Here is a list of 9 trends and challenges that were recently published as part of an overall report on Digital Music by Redwood Capital.  You can download the entire report here.  What I find most bothersome about all of this is that it is a very backward looking, rationalization and justification about the collapse of the recorded music business and the fantasizing about protection of the label’s assets and proliferation of the traditional business model.  While it may be a good snapshot of some of the major issues the industry has faced and a good way for people to orient themselves, this is hardly the way to think about the future.  No wonder the investments made in music startups over the past decade or so by the VCs and Investment Bankers have not panned out.  If this is the way VCs and investors look at the world of music, I got to tell you, we are all in a lot of trouble.

I have pitched and have had many deep discussions with investors over the years about the music industry and have learned one thing that is holding the entire industry back.  Investors say they care about the music business, but when it comes right down to it, they don’t care about the musicians.  Not one of them would bet on a new label or artist driven business model.  They all wanted to back technology or distribution, but not musicians.  Pathetic.

I have taken the liberty of annotating some of these “treneds and challenges” below:

1) Rampant Piracy Continues

Despite a decade of aggressive attempts by the industry to reduce illegal downloads and peer-to-peer file sharing and preserve what remained of the old model, the biggest challenge facing the industry is still the fact that consumer attitudes towards paying for music have been forever changed, especially amongst the ever-important younger demographic. This places tremendous pressure on industry players to provide the consumer with an experience that exceeds that which can be achieved illegally and for free. The solution likely lies in packaging music with other products and services that consumers expect to pay for, such as mobile phone service, Internet connections, ringtones, concerts, merchandise, etc., and taking advantage of improvements in broadband speed and access to provide a service that can’t be replicated for free. – Certainly this is true for recorded music and something that we predicted nearly 8 years ago in our book on the Future of Music. However you cannot expect a healthy market when you have to “package” what you are trying to sell with something else as the primary means of distribution.  New forms of music experiences would certainly trump “bundles”.

2) Strategy of Major Labels

Despite numerous attempts to cut out the labels as middlemen, and the potential damage they have done to their relationships with the public after years of suing their customers, the major labels still have tremendous clout in determining the fate of the various new distribution models and emerging companies. While backing by the major labels by no means guarantees any degree of success, opposition from the labels is an obstacle that is extremely difficult to overcome. That being said, many of the larger players today began without the blessing of the labels, but once they became too big to ignore the labels were willing to make a deal. – Again I would argue this perspective assumes that the existing music, the existing catalog is more important than the new music, or the music yet to be created.  Tens of millions of dollars have been wasted and countless hours of negotiation sunk into trying to secure licenses to existing major label content by many companies trying to recreate the distribution model for an asset class in severe decline.  I will go out on a limb here and say that the new music matters far more in the future than the existing music, and that licenses from the major labels are far less valuable than the labels think they are.  Perhaps an order of magnitude less.

3) Legal Complexity

Many US copyright laws were written when the only form of music distribution was printed sheet music and as such, obtaining the proper licenses from all relevant content owners is extremely complex. Given the relative youth of the digital music industry, the law is being written and applied haphazardly and has been difficult to interpret. International differences make it difficult to offer consistent products on a global basis. For example, currently Pandora is legal in the US, but illegal in the U.K, and vice versa for Spotify. Developing a business plan in this environment is extraordinarily difficult. – Of course this is true if you are building a business based on catalog.  New labels and music companies that are forming to support new artists can completely eliminate this issue by creating licenses for their content that bundle all the rights in one global license that can be easily acquired.  By using this strategy, new content businesses can outrun old content business and begin to take over the landscape.

4) The End of DRM

The recent decisions by the labels to finally eliminate digital rights management for many applications should represent a landmark change for emerging growth companies in the music space. This greatly reduces a longstanding barrier by allowing compatibility of content and devices across platforms. By decoupling content and devices, consumers can now download a song from their choice of providers and listen to that song on their choice of devices. – Excuse me but the labels had nothing to do with the elimination of digital rights management.  That was eliminated long ago when people began trading MP3 files while all the attempts to distribute “legitimate” digital music failed. This is just the labels saying uncle.

5) Mobile Strategy is Critical

Whereas it has been extremely challenging for content owners across all digital media sectors to monetize online content, consumers do not expect mobile content to be free to the same degree because they have been conditioned to pay for such services. Therefore, we believe that online models that don’t have credible mobile strategies will continue to struggle, and killer mobile apps will prosper. We believe that one of the primary reasons for MySpace’s acquisition of Imeem was Imeem’s mobile capabilities. – Here I agree with the basic premise that a mobile strategy is critical, although have yet to see one that works.  Do people really want to listen to music on their phone?  Is that the killer app?  I expect that something far better is around the corner, more integrated into your life at the moments where you can and want to listen to music.  The damage being done to people’s hearing by the “Ear Buds” sold with the iPod and nearly every other mobile listening device is limiting the experience and holding back the growth of mobile music more than anything.  MP3 sound like crap.  Ear Buds are destroying people’s hearing.  No wonder hardly anyone wants to pay for digital music.  Anyone who focuses on improving the sound quality of mobile listening will find a explosive opportunity.

6) Dominance and Importance of the iPhone

With iTunes’ almost 70% US share in digital downloads, and the iPhone quickly taking market share in the smartphone category, alliances with Apple and/ or apps on the iPhone have become critical to success. Rhapsody, Spotify and Sirius have all launched iPhone apps in the past few months, and MOG’s is expected shortly, and this should give each an important boost in marketing their products. Without the iPhone app, customers would have had to spring for another device to use those services. With customers hesitant to even pay monthly service fees, adding a hardware requirement would have been an insurmountable obstacle in reaching a large customer base. We believe that Apple has been smart in its willingness to approve apps even from services that compete with iTunes. – I love my iPhone, I think it is the coolest thing ever invented.  But I also know that worldwide, the iPhone is just a speck on the landscape of mobile phones.  Will Apple really dominate this space over time?  I doubt it very much.  The vast majority of people cannot afford to buy Apple products.

7) Importance of Wireless Broadband

The widespread availability of broadband in the home and the office in the past decade has enabled computer-based downloading and streaming to develop entirely new methods of discovering, purchasing and listening to music. Many of the previously mentioned business models revolve around this experience. However, the next frontier for the developing models is to take the experience mobile without frustrating consumers. Now that consumers have accepted that cell phones are also music players, the market for mobile music has dramatically expanded, given that 139 million smartphones were sold worldwide in 2008 (Source: Gartner). To date, while streaming services such as Rhapsody and Pandora are a great way to listen to music at one’s desk, the experience on a mobile phone is mediocre at best, given dead spots and dropouts, and in the case of Rhapsody, low bitrate streaming. We suspect that many early adopters have tried these mobile services, only to get frustrated and go back to listening to MP3s on their iPods. Spotify’s and Slacker’s ability to cache playlists may prove to be a good workaround until wireless broadband availability and quality catches up. – I am a firm believer that you do not have to worry about storage and bandwidth, that they will always expand faster than you think they will.  Agreed.

8 ) Consumers Remain Willing to Pay for Exciting New Technologies and Products

Consumers have proven that they are indeed willing to pay for new products and technologies that enhance the music experience or provide new uses for music. The tremendous initial growth of the ringtone market is one example. US ringtone sales grew from almost zero in 2002 to a peak of $714 million in 2007, before dropping 24% in 2008 (Source: SNL Kagan) as consumers ultimately figured out how to create ringtones on their own for free. iTunes has created new value added products that sell at a premium, such as iTunes Pass, which automatically delivers all new product, including exclusive extras, from a specific band to its fans, and iTunes LP, which adds album art, videos, and other extras to an album purchase. Shazam is another good example. Shazam is the second most popular music app on the iPhone and claims 50 million users. Shazam is a unique technology that enables users to use their mobile phone to identify and tag any song they hear in public or on the radio and immediately purchase the song. The app is so popular that Shazam is now charging customers $5 for the premium app, and is limiting free users to five tags per month, and its usage is accelerating. – Completely agree.  This is in line with my basic premise that the new stuff matters far more than the old stuff, and if you can deliver a unique experience to a fan, especially one that is fun and sounds incredibly great, they will eat it up.

9) Convergence of Models

Most streaming services also offer the ability to purchase tracks either with their own ecommerce model or with links to others, most often iTunes and Amazon. To date, most ecommerce models have not offered streaming services, likely out of fear of cannibalization as well as licensing requirements. We believe that as streaming catches on with a broader audience, the e-commerce players will have to offer both. Apple is now more likely to move in this direction with its purchase of Lala, and increases our level of confidence that the streaming model is the wave of the future. – I believe as we wrote about in the Future of Music, that a utility model is the only way to make money with recorded music in the future.  Until music become always on and always available and feels like it is free to you, the market will continue to decline.  It is not so much the convergence of models but the ascendance of a model that will work.  The broadband mobile carriers are the ones that can make this happen.  It is a winner take all business strategy for the company with the balls and commitment to bake paid media distribution into their basic business model.

Comments anyone?

In this economy, it’s hard to imagine anyone making thousands of phone calls trying to give money away. But that’s exactly what is happening as Sound Exchange contacts musicians who have earned, but not yet claimed, digital performance royalties.  And they are building their database fast, by tapping into the cloud of musician profiles available online. How cool is that?

Sound Exchange is a performing rights organization undertaking a massive education campaign about the fact that the rights and revenue exist, and how to go about getting the money.  In the past few months alone, thousands of artists have been contacted.

When sound recordings are streamed on the Internet, played on digital satellite radio, or used on cable music channels, the performers on that recording accrue a small royalty. Those digital performance royalties are collected by SoundExchange, who processes logs from services and distributes the payments to artists. Unlike other royalty societies, who collect and distribute only to their members, SoundExchange collects royalties for all performers, then has to locate and register artists so they can be paid.

If you want to get paid, you have to register with them at Sound Exchange. If you think your music has been played on Sirius-XM Satellite Radio, Internet radio such as Pandora, Yahoo, Live 365.com and AOL, or on digital cable and satellite TV services like Comcast’s “Music Choice” and DirecTV, you can collect.

The data being collected by today’s digital music companies is being knitted together to connect the dots between online listeners and the copyright holders.  By partnering with CD Baby, ReverbNation, SonicBids, Nimbit and others, Sound Exchange is tapping into the long tail of the market, and rewarding musicians who have online profiles – with cash.

CD Baby says they were notified by Sound Exchange that many of their artists were owed money.  They matched their databases and found that thousands of artists had not registered with Sound Exchange and therefore were not receiving their payments. CD Baby then reached out to these members with the good news.

According to iLike founder Ali Partovi, a database matching effort for artists that had uploaded their information onto iLike found more than $8 million for more than 8,000 artists. According to Partovi, the $8 million was just a first-run effort, and a broader initiative involving MySpace Music remains forthcoming. “MySpace has a much larger database, so we’ll be unlocking even more money.”

To stake your claim visit Sound Exchange, or to send an email to info@soundexchange.com

People should pay for their music the way they pay for gas or electricity.

I originally published this article in Forbes Magazine nearly 4 years ago.

“More people are consuming music today than ever before, yet very few of them are paying for it. The music recording industry blames file sharing for a downturn in CD sales and, with the publishing companies, has tried its best to litigate this behavior out of existence, rather than try to monetize the conduct of music fans. These efforts are fingers in a dike that is about to burst. Digital media are interactive, and people want music that they can burn to CDs, share and use as they wish. The music industry should instead look at turning this consumer phenomenon into a steady stream of cash–lots of it.

The industry ought to establish a “music utility” approach to the distribution and marketing of interactive digital music, modeled after the water, gas and electricity utility systems. It should be done voluntarily to work best for all parties, or it may eventually be legislated through a compulsory license provision.

Under a plan colleague Gerd Leonhard and I propose, con-sumers would pay a flat music licensing fee of $3 to $5 a month as part of a subscription to an Internet service provider, cellular network, digital cable service wireless carrier or other digital network provider. This fee would let people download and listen to as much music as they care to, from a vast library of files available across the networks.

These fees would result in a huge river of money. With approximately 200 million people connected to a digital network in the U.S., the potential annual revenue stream for a music utility model could be somewhere between $7 billion and $12 billion for the basic service. That is already comparable in size to the existing U.S. recorded music market, which in 2003 was $12 billion at retail, according to the Recording Industry Association of America. This basic service would be augmented with various opportunities, including packages of premium content, live concerts, new releases, artist channels, custom compilations and more. The revenue potential of these premium sources is enormous, too.

How would this money be divvied up? We propose that the industry voluntarily establish a “music utility license” for the interactive use of digital music. This license would compensate all rights holders, including the record labels and artists (for the master recording) as well as publishers and composers (for the underlying composition), with the license fee to be split in half between the owners of the sound recording and the owners of the composition, after deducting a percentage for the digital network providers. This license would be available to anyone willing to implement its terms. The digital network companies would be required to track and report which music had been used, by employing existing digital identification and tracking technologies.

There is already precedence for such a flat-fee system in cable television and in the utility-like models of public broadcasting in Europe. Streaming digital music is already provided in basic cable plans. Cable television itself at first resisted this model, but its economics eventually led to a larger market, providing more consumer choice and more revenue streams overall. Old media almost never die. Cable television did not replace broadcast television; instead, it expanded the market dramatically, by letting video flow like water into new revenue streams–instead of down the drain.

Certainly a music utility would be a radical and complex undertaking, and there are many important details to negotiate, such as the exact nature of the license, how the funds would be administered, the specific tracking method, what collection of technologies would be employed and others. Yet there are inventors and technologists outside the mainstream music business hard at work trying to figure out how to make this happen. It’s time for the main players in the music business today, namely the large record publishers, to cooperate with the inventors and jointly create a future for music where the money really flows and the global market for music can grow from $32 billion to as much as $100 billion.”

Read the original article from Forbes here, published in 2005.

