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Nevermore

Do you think Edgar Allan Poe could have made money if he sold The Raven separately from 30 other poems?

This is a question posed in the U.K. Register article examining the “value gap”, or the amount that sound recording revenue has fallen since 2004. The report suggests that Apple (and others) should take the blame for the woes of the music industry (British) for unbundling the song from the album format.

“The Value Recognition Strategy working group was created last summer – largely at the impetus of the indie labels and collection societies, but backed by all sectors of the industry – to examine alternative revenue opportunities for digital music. The growth of MP3 has seen large hardware manufacturers such as Apple and media companies such as News Corp’s MySpace prosper from music, but returning little or nothing to composers, songwriters, and sound recordings owners.

It’s what economist Will Page, of the MCPS-PRS Alliance, calls a “broken supply chain”. Revenues from telecoms companies and service providers dwarf the revenues from the beleaguered music business.

The conclusion that unbundling is the chief factor is richly ironic. When Apple launched the iTunes Music Store in 2003, it did so with the backing of all four major labels. The labels had failed to see digital music as an opportunity, and launched only small scale and piecemeal commercial offerings. At iTunes, consumers chose one or two songs from a performer’s repetoire for 99 cents a song, rather than pay $9.99 for the CD.”

Since that time Apple has reaped tens of billions in sales of iPods, while the labels have lost tens of billion in sales of CDs. It has almost been a complete one-to-one swap of revenue from the label’s, writer’s and artist’s pockets – into Apple’s. See an analysis I did of this a while back here.

Read the whole Register article here.

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The End of Control

My co-author Gerd Leonhard has just published a new work entitled “The End of Control”. Here is an excerpt from the introduction. Enjoy.

“This book is about the most important issue the media business is facing as it tries to move forward: control.

In my work as speaker and advisor, the tough issue of control emerges, again and again, as the key contention point within TV companies, publishers, record labels, and broadcasters: How can a commercial venture that is based on so-called “intellectual property” thrive and prosper in an environment that seems to continuously and progressively remove control from the creators/owners/providers of content, and hands it over to the people formerly known as consumers (aka the users), effectively making them more powerful every single day?

But the reality is that every click inadvertently makes another case for the consumer’s ever-increasing rise in importance. Within all the conversations I have had about things like commercial content versus shared content, about the read-only or the read-write web, and about copyright versus Fair Use, the crucial question always seems to boil down to WHERE IS THE CONTROL HERE, i.e., questions such as “Who will control this new media universe” and “How much control do I need to run a revenue-generating business?”

Network_to_networked

Ever more devices, ever faster broadband, more channels, more platforms, faster processors, endless storage, better search — and still, we have only 24 hours in a day. The real barrier is attention! For many content creators or providers, it may often seem that one’s power to monetize stands to be inadvertently diminished every time some geek in some garage publishes a new piece of code. Today, those digital natives (i.e., the 10–25 year olds who were born as the Net Generation) increasingly self-assemble or pull media, controlling and sharing their own collections — and thereby making the companies that usually purvey their mass-media less crucial in the process.

Seven years after the explosion of the dot-com bubble, the future of media once again seems to be up for grabs. Bloggers and Web 2.0 entrepreneurs; social media and UGC (user-generated content) startups; mobile filesharers and P2P software developers; teenage inventors; hungry telecoms; operators and cellcos; mobile phone makers; worried governments and industry organizations; exasperated venture capitalists and their latest and greatest offspring, search engines and online communities — they all want a nice, juicy piece of the anticipated $ 1.6 trillion entertainment economy of 2010. And they all are hell-bent to take control away from the people who used to have it: the studios, and the titans of content.

This book will offer a counter-intuitive theory of we will get there: Give Up on Control.

Old-media veterans, be they music moguls or newspaper, radio, or TV executives — those who have cherished and at all cost maintained their absolute control over the marketplace — are now howling with disgust as those People Formerly Known as Consumers are becoming their de-facto bosses. They have suddenly lost their Monopoly on Attention. Yes, it’s happening everywhere, in all industries, but it is in media where we are most awestruck by its implications: We will now have to work much harder at getting people’s attention, and to gain and keep trust, rather than just use distribution monopolies to send more stuff they should watch down the pipeline.

What’s more, convergence is no longer just an idea, or a PowerPoint tagline. It’s naked reality for every media company, discussed in every boardroom. And many convergent products are relying on a substantial loss of control by all involved parties. Can we offer converged media services without giving up control? Highly unlikely.

The bottom line is that in the future, we will need to learn how to live and prosper with relative control.

Let’s face it: in a world where digital content is ubiquitously created and made readily available to everyone, everywhere, anytime, we simply will not generate enough revenues by attempting to control the copies (or the access to those copies). Throttling distribution and monetizing scarcity — an operating mode that most media conglomerates have enjoyed since the invention of the printing press, the phonograph, the TV, and the CD — is no longer a viable option. Rather, access to media content will simply be a universal, default, built-in status — and therefore, media will first be a service and only then a product.

Value will be generated by being and remaining the trusted context (formerly known as being ‘the networks’ but now becoming known as ‘being networked’); by becoming the unique purveyor of a particular media experience; and by providing added values, again and again, every time the user shows up — real-life, virtually, or both.

Here and now, the people formerly known as consumers are becoming fully empowered Netizens, and it is the Net Generation that will quickly become the default audience for our content, rather than an aberration. The Digital Natives are taking over everywhere, and they will not play if they, in the aggregate, don’t feel like they control the game, or if they get even the slightest whiff that the game may be rigged.

Social networks are quickly becoming the new radio and stand to have more influence over music trends (and commerce) than MTV ever had; (digital) radio is fast turning into a music retailer and distributor; and smart, software-based taste-making agents are set to become a standard in digital music. Mobile phones are becoming powerful media players, and remix devices, and super-distribution nodes — by default. Ubiquitous Wi-Fi and Wimax will soon mean that online and offline cease to be meaningful terms of distinction.

All of this can be summarized in one conclusion: It is now becoming utterly impossible to control the people formerly known as consumers. Instead, they control the media purveyors — by virtue of millions of mouse-clicks and the power of their combined click-streams.”

End of Control

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Gerd Leonhard’s Open Letter to the Indie Musicians

Music2.0 and the Future of Music is yours – if you can resist the temptation of becoming just another music cartel.

On June 29, 2007, while at London Calling, I was invited to speak to a small group of indie record label leaders at the annual AIM / WIN
gathering in London. I took this opportunity to take a good look at
what needs to happen in order for the independent music companies to
actually take advantage of the new music economy that is unfolding
right now.   So… some of my thoughts are shared below.

 Today I want to present my views on what I like to call “Music2.0”
– the next generation of the music industry that is being created as we
speak. This new model is dramatically different: many old ways of doing
things, many old relationships, and many outmoded traditions cannot and
will not survive.

I want to seduce you, the leaders of the independent music
industry, to go down this new road with me, to take a leap, to leave
some of your assumptions and your ‘religions’ aside, and to make bold
moves – because this is required to turn this ship around.

Scott Fitzgerald, the famous novelist, said: “The
test of a first-rate intelligence is the ability to hold two opposed
ideas in the mind at the same time, and still retain the ability to
function”.  This will clearly be the music industry’s challenge going forward!

Technical and economic innovations have, for the past 10 years,
stripped away many traditions, social and economic hierarchies and
monopolies in the music industry, and if there is one thing we can say
for sure I guess that would be that it’s now show-time:
the music industry is finally reaching a major inflection point; 10
years after the first .com ventures shook the ground. It took a lot
longer than we all thought but it’s hitting much harder now: CD sales
are down between 20 – 40% YTD, and digital sales are not making up the
difference, any time soon – and the one-horse race with iTunes clearly
is a dead-end.

We are very quickly nearing a point to where we are forced to dive
into what I like to call “Music2.0” – a new ecosystem that is not based
on music as a product, but music as a service: first
selling access, and only then selling copies.  An ecosystem based on
ubiquity of music, not scarcity.  An ecosystem based on mutual trust,
not fear.

As Don Tapscott says, in his great book “Wikinomics” ,
we can think of Web1.0 – the ‘old’ web – as some sort of digital
newspaper, while Web2.0 is a canvas that allows information to be put
up, shared, changed, and remixed. It’s about the interaction, the
send-and-receive options that make it useful and ‘special’.  And in
music, it’s always been about interaction, about sharing, about
engaging – not Sell-Sell-Sell right from the start.

Stop the sharing and you kill the music business –
it’s that simple. When the fan / user / listener stops engaging with
the music it’s all over. Today, you urgently need a canvas for music
not a one-way product (such as the CD).

Let’s face it: most ‘leaders’ of the major record companies as well
as some independents are, by and large, still in denial about the fact
that their unit-sales-based model is utterly broken and crashing
quicker than they can fathom, and many still hope for some magical technology solution to solve a business problem.

Billions of $$ have already been lost due to misguided strategies,
outdated policies, and lack of true leadership. Forgive me, but it’s
time to get your act together and do whatever it takes, not just what
fits comfortably into your current landscape – this is a make-it or
break-it moment.

