If you look at how people are getting their music these days you see that the companies fighting for the people who pay for music are battling over an ever-smaller piece of the pie.

NPD Market Research’s annual survey of Internet users, which is some 80 percent of the population these days, found that 10 percent of the music they acquired last year came from paid downloads. That is a big increase from 7 percent in 2006. But since the number of physical CDs they bought plummeted, the overall share of music they paid for fell to 42 percent from 48 percent.

How people acquire music 2006 and 2007

Most people are getting music from their friends — either burning CDs or ripping digital files. And despite the record industry’s crackdown, there is no reduction in the number of people of peer-to-peer file sharing service.

“The number of people who do peer to peer in 2007 versus 2006 has been stable,” said Russ Crupnick, who runs NPD’s music service. “The number of files taken per users has increased significantly.” This is because of the shift of many users from Limewire to BitTorrent, which makes it easier to download whole albums.

How people listen to music

Quite surprising is the continued strength of AM/FM radio. People listen to music on the radio more times per week than any other method. Listening to music on a computer has the third largest number of people, followed by listening on a portable device like an iPod.

The music labels will look at this data and say, “If we just stick with the CD and the Apple model we are in deeper trouble,” Mr. Crupnick said. Yes indeed.

Read more from the New York Times.

Sometimes it takes a while for ideas to spread and become perceived as good ones. The “Music Like Water” metaphor where for a low monthly fee, people would have access to all the music they want in a kind-of music utility is one such idea.

In a variety of recent announcements, the once mighty major labels have begun to accept the idea that maybe, the old way of squeezing cash out of consumers for music – might need to be replaced with another model.

Emusic has been pioneering a hybrid subscription/download models for many years and is currently the #2 supplier of “paid for” digital music behind iTunes. Now both Sony/BMG and Warner Music are speaking publicly about subscription and utility models that they intend to explore.

Warner has gone so far as to hire Jim Griffin to head up development of a new business to bundle a monthly fee into consumers’ Internet service bills for unlimited access to music. Whoa!

The plan—the boldest move yet to keep the wounded music industry giants afloat—is simple: Consumers will pay a monthly fee, bundled into an internet service bill in exchange for unfettered access to a database of all known music.

Bronfman’s decision to hire Griffin, a respected industry critic, demonstrates the desperation of the recording industry. It has shrunk to a $10 billion business from $15 billion in almost a decade. Compact disc sales are plummeting as online music downloads skyrocket.

“Today, it has become purely voluntary to pay for music,” Griffin told Portfolio.com in an exclusive sitdown this week. “If I tell you to go listen to this band, you could pay, or you might not. It’s pretty much up to you. So the music business has become a big tip jar.”

Nothing provokes sheer terror in the recording industry more than the rise of peer-to-peer file sharing networks. For years, digital music seers have argued the rise of such networks has made copyright law obsolete and free music distribution universal. 🙂

Bronfman has asked Griffin, formerly Geffen Music’s digital chief, to develop a model that would create a pool of money from user fees to be distributed to artists and copyright holders. Warner has given Griffin a three-year contract to form a new organization to spearhead the plan.

Griffin says he hopes to move beyond the years of acrimonious record industry litigation against illegal file-swappers, college students in particular.

“We’re still clinging to the vine of music as a product,” Griffin says, calling the industry’s plight “Tarzan” economics.

“But we’re swinging toward the vine of music as a service. We need to get ready to let go and grab the next vine, which is a pool of money and a fair way to split it up, rather than controlling the quantity and destiny of sound recordings.”

Read more from Portfolio here.

The state of the music business is obviously in transition, but new models are beginning to work at various levels that shine a very positive light on the future of the music industry. For example, some of the predictions made in the Future of Music Book and in other places are beginning to come to pass, such as the abandonment of DRM, music subscription and licensing services, ad supported music and the ascent of the Indie artist and Indie label. Take a look at these examples:

You can now purchase MP3 files for download without DRM from all four major labels on Amazon.com, emusic and a growing list of music destinations. The predictions that an unprotected format would kill sales have simply not been true. These businesses are exploding.

Early proponents of the subscription models Napster and Rhapsody have survived and are growing.

There is active discussion of a flat-fee structure for music at major labels where once we were laughed out of the offices.

Indie Labels now account for upwards of 30% of total music sales, up from the low 20’s just a few years ago. This is a profound shift in the powerbase that favors the independent artist and innovator.