Today this idea is closer to reality than you might think.  The major labels have seen their revenues cut nearly in half from their peak, and paid digital downloads and advertising models have not grown to contribute nearly the decline in CD sales.  The labels are in a very tough position and are looking at the utility model as perhaps their only remaining path to survival.  The pain has finally gotten too much to bear.

Choruss is a new company spearheaded by Jim Griffin, and incubated by Warner Music Group whose mission is to “build a sustainable music subscription platform providing unlimited access to music for a flat monthly fee”.  Choruss has been diligently acquiring the required licenses from all the “major labels”, independent labels including aggregators A2IM and Merlin and the National Music Publishers Association.  The company has been granted one-year licenses for up to seven universities to offer subscription services for unlimited, DRM-free downloads as a proof of concept.  This trial is set to begin in 2010.

Stay tuned for more info…

A friend just sent over this post on how the newly elected Chairman of the Entertainment Retailers Association,  said that illegal P2P filesharing is the greatest challenge facing entertainment retailers and urged members to lobby Government for a crackdown on a problem he said “is bleeding our industry dry”.

Speaking at the association’s annual general meeting, Quirk said, “Too often the debate over illegal filesharing is portrayed as an ideological battle, but for us this is a commercial matter. Illegal filesharing is damaging our businesses, both physical and digital, on a daily basis, and the Government needs to tackle it swiftly and decisively in order to protect jobs, businesses and investment.

“First the filesharers targeted the music business and the Government did nothing. Now the filesharers have come again for TV and movies. Unless action is taken the filesharers will come for computer games, books, in fact anything which can be digitised and what will be at stake will be not just the entertainment industry but huge swathes of the UK economy. We need action now.”

Read more of this insanity here at Mi2N

Well now…

I was visiting with my Dad last weekend and thought of an interesting parallel between digital music and encyclopedias.

When I was a kid, my father had a summer job going door to door selling Comptons Encyclopedias.  He would carry a couple of these huge books under his arms and try and get the husband or wife to buy the complete Comptons collection for the kids.  This was big business and my dad made a healthy living during the summer.

Well, over the years the encyclopedia book business began to dry up.  To start it all off, Comptons put their entire encyclopedia library on a CD-ROM and sold it via a new company they formed, called Comptons New Media.  They put the CD-ROM in a chipboard box and sold it at Comp-USA,  Software Etc and other retailers for $200-$300.  It became big business for a while in the early 1990’s, and Comptons New Media flourished and was eventually purchased by the Tribune Co for a lot of dough.

It didn’t take long before some hackers cracked the CD-ROM and then pirated versions of the whole enchilada began making their way into stores and online outlets.  By now, of course, the multi-volume Comptons Encyclopedia Book business had gone the way of the dinosaur, and countless pavement pounding salespeople were no longer going door to door selling encyclopedias – and the entire book business basically went away.  Gone in a matter of a few years.  I think they still sell some to schools somewhere.

The same thing soon happened to Comptons New Media as digital competitors emerged, from Microsoft “Encarta” and others, and soon price competition and the internet gave way to this information moving online for free.

Now we have something called “Wikipedia”.

The information contained in the encyclopedias is still being researched and published and edited by now, tens of thousands of people who put it online in a living, dynamic format.  By and large, no one is getting directly paid to do this work, yet no-one can dispute the fact that society in general is benefiting from Wikipedia and other community-based information resources.  You might even notice that there is a lot more information being produced and updated and cross referenced than ever before.  This is all without the infrastructure of the past (ie Comptons) being in-place anymore, and almost no money changing hands.

Just like Comptons, the record industry digitized all of its assets and put the entire thing out there for the public to enjoy.  And just like Comptons the record industry in now suffering from price erosion, shifting formats and piracy.  They can try and hang in there and bash the problem away with legislation, or they could seriously consider other methods of delivery and renumeration, or they could sell off their remaining assets and shut down.  No matter what, the game they have played is over, caput.  Time to face the music and change.

There are no guarantees in business that things will remain the same.  Indeed, the only real constant is change and businesses that try and hold onto the past will be crushed by their own weight and failure to adapt, or in some cases, to just shut down.  Nothing is forever except change.  People should stop complaining about it and start working on creating a future that benefits us all.

Do I know exactly what that future is going to be?  Of course not.  I wish I could say with certainty but I can’t – for now.  But I think it will look a lot more like wikipedia than comptons encyclopedia sets.

A friend just sent over this post on how the newly elected Chairman of the Entertainment Retailers Association,  said that illegal P2P filesharing is the greatest challenge facing entertainment retailers and urged members to lobby Government for a crackdown on a problem he said “is bleeding our industry dry”.

Speaking at the association’s annual general meeting, Quirk said, “Too often the debate over illegal filesharing is portrayed as an ideological battle, but for us this is a commercial matter. Illegal filesharing is damaging our businesses, both physical and digital, on a daily basis, and the Government needs to tackle it swiftly and decisively in order to protect jobs, businesses and investment.

“First the filesharers targeted the music business and the Government did nothing. Now the filesharers have come again for TV and movies. Unless action is taken the filesharers will come for computer games, books, in fact anything which can be digitised and what will be at stake will be not just the entertainment industry but huge swathes of the UK economy. We need action now.”

Read more of this insanity here at Mi2N

Well now…

I was visiting with my Dad last weekend and thought of an interesting parallel between digital music and encyclopedias.

When I was a kid, my father had a summer job going door to door selling Comptons Encyclopedias.  He would carry a couple of these huge books under his arms and try and get the husband or wife to buy the complete Comptons collection for the kids.  This was big business and my dad made a healthy living during the summer.

Over the years the encyclopedia book business began to dry up.  To start it all off, Comptons put their entire encyclopedia library on a CD-ROM and sold it via a new company they formed, called Comptons New Media.  They put the CD-ROM in a chipboard box and sold it at Comp-USA,  Software Etc and other retailers for $200-$300.  It became big business for a while in the early 1990’s, and Comptons New Media flourished and was eventually purchased by the Tribune Co for a lot of dough.

It didn’t take long before some hackers cracked the CD-ROM and then pirated versions of the whole enchilada began making their way into stores and online outlets.  By now, of course, the multi-volume Comptons Encyclopedia Book business had gone the way of the dinosaur, and countless pavement pounding salespeople were no longer going door to door selling encyclopedias – and the entire book business basically went away.  Gone in a matter of a few years.  I think they still sell some to schools somewhere.

The same thing soon happened to Comptons New Media as digital competitors emerged, from Microsoft “Encarta” and others, and soon price competition and the internet gave way to this information moving online for free.

Now we have something called “Wikipedia”.

The information contained in the encyclopedias is still being researched and published and edited by now, tens of thousands of people who put it online in a living, dynamic format.  By and large, no one is getting directly paid to do this work, yet no-one can dispute the fact that society in general is benefiting from Wikipedia and other community-based information resources.  You might even notice that there is a lot more information being produced and updated and cross referenced than ever before.  This is all without the infrastructure of the past (ie Comptons) being in-place anymore, and almost no money changing hands.

Just like Comptons, the record industry digitized all of its assets and put the entire thing out there for the public to enjoy.  And just like Comptons the record industry in now suffering from price erosion, shifting formats and piracy.  They can try and hang in there and bash the problem away with legislation, or they could seriously consider other methods of delivery and renumeration, or they could sell off their remaining assets and shut down.  No matter what, the game they have played is over, caput.  Time to face the music and change.

There are no guarantees in business that things will remain the same.  Indeed, the only real constant is change and businesses that try and hold onto the past will be crushed by their own weight and failure to adapt, or in some cases, to just shut down.  Nothing is forever except change.  People should stop complaining about it and start working on creating a future that benefits us all.

Do I know exactly what that future is going to be?  Of course not.  I wish I could say with certainty but I can’t – for now.  But I think it will look a lot more like wikipedia than comptons encyclopedia sets.

Here is an interesting article/interview by Mark Small and Gerd Leonhard on the future of music marketing from the latest issue of Berklee Today.

“There is no recipe. We can’t go to Universal, Warner Music, EMI, and Sony and say, ‘Here is the solution so you can stay in business.’ says Gerd Leonhard. There is an ecosystem comprising content owners, telecoms, advertisers, marketers, artists, and social networks that have to build the solution together.” Leonhard advocates a blanket license and a flat rate that users would pay for unlimited access to, and unfettered use of, digital music. This method, he maintains, would be one of many revenue streams that could support a new middle class of musicians who are not superstars but who can make a comfortable living in the new music economy.

The day following the conference, I met with Leonhard, who shared more thoughts from his latest book, Music 2.0, a series of essays about the emergence of a new music business model driven by the Internet.* He spoke at length and optimistically about the opportunities he envisions for Web-savvy artists who produce their own music and bring it directly to fans.

Out of Control
For the past 14 years, Leonhard has called for a reevaluation of the prevailing logic in the music industry that exercising complete control over the distribution and use of the assets in record label catalogs is the principal way to make money in music. In the digital era, that model is tanking. Leonhard stresses that computers and handheld telecom devices are essentially copy machines that facilitate the sharing of music, text, photos, video, and more on the Web. In his online book The End of Control, he wrote, “Let’s face it, in our increasingly networked world, the vast majority of media content simply cannot be kept away from its audience. Today in our world of Googles, Facebooks, YouTubes, and iPhones, all content is just zeroes and ones, and trying to prevent its ‘leakage’ is simply futile.”

Everyone knows that the vast array of music is accessible for free via “pirate sites,” software applications that harvest streaming music, and via other sources. Users freely download songs, share files, post songs on their Facebook pages, sync them with their videos and slide shows, and more. For copyright owners-especially the major record labels-the genie is out of the bottle, and litigation against users sharing copyrighted music without payment has yielded little more than bad press. The problem of making enough money to continue producing music is most acute for content creators, whose primary business has been to develop superstars that sell millions of records.

Leonhard has long advocated a shift from tight control of products and copyrights. In what he refers to as the “link economy,” the new commodity is the public’s attention. In this climate, he predicts superstar status will be much harder to attain-and sustain-as the marketplace experiences further fragmentation and mainstream artists compete for attention with lesser-known artists in specific musical niches.

“Thirty years ago, 72 percent of the television audience used to watch Dallas or Gunsmoke,” Leonhard says. “Now 7.1 percent of Americans watch American Idol on a good night. That’s it. There is no ubiquitous TV show these days because there are so many options.”

It’s the same in the music industry. It’s much harder for current artists to sell the number of records their predecessors sold simply because there are more artists out there, more competition for people’s attention. A look at the RIAA’s [the Recording Industry Association of America’s] top-selling albums of all time underscores the point. Vintage artists-including the Eagles, Michael Jackson, Pink Floyd, Led Zeppelin, AC/DC, and several others-dominate the chart. In the United States, the most recent album to sell more than 20 million copies is Garth Brooks’s Double Live album, and it was released in 1998.

Major labels and other repositories of valuable copyright properties may not be wild about the notion that products should take a backseat to audience attention, but they have noted the power of an energized fan base. Leonhard avers that musicians who fully utilize their Internet resources realize that they rather than their CDs are the product, and if they sell themselves properly, they will do well in the link economy.

“In the link economy, the product is the marketing,” says Leonhard. “If you want to promote yourself as a musician, you publish and make everything available on the Web so that people can pick it up and go elsewhere with it. If they like you, they do the marketing for you by telling others and sending links around. In the old days, if you were a star, MTV or the Letterman Show would recognize that by putting you on. Today, your fans recognize your value and send your links to friends, who send them to more people. This is what makes someone a celebrity on the Web. And you can’t buy that; you have to earn it.”

Today, the Web is flooded with content. Anyone with a computer can be a producer. Leonhard contends that this will ultimately raise the bar of artistic quality. “You have to be very good and very unique, and constantly innovate to get people’s attention,” he says. “There are 140 million blogs, and many new ones are created every second. We don’t pay any attention to a blog unless it is good. The same is true with music.”

Show Me the Money
So if musicians loosen control of their copyrights, what sources other than the proposed flat rate on Internet users for access to music could provide income? According to Leonhard, there is a $1 trillion worldwide advertising economy, and Google took in $27.1 billion of it last year. Projections are that in five years, Google’s share could rise to $200 billion. If licensing agreements can be forged with the powerful search engine, the fees could pay musicians for a lot of “free” content. “If Google was authorized to play on-demand music, someone could see my name and play my song,” says Leonhard. “Google would agree to pay a percentage of the revenue from every ad on the page with my song. The fee would be paid to a rights organization like ASCAP or BMI to be divided between all the artists whose music is played. Google can track everything that’s been played, so all artists could be compensated. The technology is in place to do this now. This system is currently being used in China and Denmark.”

It is important for agreements to be made sooner rather than later. When radio began broadcasting music during the 1920s, songwriters demanded a share of the money generated by programming featuring their compositions. ASCAP negotiated for compulsory licenses and radio began paying writers. But there was no provision at the time for a fee to compensate the recording artist if he wasn’t the songwriter. Even today, American radio stations, unlike European broadcasters, pay a fee to the composer or songwriter but not to the recording artist. Radio ad revenue currently yields about $20 billion annually, with the benefit of hindsight we can see that this was a missed opportunity. This situation should be kept in mind as new agreements are made. Half the world now uses cell phones, and a tremendous amount of music is downloaded to handheld devices. In a recent address at Berklee College of Music, Terry McBride, the CEO of Nettwerk Music Group, described the role smart phones already play in the sale of music.

“Musicians need to push for legislation to require issuing licenses for use of content on the Web,” says Leonhard. “Right now if you have a video that gets a million plays on YouTube, you don’t get a dime because there is no license or agreement. Through revenue share, every click, forward, download, [or] video play on the Web would get monetized.”

Fifty Ways
Too many musicians believe that playing gigs and selling CDs or digital copies of their music are the primary ways to make money. “We have to do away with that mentality, because there are 50 other ways a musician can get paid,” says Leonhard. “In the new music economy, you need to build an audience and energize them to act on your behalf and forward your music virally. Later, they can become paying customers. Don’t ask them for their money first. Once fans are sold on you, you’ll be able to ‘upsell’ them special shows, backstage passes, webcasts, a live concert download, a multimedia product, your iPhone application, a premium package for $75.