Record_industry_horse_trabi
How come many societies and PROs / MROs are still at a total loss when
it’s about ‘licensing the un-licensable’ (as my dear friend and
colleague Jim Griffin
puts it)?  1000s of companies with innovative business models are left
unlicensed, by default (or shall I say by design?), and most of them
have given up on even trying. Major money is left on the table due to
tardiness and internal squabbling.  Many of the traditional music
licensing organizations have utterly failed in their mission of making
music available – in fact, they have, by non-action, succeeded to make it unavailable. What you need now is action not continued excuses.

Today, we have the paradox situation that any startup that wants to
use music will not even try to go legal right from the beginning, since
there is no reasonable way of doing so. Look at the biggest exits in
this turf, during the past 2 years: myspace, youtube, last.fm – either
they did not bother with proper music licenses, or it was unclear if
and where and when they would even need one. Non-compliance succeeded
and was handsomely rewarded.

The music industry must admit that it has failed to act. Their
leaders’ clueless-ness, incomprehension and general lack of willingness
to embrace true change allowed the paying for music to become
voluntary. Congrats.

Don Tapscott points at the year 2006: the losers built digital music
stores, and the winners built vibrant communities based on music. The
losers built walled gardens while the winners built public squares. The
losers were busy guarding their intellectual property while the winners
were busy getting everyone’s attention.  Warner Music Group’s stock
nose-dived from $30 to $14 in less than one year; Google rose from $323
to $526, Apple went from $50 to $127.

For the independent music industry, the question is: which side do
you want to be on? Do you want to become another ‘major player’, and
stay stuck in music1.0, or do you want to lead the way into music2.0?

In this context please allow me give you a glimpse of the future, so that you can make some decisions based on what is coming.

1.    Within 18 months, in many key music territories around the
globe, wireless broadband networks and device-to-device ad-hoc networks
will connect every conceivable device with each other, as well as with
gigantic online content depositories – or shall I say switch-boards –
that will contain every imaginable song, film, or TV show.

If you think ‘sharing’ is a big deal now, wait another 2 years – it
will be 100x as fast and enabled on every single device (not just
computers). 3 Billion+ cell phones and 1 Billion+ music players will
connect seamlessly to each other.

Wireless broadband access and devices will become so cheap,
super-fast and ubiquitous that sharing content will become the default
setting, at very high speeds and with anyone that is close by. Search – Find – Select – Exchange. Click and get.

How can you monetize this? By licensing participation –
and the networks and the devices that enable it.  You must license the
use of any and all music on these networks, and make irresistible,
irrefutable and compelling blanket offers to those that run it. These
license deals must be conversations not monologs. Not a stick to the
ISPs but a huge, shining and attractive carrot.

2.    10s of 1000s of new TV, online video, and gaming channels will
be born in the next 2-3 years – and all of them will need music to go
with the visuals. Millions of songs will be synched to video – this
market will positively explode. It may well be that those B2B licensing
revenues end up being more than 50% of your future income.

However, exploiting these opportunities will only be possible if an
efficient and frictionless system for transactions is available – this
is, imho, where the huge opportunity for the Merlin initiative (where AIM is a member) lies.
Think ebay+ chemdex +ricall + pumpaudio+.  Every $ invested in better
B2B processes will make 10s of 1000s for music rights holders… while
they sleep, or better yet, make more music.

Scarcity_gerd
3.    Streaming music, on demand, will be everywhere. On every website,
every widget, every mobile, every device – supported by ads,
sponsorships and commissions on transactions. Performance-based income
will surge beyond your wildest imaginations, But again, only if you
finally chose to play ball, to participate, to make irresistible
license and rate offerings, create reliable standards and go flat-out
for liquidity not try to maintain artificial scarcity.  BMI’s revenues
have grown from $630 Million in 2003 to $779 Million in 2006 – not bad
considering the overall demise of the recorded music market, at the
same time!  So read my mouse: It’s not the copy of the recording that makes all the $$$, it’s the use. In fact, the use of your music is the next big format you have been looking for.

4.    Rich media (i.e. ads with music, video, animations, audio etc)
will become the default advertising format for online advertising,
representing yet another huge growth opportunity for music. Soon, 10%+
of all ad-spending will be on the Internet; and 16% of all Internet ads
in 2009 will be rich media. With an estimated $ 700 Billion of global
ad spending by 2009, that means $70 Billion for online ads, and over
$10 Billion spend for rich media ads. 100s of millions of $$$ for music
licenses!

5.    Digital radio will deliver 100% time- and place shifted music
experiences, stopping only a tiny bit short of becoming another iTunes.
The reality is that net radio is just another Tivo for music. Radio
will indeed become the feels-like-free, on-demand music box, once
again: the only remaining ‘Radio1.0’ factor will be that it will
continue to be curated and expert-produced, as well as taking in social
recommendation and smart technology agents. The best radio stations
will become very strong brands (Radio 1, KCRW etc), out-doing what used
to be record labels. How will you license Radio2.0 if you insist on
staying with a per-copy model?

6.    All music companies will become video companies, too – music
will be multimedia, by default (music + video + audio + text + games).
If you aren’t already diversifying into video and TV you really should.

7.    China, India, South America and Africa will explode with new
models of usage rights – bundles and flat rates based on access. And
guess what: they will indeed have those $100 computers that Negroponte is trying to bring to them!

But again, you will not have truly liquid (i.e. efficient,
low-friction, vastly scalable) markets until you allow, support, and
enable them.  You must swing this ship around, because right now, the
music industry is failing miserably: failing on technical and on
licensing standards, on flexible pricing offerings, on competitiveness,
on compatibility, on being trusted, on transparency.

The music industry’s past was based on:
•    Control
•    Exclusivity
•    Monopoly
•    Closed-ness
•    Guarding / Protection
•    Secrecy / Non-Transparency
•    Territoriality

Your future – if you chose to go there – is based on:
•    Openness
•    Total transparency
•    Peering
•    Sharing
•    A truly global outlook
•    Liquidity

I predict that as much as 60% of this new music business –  and with
that I mean a $100 Billion music business – will be independent within
3-5 years –  but only  if their leaders don’t follow the major labels
into LIKING CONTROL MORE THAN INCOME.   Update: watch this movie clip for more details 😉

Here are a few of my favorite bottom lines:

Timepersonoftheyear2006
1)    The media ecosystem of the future is frictionless. That means
music anytime, anyhow and anywhere, ranging from free and ‘feels like
free’ to bundled, up-sold and premium’ed. Your job as a music company
is to do away with the friction, not to add to it, or even to re-insert
it: on the Internet, every hurdle is treated as damage, and the traffic
is simply routed around it.  Create friction and be side-stepped.

2)    It’s all about participation not prevention. Because of the
utter impossibility of maintaining any real hurdles, it is absolutely
crucial that you find ways to participate in any and all forms of
commerce that use music. Charge smartly for access but make music
available the same way that cell phone operators make cell phones
available: a very low-cost, irresistible way of engaging people… and
sell-up from there. Whether it’s streaming on demand, remixes and
mashups, play-listing and social network music applications, to
add-music-to-video, to digital radio – being part of it is what it’s
all about.

3)    Let’s face it: the web is like a giant Tivo, a huge recorder
or DVR – all performances are or can be recorded, all broadcasts really
are deliveries. You need to stop distinguishing between music ‘to keep
/ own’ and music ‘to listen to’ – our users have done this a long time
ago! License the USE. Share revenues. THEN upsell to ownership.

4)    Copyright is the principle, usage right is where you monetize.
Usage is where you need to focus your energies, not the ‘protection of
Intellectual Property’. This is a tough spot but again… do you want
total control, or do you want revenues?

5)    Very few things end completely when new inventions are taking
hold – usually, the market just grows larger. And it will be no
different here. Yes, the fax machine and the Internet killed the Telex
and telegraph, but we still have books even though we have Xerox
machines. CDs will decline, and may fade out  completely, eventually,
but nothing you do in digital music will completely wipe out physical
media. This is just another format, and it’s called ACCESS. And even
better: after you provide access, you can sell ownership again, too
(think HD!)

6)    Remember that the only real limit to growth, in music and in
media, is TIME. Media consumption will rise and rise and rise, as the
offerings become cheaper and more ubiquitous, and as more of the “Digital Natives”
consume multiple media at the same time. You are now engaged in a
battle for the wallet and the clock – but the clock comes first.  Mind
share means time-spend means money spend!  Again, this is where
attention translates into money, and this is why the first objective is
to get attention, and only then to get money. The biggest problem for
most artists (and their labels) is obscurity not piracy!

7)    Engage not enrage: stop anything that enrages the users. And do it now.

8)    Guess what: you can compete with free because what
you can offer is not free. Yes, a copy of a file is free. A CD burned
from another CD is free, a USB stick’s content copied to my computer is
free. But the real-life connection to the artist, the experience that
is happening around the music, the added values such as videos, films,
games, chats, books, concerts and merchandising, the context (!!!) –
all of that must not be free. You must stop the obsession with trying
to make money merely from selling copies, and instead provide access,
because only the legitimate and authorized source (i.e.
agent-label-manager) can provide the whole bundle of values that the
users, fans, the people formerly known as consumers, will buy.

