In a nutshell, Napster is forcing the middlemen into the 21st century more quickly than they would like. There has been a realization for a number of years that video on demand was going to be available someday, and that it would bring huge changes in the way that movies were consumed at home, but that day hasn't come yet. I don't think the middlemen realized that their day would come sooner than the video industry, but it has. Music on demand is here - Napster has brought it to fruition. Napster, of course, isn't under the control of the middlemen - it exists due to a private community of users. This network of users generally hasn't been paying attention to copyright laws and they aren't generating any money for the middlemen. The middlemen don't forgo profit gracefully and they have enlisted the courts to preserve their rights using the copyright laws.
The transition to audio on demand is going to be traumatic for the middlemen. The copyright laws are completely on their side, but the nature of the whole process of musical vending is undergoing change, and the middlemen are way behind the curve. Many of their functions will not be needed - in some scenarios, there is no need for any of them as they are currently constituted (except for access to older music, where they hold the rights). The middlemen developed in response to the need to create, promote, transport and sell physical objects - wax cylinders, records, tapes and CDs - which contain music. Most of the expense and risk of the middleman is associated with the physical media involved. Record and CD plants are expensive; cassettes and 8-tracks were cheaper, but were never dominant enough to avoid the need for the expensive plants. A middleman making and selling music the public doesn't want will lose a lot of money fast. Music on demand doesn't involve the transfer of physical media; both middleman expense and their risk are greatly diminished. A song that doesn't sell occupies a few cents' worth of hard disk space (ignoring recording costs and the logistical costs of a music server, which should be minor). You need to have some winners if you want to make money and you're a middleman, but the cost of "losers" is negligible.
One area where I think there will be a need for middlemen is music promotion. Some mechanism will be needed so that you can find new music that you are interested in. Today's mechanisms aren't very efficient at this, unless you like what the mass culture is currently pushing. With the ability to provide music becoming much cheaper, there should be much more choice available. I think an effective mechanism would be a system where you define what you like, this information is analyzed, and recommendations of similar new music are made. This isn't at all like today's mainstream music promotion, and it will require some integrity on the part of the promoters. What they recommend really should have some relationship to what you like (and not what they want you to buy) and they need to commit to not misusing the information you would provide them with (whatever that might entail).
An audio on demand system which properly rewarded the artist, however, would probably improve their lot. Now, for all but the most popular musicians, monetary rewards in the music industry are not huge. Even popular musicians have found themselves on the short end of the stylus in their dealings with the middlemen. After all, if you wanted to make a record or CD, you had to deal with them (dig up a copy of Melanie's "The Nickel Song" for an artist's perspective - you can find it on Napster, but you'll cheat her out of her nickel in the process). This is changing rapidly, both because of the promise of music on demand, and also because of cheap CD recorders.
What the future of music on demand holds for the consumer is more clouded. I don't see the Napster / Gnutella free-for-all paradigm surviving - the legislative and law enforcement community supports property rights too strongly for that. Artists will often bypass the middlemen and deal with consumers on their own terms, which will probably benefit all but the middlemen. Those consumers wanting access to older works, still covered by copyright which the middlemen hold, may have a less pleasant future - there isn't much to cause copyright holders to do anything but what they want to with this music.
A change may be needed - respect for the copyright laws is rapidly eroding. A bit of copyright law history, as well as how it's being applied to the web in domains besides music, would be instructive here, but I've run out of space for this month. Next month, besides copyright law, I'll talk more specifically about how music on demand might be implemented and who might be doing it.
CATBAR - Brain Candy #45 - Music on Demand Thanks to Napster / Brian Rock / Jun 26 2001