“When musicians start thinking of themselves as brands, like Nike, they will see that they have more assets than just the zeroes and ones that people can download. Other assets are their creativity, the way they express what they experience, their performance, and their presentation. As a musician and composer, you stand for something. The Web allows you to publish things that showcase who you are and what you do. In 10 minutes of clicking around on your site, people will be able to understand who you are if you’ve put enough out there.”

Even in a time when many have predicted doom and gloom in the music business, Leonhard is optimistic. “Current developments are good news for the artist-provided he or she is good. You have to be different, unique, and honest; have a powerful persona; and know your brand. If what you are doing is real and you are forthright, people will pay you. It’s all about the creator and the person who wants the music. Musicians of the future will do well if they can view themselves as more than someone who wants to be a star and sell a lot of records.”

More from Gerd Leonhard as he once again attempts to predict the future. While many people scoff at those who try and look ahead and light the paths for the rest of us, Gerd is actually quite good at it. Here is a glimpse into his mind and some trends he suggests for the rest of the decade.

1 — We will soon see the emergence of many different kinds of iPhone-influenced Netbook-like devices; some will be Apple-made but most will not. These devices may be 2-3 times the size of an iPhone and will connect to the Internet in every conceivable way, i.e. 3G/4G, LTE, Wimax, Wifi etc. They will be touchscreen, zoom-interface enabled, cloud-computing, speech-controlled, location-aware, mobile-money equipped, socially hyper-networked, always-everywhere-on, HD-camera equipped and possibly project images and audio or even support basic holography.

In addition to the high-end, fully-loaded and perhaps still rather expensive versions that many of us in the so-called developed countries will gobble up, low cost and more basic editions for the developing markets will be sold in the 100s of millions (think India, China, Indonesia…). These smart gadgets will have very low energy consumption and therefore extremely long battery life, may even sport basic solar-power options, and may ultimately cost less than 30 USD, or even be ‘free’ (why bother to sell the box if you can make a lot more $ with selling services…. Nokia?).

It is these mass-market yet very smart and networked devices, together with cheap or free wireless broadband that will really revolutionize reading, newspapers, books and education; not to mention our music, TV and film consumption habits. Content commerce will be completely redefined as a consequence. As BTO told us a loooong time ago: “You ain’t seen nothin’ yet”

2 — Very cheap or free wireless broadband – at fairly high speeds, i.e. at least 2MB / sec – will be available in most places, particularly in the booming new economies of Asia, India, Russia and South-America, and a bit later, in Africa. Funded by the likes of Google and by the future ‘telemedia’ conglomerates, governments, cities and states, wireless broadband will probably reach 3-4 out of 5 people on the globe within 5-8 years. User-generated & derived content (UGDC for those of you that must have an acronym ;), virtual co-production, mobile editing and instant network sharing will explode by a factor of 1000, making control of distribution a very distant concept of the past. UGC or UGDC may make up to 50% of the global content consumption by 2015. Consumers will be (co)-creators, marketers, sellers and buyers, and come in a hundred variations, from totally passive to totally active. Then, indeed, filtering, culling and curation will be the key to success.

3 — Collective blanket licenses that legalize and unlock legitimate access to basic content services via any digital network will emerge, and are likely to take over as the primary way of content consumption, around the world (but in Asia, first). Just like water or electricity which is readily available when moving into a new home, the basic access to content will be bundled into access to digital networks, i.e. via ISPs, operators, telecoms, portals etc. This shift is starting with music (as already done by TDC in Denmark, and Google in China), and will be quickly followed by films, TV, books and newspapers. Access may often – but in local variations – ‘feel like free’ to the user but will in fact generate 10s of Billions of $$ via blanket licensing fees (yes… those pools of money), next-generation advertising and branding, data-mining & sharing, up-selling, re-packaging and many other new generatives. This topic will, btw, be the gist of my RSA presentation tomorrow – if you can’t be there in person, you may want to listen to the live audio, via this link.

I think that governments around the world will call for and / or support the implementation of collective content licenses that wil finally legalize content usage on the Internet, similar to how governments pushed for the radio and broadcasting licenses approx. 100 years ago. Whether these blanket licenses will be voluntary or compulsory remains to be seen – in any case the only alternative is to perpetuate a severely dysfunctional telemedia ecosystem that criminalizes almost all users and stifles innovation while generating virtually zero new revenues for the creators.

4 — Fuel-cells and other next-generation mobile energy sources are a certainty. A serious increase in mobile device power (and therefore, its use) will be achieved by employing next-generation technologies such as fuel cells that could provide for up to 500x the usage time that we have today. This is likely to become a reality in 3-5 years and will revolutionize how we use – and how much we rely on – our mobile devices, especially in countries where there the fixed-line power infrastructure is much less developed or non-existent.

5 — Completely targeted and personalized advertising, delivered largely on totally customized mobile computing & communication devices, will turn the the $ 1 Trillion USD advertising and marketing services economy upside down. Behavioral targeting and user-controlled advertising will, of course, become an even hotter potato and a much discussed challenge, but the good old deal of ‘I give you attention & personal data and you give me value e.g. content’ will be even more pronounced on the Net. In fact, advertising as we knew it is already more or less outmoded and will, during the next 2-3 years, be completely reinvented. Privacy and Trust are the #1 issues here.

The implication is that if your data (within your specific sets of permissions and opt-ins) is used to bring you perfectly synchronized advertising, than advertising really becomes more like content, too. Watch this play out in the mobile advertising space, starting this year, and quite possible boost the global value of advertising-content by more than 100% by 2015. Google will be the main driver here, plus Facebook, Nokia and yes… Twitter (soon to be = Google).

6 — We will witness the more or less complete decline of most forms of physical media within 7-10 years. The very definition – and thus the core economic business models – of newspapers, magazines, CDs, DVDs and books will be completely re-written, and new forms of content packaging will rapidly emerge. We can already see a preview of how this may work in the current mobile applications boom: content as part of software packages; paying for the packaging, the curation, the bundling, the personalization – not just for the zeros and ones that are ‘the copy’. This trend is important not just because it will reflect the users’ (or better… followers’) new consumption habits but also because because of the increasing need to save energy and material costs – and moving from content products to content services will certainly go a long way in this regard. The total decline of printing in people’s homes, and for personal use, will commence, as well.

7 — Paying for privacy will become a distinct option. Today we pay to go online and connect; in the future we may end up paying for the luxury to go offline, disconnect, enjoy the quiet, and give our brain some rest. Maybe if we don’t want to share our click-trails and usage data, we will be able to make cash payments instead – and the more you pay, the more private you can be..?

8 — Travel 2.0: alternatives to ‘actually going there’ will explode: immersive, 3D video, virtual rooms, holography. This is a key development that will nurture new forms of entrepreneurship, education and group working.

Read more from Gerd Leonhard here.

Kevin Kelly has written extensively on the need to create value around digital copies in order to create the revenue opportunities that are falling away every day for digital media. Here is an excerpt from his great essay “Better Than Free”.

Eight Generatives Better Than Free

Immediacy — Sooner or later you can find a free copy of whatever you want, but getting a copy delivered to your inbox the moment it is released — or even better, produced — by its creators is a generative asset. Many people go to movie theaters to see films on the opening night, where they will pay a hefty price to see a film that later will be available for free, or almost free, via rental or download. Hardcover books command a premium for their immediacy, disguised as a harder cover. First in line often commands an extra price for the same good. As a sellable quality, immediacy has many levels, including access to beta versions. Fans are brought into the generative process itself. Beta versions are often de-valued because they are incomplete, but they also possess generative qualities that can be sold. Immediacy is a relative term, which is why it is generative. It has to fit with the product and the audience. A blog has a different sense of time than a movie, or a car. But immediacy can be found in any media.

Personalization — A generic version of a concert recording may be free, but if you want a copy that has been tweaked to sound perfect in your particular living room — as if it were preformed in your room — you may be willing to pay a lot. The free copy of a book can be custom edited by the publishers to reflect your own previous reading background. A free movie you buy may be cut to reflect the rating you desire (no violence, dirty language okay). Aspirin is free, but aspirin tailored to your DNA is very expensive. As many have noted, personalization requires an ongoing conversation between the creator and consumer, artist and fan, producer and user. It is deeply generative because it is iterative and time consuming. You can’t copy the personalization that a relationship represents. Marketers call that “stickiness” because it means both sides of the relationship are stuck (invested) in this generative asset, and will be reluctant to switch and start over.

Interpretation — As the old joke goes: software, free. The manual, $10,000. But it’s no joke. A couple of high profile companies, like Red Hat, Apache, and others make their living doing exactly that. They provide paid support for free software. The copy of code, being mere bits, is free — and becomes valuable to you only through the support and guidance. I suspect a lot of genetic information will go this route. Right now getting your copy of your DNA is very expensive, but soon it won’t be. In fact, soon pharmaceutical companies will PAY you to get your genes sequence. So the copy of your sequence will be free, but the interpretation of what it means, what you can do about it, and how to use it — the manual for your genes so to speak — will be expensive.

Authenticity — You might be able to grab a key software application for free, but even if you don’t need a manual, you might like to be sure it is bug free, reliable, and warranted. You’ll pay for authenticity. There are nearly an infinite number of variations of the Grateful Dead jams around; buying an authentic version from the band itself will ensure you get the one you wanted. Or that it was indeed actually performed by the Dead. Artists have dealt with this problem for a long time. Graphic reproductions such as photographs and lithographs often come with the artist’s stamp of authenticity — a signature — to raise the price of the copy. Digital watermarks and other signature technology will not work as copy-protection schemes (copies are super-conducting liquids, remember?) but they can serve up the generative quality of authenticity for those who care.

Accessibility — Ownership often sucks. You have to keep your things tidy, up-to-date, and in the case of digital material, backed up. And in this mobile world, you have to carry it along with you. Many people, me included, will be happy to have others tend our “possessions” by subscribing to them. We’ll pay Acme Digital Warehouse to serve us any musical tune in the world, when and where we want it, as well as any movie, photo (ours or other photographers). Ditto for books and blogs. Acme backs everything up, pays the creators, and delivers us our desires. We can sip it from our phones, PDAs, laptops, big screens from where-ever. The fact that most of this material will be available free, if we want to tend it, back it up, keep adding to it, and organize it, will be less and less appealing as time goes on.

Embodiment — At its core the digital copy is without a body. You can take a free copy of a work and throw it on a screen. But perhaps you’d like to see it in hi-res on a huge screen? Maybe in 3D? PDFs are fine, but sometimes it is delicious to have the same words printed on bright white cottony paper, bound in leather. Feels so good. What about dwelling in your favorite (free) game with 35 others in the same room? There is no end to greater embodiment. Sure, the hi-res of today — which may draw ticket holders to a big theater — may migrate to your home theater tomorrow, but there will always be new insanely great display technology that consumers won’t have. Laser projection, holographic display, the holodeck itself! And nothing gets embodied as much as music in a live performance, with real bodies. The music is free; the bodily performance expensive. This formula is quickly becoming a common one for not only musicians, but even authors. The book is free; the bodily talk is expensive.

Patronage — It is my belief that audiences WANT to pay creators. Fans like to reward artists, musicians, authors and the like with the tokens of their appreciation, because it allows them to connect. But they will only pay if it is very easy to do, a reasonable amount, and they feel certain the money will directly benefit the creators. Radiohead’s recent high-profile experiment in letting fans pay them whatever they wished for a free copy is an excellent illustration of the power of patronage. The elusive, intangible connection that flows between appreciative fans and the artist is worth something. In Radiohead’s case it was about $5 per download. There are many other examples of the audience paying simply because it feels good.

Findability — Where as the previous generative qualities reside within creative digital works, findability is an asset that occurs at a higher level in the aggregate of many works. A zero price does not help direct attention to a work, and in fact may sometimes hinder it. But no matter what its price, a work has no value unless it is seen; unfound masterpieces are worthless. When there are millions of books, millions of songs, millions of films, millions of applications, millions of everything requesting our attention — and most of it free — being found is valuable.

The giant aggregators such as Amazon and Netflix make their living in part by helping the audience find works they love. They bring out the good news of the “long tail” phenomenon, which we all know, connects niche audiences with niche productions. But sadly, the long tail is only good news for the giant aggregators, and larger mid-level aggregators such as publishers, studios, and labels. The “long tail” is only lukewarm news to creators themselves. But since findability can really only happen at the systems level, creators need aggregators. This is why publishers, studios, and labels (PSL)will never disappear. They are not needed for distribution of the copies (the internet machine does that). Rather the PSL are needed for the distribution of the users’ attention back to the works. From an ocean of possibilities the PSL find, nurture and refine the work of creators that they believe fans will connect with. Other intermediates such as critics and reviewers also channel attention. Fans rely on this multi-level apparatus of findability to discover the works of worth out of the zillions produced. There is money to be made (indirectly for the creatives) by finding talent. For many years the paper publication TV Guide made more money than all of the 3 major TV networks it “guided” combined. The magazine guided and pointed viewers to the good stuff on the tube that week. Stuff, it is worth noting, that was free to the viewers. There is little doubt that besides the mega-aggregators, in the world of the free many PDLs will make money selling findability — in addition to the other generative qualities.

These eight qualities require a new skill set. Success in the free-copy world is not derived from the skills of distribution since the Great Copy Machine in the Sky takes care of that. Nor are legal skills surrounding Intellectual Property and Copyright very useful anymore. Nor are the skills of hoarding and scarcity. Rather, these new eight generatives demand an understanding of how abundance breeds a sharing mindset, how generosity is a business model, how vital it has become to cultivate and nurture qualities that can’t be replicated with a click of the mouse.