Social music sites such as LastFM, Pandora, iLike and many more are making the fans into tastemakers with the ability to promote and share great new music at the touch of a button.

This is all very good news for musicians, writers and artists who want control of their destiny and their careers.

Music2.0 is a hard-hitting, provocative and inspiring collection of essays and blog posts on the future of the music industry from my co-author Gerd Leonhard. The book continues and expands on the ideas and models presented in our book “The Future of Music”, which has become a must-read work within the music industry, worldwide, available in English, German, Spanish and Italian.

Music2.0 describes what the next generation of music companies will look like and the new principles that will define the next iteration of the music business.

Music2.0 presents the best of Gerd’s writings from the past four years. As you move from 2003 to 2007 in the book, the evolution of various ideas and expressions can clearly be observed.

Check out Music2.0 here!

I heard this song again and had to post about it one more time.

This is a blast from the past (2006) written and performed by MC Lars and inspired by the “Future of Music” book. It is interesting that the point of view represented in the song seems almost like a mainstream idea at this point. Not to say that the financial side of things is working yet, but a lot has happened in the past two years. The future is becoming clearer.

Download this Song – MC Lars

It’s 2006, the consumer’s still pissed
Won’t take it anymore so I’m writing a list
Don’t try to resist this paradigm shift
The music revolution cannot be dismissed
$18.98 Iggy Pop CD?
What if I can get it from my sister for free?
It’s all about marketing Clive Davis, see?
If fans buy the shirt then they get the mp3
Music was a product now it is a service
Major record labels why are you trying to hurt us?
Epic’s up in my face like, “Don’t steal our songs Lars,”
While Sony sells the burners that are burning CD-R’s
So Warner, EMI, hear me clearly
Universal Music, update your circuitry
They sue little kids downloading hit songs
They think that makes sense
When they know that it’s wrong!
CHORUS
Hey Mr. Record Man
The joke’s on you
Running your label
Like it was 1992
Hey Mr. Record Man,
Your system can’t compete
It’s the New Artist Model
File transfer complete
Download this song!
Download this song!
Download this song!
I know I’m rhyming fast, but the message is clear
You don’t need a million dollars to launch a career
If your style is unique and you practice what you preach
Minor Threat and Jello both have things to teach!
I’ve got G5 production, concept videos
Touring with a laptop, rocking packed shows
The old-school major deal? It makes no sense
Indentured servitude, the costs are too immense!
Their finger’s in the dam but the crack keeps on growing
Can’t sell bottled water when it’s freely flowing
Record sales slipping, down 8 percent
Increased download sales, you can’t prevent
Satellite radio and video games
Changed the terrain, it will never be same
Did you know in ten years labels won’t exist?
Goodbye DVD’s, and compact disks!
REPEAT CHORUS
You know, we just wanted a level playing field.
You’ve overcharged us for music for years, and now we’re
Just trying to find a fair balance. I hate to say it, but…
Welcome to the future.
REPEAT CHORUS

Here is what I wrote in ’06.

Check out Lars site.

The full script of the speech everyone is talking about in Cannes, as made by U2 manager Paul McGuinness at Midem.

McGuinness: “Good afternoon and thank you for giving me this opportunity. I don’t make many speeches and this is an important and imposing occasion for me. What I’m trying do here today is identify a course of action that will benefit all: artists, labels, writers and publishers.

I have been managing the best-known of my clients, U2, for exactly 30 years. Sure we’ve made mistakes along the way but the lineup hasn’t changed in 31 years. They are as ambitious and hardworking as ever, and each time they make a record and tour, it’s better than the last time. They are doing their best work now. During that time the music business has been through many changes.

At the beginning U2’s live appearances were loss-making and tour support from our record label was essential for us to tour and that paid off for the label as U2’s records went to No.1 in nearly every international territory starting in the mid ’80s and I’m happy to say that continues to the present day. They have sold about 150 million records to date and the last album went to No.1 in 27 territories.

U2 own all their masters but these are licensed long-term to Universal, with whom we enjoy an excellent relationship. With a couple of minor exceptions they also own all their copyrights, which are also licensed to Universal. U2 always understood that it would be pathetic to be good at the music and bad at the business, and have always been prepared to invest in their own future. We were never interested in joining that long, humiliating list of miserable artists who made lousy deals, got exploited and ended up broke and with no control over how their life’s work was used, and no say in how their names and likenesses were bought and sold.

