to remain profitable and relevant.

On the tech side, it means recognizing that progress requires some level of institutional engagement and political compromise — because like it or not, this is the way our system of government works and how laws get written. This won’t be easy or natural, as it’s anathema to the culture of how new media tech and the start-ups that encompass it conceptualize and operate in our worlds. Facing reality and then demonstrating a bit more collaboration and compromise, however, would go a long way and be better for the customers who, like our democracy, these industries ultimately serve. Because it’s the customers who are in the driver’s seat, and increasingly they know it.

Perhaps it’s pollyanna-ish, but I bet on technology. Big media has the most to lose, because after decades of the game being rigged in its favor, the tables are turning. Of course it’s difficult and painful for media incumbents to embrace digital markets, considering these markets ultimately are smaller and have less attractive economics. That’s presumably why big media executives are so well compensated — if it were easy, anyone could do it. The alternative, however, is to be disrupted by new entrants that don’t have any allegiance to aging business models, and couldn’t care less how out of whack someone else’s cost structure is.

Coming back to Mr. Gotlieb’s view, I offer these thoughts. First, incumbents won’t be able to meaningfully guide the technology juggernaut of more efficient advertising mechanisms, so it’s perhaps better for them to focus their energies and advantages toward thoughtful reinvention. New technologies are bringing actual measurable performance and more efficient means of buying to a large share of advertisers. The challenge for incumbents is to adapt their enterprises to embrace this chaos and profit from it. The good news is, it’s doable. However, to think they can bluster their way out of this disruption is a fool’s errand.

David Pakman has been an internet digital media entrepreneur since 1997. He co-founded the Apple Music Group in 1995, worked at N2K (one of the first online music companies), co-founded MyPlay (pioneer of digital music locker), and was COO/CEO of eMusic for five years. Pakman is now a Partner at Venrock in NYC, investing in early stage internet and digital media companies.

How are you?

Okay, okay–bad question. I know.

What I meant to say is–why so quiet?

Since Amazon launched its cloud-based music service on Tuesday morning, you guys have barely said a peep.

To date, the only on-the-record comments I’ve seen are from a Sony PR rep, who expressed disappointment that Amazon didn’t get licenses from you in advance, and from Sony/ATV publishing head Martin Bandier, who said Amazon was “really disrespectful.”

Off the record, you guys are more vocal. You tell me that even though Amazon has said it doesn’t need a license for its service, it’s now talking about getting one from you anyway. And that some of you are considering legal options.

But what options do you have? As The Wall Street Journal’s Ethan Smith notes, Amazon’s service appears to be modeled on Cablevision’s cloud-based DVR system, which the Supreme Court blessed in 2009.

And lawyers aside, it’s hard for most people to understand what your beef is: If Amazon wants to let me store my music in the cloud and listen to it whenever I want, what’s wrong with that?

So here’s an open invitation: Does anyone want to explain, on the record, what Amazon has done wrong? Beyond being a bit rude, that is.

I’ve already asked all four of the big labels–Sony, Warner Music Group, EMI and Universal–to sound off, and so far I haven’t gotten a response. So I figured I’d ask again here, just to make sure my request didn’t get lost in the mail.

And to be clear: I’m easy. We can talk in person or on the phone. Frankly, at this point I’d take an email. Just something staking out your position, on the record. I’ve got unlimited space here on the Web. So you can go on as long as you’d like.

Hope to hear from you soon!

Thanks and regards, pk

You may be able to get that via Google (GOOG) and Apple (AAPL) one day, and both companies have talked about the idea with the music industry. But in the meantime, mobile entertainment start-up mSpot says it can offer the same thing.

The basic idea: You can take any music you own, as long as it’s in an unencrypted file format, and move it to mSpot’s servers, then play it back on different devices–your PC, your phone–on demand. The service is free for the first two gigabytes of music you upload, and mSpot charges for more storage: An additional 10 gigabytes (the equivalent of 8,000 songs) costs $2.99, and 100 gigs (80,000 songs) goes for $13.99.

One big caveat: The service, which Google showed off at its developer conference last month, supports only Android handsets. So this won’t get your music to your iPhone, at least for now.

Another big caveat: MSpot doesn’t have licenses with any of the big music labels. CEO Daren Tsui says his company doesn’t need agreements with the labels to let users stream music they own from the cloud, but Big Music disagrees. So unless they can reach an agreement, Tsui and mSpot could find themselves fending off a lawsuit like the one EMI filed against Michael Robertson’s MP3Tunes, which offers a similar service.

However, mSpot’s biggest challenge probably won’t come from the labels, but from competitors. Tsui is basically offering the “iTunes in the cloud” scenario that people would like to see from Apple, but without Apple’s cooperation. If Apple gets around to offering its own version, that would make it awfully difficult.

And Google seems even more interested in launching its own version of the same service, but without mSpot’s help. At the same Google I/O conference where mSpot launched in private beta, Google announced it had acquired Simplify Media, which makes software designed to stream music to mobile phones–news that took the mSpot people by surprise.

