How intelligence moves to the fringe of the network: an interview with author Michael Lewis

There are two things going on: one is a conversation between the big entertainment companies, the music labels, The Time Warners of the world, and the capital markets, where they are trying to persuade investors that their business is not fundamentally threatened by the technology. So the accounts in the press are very important to them, because perceptions shape financial decisions. And if accounts in the press say that all is lost, they concede the game. They realize that one day this technology is going to undermine their business, and that's when investors head for the door. That's one thing that's going on.

The second thing is that they can't stop it, but they are slowing it down. And I think that they think, and they might be right about this, that if they slow down the undermining of their copyrights, they might find a clever technical solution to the problem that enables them to capture the business. Bertelesman is on to it. If Napster can be designed so that people pay small amounts for downloading songs, it may be that most people would rather do that then go to the trouble of stealing it. If you make it easier to pay a little bit for it, a little bit, micropayments kind of thing, then maybe that would dissaude most people from piracy. And that might happen. That might be a new business model the music companies can live with.

Monitor: To use another example from your book, Marillion, what I see happening is ... the music companies have lost either way. Because if you do convince people to buy online, well, that will make it a lot easier for bands like Marillion, or other artists, to go "Why should I do business with a record company, when I can just set up my site, they are use to paying online, I can charge them a certain amount ..."

Lewis: You're right, this is what will happen. But what they are depending on is the inertia of the artists, which is probably considerable. And it will take some time. I'm sure they realize that if they aren't a dying industry, they are an industry in decline.

And what will happen is that intelligence will move out of the industry. Smart people won't want to work in the record industry. So it's going to be, like, savings and loans or government bonds, or other industries that were kind of hot, and that economic forces changed, and undermined them and made them kind of dull, and much less profitable and sexy. I think that's what will happen.

Or they maybe able to morph into something else where they are not just selling records. If you think what a record company is, it's several different things at once. For most musicians it's a bank. It bankrolls them. Well, Marillion has shown us why that won't be necessary, possibly. It's a distribution mechanism. Well, this is the great problem the Internet poses. The Internet is a much better distribution mechanism than record stores. But it is finally a PR firm. And the key to their PR strength is their relationships to the radio stations and record companies can get records played. And those relationships are valuable. And my guess is that is their most durable asset, is their public relations ability, so that is maybe what happens.

(In part two, coming Thursday, Lewis talks about how the Internet will change the political culture, and now many of the early supporters and architects of the 'Net are growing uneasy with what it may become.)

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