What U2 and I also understood instinctively from the start was that they had 2 parallel careers first as recording and songwriting artists, and second as live performers. They’ve been phenomenally successful at both. The Vertigo Tour in 2005/2006 grossed $355m and played to 4.6m people in 26 countries.

But I’m not here to brag. I’m here to ask some serious questions and to point the finger at the forces at work that are destroying the recorded music industry.

People all over the world are going to more gigs than ever. The experience for the audience is better than ever. This is proved by the upward trend in ticket prices, generally un-resisted. The live business is, for the most part, healthy and profitable. Bands can gig without subsidy. Live Nation, previously a concert and venue company is moving into position with merchandising, ticketing, online, music distribution as one of the powerful new centres of the music industry.

So what has gone wrong with the recorded music business?

More people are listening to music than ever before through many more media than ever before. Part of the problem is that the record companies, through lack of foresight and poor planning, allowed an entire collection of digital industries to arise that enabled the consumer to steal with impunity the very recorded music that had previously been paid for. I think that’s been a cultural problem for the record industry — it has generally been inclined to rely for staff on poorly paid enthusiasts rather than developing the kind of enterprise culture of Silicon Valley where nearly every employee is a shareholder.

There are other reasons for the record business’s slow response to digital. The SDMI (Secure Digital Music Initiative) of the ’90s pan-industry, was a grand but ill-fated plan to try and agree rules between the content and technology industries. It went nowhere. SDMI, and similar attempts at cooperation by record companies, have partly been thwarted by competition rules. The US government has sometimes been overzealous in protecting the public from cartel-like behaviour.

I love the record business, and though I may be critical of the ways in which the digital space has been faced by the industry I am also genuinely sympathetic and moved by the human fall-out, as the companies react to falling revenues by cutting staff and tightening belts. Many old friends and colleagues have been affected by this. They have families and it is terrible that a direct effect of piracy and thievery has been the destruction of so many careers.

Nonetheless there is one effective thing the majors could do together. I quote from Josh Tyrangiel in Time Magazine: – “The smartest thing would be for the majors to collaborate on the creation of the ultimate digital-distribution hub, a place where every band can sell its wares at the price point of its choosing”. Apple’s iTunes, despite its current dominance, is vulnerable. Consumers dislike its incompatibility with other music services, and the labels are rebelling against its insistence on controlling prices. Universal the largest label in the world has declined to sign a long term deal with iTunes. “There’s a real urgency for the labels to get together and figure this out,” says Rick Rubin of Columbia Records.

There is technology now, that the worldwide industry could adopt, which enables content owners to track every legitimate digital download transaction, wholesale and retail.

This system is already in use here in Cannes by the MIDEM organisation and is called SIMRAN. Throughout this conference you will see contact details and information. I recommend you look at it. I should disclose that I’m one of their investors.

Meanwhile in the revolution that has hit music distribution, quality seems to have been forgotten. Remarkably, these new digital forms of distribution deliver a far poorer standard of sound than previous formats. There are signs of a consumer backlash and an online audiophile P2P movement called “lossless” with expanded and better spectrum that is starting to make itself heard. This seems to be a missed opportunity for the record industry — shouldn’t we be catering to people who want to hear music through big speakers rather than ear buds?

Today, there is a frenetic search for new business models that will return the record business to growth. The record companies are exploring many new such models — some of them may work, some of them may not.

Sadly, the recent innovative Radiohead release of a download priced on the “honesty box” principle seems to have backfired to some extent. It seems that the majority of downloads were through illegal P2P download services like BitTorrent and LimeWire, even though the album was available for nothing through the official band site. Notwithstanding the promotional noise, even Radiohead’s honesty box principle showed that if not constrained, the customer will steal music.

There is some excitement about advertising-funded deals. But the record companies must gain our trust to share fairly the revenues they will gain from advertising. Historically they have not been good at transparency. Let’s never forget the great CD scam of the ’80s when the majors tried to halve the royalties of records released on CD claiming that they needed this extra margin to develop the new technology even as they were entering the great boom years that the CD delivered. It’s ironic that, at a time when the majors are asking the artists to trust them to share advertising revenue they are also pushing the dreadful “360 model.”

As Allen Grubman, the well-known New York attorney said to me recently… “God forbid that one of these acts in a 360 deal has success. The next thing that will happen is the manager gets fired and the lawyer gets sued for malpractice.”

Maybe it would help if they were to offer to cancel those deals when they repair their main revenue model and the industry recovers, as I believe it will.