In short, the money in this networked economy does not follow the path of the copies. Rather it follows the path of attention, and attention has its own circuits.

Read more from Kevin Kelly here.

Another post from my co-author Gerd Leonhard.

“What are the new, web-native, social & inter-connected business models that will power the future of content creators and their industries?

In 2008, the disruptive force of the Internet finally hit home, and – as is usually the case – it all came much later than we had estimated but the disruption was also much bigger than expected. A quick look at some trends in this context:

* Newspaper revenues are seriously down (25% in some cases); and magazines and other print media are severely challenged, as well
* Digital music revenues are still going up, overall, but very very very far from enough to stop the free-fall of the recorded music industry, in general (approx 20%, globally, would be my estimate for 2008) *pennies for $$, see below
* DVD sales are declining, worldwide, prices are falling, too – and this will only accelerate next year
* Online video views and audiences are up a lot – but so far pretty much everybody has trouble making any real money with online video

“My hunch is that the Internet may well – and soon – bring us an utterly scary reduction of traditional content models that is somewhere in the neighborhood of 1:5, i.e. if you keep relying on the old ‘disconnected’ content revenues models you may eventually see only 1/5th of the financial returns that you had before. This could vary by industry, location and context, of course, but I would dare say that if you stick to your old models the future will be bleak, either way – and this goes for the actual creators but even much more so for the businesses that are build around them.

To me, the bottom line is that most of what used to work just fine in a disconnected world of ‘totally segregated consumers and producers’ will simply not work in the future.

This is why I think 2009 will be year of:

* Totally exploding consumer / user / fan / listener / viewer empowerment (yes, you ain’t seen nothing yet – wait until 2 Billion + people are wirelessly connected via increasingly smart and easy-to-use mobile devices)
* Re-inventing content commerce (such as: charge for access… not just units, bundle content into access, freemium etc)
* Re-evaluating copyright as that sacrosanct, sole, principal, or even main driver of revenue – the solution for what I like to call ‘digital payment-refusal’ aka piracy is not a technological issue but a business problem
* Re-inventing advertising (since new kinds of advertising will no doubt be one of the future drivers of content commerce, as well)
* Getting the telecoms and network operators aboard – for they can’t make it work without content, either!

I do have a hunch that this old Chinese proverb holds a part of the solution: “Tell me and I’ll forget; show me and I may remember; involve me and I’ll understand.”

Read the whole thing from Gerd Leonhard here.

Here is an excellent post by Gerd Leonhard that is well worth repeating.

“We are indeed heading into a future of Attention Revenues exceeding Copy Revenues – and I am talking within 3-4 years here, and probably much sooner in Asia where ‘selling copies’ has never been the #1 money maker for content creators.

A Future where all kinds of attention-based revenues (i.e. not just advertising-as-we-knew-it but revenue sharing of flat-rate offerings, next-generation ‘2.0’ advertising, up-stream selling and marketing, sponsorships and branding, linking and referring, etc) will very likely surpass copy & unit-sales revenues. A Future where many content creators of all kinds, in all locations, and within all levels of accomplishment will make more money based on what their brand stands for, based on their fans aka users having real, meaningful experiences with or through them, and based on who pays attention to them, when and where.

Selling enough copies of one’s work (whether physical or digital, whether books, songs, movies, software or games) to make this the sole pillar of one’s livelihood has in reality always been reserved to those very few creators that are at the top of the heap (i.e. not in the so-called longtail or even the body). And of course, being hit-driven, the companies that have marketed those that can sell millions of copies globally are the ones who will have the most to lose in the short term and during this paradigm switch-over – Hollywood’s latest disaster movies are not going to be themost-watched movies in India, China and Brazil in the future, anymore.

In our immediate future as content creators and companies that serve them, it’s all about gathering and converting Attention – at least until the world is so well-served with feels-like-free content in return for attention that physical copies become desirable again (and they will).

Most musicians and songwriters will make more money with performance-related activities (i.e. concerts, web-casts, life-streams, on-demand and regular Radio, TV, synchronization, sound branding, music in public spaces, etc) then with selling copies of songs or albums. In fact, in less than 3-4 years it probably won’t matter anymore whether it’s deemed a copy or a stream since all content will be available in the network cloud, anyway, and it will be Access that counts, not if it’s a copy or copy – at least if you’re not a recording industry lawyer. We are already seeing this trend if we look at the steadily increasing revenues of public performance organizations (such as ASCAP, BMI, BUMA etc) while observing the rest of the recorded industry’s unit-selling revenues (and so-called mechanical revenues) heading for the vaporizer.

Of course, most book authors (and there are increasingly many – with an estimated 3000 new books published per day) already know that the real money in writing books is not in selling them. Instead – just like with free / open-source software creators – it’s in the increased reputation, in the bolstered credibility, in the enhanced public perception where the income is: book authors get hired to speak, ask to sit on boards of companies, join academic organizations, advise governments, provide input on film and TV productions, and so on. While nothing new, this is a nice example for the rising importance of the Attention Economy: a lot more people can now become their own publishers and can have a go at becoming Author-Brands; the gates are now wide open to either prove yourself or be demolished by your peers (yes… it does work both ways).

The likes of Twitter, Friendfeed, Google, Amazon and Youtube have now given all of us a fairly reliable way of checking what a writer’s reputation and buzz is – and faking it will become nearly impossible to do. The reality is, of course, that 99% of book authors have nowhere to go but up: their revenues from unit sales never did amount to a meaningful income, anyway, so if Attention Revenues are the way forward… it’s all up from here.

Film-makers and TV/Video producers have a lot to gain from this switch to attention-based revenues, as well, even though high production costs will be initially hard to justify for small, niche audience productions – as many web-based TV startups have found out, there is no real money in the long-tail TV/video market yet; mostly because only 3% of the world is on broadband at this time, and those that are are paying too much for it (imho). But let’s keep in mind that public performance (i.e. showings) of motion pictures, TV shows and videos have always generated a very large part of the cash that came in: box office revenues are, after all, nothing but performance i.e. converted attention-based revenues — selling the experience not the copy. And as this won’t change in the future, the movie industry still has a real leg up on the music business.

So let’s take a look how creators (and even their representatives) can turn attention into real cash:

* Public Performance (whether in person or through an increasing choice of media)
* Contributions to other productions (contract work, licenses, remixes etc)
* Endorsements by sponsors and brands (that’s pretty much how the music industry in China does it)
* Referring, linking and connecting to others (generating affiliate and referral fees)
* Lending Credibility and adding value by their participation (events, campaigns etc)
* Generating an increasing number of new up-stream revenues – once you have attention there are many ways to upsell your users to the next level of engagement!

Read the whole post from Gerd Leonhard here.

By Dave Kusek

I actually think the possibilities of making a living in art today are as good, or perhaps better, than ever before primarily because of the communication tools that we have online and the ability to develop relationships with the audience. I think the juice is in the do-it-yourself area of a sole-proprietor musician or a band or a writer on their own or with a publishing company, trying to figure out how they can penetrate the market, make a living, and break through the noise without all the traditional trappings, because all of that is pretty much gone for most people. The opportunity is really in the redefinition of how you go to market with music on a much smaller scale and develop a user base. That’s really where the action is.

From the recorded music side, the reality of the past 50 or 70 years is that a few percent of the people involved in recording ever made any real money off the records. Just a few percent! And if you made any money at all, it was through your songwriting or your touring or your merchandise, or something else that you came up with to provide you with a living. So on one hand, things are not all that different than they’ve ever been, in that you’re not going to make a ton of money making recordings and you never were. The reality is nobody is going to take care of you—you have to do it yourself or you have to form a small team around you to help.

We’ve just begun to scratch the surface of live, interactive experiences enabled by communications technologies—the smart phone, the internet, the broadband connections that we have—where you can create musical experiences between you and a relatively small group of people. Everyone is saying that the concert can’t be digitized, so at the moment that remains a reasonable way for people to make a living where the majority of your income comes from touring. And if you think about interactive experiences that can be created—virtual living room tours, behind the scenes events, having people participate in writing parties or creating music on the fly to suit the audience that you happen to be connected to—I think there are a number of wildcards in there where people have begun to experiment with mapping the live experience onto a communications network. There’s a long way to go there and there’s a lot of opportunity, especially as you see the iPhone and the Google phone and some of the devices from Nokia and others that are giving you video-enabled computers connected to the internet in the palm of your hand. That allows for the distribution of content at a very high level and interaction with your audience that you really never had before, on that one-to-one level or one-to-a-few level. And by making it mobile, you’re getting away from your fan having to be sitting at a desk in front of a computer. As people begin to write for that platform and that potential, I think we’ll see a lot of innovation.

And you can monetize that. I think people will pay for access to artists that they enjoy, and they will help support artists that they respect if they know that most, if not all, of the money is going directly to the artist rather than to the combine. If you have 5,000 fans willing to pay $20 a year for access to your music and the ability to participate and interact with you, there’s a nice pool of money for you to make a living off of. If that blows up to 100,000 people, you’ve got tremendous potential there.

What is your definition of success? That definition tends to be all over the place, but what do you need to sustain yourself in order to focus on your art fulltime? Can you live on $60,000 or $80,000 or $100,000? Probably. Can you make that kind of income writing music, performing regionally, licensing your music into various outlets? Yes, you can. If you focus on creating a career at that level, it’s entirely possible and many people are doing it using the tools that we have today. Instead of chasing the brass ring, you’re just basically trying to be a middle class artist making a middle class income. If you’re realistic about your expectations, you can make a living and spend most of your time focused on your art, whether it’s writing or performing or recording or drawing or painting of photography. It’s certainly possible—way more possible than being famous was ever going to be. You need to think through that because it’s really probably the only opportunity that most people are going to have in this environment—keep reasonable expectations and build up a little business around yourself that’s not grand scale but human scale.

One of the things that I think is holding a lot of this back is it’s very difficult to license music for global consumption. You’ve got to figure out who the rights holders are at every country, there’s often a publishing side and a recorded master side, there may be multiple writers, and the control that has dominated the industry for so long is holding us back. I think it’s something that people need to pay attention to: How can copyright law better serve artists in the digital age and what the digital age will bring?

The record companies have felt the pain of the changes in the marketplace ahead of the publishers. And you can see that the record companies are beginning to change their approach and they’re more willing to experiment because their revenue is down 50% and they’re absolutely scared to death. The publishers are following behind that curve and in my opinion are the larger road block in making deals than the record companies are. So having publishers look at their record company friends and what they’ve gone through and avoiding that is really key to remaining relevant.

With all of these interaction opportunities and non-traditional distribution opportunities, if we had better licensing, easier licensing, more transparent licensing, a more global approach, potentially everyone could make more money. If we stick to the laws the way they are and the sort of country-by-country rights, people who are in that camp will have a disadvantage against new artists who decide to open up their rights with a Creative Commons approach or perhaps another blanket licensing approach. If it becomes easier to license new music from new composers than it is the old composers, guess who’s going to win?

This interview with Dave Kusek originally appeared in New Music Box.

Online journal, New Music Box just published a collections of essays on the future of music. Here are some excerpts:

Recording. Performance. Distribution. Copyright. Publishing. When the most basic terms of your field are in flux, it can be hard to see to next month, let alone into the next year, or to prepare for the next decade. Would you have expected music to be where it is today if you had been asked in 1999?

Amanda MacBlane writes, “In 1999, I was 19 and Napster had just launched. Computers, old midi devices, turntables and lots of samples were the building blocks of many of our dorm room compositions. I came early to the blogosphere and the social networks, and I jonesed for a giant iPod. I was a true believer in technology: new sounds, new ways of making music, new ways of hearing it, new ways of talking about it and new ways of getting it. I would proselytize anyone who would listen.

But as the technology became ubiquitous, my enthusiasm waned. Perhaps it was overkill or, as a proud non-conformist, it was painful to see my “originality” boiled down to some market research figures. Maybe it’s simply because I am getting fixed in my ways.

Don’t get me wrong. I do love the discovery aspect of the Internet. I love that technology has inspired so many people to make music and share it, even if I am not a huge fan of the mash-up. Most of all, I love the possibility of having access to every piece of music ever recorded or movie made from my apartment without having to have shelves specially built.

But I also think Twitter is stupid, that the Long Tail is bunk, and that Pandora has no idea about my musical taste (once it actually told me it had no more suggestions for me). As I spend more time in conference rooms, I am always disheartened by the buzz phrases: Brave New World, access vs. units, monetization and the worst one of all—content. Art is taboo in these places.

Yet having spent time with people on all sides of the situation, I have gained insight into where musical life is headed and had a chance to meditate on my own musical values. Here are just a few of the thoughts that have been floating around in my head:

1/ Music will always make money, but not always for the same people. Whether it’s the record companies or the Internet giants, we just need to make sure that the composer and the musician don’t get cut out of the deal. Of course touring and merchandise will help, but other companies whose business models are founded on music—selling it, streaming it, sharing it, storing it, copying it—need to share their profits with those that create it.

2/ We desperately need flexible, worldwide licenses for music. The Internet has no borders, so why do our licenses? Because as soon as anything becomes worldwide, it becomes as wonky as the UN. Rights holder organizations have been working to achieve this, but a 2004 decision by the European Commission’s Competition Directorate halted a first initiative for worldwide, blanket licenses for the entire world’s musical repertoire. Another anti-competition decision (2008) against European societies spurred by powerful broadcasters looking for cheaper royalties has forbid societies from working together. It’s hard to create a worldwide license for the world repertoire on a national basis. Until the EU is on board, this won’t be possible.

3/ Let’s not leave promotion or guidance to algorithms. Having access to every piece of music ever recorded is great but also very overwhelming. For musicians, how do you get noticed? As a listener without hours of free time, how do you find your next favorite piece? I don’t think a computer algorithm can ever replace the human promoter or guide. We need to facilitate journalism, web radio, podcasts and well-constructed multimedia blogs as well as any new ways of talking about music. This goes back to the licensing issue in part—some of these outlets won’t make much money at all and there need to be licenses available that do not make it impossible for them to operate.