Music2.0 is an unprecedented opportunity, very much like when music
when from acoustic to electric. Everyone wants music. More music is
used on more platforms, all the time. An unprecedented hunger for music
that you need to fulfill!

Finally, here are some challenges that I believe a music industry led by Independents must embrace.

1)    Once released, a recording becomes, in reality, available by
default and must be made ‘usable’ under a default license – all else
equals tacitly conceding that it’s free to use without permission. As a
result of such a new ‘default license’, some rights
principles that we have gotten used to probably won’t translate in this
environment – such as the moral right of deciding where you music is
being performed or maybe even otherwise used. However, I don’t think
this will apply to commercial use in films or ads – unlike the private
or semi-private use in UGC and web-generated content, and of course, to
public performance.

2)    The traditional definition of ‘copyright’ and ‘intellectual
property’ can, for the time being, not be the sole key to monetizing
your creations. Because it is no longer about copies, it’s no longer
about the right to copy, it’s no longer about reproduction – it’s about
how music is being used and how to participate in those much larger
revenues.

Call it ephemeral copies, tethered downloads, rented media,
streaming, buffering, caching, storing, time-shifting, downloading,
ripping or whatever – the fact is that digital technology has done away
with the distinction of a so-called performance being different than a
so-called DPD (digital phonographic delivery). All computers – and that
means all cell phones, too ! – are by definition copying machines. As
overwhelming as this may sound, you must therefore discard the idea of
charging more to ‘keep’ music, as opposed to just ‘listening’ to it as
in radio. Instead, you must focus on charging for added values (such as
a better way to keep the music ;), and on collecting revenue at every
point of access, and then go from there. I don’t want to get into my
good old ‘music like water’ rant again, but charge for music like
utility companies charge for basic water & electricity service, and
then charge more for all the other options. The bottled water business
is a $100 Billion industry!

3)    Your revenues from selling ‘copies of songs’ will soon dwindle
down to maybe 30% of your total income – the rest will be revenues from
licensing, sync, performance, bundling, flat rates… revenue sharing and
the many other streams that are yet in their embryonic stages. Get busy
creating and supporting those new revenue streams!

4)    You can’t afford exclusive rights representation at high rates
any longer, unless these institutions give you 100% coverage and a
flawless solution.

5)    Forget territories except for when serving local repertoire
(which is on the rise, too). Most talent is global, and your audience
is global, or at least virtually local. Internationalize right from the
start and build systems that will support that. Build a worldwide
licensing and B2B-transactions system that makes all repertoire
available for all types of use, and build it quickly.

6)    Resist the temptation to do as the major labels have done
(e.g. extract huge one-off payments, extort equity shares, license at
unreasonable rates, refuse access for no reason but for market control
concerns, sue their own customers etc) – that is a certain death wish.
In fact,  now you can force them to follow you!

7)    Resist all attempts at locked / protected formats, and go for open systems.

Music_marketing_syndication
)    Bundle and package music in new ways: with other services, with
other products. And prepare for the Flat Rate because this is certainly
coming.

9)    Remove any and all hurdles to complete market liquidity:
pricing inflexibility, lack of standards (technology), lack of
licensing transparency, territorial differences, monopolies.

10)    Embrace outsiders to jumpstart the music business. Niklas
Zennstrom disrupted the telecom business, Hotmail changed email,
Stanford dropouts started Google – the innovation often comes from the
outside.

Call me a Utopian, call me a Dreamer, call me a ruthless Optimist, but I think this is the Future of Music.

Gerd Leonhard, Basel, Switzerland, July 1, 2007

See lots more from Gerd at his Blog.

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Good Copy Bad Copy – Stealing Culture

Watch a fascinating social commentary on the state of affairs in copyright and the internet.

See the whole hour long movie here.

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Stranger things have happened…

If it happens and they are able to negotiate reasonable licenses for all involved, then perhaps there may be a future for recorded music as a source of income.  I am doubtful, but very interested in what happens.

Limewire, the P2P program that is installed on 18.71% of all computers
worldwide (according to a Digital Music News Research Group study),
is in talks with various indie labels and label distributors about
creating a digital music store.  Like other file sharing programs,
Limewire has faced its share of legal trouble, but hasn’t had to close up shop, to some extent because (from DMN)

"Lime Group chief executive Mark Gorton
has been preparing for a fight for years, and a more secure defense
could emerge.  One source close to the organization also noted that
there were ‘no internal emails’ and ‘no paper trail’ indicating that
the group knowingly encouraged copyright infringement, a critical
component of the inducement test for the courts."

A source close to the situation tells me that despite ongoing
litigation with the major labels, other labels — including larger
distributors such as DMGi, IODA, and The Orchard — have expressed interest in signing up with Limewire, which plans to

"leverage [its] large user-base while avoiding the huge mistake of killing it a la iMesh, Napster, etc."

An observer close to one of these deals was sceptical, equating
Limewire’s current P2P offering to "a rocket ship" and the upcoming
digital music store to "a train."  But sometimes, before you can move
forwards, you need to take a step back first… maybe Limewire will be
able to start selling music without alienating its audience, using the
lessons of iMesh and Napster as its guide.

From Wired News

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Music Discovery Tools

There is really so much happening in this space right now, it is challenging to keep up.  While the well known pioneers of music recommendation (like Pandora, LastFM) continue to make headway, new entrants are continuing to redefine how it all works.  Extremely interesting developments almost on a daily basis.

Here are two I recently came across that take MP3 blogging to the next level.  Peel is an MP3 Blog reader and player rolled into one (actually both of these are).  You subscribe to various blogs and easily traverse the music leading you to things you never knew existed.  Songbird is a media browser that takes over your iTunes collection and integrates it into the rest of the online music world.  Truly amazing.  Check em out and have fun!  You never know what you are going to find next.

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Playlists Gain Steam as Music Discovery Drivers

Despite the millions of dollars that record labels spend on
advertising, it may be folks like Robert Burke who determine the future
of music marketing.

Burke, a South Carolina software tester, operates a popular series of Web sites called Scopecreep.com,
where he’s posted thousands of digital music playlists, from "Best
songs of 1989" to "Palindrome songs," that can be played by any Yahoo
or RealNetworks Rhapsody music service subscriber.

On one level, this is little different than the age-old
practice of making mixed music cassette tapes for a friend. But as
online music retailers look for ways to guide listeners through
catalogs of millions of songs, this latter-day mix-making
is drawing renewed attention, particularly from subscription services
that see people like Burke as key allies in their fight against Apple
Computer’s popular iTunes.

Last week, Yahoo announced it had hired the creator of Webjay,
a site for posting playlists. Yahoo is getting in on what could be a
major part of the online music business: A recent joint study from
Harvard University and the Gartner Group predicted that by 2010, 25
percent of online music sales will be sparked by consumers recommending
songs to one another.

"We fit in between traditional media and word of mouth media,"
Burke said, explaining the appeal of sites like his. "We’re that
in-between world that’s the best of both worlds."

To date, the playlist-swapping boomlet represented by Burke, the newly
Yahoo-owned Webjay and others has been more of a grassroots phenomenon
than an effective weapon in the digital music wars. But ambitious
subscription music services see music-sharing tools playing an
important role in their futures.

A key feature of subscription services is that they give their users
the ability to listen to unlimited amounts of music. As long as two
people trading song recommendations have both paid the service’s
subscription fee, they can legally listen to thousands of songs, or
swap dozens of playlists without any additional fee.

"The people who get this are those who are more engaged," said Evan
Krasts, director of product management for RealNetworks’ Rhapsody
service. "If you’ve got someone who understands what this is about,
you’re going to get someone who’s going to be a good customer."

iTunes itself is also a haven for playlist makers. Indeed, its iMix
section, with more than 330,000 playlists contributed by individuals,
is one of the biggest repositories of music recommendations online.

But at 99 cents per song, a 10-song iTunes playlist costs $10 to
download, which limits the amount of songs that people can actually
listen to, subscription service executives say.

Still, that argument hasn’t exactly triggered a mass rush to subscription services. Carried on the back of the phenomenal success of the iPod,
Apple’s iTunes remains far and away the most dominant force in the
digital music business. Apple executives have said that consumers want
to own their music, rather than "rent" it through subscription
services.
Analysts say that subscription services need to spend far more time
explaining their version of legal music swapping to the public before
the approach will become a significant draw.

"I think (playlists) will be an important feature that many
people will eventually use," said Jupiter Research analyst David Card.
"But it will have to be promoted to death."

Read the rest here:

From John Borland CNET NEWS

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Music 2.0

Jason Herskowitz and Paul Lamere have begun to compile a directory of Music 2.0 sites and businesses that you definately want to check out.  See the Music 2.0 Directory/Wiki

What is a Music 2.0 site?

Yeah, I don’t really know what "Music 2.0" is supposed to mean
either, but I’ve compiled a list of companies that I’ve come across the
are doing something interesting with music online. Some are
subscription services with APIs that make syndication easy, others are
informational sites, a handful are social networks (some arguably not
really music-centric), a few are search engines, and some are
recommendation engines…. and at least a couple, I’m guessing, are
probably not legal.