But that’s an issue for the future, when we’re out of the crisis. Today, there’s a bigger issue and it’s about the whole relationship between the music and the technology business. Network operators, in particular, have for too long had a free ride on music — on our clients’ content. It’s time for a new approach — time for ISPs to start taking responsibility for the content they’ve profited from for years. And it’s time for some visionary new thinking about how the music and technology sectors can work as partners instead of adversaries, leading to a revival of recorded music instead of its destruction.

It’s interesting to look at the character of the individuals who built the industries that resulted from the arrival of the microprocessor. Most of them came out of the so-called counterculture on the west coast of America. Their values were hippy values. They thought the old computer industry as represented by IBM was neanderthal. They laughed at Bell Telephone and AT&T. They thought the TV networks were archaic. Most of them are music lovers. There are plenty of private equity fund managers who are “Deadheads.”

They were brilliantly innovative in finance and technology and though they would pay lip service to “Content is King” what many of them instinctively realized was that in the digital age there were no mechanisms to police the traffic over the internet in that content, and that legislation would take many years to catch up with what was now possible online.

And embedded deep down in the brilliance of those entrepreneurial, hippy values seems to be a disregard for the true value of music.

This goes back some decades. Does anyone remember Abbie Hoffman? He was one of the “Chicago 7,” the ‘Yippies” of the Youth International Party who tried to disrupt the 1968 Democratic Convention in Chicago and got beaten up and put on trial by Mayor Daley’s police. He put out a book with the title “Steal this Book”. I think he has a lot to answer for.

I’ve met a lot of today’s heroes of Silicon Valley. Most of them don’t really think of themselves as makers of burglary kits. They say: “you can use this stuff to email your friends and store and share your photos”. But we all know that there’s more to it than that, don’t we? Kids don’t pay $25 a month for broadband just to share their photos, do their homework and email their pals.

These tech guys think of themselves as political liberals and socially aware. They search constantly for the next “killer app.” They conveniently forget that the real “killer app” that many of their businesses are founded on is our clients’ recorded music.

I call on them today to start doing two things: first, taking responsibility for protecting the music they are distributing; and second, by commercial agreements, sharing their enormous revenues with the content makers and owners.

I want those technology entrepreneurs to share their ingenuity and skill as well. Our interests are, after all, steadily merging as lines get more and more blurred between the distributors of content, the makers of hardware and the creators of content. Steve Jobs is now in effective control of the Walt Disney Studio and ABC Television so his point of view may be changing now that he owns content as well as selling those beautiful machines that have changed our world. Personally I expect that Apple will before too long reveal a wireless iPod that connects to an iTunes “all of the music, wherever you are” subscription service. I would like it to succeed, if the content is fairly paid for. “Access” is what people will be paying for in the future, not the “ownership” of digital copies of pieces of music.

I have met Steve Jobs and even done a deal with him face to face in his kitchen in Palo Alto in 2004. No one there but Steve, Bono, Jimmy Iovine and me, and Lucian Grainge was on the phone. We made the deal for the U2 iPod and wrote it down in the back of my diary. We approved the use of the music in TV commercials for iTunes and the iPod and in return got a royalty on the hardware. Those were the days when iTunes was being talked about as penicillin for the recorded music industry.

I wish he would bring his remarkable set of skills to bear on the problems of recorded music. He’s a technologist, a financial genius, a marketer and a music lover. He probably doesn’t realize it but the collapse of the old financial model for recorded music will also mean the end of the songwriter. We’ve been used to bands who wrote their own material since the Beatles, but the mechanical royalties that sustain songwriters are drying up. Labels and artists, songwriters and publishers, producers and musicians, everyone’s a victim.

For ISPs in general, the days of prevaricating over their responsibilities for helping protect music must end. The ISP lobbyists who say they should not have to “police the internet” are living in the past — relying on outdated excuses from an earlier technological age. The internet has moved on since then, and the pace of change today means a year in the internet age is equivalent to a decade in the non-internet world.

Remember the 1990s, when the internet was being called the Information Superhighway? At that time, when the U.S. Digital Millennium Copyright Act and the EU Electronic Commerce Directive were drawn up, legislators were concerned to offer safe harbours restricting the responsibilities of ISPs who acted as a “mere conduit”. This was a different era: only a few hundred thousand illegal files could be accessed from websites. There was no inkling
at that time of the enormous explosion of P2P piracy that was to follow. If legislators had foreseen that explosion, would they have ever offered immunity for so-called “mere conduits” and, in doing so, given ISPs a decade of excuses for refusing to protect our content?