4/ Technology can never replace the physical and social act of making music.
Even in my technology-loving heyday, my professor of Electronic Music, David Borden, insisted that our final piece include a live performance element. Listening to music is great and composing for the computer can certainly be exciting, but the music that means the most to me is that which I have physically performed and shared with others. No computer or killer app can match performing Bach’s B-minor Mass in Caracas with some of my best friends or playing 4-handed piano duets with my mom.

5/ Music education in our schools cannot be abandoned. We can’t democratize production and distribution while limiting access to musical training. Not only will music education help lots of talented kids move past the mash-up, it also helps people appreciate the value of music and the work it takes to do it well. Whatever happens, one thing is for sure: People will always make music and that is very comforting to me.

Read more from New Music Box. Welcome to the Future.

From Eliot Van Buskirk and Wired:

To hear some tell it, file sharing gutted the music industry by encouraging people to gorge themselves on free, illegal content. Indeed, unless Friday’s landmark verdict against The Pirate Bay is overturned, four Swedes will spend a year in jail and owe millions of dollars to entertainment companies for operating a file sharing network.

Nonetheless, sites like The Pirate Bay taught — and continue to teach — valuable lessons to the content industry. Even as music labels and movie studios try to sue peer-to-peer networks out of existence, these same networks have been preparing music labels and movie studios for the emerging social-media world, in which sales form only a small slice of the revenue pie, and what really matters is who likes what, and who pays attention to them.

Facebook, MySpace, imeem, YouTube and other social media sites — which the labels now recognize as a major part of their revenue streams going forward — incorporate several aspects of Napster and other early, rogue file sharing networks: buddy lists, user uploads, filtering content by user, viral marketing, ad-supported content and the potential of mining valuable data. The complete DNA of social media was right there, from the very start of P2P.

And even in the early days, the labels were intrigued by the vast pools of user data available on networks like Napster and Kazaa, although they were reticent to take advantage of it.

“It was more than just stigmatized,” recalled Eric Garland, CEO of BigChampagne, which measures the popularity of media on file sharing networks. “They feared that to even look at or inquire about what was happening in the file sharing universe would somehow compromise their unflinching stance that this was unauthorized.”

But as the initial furor over P2P died down, labels began monitoring file sharing networks through BigChampagne and other services. The data they find there continues to help them in any number of ways, from choosing which leaked song to use as the single, to where a band should tour based on the IP addresses of its fans, to figuring out which artists should perform on the same bill.

The labels beat down Napster, Kazaa, Scour and other P2P networks, and if today’s Pirate Bay verdict stands, they will have beaten four Swedes too. Meanwhile, new ways to share files continue to surface, including private and encrypted networks. And The Pirate Bay developers say mirrors exist in other countries, so no matter what happens in Sweden their site will continue to operate. Besides, The Pirate Bay is only one bit-torrent tracker site.

For some, the offense committed by an enabler like The Pirate Bay — as opposed to the people who actually do upload and share copyright material — may be difficult to grasp. You can also find torrents on several other sites — even on Google’s search engine. And YouTube hosts pirated copyright material, until and unless it is asked to remove it by the owner, because it is unable to programmatically detect which video clips are pirated.

But the difference is that Google, Yahoo and MSN aspire to catalog everything indiscriminately, while services like The Pirate Bay explicitly cater to practitioners of digital piracy — and are proud of it, to boot.

Even as the content industry celebrates another false victory over file sharing, the world is moving on, to cloud-based, on-demand streaming services — some licensed — where you can hear music and watch videos faster and in a more social way than you can with bit torrent. And as content holders look to monetize those networks, P2P networks provide the only useful template, because they share so many characteristics with today’s social-media networks.

Garland, who was there, says tools designed to measure user behavior on file sharing networks led directly to tools that now mine licensed networks like Facebook, imeem, MySpace and YouTube.

When it comes to “where and how people stream, download, watch, listen to, blog about or otherwise make use of or interact with music,” said Garland, “file sharing ended up being the blueprint.”

And it’s a good thing that blueprint was there, from the labels’ and studios’ perspectives, because today’s social-media networks contain even more user data than P2P networks do, and that translates to a bigger opportunity to monetize them through advertising, recommendations and, yes, the occasional sale.

In addition to teaching them how to mine social networks for user data, file sharing taught the content industry that it’s often more efficient to address networks than users. On one hand, this sort of thinking led to The Pirate Bay lawsuit. On the other, we have Choruss, Warner Music Group adviser and digital music guru Jim Griffin’s plan to license universities, then ISPs, to allow subscribers to download and upload as much music as they want for an overall, royalty-like fee.

“Asserting property rights and attempts at control have cost the sound recording industry over a decade of licensing revenue [and trading] control for compensation,” said Griffin during his Digital Music Forum East keynote. “Monetizing friction-free access to music will require swinging to the next vine, and when we make that transition we’ll uncover a bigger music service business that’s been too-long trapped in the too-small body of an old product-based business of control.”

The Choruss plan and the RIAA’s official shift away from suing individuals are acknowledgments on the part of the music industry that file sharing will always be a factor, so it could be simpler — and even beneficial — to lump licensed and unlicensed services together under one monthly fee tacked onto users’ ISP bills. (ESPN and other video networks already do something similar.) Love Choruss or hate it, Griffin would never have come up with this efficient way of addressing social-media consumption if file sharing networks had never existed.

Finally, P2P accelerated the development of products that people want to purchase when free alternatives exist. Whether music sales are competing with The Pirate Bay or imeem, the answer is the same: Sell ads against free content, and try to sell people something they can’t access through the free alternative, be it bonus materials, instant access, concert tickets or whatever. Witness Radiohead’s infamous deluxe box set, the recently launched iTunes pass (essentially an album subscription), Josh Freese’s crazy album extras, or iPhone apps that deliver an artist’s latest creations in near-real time.

File sharing networks forced an industry notoriously set in its ways to acknowledge the enormous power of the internet to distribute music through social channels — if anything, increasing its odds of thriving during the inevitable social-media era.

Lawsuits like this one against The Pirate Bay make sense on the surface. On another level, they’re a funny way of saying, “Thanks.”

From Eliot Van Buskirk and Wired:

Trent Reznor gave this interview to Digg recently.

“I can give you free music, and in my opinion, it may contribute to more people showing up to a show,” he says. “It’s not up to me to give you free music, it’s free anyway, you know for anybody that wants to admit it. Pretty much any piece of music you want is free on the Internet anyway.”

“We’re in between business models,” he continued. “You know, the old record labels are dead, and the new thing hasn’t really come out yet. So, I’m hoping that whatever gets established puts a lot more power in the hands of artists and more revenue.”

“If you have nothing in common with American Idol, and you don’t want to be The Pussycat Dolls, then you really don’t want to be on, certainly a major record label,” he adds.

“At every fork in the road that (profits) will be what’s put first,” he comments.”Not your longevity, not your vision. How can we make money from you.”


Connect With Fans + Reason To Buy = Business Model ($$)

http://revision3.com/player-v2997

Terry McBride gave a lecture at Berklee College of Music earlier this month. Here is a synopsis from Ariel Publicity.

A song is an emotion

They stopped releasing music they thought would sell and began releasing music they loved and felt emotionally connected to. The old school music business views a song as a copyright. McBride coaches that the music business is simply “the monetization of emotions” and that copyright as we know it will soon become irrelevant. Emotions move and are transferred freely. Nettwerk practices something called “collapsed copyright”. Nettwerk encourages its artists to record under their own label. Nettwerk will represent these artists, but the bands retain ownership of all intellectual property. The bands can expect to earn considerably more money and in turn can give away more free downloads. McBride calls this “cosmic karma” as studies show that albums containing songs that were offered free sell more than those with no free downloads. The free downloads allow fans to connect with a song as well as the artist as an emotional brand and are more likely to purchase the album.

Fans connect to a particular song because it evokes a certain emotion. That emotion grows an importance and eventually becomes a bookmark in their lives. We’ve all experienced a time when we heard a song from our past that we once played over and over and over again. We built an emotional connection with that song that instantly takes us back to the summer before junior year, or whenever. It’s that emotional connection that makes you feel the need to rave to a friend about a song or drag them to a concert. The emotional connection makes Nettwerk truly believe in their artists as an emotional brand and that millions of others will love their music as much as they do. Like it or not, love is contagious.

Music is social

Gatherings used to be centered around food and music but for a while music became somewhat elitist. You had to be some musical genius that was too cool and cared about nothing but the music or a wealthy socialite who could afford all the luxuries. Video games like Guitar Hero and the growing affordability of recoding programs and equipment have made music for everyone again. Remember that friend you dragged with you to a concert to show them how amazing that band was? As it turns out they loved them too and raved to their 20 friends who raved to their 20 friends and so on. Well now with the evolution of social media thanks to sites like Facebook, Myspace, Twitter, etc., the circle of friends has grown to 200 plus and by the end of the day with just the ease of a status update thousands of people have been reached.

Digital 2.0

As music returns to its emotional and social roots, McBride predicts a rapid change as we move from what he calls the “Digital 1.0” era into the “Digital 2.0” era where the accessibility of music and social media has grown legs and is now traveling with us on the train and down the street in the form of smartphones such as the iPhone. But the iPhone is just a dieter’s slice of the pie. Different models of RIM Blackberry smartphones ranked #1, #3 and #5 in best selling phones in North America. Plus the Palm Pre and the anticipation of Dell launching a new smartphone means that mobile social networking in America will soon catch up to the estimated 12.1 million users in Western Europe.

In this “Digital 2.0” era McBride points to the success of Apple “Apps” store, which has over 15,000 original applications and over 500 million downloads.

“Apple has allowed us, [the consumers] to be the world’s largest developer and create apps based on our needs,” McBride explains, “And the explosion of imaginative apps like Shazham and Slacker has just started.”

McBride throws the idea out of a digital maid application that would clean and organize your digital library, saving you the time of having to dig through files. He also requests a digital valet that drives new music to you based on your preferences or a friend’s library and parks it in a suggested music garage. He anticipates that in the next 18 months there will be “apps to help create apps for those of us who are not programmers but have a great idea.” RIM plans to open up their app store this March to reach 150 countries and over 450 providers. Add the Google Android store, Google “Hero”, Microsoft “Skymarket” and Nokia “Opera” and you’ve got yourself a full-blown application revolution.

Context is King

McBride points us in a new direction from what was previously a “content is king” mindset to “context is king”. Meaning that our emotional connection to music is all based on the value of how we perceive something versus the actual content. The smartphone replacing the PC (or Mac if you will) is a foreseeable prophesy of McBride’s and could possibly leading to the demise of even, yes… your precious mp3 player. He explains how new apps will shift behavioral patterns of consumers in the same way CDs and online media ushered in the on-demand generation. Smartphones have already begun creating models that temporarily store the music files in the “cache” instead of the hard drive. McBride describes this process as “a gradual download, it’s not permanent because your Valet/Maid app is changing the selection based on your needs, thus helping solve issues such as memory, choppy streaming and draining of batteries.”

This means that the music business must create rich meta data behind our music files to work with apps in order to keep up with this new form of consumption. McBride highlights the opportunity to raise the value of music then, he says, “Context will be king.”

Gerd Leonhard

My co-author and friend Gerd Leonhard was recently interviewed by Carter Smith of Rollo & Grady. Here is the interview:

R&G: How did you become interested in writing about the future of music?

Gerd: I was involved in various online ventures during the Internet years, in the late 90s. I was trying to reinvent the music industry, so from 1998 through 2001 I ran a company called licensemusic.com. It was a real dotcom venture. Because of the work I had done, I saw what was going on. While I was recuperating from the dotcom craziness, I figured that since I had looked at it so deeply that I might as well write about it. I wrote “The Future of Music” from 2003 to 2004, and it was published in 2005. Ever since then I’ve written and blogged about the future of music, the media business and the content business in general.

R&G: In the book, you focus on the concept of music being like water. Can you describe that?

Gerd: I had a co-writer, Dave Kusek, who you might know. He teaches at Berklee College in Boston. The concept of Music Like Water wasn’t entirely ours. David Bowie once said in an interview with The New York Times that music would become like water, flowing freely. That stuck with us and we built this whole theme around it, saying that digital music needs to be as available as water. In other words, there has to be a licensed pipeline, just like licensed connections for water or electricity. Everybody pays for electricity and water, but nobody feels it’s a big effort to do so. Of course, people are up-sold with Evian, Pellegrino, or filling the swimming pool. It is very much the same logic. You have a license to use. You’re all in. Then you do an up-sell towards other variations. The principle fits pretty well with the idea of content distribution on digital networks. It’s a blanket deal – a big deal rather than a unit sale.

R&G: Is that similar to the labels backing Choruss? [Note: Choruss is a proposed plan that would build a small music-royalty fee into university tuition payments, allowing students to legally access and share music.]

Gerd: Yes, totally. A friend of mine, Jim Griffin, is doing that. Jim and I have talked about this for the last ten years, pretty much since Napster came to light. It’s a very similar idea, even though they’re thinking of this as more of a “covenant not to sue.” I don’t think that is taking it far enough. One has to be realistic. I think that the major labels are reluctant to give up control of the ecosystem in a flat out strike, so they will probably take a bit longer to get used to this.

R&G: If I understand this correctly, it’s a university tuition tax?

Gerd: It’s not so much a tax as a way for universities to say, “Whatever people do here, we can legalize it.” It’s fighting against the criminalization of sharing, which is great. And for the students it’s not a tangible expense. It’s wrapped into their tuition. It’s like 911 calling on your phone bill; nobody is going to complain about it. Then, I think a completely new ecosystem could pop up that would essentially be part of the way to access and up-sell to people. I would be against any such tax, levy, or any of those things, but if it can be made to feel like it’s free, which is what it is, I think that is an ideal solution that gets the ball rolling.