Music 2.0 sites fall into a number of camps:

Music Services – places like iTunes and Rhapsody where you can
purchase or subscribe to music

Music Discovery – places that help you
find music – these fall generally into 3 subcategories: Social – wisdom
of the crowds sites like last.fm, iLike. Goombah and Qloud
Content-based – recommendations based on the music content – Pandora,
SoundFlavor, MusicIP Expert based – Music recommendations from people –
music blogs, irateradio.com

Music Experience Augmentation – sites to
make your music listening experience more enjoyable – music dashboards
like sleevenotez or Snapp Radio Playlist Sharing – this includes
playlisting sites like MusicMobs, fiql and Webjay

Music Metadata – add
to the data surrounding the music – MusicBrainz, All Music Guide,
Gracenote

Here is another great resource for digital music from Jason Herskowitz.  His site is off the hook!

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MP3 Format will Take the Lead in 2007

All signs are pointing to the eventual dominance of the MP3 format for paid digital music in the near future.  Last fall there were lots of signals that 2007 would be the year where the labels and publishers would be forced to face a future where MP3 become the latest legitimate format for digital music, and where Digital Rights Management begins to lose it’s grip on the main action in paid digital downloads. 

The major labels began to experiment with MP3 format releases with some high-profile acts, including Nora Jones, Jessica Simpson and others.  This shift in strategy has allowed the labels to play with variable price points, something they have been wanting to do with iTunes and other platforms.

Companies are lining up to capitalize on this inevitability including Amazon, MySpace, Yahoo, eMusic, Limewire and many others. 

Eliot Van Buskirk from Wired News sums up the situation pretty well with his seven reasons why MP3 is the future of the music industry:

1. The labels don’t have a choice

2. Apple might be forced into interoperability

3. Thomson has endorsed selling watermarked MP3s

4. Amazon is rumored to start selling MP3s by April

5. Sony: "DRMs are going to become less important"

6. People love AllofMP3.com

7. MP3 has future options

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Music Survival Guide – from NARAS

The Recording Academy, the organization that brings us the Grammy awards, has spent the last two years on a project to "create a dialogue between music makers and music fans to help shape an exciting digital music future".  This is some amazing work and the academy should be recognized for their grass roots efforts to connect the fans and the artists.  Here are some excerpts from their report.

In the 50 years since commercial rock ‘n’ roll was born, everything about music has changed, from the way it’s made to what it sounds like to how it’s marketed and sold. The most dramatic difference, however, has perhaps come in the last decade. Spurred by the introduction of the Internet, the act of discovering music and, subsequently, sharing it, have evolved in ways artists, record companies and listeners never imagined. Gone are the days of walking over to a friend’s house with a stack of vinyl long-playing records under your arm—a deeply personal, one-on-one experience that, often, ended in generating a future sale. Today, connecting with music happens in an instant, involves an incomprehensible number of people, and a method that’s nearly impossible to trace.

Like many times before in its history, the music industry is at a crossroads. Faced with declining album sales and a public that lives—but doesn’t always buy—online, the traditional brick and mortar model, which has weathered its share of technological innovations (from 8-tracks to tapes to compact discs), can no longer function as it was designed; at least not for profit. At the same time, consumers are battling music providers with issues centered on perception (the perceived greed of record companies and the perceived wealth of popular artists) and one undeniable reality: that acquiring music is easy and, depending on where you are getting it, free. While the conscience may debate the act of illegal downloading, is it enough to steer the listener towards a legitimate purchase or is a legal threat necessary? If you are willing to pay, will you be able to own the music or will copy-protection software ostensibly mean you’re renting it?

These are some of the many questions that this report tackles. It was compiled by a 12-member panel of 18 to 24-year-old music fans from every walk of life that have spent the better part of two years collecting viewpoints and opinions through interviews and roundtable discussions with artists, producers, songwriters, executives and peers. The What’s The Download® Music Survival Guide is an unedited look at today’s state of music and a genuine attempt to decipher what’s working, what’s not, and where we go from here.

7 Music Survival Tips – (from the Guide)

#1: Educate to Eradicate Piracy
“Unaware of the large number of people who collaborate to make a record, many consumers have turned to illegal file sharing as a response to the high price of music, believing that they are not hurting all of the ‘rich’ musicians. They simply do not understand the ramifications of their actions.”

#2: Make Music Retail Therapy
“Sometimes when you go to a record store, you bump into a record. You bump into people that may hip you up to records. It’s a whole other experience. And we need that journey. It’s important that as artists we take time to dig, to see the roots of where everything is coming from so that we can offer it to the fans, and they all can offer it to the next generation.”

#3: Declare a Music/Tech Truce
“Simply put, the industry does not make it easy for consumers to purchase and use digital music online legally, while piracy delivers what companies hold back. Digital music is a vital force in the industry and technology needs to be properly embraced to provide ease of use to consumers.”

#4: Commit to Artist Development
“If the music industry wants to win back the financial loyalty of fans lost to illegal means of obtaining music, the major labels should work with artists to cultivate their talent, rather than casting an artist aside after a commercially unsuccessful release.”

#5: Embrace New Music Avenues
“If the music industry hopes to survive, it must embrace the new face of musical community to reach out to potentially dedicated fans. Labels as well as artists should take the time to interact online with their fans in the interest of developing an artist-fan relationship that will entice fans to support artists monetarily as well.”

#6: Offer What Piracy Doesn’t
“So how can companies drive illegal file sharers to legal Web sites? This is something many are struggling to figure out, and there is not one clear answer or solution. However, if legitimate Web sites and online companies want to continue to grow, they must offer what piracy cannot.”

#7: Make Music a Priority
“More people are discovering more new music–and a greater variety of music–than ever before. There are tremendous challenges facing traditional music businesses, but for artists and fans this is an incredibly exciting time. One day, we will look back on this period in music history as a kind of Internet adolescence—a confusing, sometimes awkward transition that in the end leaves us stronger, smarter…and a little less innocent.”

Get a copy of the complete guide here and check out their very informative site "Whats the Download"

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The emperor’s new CD?

NPR / Marketplace

Listen to this story

Universal
Music wants to save the compact disc. The company said today it’s
unveiling new packaging to make CDs more attractive to consumers who’ve
been lured about by digital downloads. Lisa Napoli reports.

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KAI RYSSDAL: We talk a lot on this show about digital
music and downloading. But the good ol’ compact disc still accounts for
90 percent of the music industry’s sales.

It’s getting a makeover from the world’s largest music company. In
Europe at the end of the summer, the Universal Music Group is going to
jazz up its packaging and raise the prices on the hot new releases. And
at the same time it’ll simplify packaging and cut the prices on older
offerings.

Marketplace’s Lisa Napoli says some feel that’s incredibly beside the point:

LISA NAPOLI: Dressing up the compact disc and
charging more money for it is kind of like the Emperor’s New Clothes.
So says Dave Kusek, co-author of the book, "Future of Music."

DAVE KUSEK: Packaging is not the issue.
It’s value and convenience is the issue. It’s part of a continued
denial that the music industry has a problem.

The problem isn’t that some people hate those flimsy CD jewel cases.
And the solution isn’t to make sturdier cases, or add extra tracks and
videos. Industry observer Bob Lefsetz says CDs are a dying format and
the industry just wants to maximize revenue.

BOB LEFSETZ: This is like, you now, a
complete sideshow. It’s irrelevent. It’s to what degree is it
Smith-Corona typewriters and one day you won’t be able to sell them.

Lefsetz says it all goes back to those peer-to-peer file-sharing sites where people get music for free.

LEFSETZ: More tracks are traded P-to-P in
a month than are sold in a year on physical formats. For every track
that is sold at the iTunes music store, there’s in excess of 10 that
are traded.

In other words, to make money from music will take more thinking outside the box.  Not just revamping the box.

In Los Angeles, I’m Lisa Napoli for Marketplace.

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The emperor’s new CD?

NPR / Marketplace

Listen to this story

Universal
Music wants to save the compact disc. The company said today it’s
unveiling new packaging to make CDs more attractive to consumers who’ve
been lured about by digital downloads. Lisa Napoli reports.

function emailPop() {
window.open(‘/tools/mail/mailstory.php?title=The emperor’s new CD?&storypage=http://www.marketplace.org/shows/2006/07/05/PM200607054.html’, ‘pop_up’,’height=435,width=475,resizable=yes,left=4,top=4,titlebar=no,menubar=no,scrollbars=no’);
}
KAI RYSSDAL: We talk a lot on this show about digital
music and downloading. But the good ol’ compact disc still accounts for
90 percent of the music industry’s sales.

It’s getting a makeover from the world’s largest music company. In
Europe at the end of the summer, the Universal Music Group is going to
jazz up its packaging and raise the prices on the hot new releases. And
at the same time it’ll simplify packaging and cut the prices on older
offerings.

Marketplace’s Lisa Napoli says some feel that’s incredibly beside the point:

LISA NAPOLI: Dressing up the compact disc and
charging more money for it is kind of like the Emperor’s New Clothes.
So says Dave Kusek, co-author of the book, "Future of Music."