And as it turned, the “Safe Harbour” concept was really a Thieves’ Charter. The legal precedent that device-makers and pipe and network owners should not be held accountable for any criminal activity enabled by their devices and services has been enormously damaging to content owners and developing artists. If you were publishing a magazine that was advertising stolen cars, processing payments for them and arranging delivery of them you’d expect to get a visit from the police wouldn’t you? What’s the difference? With a laptop, a broadband account, an MP3 player and a smartphone you can now steal all the content, music, video and literary in the world without any money going to the content owners. On the other hand if you get caught stealing a laptop in the computer store or don’t pay your broadband bill there are obvious consequences. You get nicked or you get your access cut off.

It is time for ISPs to be real partners. The safe harbours of the 1990s are no longer appropriate, and if ISPs do not cooperate voluntarily there will need to be legislation to require them to cooperate.

Why does all this matter so much? Because the truth is that whatever business model you are building, you cannot compete with billions of illegal files free on P2P networks. And the research does show that effective enforcement — such as a series of warnings from the ISP to illegal file-sharers that would culminate in disconnection of your service — can address the problem.

A simple “three strikes and you are out” enforcement process will see all serial illegal uploaders who resist the law face a stark choice: change or lose your ISP subscription.

Fortunately, there has recently been some tremendous momentum to get ISPs engaged — notably in France, the UK, Sweden, Norway and Belgium. President Sarkozy’s plan, the Olivennes initiative, by which ISPs will start disconnecting repeat infringers later this year, set a brilliant precedent which other governments should follow. In the U.K., the Gowers Report made it clear that legislation should be considered if voluntary talks with ISPs failed to produce a commitment to disconnect file-sharers. I’d like to see the U.K. government act promptly on this recommendation.

In Sweden, the Renfors Report commissioned by the Ministry of Justiceg ISP cooperation. And in the courts, the Sabam-Tiscali ruling spelt out, in language as plain as could be, that ISPs should take the steps required to remove copyright-infringing material from their networks. The European Union should now take up the mantle and legislate where voluntary intra-industry agreement is not forthcoming. This is the time to seize the day.

ISPs don’t just have a moral reason to step up to the plate — they have a commercial one too. IFPI estimates say illegal P2P distribution of music and films accounts for over half of all ISP traffic. Others put the figure as high as 80%. This is traffic that is not only destroying the market place for people who are trying to make a legitimate living out of music and films, it is hogging bandwidth that ISPs are increasingly going to need for other commerce, especially as a legitimate online market for movies develops.

I think the failure of ISPs to engage in the fight against piracy, to date, has been the single biggest failure in the digital music market. They are the gatekeepers with the technical means to make a far greater impact on mass copyright violation than the tens of thousands of lawsuits taken out against individual file-sharers by bodies like BPI, RIAA and IFPI. To me, prosecuting the customer is counter-intuitive, though I recognise that these prosecutions have an educational and propaganda effect, however small, in showing that stealing music is wrong.

ISPs could implement a policy of disconnection in very quick time. Filtering is also feasible. When last June the Belgian courts made a precedent-setting ruling obliging an ISP to remove illegal music from its network, they identified no fewer than 6 technologies which make it possible for this to be done. No more excuses please. ISPs can quickly enough to block pornography when that becomes a public concern.

When the volume of illegal movie and music P2P activity was slowing down their network for legitimate users recently in California, Comcast were able to isolate and close down BitTorrent temporarily without difficulty.

There are many other examples that prove the ability of ISPs to switch off selectively activity they have a problem with: Google excluded BMW from their search engine when BMW started to play games. This was a clear warning to others not to interfere. Another show of power was Google’s acceptance of the Chinese Governments censorship conditions. The BBC has spent a fortune on their iPlayer project and the ISPs are now threatening to throttle this traffic if the BBC doesn’t “share costs of iPlayer traffic.” All this shows what the ISPs could do if they wanted. We must shame them into wanting to help us. Their snouts have been at our trough feeding free for too long.

Let’s spare no effort to push the ISPs into taking responsibility. But that’s only one part of the story. There’s a huge commercial partnership opportunity there as well. For me, the business model of the future is one where music is bundled into an ISP or other subscription service and the revenues are shared between the distributor and the content owners.