But those are future-tense moves, and mSpot is open to the public this morning. Will that be enough of a head start?

The result? Music sales are slowing.

Warner Music Group (WMG) said this morning that it has seen unit sales growth at Apple’s (AAPL) iTunes decelerate since the price increase: Industrywide, year-over-year “digital track equivalent album unit growth” was at five percent in the December quarter, down sequentially from 10 percent in the September quarter and 11 percent in the June quarter.

And since iTunes sales make up the majority of Warner’s digital revenue, growth is contracting there, too. In the last quarter, digital revenue at the label was up eight percent compared with a year earlier, when that number was 20 percent.

The positive spin here is that music downloads are a “mature” business anyway. So by raising prices, the labels are simply extracting whatever value they can.

And indeed, Warner CEO Edgar Bronfman Jr. argued that the pricing change has been a “net positive” for Warner. But he also suggested that in hindsight, perhaps it wasn’t a great idea to raise prices 30 percent during a recession.

So here’s the question for the book industry, which has been working very hard to boost the price for its digital goods: Which lesson do you learn from this?

My gut is that the industry will see this parable the way Bronfman apparently does: If you can move prices up early in the digital adoption cycle, you’re much better off.

During the earnings call, Bronfman sounded a bit wistful as he noted the book industry’s apparent success, with the help of Apple, at raising prices above the $9.99 floor Amazon (AMZN) had set. “It’s interesting that the book publishing industry, on the iPad, has much more flexibility than the music industry had,” he noted.

The counter here is the one that seems obvious to everyone else: Lower prices and you can sell more stuff. Looks like we’ll be getting another real-world test of this economics lesson soon.

The conglomerate’s music division doesn’t represent much more than a footnote in its overall financial picture, but in the last quarter, it was at least a positive footnote. Sales were up two percent–seven percent if you cancel out currency fluctuations–and operating profit was up 8.2 percent.

Hard to argue that this uptick will be sustainable, though. Sony (SNE) says the boost came from a couple individual success stories that will be hard to repeat, for obvious reasons: People bought lots of copies of the soundtrack to “This Is It,” the Michael Jackson concert movie, as well as the debut album from cultural oddity/viral video favorite Susan Boyle.

Looking for more traditional music business news? I can oblige: Music industry types tell me they’re freaked out that physical sales could take another steep tumble this year if retailers like Wal-Mart (WMT) and Best Buy (BBY) shrink the tiny amount of floorspace they devote to CDs yet again. And they’re also worried that digital sales are finally flattening out.

The music labels love iTunes because it gave them a new revenue stream while CD sales withered away. And the music labels hate iTunes because it helped CD sales wither away by giving consumers the chance to replace $15 discs with $1 songs.

But now, as Apple prepares to launch e-book sales along with its new tablet, the company seems to be taking a different tack. It’s letting book publishers push their digital pricing up instead of down.

The Wall Street Journal reports that Apple (AAPL) was still haggling with publishers Tuesday night, but says the gist of Apple’s offer is this: Publishers can set their e-book prices at $12.99 or $14.99, well above the $9.99-or-less price point Amazon (AMZN) is pushing.

Apple’s terms would actually generate less money per sale for publishers than Amazon currently does, but publishers are so worried about digital cannibalization that they seem willing to take a hit in order to protect their paper-and-ink products. WSJ:

In adopting the Apple model, the balance of power would shift at least partly back to publishers, which regain control of pricing. In setting higher prices, they could provide a level playing field for all e-book retailers. The potential for publishers is that the device may generate greater volume for e-book sales.

But note that Apple isn’t offering publishers complete control of their pricing as it does with developers on its App Store. And while Apple is giving publishers more latitude, it is being more aggressive than ever with the TV business, reportedly by pushing the networks to cut prices for their shows.

The other big caveat is that if Apple does want to sell e-books for 30 percent to 50 percent more than Amazon, those e-books are going to have to be pretty special. Simply adding a dash of color and some graphics won’t cut it–these things will really need to be “enhanced” to justify the premium. Figuring out how to do that while keeping margins intact is a whole other story.

Plenty of time to hear about that later, though. For now, let’s see what Steve Jobs has to show us today.

Digital Daily’s John Paczkowski will be reporting live from the Yerba Buena Center starting at 1 pm ET; head over to his liveblog to catch the action in real time.

[CORRECTION: My assertion about NPD's unit sales data below is incorrect: The tracking service counts 12 digital download singles as the equivalent of one CD. That makes Apple's share of the market that much more impressive, since singles make up the majority of iTunes sales.]

Ready to toss dirt on the old, unloved CD? You’re going to have to wait a while. Compact discs are increasingly hard to find (at least in physical stores), but someone out there keeps buying them: The ancient format still makes up the majority of music sales in the U.S.

Here are the data for the first half of the year, via the NPD Group consumer-tracking outfit: CDs made up 65 percent of the music market, while paid digital downloads accounted for 35 percent. The digital share has increased from 20 percent two years ago, and Apple’s iTunes (AAPL) alone makes up 25 percent of overall sales*, so you’re going to hear lots of proclamations about Steve Jobs’s ascent to the to top of the music industry.