R&G: Once a digital network customer pays a fee, how are funds distributed to the artists?

Gerd: It’s very much like traditional radio. Every action on a digital network is monitored. Whether it should be is a different question, and, of course, there are privacy issues. But whatever action people are doing on the network, it’s captured in some anonymous way and then the revenues are paid pro rata. When you click on a song and share or download it, whatever network you’re on can say, “Okay, this was downloaded. This was streamed.” Artists are paid out strictly by popularity. So if your band is busy doing lots of gigs, you’re very popular and you get 100,000 people following you on Twitter, they will click on the song, download it, and you get more money. It’s just like radio.

R&G: Can the labels regain the trust of “people formerly known as consumers?”

Gerd: They may not be able to, and this is the Number One problem. I think it’s a very tough road. The only chance they have – and that goes for everyone, not just the majors, but also the indies – is to drastically open up, put their cards on the table and start doing business like everybody else. This means being transparent, sharing, putting deals on the table and making them public. They need to create real value rather than pretend to do so.

R&G: You’ve previously mentioned that music blogs are the new record labels.

Gerd: Yes. Music blogs have enormous power because people trust the blogs not to pitch them stuff that they’ve been paid to pitch. If they can keep it up, they will be the next BBC. When you look at mechanisms like Twitter or Facebook or FriendFeed, these people become the default recommenders for us. They are the ones who say, “You should pay attention to this band, to this artist.” That’s what radio used to do.

R&G: Serving as filters.

Gerd: Yeah. You have to keep in mind that the biggest problem we are having is not that music isn’t available, because even though it’s not legal it is available. The biggest problem is that once the legal issues are solved, everything will become available. Our problem will be that we have to pick, and nobody has time to pick through 62 million songs. That’s the total universe of currently published music, and it’s going to increase. We don’t really need to solve the distribution problem. We have to solve the attention problem. That’s what Amazon does for books.

R&G: You’ve talked about how the record industry should adopt Twitter. Can you elaborate?

Gerd: Twitter is a mechanism of micro communication, like RSS feeds. Therefore, it becomes something that is completely owned by the people who are doing it, rather than by the people who are making or receiving it. It’s a completely viable mechanism that is cost-neutral, at least to us. It becomes a very powerful mechanism for peer response and viral connections. That is the principle of what music is all about. It’s word of mouth, connecting, forwarding and sharing. A musical version of Twitter would be a goldmine. It already exists to some degree in blip.fm, but the music industry should use that mechanism to broadcast directly to fans. They’re starting to do that, but the problem is that many music companies perceive their primary mission as gatekeeper for the artists rather than getting the music out. That is a big problem today, when you’re in an economy where everybody wants a snack before buying a sandwich.

R&G: What other technologies do you think are necessary for the do-it-yourself artists and managers of the new music world?

Gerd: Widgets and syndication have made YouTube the world’s leader in video. 60% of videos are not played on YouTube.com but on blogs and other people’s sites. Music has completely overlooked that very powerful tool. That is this whole idea of syndication – getting people to transmit music to each other and then reaping the attention on the other end.

R&G: Many of the kids who grew up with Napster are now in college. They’ve never owned a physical CD and only know how to click and download music. They think music is supposed to be free.

Gerd: Yeah, and it can be free in the sense that it’s not as painful as paying per action. The question is not so much about the payment or the fact that people may not be willing to pay right away. It’s about controlling the marketplace. Who gets to listen to what, where, when and how much money do I get? We have to get back on the same page we were on a hundred years ago. We’re all on the same boat. Everyone wants an audience. Until we have that, we have nothing.

R&G: When do you foresee the end of the CD?

Gerd: I think we have another 18 months maximum for CDs to become a Step Two rather than a Step One. They have a 25% decline for 2008 pretty much around the world. How much steeper can they drop? In 18 months, the CD isn’t going to be the cherished moneymaker anymore. And this year people in the music business are going to be forced to say, “Okay, what is the next model? Do we have to loosen up to actually participate in this, or are we standing in our own way?”

R&G: Are you saying they need to recognize any revenue stream they can generate from their content? Sell CDs, subscriptions, etc.?

Gerd: The flat rate is the next CD. Its simple mathematics. If you charge or indirectly earn one dollar from each user of a network, that dollar can be ad-supported. It can be supported by bundling, so the user won’t feel it, so to speak. If you look at the total number of people who are active on digital networks, which is somewhere in the neighborhood of 3 ½ billion people, they’re not all going to pay a dollar because they’re in different countries. But the money that comes in from such a flat rate is humongous.

R&G: You are currently working on a new book, “End of Control.” When is it coming out?

Gerd: I’m working on it right now, and it’s kind of a painful process because it’s always changing. The first couple of chapters have already been published at endofcontrol.com, and people can download those. It’s a free book, so I’m working on various ways to make that more powerful. The control issue is key. It used to mean that if you had more control you would make more money, especially in the music business. You control distribution, radio stations, marketing, everything. Now all that is completely falling apart. Artists are going direct. Radio becomes useless to some degree. It’s all on the web now. People are doing their own thing. Control is a thing of the past. The question is, “What is the next business model?” That’s what I’m working on.

R&G: Who are the current music business visionaries?

Gerd: This is one of the most unfortunate things. There aren’t very many. I always say we need an Obama of the music business, or at least a Steve Jobs, even though Steve is kind of egomaniacal, but brilliant. I see a couple of people, like Terry McBride from Network Records in Canada. I firmly believe, however, that the biggest innovation will come from people who are not in the music business.

R&G: Is this the year we will see considerable change within the music industry?

Gerd: I thought it was going to be 2008, so I’m quite disappointed. I think we’ll see new things emerge in 2009 that will be completely disruptive, like the iPhone and mobile applications of music, new kinds of broadcasting, people sharing stuff through mobile networks and high-speed, broadband, wireless Internet. I think 2009 will be a key year because the current economic crisis will make it worse. People will stop buying content the old-fashioned way.

Read more great interviews here at Rollo & Grady

Future of Music Book

I was recently interviewed by Carter Smith of Rollo & Grady on The Future of Music.

R&G: What was the reason behind writing “The Future of Music?”

Dave: Gerd [Leonhard; co-author] and I became friends at Berklee. He did a few projects with the music business department, which is how we got to know each other. We started talking and found that we had a lot of common ideas about what was happening in the music business. I ran Berklee Press, so I had a way to publish the book. We just started putting ideas down on paper. There wasn’t as much blog action then as there is today. It was probably 2002 or 2003 when we really started to write the book, so we figured, ‘Okay, we’ll publish it in book form.’ Our motivation was, ‘How can we help people understand what we think is going to happen?’ Both Gerd and I had done lots of panels and music shows – South by Southwest, all the digital music ones, Billboard and many gigs like that. We thought, ‘How can we pick some of these ideas and package them in a form that would be digestible and widely available to people at a reasonable price point?’ That was the genesis of it all. Honestly, it all happened so quickly that I kind of wish we could do it all over again. It was fun. It was a very condensed period of time. There were a lot of things that obviously were changing and happening, and there were a lot of things that weren’t so obvious. For example, I don’t think there was an iPod when we first wrote the book. That happened during the publishing and editing process. There was no iTunes music store, no MP3 blogs to speak of and no Amazon.com selling downloads. eMusic might have been there. It was all so early. Everything was happening so rapidly. We just tried to gather up as much as we could that was obvious and make some stabs as to what might happen.

R&G: Can you discuss the process of writing the book?

Dave: I learned a lot from Gerd during the process. I was more on the ground with the musicians. My whole career has been helping musicians and artists create their art, take their art to market and most recently teaching them about it. Gerd was more in the consulting end of things, talking to the likes of Nokia, Apple and Sony. I learned a lot about what was going on in the corporate world that I hadn’t been exposed to. I think we pushed each other because I would often argue that, ‘Man, we’ve got to talk to the artists and writers and managers, not to your consulting clients, because most of these people aren’t going to understand what the hell you’re talking about.’

R&G: “Music Like Water” the David Bowie quote meaning music becoming a utility. Do you still believe in that?

Dave: I think it’s inevitable. Music has always been free. It started off as a live performance. You’d go to a party, to a friend’s house, to a show, to the theatre or an event and music would be there. You’d be dancing and laughing and happy and singing. There was no idea of a business other than maybe the performers wanting to get paid. Throughout the technological phase of the last seventy or eighty years, there was always a free form of music, such as radio. The single most influential technological phenomenon in music was radio. It brought music to everybody, and it was free. Now we have gone through this pre-packaged, packaged phase of music, with vinyl, cassettes and CDs. That was a way for labels to control distribution and squeeze profits out of people wanting copies of the stuff they heard on radio. But once that leapt into the Internet, music became free again.

R&G: By free, do you mean file-sharing and uploading CDs onto your computer hard drives?

Dave: Both. People have been trading files for years. It started out on Usenet, which predated Napster. You remember Apple’s “Rip, Mix, Burn” campaign? It was really all about enabling the digitalization of music and unlocking it from the plastic that it was bound to. I don’t see it as a big deal that music is free again and in a higher quality format that is randomly accessible to the file-sharing networks or the services that we have now, some of which are “legitimate” and some aren’t. It’s not a very big deal to me. It just seems normal. The utility idea already exists on your TV. I have Comcast service here on the East Coast. We have Music Choice, which is essentially digital radio on your TV. There are 30 or 50 channels of music that are programmed and streamed to my house constantly that I pay for on my cable bill every month. I’ve been doing that for fifteen years. I have no choice about it. I just do it. It comes with HBO and the basic cable service. So there already is a music utility that millions of consumers in the U.S. have paid for many years. Why can’t that service just get a little bit better? If you add a random access mechanism where I can select what I listen to at a finer level than just picking the channel that Music Choice gives me, the service becomes better. I think it’s inevitable. I don’t understand what all the teeth gnashing is about. That’s a personal opinion.

R&G: What role will labels play in the future business models?

Dave: The major labels are going to be able to sign new artists, so they will have influence. But I think the indie labels and the no-labels that artists are forming – their personal labels – are going to be just as influential. If you get a super-hot band that decides they’re going to help pioneer a new format or a new distribution vehicle, and people love the band, they’re going to pick that up. They’re going to inherit that into their life. If enough new bands do that and connect with their fans, that will matter way more than what the four big record labels do. Eventually, they’re going to come around and say, ‘Oh man, we’ve got to get on this bandwagon,’ as opposed to doing it deliberately. You can see in the last four or five years, and particularly in the last two years, that labels are willing to abandon DRM, experiment and take a little bit more of a risk in how their music is put out there, which they absolutely, categorically refused to do four or five years ago. The rest of the music world is pulling them along. The fans and the new music are pulling the bigger labels into the future, as opposed to the big labels setting the pace. I think those days are over.

R&G: The majority of people I talk to feel that the next killer app is a filter that will enable users to find music they enjoy.

Dave: I think that’s certainly a critical element of whatever system of music delivery we evolve into. Findability, discovery are going to be critical features. I don’t know that there’s going to be a technological solution to that problem. Again, various forms of word-of-mouth have driven the popularity of all music through the years. So, to the extent that we can supercharge that word-of-mouth that’s happening in blogs like yours and services like Last.fm and Pandora that are kind of aggregating the opinions of others, uncovering and making those available, I think that’s going to be very important. But again, I don’t see how that’s any different than my telling friends in 1963 that I heard this cool band on the Ed Sullivan Show. It’s the same thing.

R&G: What do you think of blog aggregators such as The Hype Machine and Elbows?

Dave: I frequent The Hype Machine. Elbows, I’ve looked at a couple times. I think it’s a great thing. The more somebody can make it easier for people to find music they’re going to like, the more value that entity will gather. I don’t know that a computer-based search is going to be the ultimate winner. I tend to doubt it. I think it’s going to be more in the mobile space. It still blows my mind that people sit in front of their computers and listen to music on these absolutely shitty little speakers. They’re listening to crappy files in an uncomfortable chair. When I grew up, having a killer stereo was all that mattered, other than a car and a girlfriend. The stereo/audio business has completely gone away and been replaced by shitty ear-buds from Apple and MP3 files. It blows my mind that people tolerate that. I think it’s impacted the experience of listening to music, how you listen to it, how you enjoy it. So I’m not sure that a computer-based model is going to get enough traction to supplant other ways of acquiring, listening to and finding out about music. I think it needs to be easier, better sounding, portable and more integrated into your life. It needs to get outside of your bedroom or den.

R&G: I read on your blog that Douglas Merrill, President of EMI Digital, said he agreed with data that suggested file-sharing is good for the music industry. I found that interesting, but he also came from Google and didn’t have any experience in the music business. Do you see a trend in technology guys coming to the labels and figuring out how they can make this work; a technology guy versus the old-school music guy?

Dave: Not necessarily. I think the great labels of the past were run by music people who understood what the artists were all about and how to create great product, great songs and how to put great people together. I don’t think we can wave a wand and put a bunch of techies in the driver’s seat, and everything will suddenly be good. You need educated people that understand the technology, the music, the creative process, the marketing and the relationships with fans. As those skill sets get implanted in the people running the companies that matter – not just labels, but publishers, touring companies, marketing companies and distribution companies – then things will get better. I’m pretty confident of that, but I don’t see technology solving the music industry’s problem.

Read more great interviews here at Rollo & Grady

My friend Terry McBride was recently interviewed by Carter Smith of Rollo & Grady. Talk about the Future of Music, Nettwerk is doing it now. Here is the interview:

R&G: What made you decide to focus your business on digital products versus physical ones in 2002?

Terry: It was an intuitive thing for me. Obviously, digital had been seeping into our world for about three years and the Napster effect was apparent. Being a small company and working directly with artists, we could really hear and see what was starting to happen. It was a realization that fighting it wouldn’t work; understanding it and being able to grow it was what was going to work. It was a psychological shift for us. It took a few years to get the rest of the company and analysts focused towards that, but that was the psychological shift for me, which means that the company shifts.