DAVE KUSEK: Packaging is not the issue.
It’s value and convenience is the issue. It’s part of a continued
denial that the music industry has a problem.

The problem isn’t that some people hate those flimsy CD jewel cases.
And the solution isn’t to make sturdier cases, or add extra tracks and
videos. Industry observer Bob Lefsetz says CDs are a dying format and
the industry just wants to maximize revenue.

BOB LEFSETZ: This is like, you now, a
complete sideshow. It’s irrelevent. It’s to what degree is it
Smith-Corona typewriters and one day you won’t be able to sell them.

Lefsetz says it all goes back to those peer-to-peer file-sharing sites where people get music for free.

LEFSETZ: More tracks are traded P-to-P in
a month than are sold in a year on physical formats. For every track
that is sold at the iTunes music store, there’s in excess of 10 that
are traded.

In other words, to make money from music will take more thinking outside the box.  Not just revamping the box.

In Los Angeles, I’m Lisa Napoli for Marketplace.

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Divided Camps

After years of digital disruption, the music industry is still divided on the best strategy to move forward with.

So far, recorded music distribution has commanded most of the attention during this disruptive phase, at least in major press circles. Sales of CDs, the rise of online formats, the challenges presented by P2P networks – these are all immediate concerns and issues felt most acutely by labels. Quieter aspects of the business include the live concert industry, brand sponsorships, merchandising, and publishing royalties, areas that labels rarely reap direct revenues from. And wedged in-between are mobile formats, led by the explosive ringtone phenomenon, which now benefits both labels and publishers alike.

The distinctions are important, and so are the widely-divergent opinions on where this business is going. In one camp, there is a strong belief that disruptive technologies like P2P file-sharing can be controlled and contained, that music fans can be retrained, while formats like paid downloads and even CDs can power a long-term revenue stream. Others point to massive shifts in the way consumers are discovering, receiving, and ultimately listening to music, and question any attempt to fundamentally alter P2P networks as they exist today. One suggested solution is a licensed P2P architecture, not with filtering or controlled selection, but through broad-based methods like ISP monthly surcharges. Still, another group disavows any attempt to harness P2P at all, and instead focuses on a far broader revenue outlook for artists – an approach that could include free file-sharing for promotional effect, and paid concert revenues from core listeners, for example.

In between, endless variations exist. But a key question is whether the skies can be tamed on digital distribution. Continued efforts by the RIAA reflect a belief that they can indeed be reclaimed. "A vibrant, online marketplace is taking root," said RIAA chairman Mitch Bainwol and MPAA chief Dan Glickman in a recent Wall Street Journal opinion, while noting that "file-sharing networks like iMesh and BitTorrent are showing that the technology can be used legally." The pair also pointed to surging paid download levels, and ongoing legal action against illegal services.

The piece has a more-than-healthy bit of spin, and the opinion was timed with the one-year anniversary of MGM v. Grokster. Certainly, some positive developments are happening for the industry since that decision, particularly in the paid download realm. But that game is still early, and a-la-carte purchases still present a dangerous change in bundling practices – despite jumps in total revenue. Meanwhile, most music fans are still grabbing files en masse from applications like eDonkey and LimeWire, and earlier claims that file-sharing volumes are being "contained" are thinly supported. Elsewhere, attempts to offer a filtered, paid file-sharing platform have been either non-existent or unsuccessful. Companies like Mashboxx have yet to see the light of day, SnoCap never emerged as a legitimate P2P backend power-player, iMesh has made little noise after its inception, and a recent deal with BitTorrent was largely superficial. Meanwhile, according to figures from BigChampagne, there are more than ten  million active file-sharers online at any given moment, a figure that continues to increase – albeit at a slower rate over the past year.

So when do things change? The question for the RIAA is whether the current state-of-the-industry reflects a deeper, structural shift that is inconsistent with the philosophy of the trade group. Alternative approaches have been kicked around for years, including more diversified label business models, ISP-based blanket licensing of P2P networks, and DRM-free, cheaper paid downloads. Certainly, the weeds on those approaches are complicated, and their success is less-than-guaranteed. But the current report card for major labels is mixed at best, and sales of pre-recorded CDs are continuing to drop.

Meanwhile, the RIAA seems doggedly attached to its strategy, despite serious questions about its success possibilities. Ultimately, consumers will offer a final verdict, part of an increasing power-shift across numerous industries. If that is the case, then why is the RIAA pushing so hard with "we’re winning" opinions like the one found in the Wall Street Journal? Does a well-executed PR campaign have any effect on the underlying market? Perhaps the perception of a recovering major label could boost stocks like WMG, but will it make consumers buy more CDs, or purchase more tracks on iTunes? The answer is no, especially since the most engaged music listeners – teenagers – are mostly disengaged from mainstream media outlets. And in an increasingly fragmented media landscape, the market is likely to change on its own, regardless of what major press outlets – and anyone else besides consumers – have to say about it.

From Paul Resnikoff at Digital Music News

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Power to the people

"Hey mister record man, the joke’s on you.
Running your label like it was 1992.
Hey mister record man, your system can’t compete,
It’s the new artist model, file transfer –  complete."
         – Download this Song – MC Lars 2006

MC Lars sits on a stool in front of his computer music system in his cramped New York loft as the sun comes up.  With his boyish good looks and talent, Lars could be a young exec on the rise at any Wall Street firm.  But instead, the 25 year old graduate of Stanford and Oxford Universities is breaking into the music business – and making money.  His style is Post Punk Laptop Rap hitting the US and the UK reaching the iGeneration, kids raised in the time of the Ninja Turtles and new wave music.

MC Lars is wired, amazingly fresh after being out all night playing at a club.  And he won’t crash until he’s finished laying down the final track for a new song.  He plays a little, tweaks the software, listens for awhile, repeats the process, then shoots the song to his fans over the internet with the push of a button – for nothing.

Giving music away, MC Lars says, makes him as much money as being on a major label.

“Well any artist wishes that ideally people are going to get their music on iTunes or something but, it’s better for them to get it for free than not to listen to the artist at all. That’s the inspiration for Download this Song,” MC Lars says.

The tide has turned.  The music we love is flowing increasingly like water around the globe – seeking its new level in the digital media economy.  Today, we can get music like MC Lars’ in MP3 downloads, ring tones, file sharing, playlists, podcasts, music blogs, iPods and more. 

Music is flowing directly into pcs, cell phones and portable digital music players of fans – running through the cupped hands of a diseased major record label system.  At the same time artists are debunking the myth that downloading will kill music sales.  MC Lars is one of many artists carving new paths through the ice fields left by the glacial major label monopolies. MC Lars is building a loyal following by touring and working his myspace and purevolume pages with a new artist model.

"It’s pretty amazing what a 22 year old kid did from a dorm room.” say Lars manager Tom Gates from Nettwerk.  “He’s going back to the UK for the 5th time in one year opening for Simple Plan and soon for his first headline tour…this all without label tour support.  We’re about 6 months from his new genre busting called "nerdcore" and he’s going to make ten times as much bank than he would have if he had signed to a major.  Then you add in the costs of what he’s spent to do this and it just all points to the future, especially when you compare it to what majors spend on developing artists.  $7,500 recording costs vs. $250k on a major label.   $400 photo shoot vs. major label $15k photo shoot.  $7,000 video vs. $50k major.  Art $0 vs. $10k major label. Recoupability takes on a whole new light."

I asked MC Lars how he felt about file sharing and free music. On Download this Song, Lars says “I wanted to figure out a way to put my experiences and the best way to make people listen is to have the catchiest kind of chorus I could think of, and so I sampled the Iggy Pop chorus, one of my favorite songs.  My manager gets annoyed that I use samples because then you have to do all the legal stuff.  But I think artists need to be compensated for sampling.  With the Iggy Pop thing, it was interesting because someone at the publisher didn’t really like the message of the song, but Iggy was able to override it after he listened to it.  He liked the message and he had the final say.”

Many artists are mashing up new music on their laptops by sampling snippets from other artists and combining that with original material.  So powerful is the software today for making music with programs like Garageband, Reason, Live and ProTools, that amazing songs can be composed and recorded in bedroom studios and with the push of a button can find their way into online distribution channels. 

What do they get paid for? How do they make music? The line between music producer and music consumer is beginning to blur.  Music fans are becoming participants in the music creation and this trend is only going to accelerate as the technology and digital infrastructure for music evolves.  All of this makes for much needed debate about copyright law and is sure to be a great business for the barristers and lawmakers in the years ahead.  There is no stopping the headlong plunge of people into making and distributing new music themselves and the flow of music is already beginning to drown the current copyright systems.

“Over there there’s broken bones
There’s only music, so that there’s new ringtones
And it doesn’t take no Sherlock Holmes
To see it’s a little different around here.”
– A Certain Romance – Artic Monkeys 2006

This fundamental shift in the power balance of the music business is great for artists, songwriters and managers who grok the implications of it.  Witness the resurgence of nimble indie music labels, who are enjoying some of their biggest successes in many years.  The stories abound of indie bands cleverly exploiting the new digital reality to break through the noise and find and develop a fan base and get people buzzing about it. 