But hold off on that, just a bit. Because those numbers are skewed even more in favor of the CD than they appear at first glance: They’re measuring unit sales, not dollars. And given that the majority of digital sales are in the single format (i.e., a dollar or so a pop), that means CDs (at $10 or so a pop) still account for the vast majority of music revenue.

Which is why the industry is still tied to CDs, even though no one you know buys them anymore. And it explains why the industry is working on two separate digital formats (dubbed “Cocktail” when sold by Apple, and CMX when sold by anyone else) designed to induce buyers to pay for CD-like bundles.

It won’t work. At best, they’ll convince some digital album buyers to upgrade, but the music business is once again a singles business, and it’s going to remain that way. But you can’t blame the industry for trying.

By the way, there are decent odds you’ll hear about Cocktail at Apple’s September event, which Digital Daily’s John Paczkowski says is scheduled for Sept. 9. Mark your calendar.

*If you’re keeping track: Wal-Mart (WMT) and Target (TGT) trail Apple in the overall market. And iTunes still dominates the digital download market with a 69 percent share, while Amazon (AMZN) is a distant second with eight percent.

It’s not the fault of the ISPs, never mind that they are, according to McGuinness, “destroying the recorded music industry” by failing to tackle piracy. Nor is it the fault of Apple (AAPL) and the makers of other digital media players who are wrongly profiting from their “burglary kits.” Nor can it be blamed solely on Silicon Valley and its “entrepreneurial, hippie values,” which in McGuinness’s opinion have bred a deep disregard for the true value of music.

No, it appears there’s no one to blame for this particular cock-up but Universal Music, which mistakenly put the album up for sale earlier this week at getmusic.com.au. It was only available there for a brief period, but there was time enough for fans to buy it legally. Not surprisingly, copies of the record began showing up on torrent indexes a short while later.

An embarrassing turn of events for a band that had gone to extraordinary lengths to prevent exactly this situation from happening. Still, as TechDirt’s Mike Masnick notes, there’s a lesson to be learned here. “At some point, folks in the music industry are going to (finally) recognize a rather simple fact: it just takes one digital copy of a song/movie/whatever to get out there, and it’s everywhere. You can’t stop it. No matter how annoying it is. No matter what laws it violates. It will happen.”

“RealNetworks took this legal action to protect consumers’ ability to exercise their fair-use rights for their purchased DVDs,” the company said in a statement. “We are disappointed that the movie industry is following in the footsteps of the music industry and trying to shut down advances in technology rather than embracing changes that provide consumers with more value and flexibility for their purchases. For nearly 15 years RealNetworks has created innovative products that are fully legal, great for consumers, and respectful of the legitimate interests of content creators and rights holders. RealDVD follows in that tradition. We expect to successfully defend our right to make RealDVD available to consumers and consumers’ rights to use it.”

We’ll see, I guess. Clearly the silly little “RealDVD is for saving a DVD you own” disclaimer attached to the software isn’t going to cut it with Hollywood. I imagine we’ll be hearing from the Motion Picture Association of America before the day is out.

“The amount being paid to the music industry, even though their games are entirely dependent on the content we own and control, is far too small,” Bronfman said during an earnings call today. “There is what I would call a very paltry licensing fee per song. … I think the industry as a whole needs to take a very different look at this business and participate more fully and in a much more partnership way. And if that does not become the case, as far as Warner Music is concerned, we will not license to those games.”

Leaving aside, for a moment, the question of why Warner (WMG) agreed to a royalty scheme it apparently finds unappealing, you’ve got to wonder why the company persists in lambasting these new media that so obviously invigorate the industry and promote its music. And beyond that, you’ve got to wonder why Warner is doing it at a time when games like Guitar Hero and Rock Star are clearly becoming viable distribution outlets.

Of course, we already know the answer. Bronfman himself gave it to us in a speech last year. “We used to fool ourselves,” he said. “We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find, and as a result, of course, consumers won.”

“The amount being paid to the music industry, even though their games are entirely dependent on the content we own and control, is far too small,” Bronfman said during an earnings call today. “There is what I would call a very paltry licensing fee per song. … I think the industry as a whole needs to take a very different look at this business and participate more fully and in a much more partnership way. And if that does not become the case, as far as Warner Music is concerned, we will not license to those games.”

Leaving aside, for a moment, the question of why Warner (WMG) agreed to a royalty scheme it apparently finds unappealing, you’ve got to wonder why the company persists in lambasting these new media that so obviously invigorate the industry and promote its music. And beyond that, you’ve got to wonder why Warner is doing it at a time when games like Guitar Hero and Rock Star are clearly becoming viable distribution outlets.

Of course, we already know the answer. Bronfman himself gave it to us in a speech last year. “We used to fool ourselves,” he said. “We used to think our content was perfect just exactly as it was. We expected our business would remain blissfully unaffected even as the world of interactivity, constant connection and file sharing was exploding. And of course we were wrong. How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find, and as a result, of course, consumers won.”