R&G: About 80% of your business is from digital sales now, right?

Terry: Yes, that’s correct.

R&G: Why did you drop DRM in 2003?

Terry: I didn’t see any purpose in locking down files; it made no sense to me. People have always been sharing music. Why would I want to stop them? Why would I want to tell them what to do? The way to win was to get them to support my artists, not to force them to do it a certain way. I know I wouldn’t like anyone telling me that.

R&G: You recently spoke about cloud-based servers, mobile applications and smartphones being the future of the music business.

Terry: What’s happened in the last ten years is kind of moot. The next 18 months will determine the future of the music business. It’s a situation where the turnover on phones by the average consumer – now I’m being generous here – is every two years. It’s probably shorter. The smartphones that are starting to dominate the marketplace are specific platforms now open to applications that are being developed outside of the R&D departments of all of the various carriers. Apple, when they opened up their App Store, I think they sold, what, 150 million apps in maybe 9 months. It stunned the world, and Apple is a small player. They might be a noisy player, but they’re a small player within the mobile space. Research In Motion launches their store this month, Nokia is launching Ovi in April and Google has already launched their Android site. You’re going to see millions of applications come onto the marketplace. You’re going to see social filtering of the really good ones, and what’s going to be in there are applications that change the behavioral habits of how you consume music. The need to download music will no longer exist. If anything, it will be a hassle. You’ll have smartphones that can probably handle two to three hundred songs. That’s a gradual download; you’re actually not streaming it. It’s actually on your phone but it’s pulled from some sort of server, whether it’s your own server or a cloud server. To make all of these applications work, you have to have really good metadata, which means that business has to focus its efforts on really good metadata. Rich metadata is going to work with all of these applications. You’re going to see digital maids, digital valets. You’re going to see applications for maybe five bucks a month where you can access all the music that you want, how you want it, when you want it, imported to any device. So why would you want to download? Why would you want to go online to try to find it for free? Besides, something you find free might not work with these smartphone apps. Five bucks is no big deal to have unlimited access. That’s where everything’s going. All of the current arguments and debates are moot. I would even say that the ticker has now started on when the iPod goes away. I think Apple saw that.

R&G: So their primary focus will be to promote the iPhone?

Terry: They’ve been pushing the iPhone more than anything, and when they opened up their App Store, their intuitions were proven right. It is the App Store that has driven iPhone sales.

R&G: Do you think the major labels will sign off on these applications?

Terry: I don’t think they have any choice in the matter. It’s really just a subscription model, but it’s the application. A subscription model has never worked to date because it’s always been a hassle. It only works on your laptop, you can’t port it between devices, and it’s always streaming and always a pain in the ass. Last.fm and Pandora have been nice, but transferring that around has been really difficult. The applications coming with these smartphones will change all that and make it a hassle not to use them. Downloading will seem like a hassle two years from now. It will be like, ‘Download something? Are you nuts? Here, I can instantly access it. Watch, I’ll just type it in and my valet will go find it for me.’

R&G: Your valet, meaning your filter?

Terry: It’s an app. You’ll program your valet to look at what your 20 closest peers are listening to and create something for you to listen to. Maybe you’re a Led Zeppelin fan and all you want to hear is Led Zeppelin today. Maybe something bad happened and you want to listen to Sarah McLachlan today. Your valet will do that for you, and your digital maid will clean up your library for you.

R&G: That will be huge. It will make music consumption easier for the end user.

Terry: I always call it the hassle factor. It’s a hassle right now to be part of a subscription model. It’s even a hassle to download. These smartphones are radically going to change that. I mean, with Shazam you go, ‘What is that song?’ and you can instantly know what it is and instantly buy it, if that’s what you want to do. Slacker is the first one that comes close to being a digital valet. It’s only going to get better. Anyone with a really good idea can actually make it happen. You’re going to see this coming out of garages and university dorms, not Apple and Blackberry campuses.

R&G: You’re a member of the RIAA. What are your thoughts of them monitoring ISP usage?

Terry: Here’s my whole view of this, and this hasn’t changed for quite a long time. Out of all of the sharing of music, who’s making an economic return? Whoever is should then share that with all the people that allowed it to happen, creating a nice alignment of interests to grow any business. A lot of the providers have viewed music as free content, while at the same time paying for the cable content to grow their networks. They’ve been making money off the backs of the artists without any compensation for the artists at all. I think that’s fundamentally wrong. I’ve also said it’s fundamentally wrong to go after the consumers that are using that opportunity. That’s not the right approach either. The phone companies and the cable providers have gotten away with murder in this whole situation.

R&G: What’s your opinion on music blogs?

Terry: I love music blogs because they’re music fans. They’re authentic and passionate about music. They’re no different than me. All they’re doing is spreading the word about stuff they like. The authentic will rise to the top, which is why I like aggregators like The Hype Machine. I think it’s brilliant. It’s a great way of seeing what music fans are talking about versus some other filter. I’d rather the filter be a social filter, and then you can go into niches. Maybe it’s a bluegrass filter or a country filter or a hard rock filter or an ambient filter. Whatever. Those people are really passionate about that music. You know what? That’s what it’s about. Songs are not copyright. Songs are emotions.

Read more great interviews at Rollo & Grady here.

From SPIN.COM

MC Lars, a self-proclaimed “post-punk laptop rapper,” may be best-known for his fast-talking rhymes about Hot Topic stores and hipster girls, but the Bay Area musician is notably literary, and therefore a fitting participant in our ongoing series of musicians talking about their favorite books. Not only has MC Lars penned songs about Moby Dick, Edgar Allen Poe’s “The Raven,” and Hamlet, he’s also published a book of his own poetry called Bukowski In Love.

For his SPIN.com Book Club pick, Lars veers away from iconic works of literature, instead choosing a practical tome for anyone making music these days: The Future of Music: Manifesto for the Digital Music Revolution, authored by two veterans of pop music who outline the music industry’s digital future.

SPIN: Why did you pick this book?
MC Lars: I studied English literature in college, but in a few years I want to do a PhD in media studies, so I’m always reading books about music technology and the digital music revolution and the evolution of content and new media economics. I read this book because one of the authors, Dave Kusek, is a professor at Berklee College of Music and he’s a really smart guy [who actually was one of the co-developers of MIDI technology, a revolutionary development in electronic music]. It’s really influenced my philosophies on technology and media and it’s also really influenced my business model as a guy with a label.

How many times have you read it?
Three times. It’s a good one.

Do you reread the whole thing or do you just have sections you go back to?

What happened was I read it casually and then I read closely and then I read it again because I wrote a song that was inspired by it. I took some of his philosophies and made it into lyrics. It’s called “Download This Song.” The author heard my song, and on the website for the book they did a little piece about how the song reinforced those philosophies. It was really cool to have this author I really love like the song I wrote about his book.

Read the Spin Article here.

Listen to this episode of “With A Voice Like This” where I am speaking with Jim Goodrich about the future of music.

It’s been four years since The Future of Music book came out and this radio interview starts with what has changed and what has stayed the same since the book was published. But there’s a twist. At the beginning of the show Jim asked that we not focus on the technology itself, since the book had so much more to offer than just a discussion of technology. Among other things we talk about what’s going on in China currently, the Universal Mobile Device (UMD) and of course, the Music like Water concept.

Listen to the interview here.

Download the MP3 file here.

If you are into music as a career, you got to watch this.

Narrated by Forest Whitaker, BEFORE THE MUSIC DIES is an unsettling and inspiring look at today’s popular music industry featuring interviews and performances by Erykah Badu, Eric Clapton, Dave Matthews, Branford Marsalis and a wide variety of others. The documentary film has built a passionate following as “the most important film a music fan will ever see” (XM Radio) by providing “a balanced overview of the state of the rock scene of America” (WSJ) and adding “passion to the eternal debate about the industry” (NYTimes).

Since its release in November 2006, the film has screened over 200 times in over 130 North American markets with hundreds of additional events anticipated worldwide during 2007. (I wonder how many times this is going to be watched now?)

Use this site to learn more about the film, where you can see it, ways you can own it, and – most importantly – how you can get involved in sharing it with others.

Before the Music Dies

I have know Terry McBride for many years now and have had the privilege of working with the entire Nettwerk team on overall strategy a while ago. I am very proud to see some of what we worked on taking shape. What I love about Terry is his ability to act on ideas very quickly and make things happen one way or another. He is not afraid to experiment. He is also not afraid to take risks and transition his revenue model to something that makes more sense and is sustainable.

He got out front very early on in forming a “network” of companies to manage artists, promote tours (remember LillethFest), create merchandise, distribute both physically and digitally, publish writers and integrate the marketing. He tried memory sticks, free downloads, free stems for people to mash up, artist-owned labels, viral and crowd-based marketing.

I met with him in Vancouver a month ago and am preparing a video interview. In the meantime, here are some excerpts from a fine piece by Mark Glaser at PBS.

“At the vanguard of the movement of crowdsourcing music and putting the fans in control is Nettwerk Music, a record label and band management service in Vancouver, BC, that has become synonymous with digital music and alternative revenue streams. The label completely revamped itself in 2002, putting digital music and Internet promotion at the forefront and downplaying physical CD sales. Fans have been able to remix albums by Barenaked Ladies and rapper K-OS — even before his new album comes out — and Avril Lavigne has racked up millions of plays and possibly millions in revenues on YouTube.

The driving force behind the digital makeover of Nettwerk is CEO Terry McBride, a man who has helped pay legal fees for people sued by the RIAA for sharing music online. After McBride took such a strong stance for digital music — and away from CD sales — he started speaking more at conferences and talking to the media to spread his vision for a “digital valet” service. He thinks we will all end up paying $5 to $10 per month for access to all music, TV and movies, with a digital valet that knows our tastes and finds media for us.

While most music labels have been squeezed by the shift to digital music, Nettwerk has had growing revenues, McBride told me, and he expects 80% of the company’s 2008 income to be from digital and alternative revenues — and not CD sales.

“In 2007, about 70% of our sales on intellectual property was all digital, and this year it will be around 80%,” he said. “A lot of physical sales comes from our bigger artists and we do print-on-demand for our smaller artists, for their mail order or for touring…My stance on file-sharing did not match what my brethren in the music industry believed. I remember giving a keynote speech three or four years ago, and having a lot of pissed off people.”

When did you realize how important digital music would be vs. physical music and CDs?

Terry McBride: We started our whole change internally in spring or summer of 2002. We did it really quietly. We had one of these executive team summits. We looked at where everything was going. We looked at the fact that 25 million [CD] sellers would be 5 million sellers. The fact that million sellers would be quarter-million sellers. And how our existing model would work within that. Would we take the same stance, to protect the castle and fight, or was there a different way of doing it?

The interesting thing then was that we had the initial digital data to look at. We saw a lot of what was happening. And we said, ‘Where will all this be in five years, and will we be ready for it?’ There was a conscious decision made at that meeting to get out of the physical music business. So we decided to retool our whole company and over the next two years, that’s what we did. For a company that had had an attrition rate of 1% or 2%, a company of 120 or 150 people, over the next three years we had a turnover of almost 25% a year as we changed almost everything.

Rather than have a marketing team with marketing meetings, and promotion team with promotion meetings and sales team with sales meetings, we got rid of all that and created silos. We created three teams that had everything from Internet to traditional marketing to sales to IT to promotion — all in one group, and got rid of the meetings. So everything you needed for an artist was in that group. There was no heads of marketing. We shifted from 12 traditional marketing people to 3 traditional marketing people and 8 or 9 Internet marketing people.

Then we aggressively went after every DSP [digital service provider] that was interested in music that we had, and we set up a team to deal with the programming of metadata behind what we were actually doing…All of our marketing is not around albums but around bands and brands. Our marketing is about understanding the social elements of songs, of music, of emotions.

Fortunately we’re a growing business right now. We didn’t protect the castle. We also made the switch at a very good time to make the switch. Avril had broken, Coldplay had broken, Dido was doing amazing, Sarah [McLaughlin] was doing amazing. The Barenaked Ladies were doing amazing. We were flush with cash. If we made those changes now, it would be very very difficult because money is much more tight.

You have been pushing many bands to start their own labels. How did that start?

McBride: That came from a point of view of how do we get collapsed copyright. How do we get an authentic relationship between the artist and the fan? How can we remove everything that we possibly can from the relationship — or between the relationship — of the artist and the fan. Artists owning their own copyrights and being able to be in direct communication is a far more authentic relationship.

There’s a risk and reward to that. If an artist is signed to a major label, then the manager has no risk, but then you’re only getting a commission from publishing and master royalties combined, maybe a maximum of $2 [per CD sale]. With an artist [label], we had to finance it, but we were commissioning off a $5 or $6 net [per sale]. So obviously we get a much better commission, but it’s a much higher risk. With these artist imprints, it takes two to three albums for them to work.

We’ve found in the digital space, that you will sell anywhere between 25% to 50% of your volume from your catalog upon release of any new albums. So you are layering intellectual property. In the digital space, where you don’t need to buy shelf space, if you create the right metadata behind what you’re doing, and market it in an effective way — you’re not marketing the new album, you’re marketing the brand. By the time you make it to album three, you are selling as much of the catalog as the new album, but you don’t have the cost with the catalog and everything starts to make sense.

So I had to get people here to believe in this, and stop people from having a heart attack over the equity we were tying up, which we had no ownership in. But proving the model that you have have an artist like State Radio, which is a great example of an artist who makes a couple hundred thousand dollars a year from intellectual property, which will help finance the next album.

Chad [Urmston of State Radio] just played to 2,800 people with a $25 ticket price in New York on the weekend. He’s marketing a brand, he’s not just marketing intellectual property. Now it all makes sense. He’s happy, he owns his future, his audience has grown with him really well. Now everything makes sense to him, where initially he was unknown and had to work from the ground up.