Properly managed bands can sell-out tours before releasing a CD.  Songs are being shared online by the millions and still, the band can sell CDs.  Lots of them.  Catch the attention of a hot music website like pitchforkmedia.com and you can light your band on fire.  It is an extraordinary time to be in the music business if you have the stomach for it, and the willingness and ability to try new things.

Artic Monkeys are today’s example of the new music paradigm at work, online and offline.  The lads from Sheffield have built a huge and global fan base in a matter of months by burning their demo and giving it away at their shows –actively encouraging their fans to share the songs and tell their friends.  Mick Jagger mentioned them in a Rolling Stone interview.  How’s that for a recommendation.  The torrent began to snowball as they toured like animals and garnered the support of notoriously transigent music rags like NME, local radio, satellite and internet channels.  To be sure, these talented boys have attitude and chops.  Wicked observers of popular culture, their subtly sophisticated songs and solid stage performances combined with giving their fans “permission to steal”, catapulted them into the hearts and minds of millions of friends almost overnight.  Raw talent meets viral marketing.  Brilliant. 

Artic Monkeys have the fastest selling album in UK history and currently #3 on the U.K. charts.  Hmm, fastest selling record amid massive amounts of file sharing?  This defies major label thinking.  Somebody should tell the IFPI and RIAA, the litigious trade associations representing the recording industry worldwide and presently suing tens of thousands of file sharing music fans as I write this.  Duhh?   These Monkeys sold out the Cavern in under an hour and completely sold out two U.S. tours before ever releasing a single or an album. No major radio promotion, no MTV, no huge advertising budget, no headliner tours.  Just a good band with a clear vision about their future and the smarts to get there. Lets see if they can develop this momentum into a career.

Other examples abound.  Britain’s James Blunt soared to success this past summer with the single “You’re Beautiful” reaching #1 across the continent along with the best selling album.  By the time he was signed in the U.S. by Atlantic, his song had been downloaded there nearly a million times according to Joe Fleischer of online media measurement company Big Champaign.  “When it finally got airplay in the States, the song hit a ready audience.”  That audience has propelled Blunt to #2 on both the Billboard Pop 100 and 200 charts.

#3 on the Billboard 200, indie screamo band Hawthorne Heights have built a loyal following by developing online relationships with thousands of fans.  “When we were trying to get everything going, all of us would spend at least four hours every day just adding myspace friends,” says singer JT Woodruff in a recent Billboard interview, and all of this behind heavy touring.  Websites like myspace, purevolume, absolutepunk and others get massive traffic from rabid music fans listening to new music and checking out what other kids are listening to and savvy bands like Hawthorne Heights are taking advantage. 

As music fans we are now in the driver’s seat.  In the new music economy we have fingertip access to thousands of musical niches and the ability to search for the music that we like, pull it to us, and easily recommend things we like to our friends. We are breaking bands, not the labels.  We are the new tastemakers.

We got some amazing software to help us find new music like Pandora and MusicStrands and way more to come.  The power of our online communities and networks are spawning word-of-mouth referrals and interactions that drive the songs and bands that become popular today. This is in stark contrast to old skool shove ‘em down their throat tactics of major label radio promotion.  We are now in charge.  We are choosing what we like and buzzing like bees when we find it.  We are the new radio.

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Suing the Hand that Feeds You

P2P SUITS MAKE NO SENSE FOR MUSIC BUSINESS

Terry McBride, CEO of Vancouver-based record label and management company Nettwerk Music Group, offered to pay the legal bills of David Greubel, a Texas father of four who the RIAA has targeted with
a suit for illegal file sharing. McBride contends that the RIAA’s suits against music fans are "killing our future." Here, he explains why.

The passionate message of music is in the magic of the song. The more it is consumed, the more it nourishes. Music is ubiquitous; it is a utility like water. It is not a pair of pants, and as such, we need to stop treating music like a product that needs to be controlled.

My goal and my reasons for agreeing to pay the legal fees of the Greubel family are quite straightforward. The goal is to stop all litigation against music fans; the reasons are as follows:

1. The RIAA has relied on data provided by Pew
Internet & American Life research to claim that the litigation is
working to deter illegal file sharing, stating that broadband Internet
penetration is growing faster than the measurable base of peer-to-peer
file sharers. Consequently, this litigation is forcing the music fans
to use technologies that are not measurable or traceable, such as
instant messaging and BitTorrent. The latter now accounts for more than
60% of Internet traffic, according to slyck.com. So, in fact, we are
not deterring file sharing, just deterring our chances of monetizing it.

2. Millions of Americans, including the majority of
those in the music business, have shared music. This dates back to
mixing one’s own cassette tapes in the ’70s. Breaking the law has never
been about volume. Teenagers today are simply using the technology at
hand, similar to how we did when we were teens.

3. These same file sharers are great music fans and
are breaking new artists with little or no mainstream media support.
For example, Clap Your Hands Say Yeah, the Arcade Fire and Sufjan
Stevens—not to mention Arctic Monkeys in the United Kingdom—all can
thank this grass-roots community for the fact that they are selling
hundreds of thousands of albums.

4. The music market is down not because of P2P
"piracy," but for four simple reasons: a) stiff competition for the
entertainment dollar from formats like videogames and movies, both of
which have much larger marketing spends; b) the replacement cycle is
over—digital music does not scratch or wear out like past formats; c)
one now has the ability to purchase and listen only to the great songs
without filler; and d) mass-merchant retailers today carry only the
current hits, with little to no catalog.

The RIAA’s litigation policy has no upside. It is
destroying our ability to monetize the P2P market by chasing music fans
even further underground. It is hypocritical because we have shared
music for decades. It distorts the focus from the real reasons for the
decline in music sales. And, most disturbingly, it undermines the
importance of these file sharers. They represent behavioral marketing
at its best and as such should be embraced, not sued.

Litigation is destructive. We are a creative community
so this approach makes no sense at all. I cannot envision any artist
who I have the privilege of representing suing a fan for sharing his or
her music.

I applaud the efforts of the French Senate to pass a
copyright bill that encompasses all forms of digital distribution,
including P2P, as reported in the Jan. 7 issue of Billboard. Finally,
we have some politicians that have the foresight to see beyond the
powerful lobbies and into the future.

From Billboard.biz

See also previous post on this subject

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“In all cases, there’s more money performing than recording.”

SFX Entertainment founder Robert Sillerman challenged the business thinking of the traditional recording industry during a recent keynote address at the Billboard Music & Money Symposium Thursday. Sillerman criticized labels and distributors for "ignoring technology and consumer preferences," eventually creating the conditions for file-sharing pioneer Napster to thrive. But years after Napster faced its legal doomsday, Sillerman wondered if the industry had implemented the changes needed to survive. "Did the music business get the message from Napster?" Sillerman wondered, while opening the possibility that labels will ultimately bite the dust. In a dark suggestion, Sillerman quoted F. Scott Fitzgerald, who was once asked how people go bankrupt. "Gradually, then all of a sudden," he responded.

Sillerman established himself in live performance, and those stripes shined brightly during the keynote. "In all cases, there’s more money performing than recording," he said, noting that future artists may create business models that focus on free recordings and paid performances. "Can’t you imagine a millennium-born artist giving away music for free, and selling performances?" Sillerman asked, while reiterating that pre-recorded music will not be a breadwinner moving forward. "The music business does not mean selling recorded music, it means selling music," he said.

Sounds vaguely familiar…

Reported by Digital Music News

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The Digital Chastity Belt

Speaking
at the Music 2.0 conference in Los Angeles on February 23, Yahoo
Music’s general manager Dave Goldberg startled listeners with a
statement probably never previously heard from the head of a for-pay
digital music service: Lay off the DRM.

"DRM is not a consumer
value proposition, it’s a consumer cost," said Goldberg. "It creates a
nice barrier of entry for the tech companies, rather than something
that’s beneficial to labels, artists, or consumers."

Most of his talk was hardly revolutionary (listen to it here),
but the part that caught our attention was his analysis of how DRM
discourages consumers from purchasing legitimate music files, since it
imposes restrictions on the use of that music that illegal alternatives
do not. In fact, Goldberg joked, when his PowerPoint presentation
repeatedly ran into difficulties, "We believe that music should be in
my car stereo, in my home, on my phone—anywhere but on my PC, where it
could crash on me."

"Record labels don’t like to hear this, but
consumers have always had access to pirated music that’s free. . . .
The way to get more money from listeners is to give them a lot more
music for their money," he said, promoting subscription-based access to
labels’ catalogs.

"Most people believe they can get enough value from what they get for free," alluding to a number of easy methods for acquiring gratis content online. That puts stores like Yahoo Music Unlimited in a tough position, especially when it comes to younger buyers. To solve the issue, Goldberg pointed to a number of strategies and innovations. That includes better playlist features, effective personal recommendations, better distribution across devices and platforms, and more seamless billing. Throughout, Goldberg drew a parallel to the successes of Evian, one of the first bottled water giants. For Goldberg, continued innovation will help to power a $30 billion digital music market ahead, which will consist mainly of transaction-based, subscription, and ad-supported content.

The pressure to create viable markets online is intense, especially as traditional sales outlets continue to lose steam. Goldberg noted that many consumers are not making repeat visits to paid music stores, deterred by aggressive price points and onerous usage restrictions. "There is a cost associated with DRM, and that is lost sales of content," Goldberg said, cutting against the prevailing major label philosophy. Goldberg called for more innovation, and encouraged the industry to experiment with more MP3-based sales plays. Citing the successes of eMusic, which offers its tracks in unprotected MP3s, Goldberg predicted that overall sales volumes would not be adversely affected by such a move.

Stereophile and Digital Music News

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Piracy is a red herring

After selling one billion downloads on its iTunes Music Store, Apple has cause for celebration. But should record labels be joining in? According to Eric Garland, CEO of media monitoring firm BigChampagne, the economics of paid downloads are a major cause for concern. During a keynote presentation at Music 2.0 in Los Angeles, Garland compared the recent Apple accomplishment to the number of free downloads from P2P networks during the same time. Apple may sell over one million tracks per day, but P2P networks supply over one billion tracks per month. And over a nearly-three year period, that difference is quite pronounced, making iTunes a relative sideshow.

While the gulf between free and paid is glaring, Garland noted that piracy isn’t the biggest problem. Six years after the Napster revolution, consumers are overwhelmingly cherry-picking singles online, part of a larger migration away from bundled albums. "The sad fact is that given the choice online, people choose songs over albums," Garland noted. The result is that consumers are no longer forced into a bundled purchase, and per-transaction amounts plummet as a result. "Piracy is the red herring," Garland said, while pointing to successful bundling strategies across industries like cable TV and personal fitness clubs.

Meanwhile, other industries are executing bundling strategies quite successfully, including cable TV operators and fitness clubs. And while the CD is waning in influence, newer bundling concepts are emerging online. Already, eMusic is pushing a bundled download offering, which requires upfront payment for a specific number of tracks per month. Scott Cohen, co-founder of sister-company The Orchard, noted that many of the premium monthly buyers actually download the fewest tracks, pointing to an inherent tendency among consumers to buy more than they can eat. Meanwhile, labels are increasingly bundling extras like liner notes and bonus tracks into digital albums.

From Digital Music News.

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Nettwerk backs 15 year-old against RIAA Lawsuit

The MC Lars thread continues…  here is a post from myspace to MC Lars about his track "Download this Song".

Dear Lars,

I enjoy "Download This Song" greatly. But more so it hits home. My family is one of 10 seemingly randomly chosen families to be sued by the RIAA. No fun. You can’t fight them, trying could possibly cost us millions. The line "they sue little kids downloading hit songs", basically sums a lot of the whole thing up.  Anyways, thank you for writing it. I can definitely agree with everything mentioned in it. I expresses my feelings almost exactly on this matter.

Thank’s again.

Elisa

—

Well, once in a while you have to really make a stand.  Lars contacted his manager Tom Gates at Nettwerk and forwarded the myspace post. 


Nettwerk Music Group, home to Avril Lavigne, Sarah McLachlan, Barenaked
Ladies and Sum 41, decided to take on the RIAA on behalf of Elisa Greubel, a
15-year-old Texan whose father was sued by the recording industry trade
group in August 2005 for owning a computer that allegedly shared more
than 600 music files.

Among the nine songs the RIAA is focusing on in the suit, according to
Nettwerk, is management client Lavigne’s "Sk8er Boi." The RIAA is
demanding Greubel’s family pay $9,000 to settle the suit.  Nettwerk CEO Terry McBride said in a statement that legal
action is not the answer. "Suing music fans is not the solution, it’s
the problem."  McBride said he decided to weigh in because the action involves his
artists. "Litigation is not ‘artist development,’ " he said in the
statement. "Litigation is a deterrent to creativity and passion and it
is hurting the business I love. The current actions of the RIAA are not
in my artists’ best interests." Nettwerk has offered to pay all legal
fees and any fines for the family in the event that they lose the suit.

Go Terry.  Go Lars.

Read more about it here on MTV.com

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MC Lars – Download this Song

In the fall of 2005, I was giving a presentation to all the artist managers at Nettwerk Management on the future of music.  We had a very lively discussion about where the industry was headed and how to take advantage of the changing circumstances and marketplace.  Tom Gates, who manages the bands Brand New, MC Lars and others burned me a CD on the spot and said “You have to listen to this.  This track was recorded by MC Lars after reading your book, it’s called Download This Song.  He wrote and recorded it based on what he read in the Future of Music book.”

Well needless to say I popped that baby right into the player as soon as I got in the car and it was awesome.  I listened to Lars lay into the music industry with a chorus that goes,

“Hey mister record man, the joke’s on you/ Running your
label like it was 1992/ Hey mister record man, your system can’t
compete/ It’s the new artist model, file transfer complete.”

I then checked out MC Lars on myspace and found an artist for the future, taking the best parts of the old music industry and combining them with clear thinking and new moves that are going to propel him to success.

According to Tom Gates, “It’s pretty amazing what a 22 year old kid did from a dorm room.  Just in one territory: He’s going back to the UK for the 5th time in one year opening for Simple Plan and then will go back in March for his first headline tour…this all without tour support.  We’re about 6 months from his new genre busting (it’s called “nerdcore”) and he’s going to make ten times as much bank than he would have if had signed to a major.  Then you add in the costs of what he’s spent to do this and it just all points to the future, especially when you compare it to what majors spend on developing artists.  $7,500 recording costs (powerbook+protools studios) vs $250k major label.   $400 photo shoot vs major label $15k photo shoot.  $7,000 video vs $50k major (directed by the guy who did Eminem and just really likes Lars).  Art $0 (he did it and artwerks laid it out) vs $10k major label. Recoupability takes on a whole new light.”

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The RIAA vs The People

A investigative report from the Electronic Frontier Foundation is available that describes the progress, or lack of progress that the RIAA is having in its "Rain of Fire" campaign of suing the file sharing public.

Musicplay160Over 15,000 individuals have been attacked to date by this trade organization in the name of copyright infringement.  The results have not stopped, or even slowed down, the widespread filesharing that continues to grow on P2P and other networks. 

Filesharing is more popular than ever with billions of files being traded monthly.  Market research firm Big Champaign reports that the amount of traffic on P2P networks doubled between Setpember 2003 (when the lawsuits began) and June 2005.  The RIAA’s campaign is simply not working. 

People have discovered filesharing and like it very much.  They are not only trading files on P2P networks but also via instant messaging, a huge phenomenon that can’t even be measured.  When you combine social networking sites like myspace.com with instant messaging the number of files being traded explodes.  Why does this have to be bad for the music business?   Filesharing has been shown to be a key driver of music discovery.  Why can’t we harness this?   There has to be a better way.

"There is a better way. EFF has been advocating a voluntary collective licensing regime as a mechanism that would fairly compensate artists and rightsholders for P2P file sharing. The concept is simple: the music industry forms a collecting society, which then offers file-sharing music fans the opportunity to “get legit” in exchange for a reasonable regular payment, say $5 per month. So long as they pay, the fans are free to keep doing what they are going to do anyway—share the music they love using whatever software they like on whatever computer platform they prefer—without fear of lawsuits. The money collected gets divided among rights-holders based on the popularity of their music. In exchange, file-sharing music fans who pay (or have their ISP or software provider or other intermediary pay on their behalf) will be free to download whatever they like, using whatever software works best for them. The more people share, the more money goes to rights-holders. The more competition in P2P software, the more rapid the innovation and improvement. The more freedom to fans to publish what they care about, the deeper the catalog.

This has been successfully done before. For almost 100 years, collecting societies like ASCAP, BMI and SESAC have been collecting fees on song reproductions and performances, beginning with royalties for the publication of sheet music and expanding, as necessary to include new formats, such as broadcast radio, jukeboxes, TV, “elevator music,” and movies. Some lawsuits would still be necessary, the same way that spot checks on the subway are necessary in cities that rely on an “honor system” for mass transit. But the lawsuits will no longer be aimed at singling out music fans for multi-thousand dollar punishments in order to “make an example” of them. They will no longer be intended to drive fans into the arms of inferior, over-priced alternatives.

Instead, the system would reinforce the rule of law—by giving fans the chance to pay a small monthly fee for P2P file sharing, a voluntary collection system creates a way for fans to “do the right thing” along with a realistic chance that the majority will actually be able to live up to the letter of the law."

Read the full report ‘RIAA v. The People: Two Years Later’ here.

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Licenses Not Lawsuits

As reported in Digital Music News, in our Book, in this Blog and in many, many other places – one has to really question whether the RIAA should continue it’s litigation strategy against P2P file-sharing? According to a recent report by the Electronic Frontier Foundation (EFF), the answer is decidedly no. The EFF, which has long been at loggerheads with the RIAA both inside the courtroom and out, recently released a highly critical report. In the review, called "RIAA v. The People: Two Years Later," the EFF argues that overall file-sharing volumes continue to increase, despite ongoing lawsuits. "Studies show that P2P usage is increasing instead of decreasing," commented EFF senior staff attorney Fred von Lohmann.