The Internet marketing team and his manager did a spectacular job of understanding who his tribe is and would be. Out of the eight artist imprints that we launched, seven of them are very profitable, but it took time and selling the managers on the fact that there were no commissions to be made to a certain point. If they signed an artist to a major label there was instant commissions. And it took the lawyers years to get their heads around it because they just didn’t believe in it. It’s taken time, but now the managers are looking at a very steady cash flow, and the artists aren’t fighting for their creative freedom but actually using their imagination — and those are two very different things.

For the marketers of music these days, how has their job changed? It used to be about talking to radio and retailers. Now is it about search engine optimization (SEO)?

McBride: Search engine optimization, the ability to write basic code, understanding how social networks and blogs work together, how to connect that interaction back to the sale of music or monetization of behavior or crowdsourcing music. It’s understanding all of those things, and having a very imaginative marketing plan around the artist vs. around a product. It’s really brand marketing. What are the artists’ causes? Are there cause alignments? Are there other brands we can hook up with to align our causes? And if the other brand is bigger, can we give them free music and get exposure to their audience because it’s like-minded tribes?

It’s basically social marketing. It’s understanding social tribes and peer-to-peer interaction that the social networks have taken from a small group of 20 of your peers to 250 of your peers. And not focused on recommendation engines, but the social aspect of recommendations. So it’s not a computer making the recommendation, but social groups doing it. Looking at the technology but not using it for what it was meant for. That’s what the creative arts do. The technologists build something with a certain purpose in mind, and then the creative people take what the nerds have done and take it in a completely different direction than what people saw coming.

You’re doing a lot of crowdsourcing of music, where you put out pieces of music and let people remix them. Is that about engagement and interaction more than business?

McBride: Well it’s both. We started initially with T-shirts. We found out that the T-shirts that the fans designed — even if the artists didn’t like them — the people who went to shows liked them more than the ones that the artists designed. That was consistent whether it was Barenaked Ladies, or Avril or Sarah — the fans’ T-shirts always sold more. The fans would do the designs and vote up the ones they liked, and filter them to the top, and we would take the top 3 voted designs and put them in production. And they were consistently the top sellers out there.

In 2005, we took it a step further by releasing Barenaked Ladies songs in stems [pieces of the music tracks]. That sparked the idea for the guys who created Rock Band. That was more of a remix. Now I’m more about the mix; to hell with the remix! We have an artist named K-OS, and we released all of the stems two weeks ago, and the fans have not heard the album. It’s not due out until March, so they are actually mixing the album. So we will release physically and digitally the artist version and the fan version. And when we go to radio, we will service the artist version and fan version. So we are taking it the rest of the way.

You can even take it beyond that. With K-OS, we’re thinking about having the audience vote on which 10 to 12 cities he plays in Canada. We might even take it one step further: pay as you go not as you enter. And maybe when you leave you get a copy of the fan mix for your donation, so there’s karma pricing on the exit. Let’s take this whole tribal/social interaction the whole way. Everyone including Nettwerk has dabbled with it. We have probably dabbled more than any company with a wide assortment of artists, so we have a good idea of what works and what doesn’t work. But with K-OS it’s the first time we’ve gone all the way with it.

Read the whole PBS Interview here.

PARIS, (BUSINESS WIRE) — Music Ally, the leading digital music strategy and research company, and MIDEM, organizers of MidemNet, the international forum dedicated to reflection on the music business in the digital age, are delighted to announce the winners of the second Music Ally/MidemNet “New Business Showcase.” The winners presented their ideas at MidemNet’s 10th annual conference in Cannes in January 2009.

About the Winners

Instinctiv Shuffle
Ever thought random shuffling of music was too, well, random? Instinctiv has had that thought too, and has come up with Instinctiv Shuffle. It’s an iPhone / iPod Touch application that aims to provide a smarter shuffle feature, guessing the user’s mood by what songs they listen to and what ones they skip. The app has so far only been available on jailbroken iPhones, but has been causing a stir.

MPTrax
MPTrax is focused on bringing Web 2.0 connectivity to the live music arena, connecting bands, rappers and DJs to venues, clubs and party planners – including people arranging house parties and other small events. Currently in beta, it offers a dedicated booking platform, complete with a feedback/rating system, invitation tools, sample contracts and social networking features. It could be a crucial tool for bands looking off the beaten track for their live revenues.

Mustik
Mustik is an interactive musical instrument which allows non musicians to play music. The way you interact with the Mustik alters the way that the musical track plays back. It’s a kind of Guitar Hero on acid. Conceived from a University project on embodied interaction, this is one product you have to see to believe.

Passionato
Launched earlier this year, Passionato is a website targeting classical music fans with higher quality downloads, selling DRM-free music as 320kbps MP3 files, or lossless FLAC files for proper audiophiles. The store also builds in reviews, user ratings and community features, as well as the obligatory Facebook and MySpace widgets.

Play Anywhere
Catch Media’s Play Anywhere scheme is certainly ambitious, aiming to offer a grand solution to interoperability. It’s about allowing users to playback music that they own, or which they’re legally entitled to access, across all possible devices. The company has already obtained new Play Anywhere licences from two major labels, and is ultimately hoping to entice all players within the digital value chain, including retailers, mobile operators and ISPs.

Soundcloud
It’s been described as “a Google Docs for audio” and a “Flickr for music,” so Soundcloud has solid Web 2.0 credentials. It’s an online audio platform designed to let people move music quickly and easily, whether they’re artists, labels, producers or other professionals. It’s attracted more than 2,000 labels and 50,000 users so far without splashing the cash. It’s been winning praise for its flexibility and featureset from early users this year.

The Echo Nest
Founded at the prestigious MIT Media Lab, The Echo Nest claims to be “the software equivalent of a hardware store for music developers.” In other words, it offers open APIs covering artist information, music search, recommendation, remix applications, mash-ups and analytic tools. The idea is that clever developers tap into these APIs to build innovative new music services. Early proof of concepts have showed how powerful these tools can be.

Many people have asked me to explain the current status of royalty payments for online music.

A thorough discussion of this past year’s agreement on mechanical royalties was produced by my friends at the Future of Music Coalition.

There is also a good summary on the meeting of the Copyright Royalty Board this past fall here.

The royalties that songwriters receive from CD sales and digital downloads will remain the same, the same for both media and the same as the current rate: 9.1 cents per song. The rate for ringtones will increase to 24 cents a song, above even the 15 cents songwriters and publishers lobbied for.

However there is still great unease with the direction that things are headed on the part of online webcasting and streaming music services as they look into the reality of making payments at these levels. Pandora, NPR and others seeking a new structure want rates to be set as a percentage of total revenue, similar to how royalties are assessed for satellite radio or subscription music services. At the very least, they want a system that will favor webcasters big and small.

Webcasters are required to pay an escalating fee to copyright owners every time they play a song for a listener. This year, for instance, Web radio stations are supposed to pay 14 hundredths of a penny ($.0014) per song streamed, per listener; site operators figure that will cost them about 2.1 cents per user, per hour. That is a figure that most webcasters simply cannot afford to pay, since most sites are advertising supported and do not generate enough revenue to pay the license fees and operate their businesses. Read more from All things Digital here.

We will see what happens in the next month or so as things come to a head.

Paul Brindley

Paul Brindley and his team at Music Ally have created a comprehensive list of digital music startup companies from 2008.

Social and Sharing
Video
Stores and Services
Streaming
Place Shifting
Recommendation
Discovery
Digital Labels
P2p
File Sharing
Games
Virtual Worlds
Live Music
Ticketing
Artist Tools
Online Mixtapes
MP3 Search Engines
Tools

Now who says the music industry is dead. Seems like Santa’s Elves have been up very late nearly every night this year building new, cool services and tools for musicians, artists, writers, labels and fans.

Real all about these innovative new businesses here from Musically.

THe RIAA is claiming to be ready for a change of strategy, trading the hammer it has been using to sue individual file sharers – for kind of a hired gun. I think the strategy the RIAA is outlining is better than their previous position, though not the ultimate solution that I think we will end up with. Nevertheless, this is movement in the right direction.

“The decision represents an abrupt shift of strategy for the industry, which has opened legal proceedings against about 35,000 people since 2003. The legal offensive did little to stem the tide of illegally downloaded music and it created a public-relations disaster for the record industry, whose lawsuits targeted, among others, several single mothers, a dead person and a 13-year-old girl.

The RIAA now plans to try an approach that relies on the cooperation of Internet-service providers. The trade group said it has hashed out preliminary agreements with major ISPs under which it will send a series of emails to the provider when it finds a provider’s customers making music available online for others to take.”

Number one – lets see if this actually happens, and

Number two – lets hope the ISPs will see first-hand the value in obtaining blanket licenses to permit the trading of music files online, rather than becoming the hired thug of the music industry…

Read the whole Wall Street Journal article here.

I had the good fortune of meeting Matthew Daniel of R2G in China a couple of weeks ago. He presented his thoughts on the Chinese music market and reconciling the intrinsic value of music over there. It is very interesting that Intellectual Property has had very little monetary value in China and they are struggling with a situation that the rest of the world is just beginning to learn about.

Music in China has essentially always been free. They are now just trying to put structures in place to encourage people to pay for recorded music. Access and Convenience are the keys to his strategy. Lots of lessons to be learned for sure.

“While commercial music consumption has never been more widespread in the known history of man, and with the Internet offering the most capacious vehicle the world has ever seen to disseminate the near infinite body of musical works that exists universally to the greatest number of people, the existing music industry powers-that-be have yet to formulate a system to set this music free – even 10 years after Napster showed the way technologically.

And as elements in the music industry still continue to control the amount of legally accessible music to consumers, and only feed them the acts from which it can make the most money while keeping its vast catalogs in obviously porous vaults, other companies and intermediaries have capitalized on the clarion call to set the music free in all senses of the word. But some of these very companies and intermediaries are themselves simply in the game to enrich themselves via other ancillary services and products which use the pull of music and the accompanying audience, with minimal revenues trickling back to the very creators of the music.

Whilst this tug-of-war continues, one casualty is the increasing reference to music as a commodity,which is a gross misrepresentation of what music really is. Music is food for the soul which creates an emotional attachment with the listener and where it strikes a chord, an intrinsic value in the music is realized.

The industry needs to re-focus on this value in music that many seem to have forgotten, and which others have seemed to have contributed to its devaluation.”

Here is a link to Matthew’s Blog and his presentation from the Transmission Conference I recently attended in Vancouver.

From the Business Innovation Factory Summit, my presentation on the Past, Present and Future of Music.

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Here is the story they wrote about me for the Summit.

Back in the seventies, David Kusek walked from his freshman dorm at the University of Connecticut, down a long hill to the music department for classes several times a week. When the routine got a little stale, he began taking other routes. One detour took him past the computer science building where he quickly noted the “hot” cars in the parking lot. Naturally, he began taking computer science courses.

Great ideas are born in such serendipitous ways. When Kusek melded his deep-rooted love of music with his newfound affinity for computers, he opened up unchartered territory in the music world by inventing the electronic drum. His company, Synare, took a relatively unfamiliar technology (computers) and combined it with an indigenous musical tradition that tuned percussion to the key of the song. Kusek also knew how to start a business, develop products, and take them to market. Having the right price point added to the appeal of the electronic drum and attracted the attention of fledgling artist Donna Summers who took a chance on the new sound and propelled her career.

“For better or worse, we had our part in the disco age,” Kusek says. “We helped to define the sound of the era.”

Taking another detour for curiosity’s sake led Kusek to study animal communication in California with noted biologist John Lilly. They were trying to use sound to communicate with dolphins when the Apple II computer came to market.

Kusek was already synthesizing the sounds that dolphins make, so he devised a way to do the same with musical instruments, to “put the Apple II between the instruments.” He explains that his new company, Passport Designs, “broke music down into a language of expression, which we mapped to simple computer code and connected it to the instruments. We created a computer language for music.” Witness the birth of Musical Instrument Digital Interface (MIDI), developed by a group of companies including Passport, which has left an indelible mark on the music industry by becoming the prototype for all music interface software.

If only they had patented it.

Kusek, along with Dave Smith and the other people responsible for creating MIDI could have made millions with MIDI, but he remains philosophical about this missed opportunity. “Maybe the reason why it took off was that it was absolutely free,” he says. “It was a compact way of representing music in a simple and cheap format.”

Kusek has learned to appreciate and even extol the benefits of free and open access to music. He helped create musical notation software and was instrumental in developing enhanced CDs for the commercial market. He supports the creation of a music utility to “monetize” the immense wave of file-sharing that has become standard operating procedure in the industry. He reasons that Internet users already pay for access to a network that supplies the music, so why not add a nominal fee to the ISP bill and allow for legal trading? With approximately 80 million households using the Internet, a monthly music utility fee of $3 would generate almost $3 billion in annual music sales from households alone.

“If you tracked what was downloaded,” Kusek says, “you could create a system where the money flows exactly to the people who are listening. It could be a 30 to 40 billion dollar business again, as it was in the nineties.”

Admittedly, this system would spread those billions among a larger base of artists, establishing an unfamiliar sense of parity in the music industry. But Kusek says that the megastar is gone, anyway: “In the last four to five years, new artists coming to market are not making anywhere near what artists like Madonna made. I think that happens because of file-sharing, but also because the music industry was taking its eye off what was important. In the mid-nineties, the record companies thought their customers were WalMart and Target. They had no connection to their audience at all.”

File-sharing may have killed the megastar, but not the art, Kusek insists. “I think it’s a great time to be an artist,” he says. New performers may have smaller audiences, but they also have a more efficient way of finding that audience and staying connected to it through online chats, newsletters, and blogs. And instead of the record industry’s marketing machine pushing music at fans with an $18 plastic CD case and the elaborate promotion attached to it, word of mouth is shaping the musical tastes of the rising generation.

As it should, according to Kusek. He has brought technological innovations to the music industry by accepting such change and using it to open up the possibilities of sound. He envisions music flowing in a clean stream wherever people communicate, allowing artists and fans to express themselves freely.