Part of the problem is a simple numbers game. Out of millions of file-sharers in the United States, the RIAA is only targeting a group of several hundred monthly. But the EFF injected a human factor into the equation, pointing to the financial hardships that targeted swappers often endure. Citing a "a single mother in Minnesota who faces $500,000 in penalties for her daughter’s alleged downloading" and a "disabled veteran who was targeted for downloading songs she already owned," the EFF paints a picture of a legal campaign that may be overly aggressive. That has had a negative publicity effect on the RIAA, despite the arbitrary nature of the suits.

So what should major labels be doing? According to the EFF, a strong alternative is a voluntary collective licensing scheme. Such a plan could involve monthly payments to an ISP "or software provider or other intermediary". A large pool of cash would then be divided among rights holders. While that represents a major paradigm shift, and a complicated transition, the EFF sees a big opportunity. "The more people share, the more money goes to rights-holders. The more competition in P2P software, the more rapid the innovation and improvement. The more freedom to fans to publish what they care about, the deeper the catalog." But even though that concept has been on the table for years, labels have been mostly resistant. Whether that will change in the coming years may depend on just how physical CD sales do, and whether a meaningful story emerges in the paid download, subscription, and mobile music markets.

From Digital Music News

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Implications of the Supreme Court decision in the Grokster case

The Supreme Court decision in MGM v. Grokster to send the case back to the District Court was a directive to accept the concept of “inducement” and to hold the defendant responsible for copyright infringement.  As a defense, companies accused of “inducement” in the future will be required to show that their product is capable of “commercially significant non-infringing uses”.

Until a “commercially significant” standard is established, the law shall favor those with the largest legal war-chest who will be able to rain lawyers on the innovative start-ups like the Biblical plagues of Egypt, as currently evidenced by the RIAA’s renewed attacks on all the P2P networks.  Just recently E-Donkey admitted that it could not afford to fight the legal battle with the RIAA and would be closing down it’s P2P service.

These days P2P is synonymous with illegal filesharing. However, it is actually a network architecture that has proven to have commercially significant non-infringing uses. For example, Skype uses P2P software to facilitate Internet Telephony. It has been wildly successful and was recently sold to eBay in a (presumably) “commercially significant” transaction valued at $2.6 billion. The founders of Skype are the very same individuals who created – and later broke their connection with – the KaZaa software that ultimately became a popular P2P vehicle for trading copyrighted files. 

Thus, it is important to recognize that the first applications of a new technology may not ultimately become the dominant ones. To strangle in the cradle a newborn technology that may eventually have considerable legitimate applications merely because the first users have been “bad guys” is contrary to the public interest.

Paraphrased from Inside Digital Media – to listen to an interview with two respected copyright lawyers on this topic, visit Insidedigitalmedia.com and click on the October 19th Interview.  Good stuff.

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P2P companies leaving US shores

File-sharing companies will have to move offshore or change their models to become
similar to iTunes or the new Napster to avoid facing expensive legal battles with RIAA member companies.

Read more here.

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RIAA Onslaught of Lawsuits will not stop P2P

"The RIAA took a strong step this week by issuing a rash of cease-and-desist letters to top P2P firms. Those actions were hardly unexpected following MGM v. Grokster, but the aftermath for the P2P world could produce some surprises.

But what happens to overall file-sharing volume and CD sales as a result? After all, the core interest of labels is making money, and ending the erosion in CD sales caused by file-sharing. Some observers doubt that the latest strike will have a negligible effect on overall swapping volume, as more off-shore, underground, or alternative sharing mechanisms swoop in to fill any voids left by the RIAA actions. That is certainly what happened several years ago, despite the shutdown of Napster, Aimster, AudioGalaxy, and a host of other file-sharing tools. The demand for easy music was just too great, and the void was satisfied within months. That could characterize the aftermath of the latest purge, though it will take months and several bloody battles before the true outcome is known."

From Digital Music News

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Is there copyright reform in our future?

Legal music-download services won’t be able to compete
fully with their free- and illegal-download counterparts until
copyright law changes, a Virginia congressman said Tuesday.

"The illegal services offer all of the songs, and the legal
services don’t, and therein lies the crux of the problem," Rep. Rick
Boucher, a Virginia Democrat, said in a speech at the Future of Music Policy Summit here.

The remedy, he said, lies in
a congressional rewrite of portions of copyright law that govern
licensing and royalty fees and make it cumbersome for legal download
services to add material to their inventories. Boucher said he hopes
his committee will have a new bill written and reported to the U.S.
House of Representatives by the end of this congressional term in
November. (The congressman has also been a vocal critic of other pieces of digital copyright law.)

The Senate Judiciary Committee has also been exploring how to
streamline and simplify the royalty system in a way that "balances the
competing interests of artists and publishers" but "doesn’t continue

But Congress can’t go forward until it achieves consensus among the
powerful interest groups involved, Boucher said: "If you belong to an
organization that represents copyright owners, please urge a resolution
of these issues at the earliest possible time."

Read the complete CNET piece here.

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Should ISPs Pay for Music?

A scheme that would shift the cost of digital music from users to Internet service providers is gaining international support.

"William “Terry” Fisher, a Harvard law professor and director of the Berkman Center for Internet and Society in Cambridge, Massachusetts, is a key advocate of revising the process by which copyright holders get paid. His group is working on a project called the Digital Media Exchange, to be built next year. The Exchange would compensate artists by dividing customers’ subscription fees based on how many times a work is played.

Mr. Fisher said his preference would be for governments to impose a tax on ISPs to collect revenue and make all works available to consumers. He says that China, some countries in Eastern Europe, and Brazil seem as if they might be open to this possibility."

Read the Red Herring Article Here.

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An authorized P2P service that makes sense

PlayLouder is an MSP, or ‘Music Service Provider’ that provides unlimited music downloading as part of its broadband Internet Service.  The files contain no DRM and even MP3s can be swapped among PlayLouder subscribers without restrictions.  Fabulous.

"Playlouder is offering
the first legal alternative with a comparable experience to the "peer
to peer" file sharing sites often used to swap pirated tracks.  Subscribers
will be charged £26 a month for a high speed broadband internet
connection, similar to the price charged by BT, with the added
attraction of being able to share as much music as they want with other
subscribers at no extra cost.  Because
there will be no restrictions on the format in which the traded music
is encoded, users will be free to transfer songs to any type of digital
music player, including the market leading Apple iPod, or burn them to
CD.  However,
not only will consumers have to pay for music which they currently
acquire free, albeit illegally, but they will also have to change their
internet provider."

Available in the UK.   Read more in the Guardian here.

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P2P file sharers found to be avid online music buyers

A study published today by UK research firm The Leading Question claims that people who share music files online also buy
four and a half times more music online than your average music
listener. Instead of tragically costing the industry
money, these people are apparently very interested in finding music online, and as a
result, buying more music from legitimate online channels.  Who’d of thunk?

"There’s a myth that all illegal downloaders are
mercenaries hell-bent on breaking the law in pursuit of free music. In
reality they are often hardcore fans who are extremely enthusiastic
about adopting paid-for services as long as they are suitably
compelling," said Paul Brindley, director of The Leading Question.

Perhaps the try before you buy theory of marketing is at work here afterall.  Or maybe these folks are just pre-disposed to transacting online.  But nevertheless, this study is one of many that confirms that there appears to be no direct correlation between filesharing and declining music sales.  Record companies should face the truth head-on and find ways to make file sharing work for everyone, as we suggest in the book.

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Is File Sharing Really Killing the Music Industry?

From The Future of Music book

There is no direct proof that file sharing itself is hurting the music
industry. Record companies are touting this single-bullet theory to
explain away all the ingrained problems of an antiquated business
reaching the end of its life cycle. Indeed, one can argue that file
sharing is the cheapest form of music marketing there ever was.

Danny Goldberg, Chairman and CEO of Artemis Records, said, "I
don’t think there was any more downloaded song than 50 Cent’s [in
2003], and yet it sold nine million albums. So there were nine million
households that felt, despite the fact that they had seen the video,
despite the fact that they could get it online, that they wanted to
hear the full statement that 50 Cent was making."

File sharing should not be equated with the type of piracy that
is affecting the music industry on a global scale. Traditionally, in
the music business, piracy refers to the activities of organized
criminals who manufacture illegal copies of CDs, DVDs, tapes, and
records, then photocopy the covers and sell the illicit product on the
street for a steep profit. Pirates in many countries run pressing
plants that churn out CDs by the millions without paying the mechanical
reproduction licenses and mechanical license fees to the owner of the
master recordings. The International Federation of the Phonographic
Industry estimates that the number of illegally copied and/or
manufactured CDs increased 14 percent in 2002 and an additional 4.3
percent in 2003, to 1.1 billion units; and worldwide, 35 percent of all
CDs sold are illegal copies. It is estimated that the value of the
pirated music sold amounts to $4.6 billion, and these figures don’t
even include online file sharing or recording of audio streams. In 2002
the global recorded music market declined 7 percent to $32 billion, and
another 7.6 percent in 2003. Leaving file sharing out of the equation,
CD piracy as defined above, could account for the majority of the
decline in CD sales all by itself.

Read more from chapter 3 of the Future of Music here

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