I believe this is realistic; the last few years have shown clear proof of the power of ISPs and cable companies to bundle packages of content and get more money out of their subscribers. In the UK, most ISPs offer different tiers of services, with a higher monthly fee for heavy downloaders. Why are there “heavy” downloaders? Isn’t that our money? News Corporation offers free broadband to light users if they take at least a basic Sky Television package for £16 [$31.78] a month.

Looking at the events in the last year, this revenue-sharing model seems to be taking hold in the music business.

Universal — U2’s label — recently struck a deal with Microsoft that sees it receive a cut of the revenues generated by sales of the Zune MP3 player. It’s unfortunate that the Zune hasn’t attracted the sort of consumer support that the iPod did. We need more competition.

Under the agreement, Universal receives $1 for every Zune sold. When you consider Radio Shack sells Zune players for $150, you’ll see that Universal has asked for less than 1% of revenue — for a company that is supplying about a third of the U.S. market’s chart music at the moment. This isn’t really enough, but it’s a start, I suppose, and follows from the U2/Apple deal, the principle that the hardware makers should share with the content owners whose assets are exploited by the buyers of their machines. The record companies should never again allow industries to arise that make billions off their content without looking for a piece of that business. Remember MTV?

Nokia has announced it will launch “Comes With Music,” a service that effectively allows consumers to get unlimited free downloads of songs for 12 months after they buy certain premium Nokia phones. At the end of the 12 months consumers will be able to keep the songs they download. Nokia gets to supply premium content and Universal gets to boost competition in the digital marketplace, to make it more competitive and open new channels to customers. A proportion of the revenue generated by sales of the handsets will flow back to Universal. The question must be asked; will they distribute that revenue fairly? Do artists trust the labels? Will artists, songwriters and labels trust the telcos and handset companies?

These are obviously commercial deals driven by self-interest. But there is a moral aspect to this too. The partnership between music and technology needs to be fair and reasonable. ISPs, Telcos and tech companies have enjoyed a bonanza in the last few years off the back of recorded music content. It is time for them to share that with artists and content owners.

Some people do go further and favour a state-imposed blanket licence on music. Let me stress that I don’t believe in that. A government cannot set the price of music well any more than a rock band can run a government. The market has to decide. The problem with the global licence proposed in France two years ago was that it would not have worked in practice. But it is in France recently that legislators have been most innovative and have shown most willingness to act to support recorded music rights. France leads the world on this.

So far I’ve focused mainly on the role of ISPs. But there are similar issues in mobile too. The mobile business accounts for half the world’s digital music revenues and, crucially, is starting out from a much better position than the internet music market. You only have to look at a market such as Japan to see the amazing potential of mobile music for getting to the young demographic.

I believe that in mobile music we have the chance to avoid the problems that have bedevilled the recorded music industry’s relationship with ISPs: and I’m not talking just of their tolerance of copyright theft. Other problems, like the lack of interoperability between services and devices; the lack of convenient payment mechanisms except via credit cards — which of course are not available to all music users; the hacking and viruses that have undermined people’s trust in online payment. All these problems can be avoided in the mobile sector, this is a task that should command the support and cooperation of labels, artists, publishers and writers. We’re all in the same boat here.

That’s a lesson for the mobile industry internationally. Don’t go the way that many of the ISPs have gone. Mobile is still a relatively secure environment for legitimate content — let’s keep it that way.

So, to conclude — who’s got our money and what can we do?

I suggest we shift the focus of moral pressure away from the individual P2P file thief and on to the multi billion dollar industries that benefit from these countless tiny crimes — The ISPs, the telcos, the device makers. Let’s appeal to those fine minds at Stanford University and Silicon Valley, Apple, Google, Nokia, HP, China Mobile, Vodafone, Comcast, Intel, Ericsson, Facebook, iLike, Oracle, Microsoft, AOL, Yahoo, Tiscali etc, and the bankers, engineers, private equity funds, and venture capitalists who service them and feed off them to apply their genius to cooperating with us to save the recorded music industry, not only on the basis of reluctantly sharing advertising revenue but collecting revenue for the use and sale of our content. They have built multi billion dollar industries on the back of our content without paying for it.

It’s probably too late for us to get paid for the past, though maybe that shouldn’t be completely ruled out. The U.S. Department of Justice and the EU have scored some notable victories on behalf of the consumer, usually against Microsoft. They have a moral obligation to be true, trustworthy partners of the music sector. To respect and take responsibility for protecting music. To work for the revaluation, not the devaluation of music. To share revenues with the community fairly and responsibly, and to share the skills, ingenuity and entrepreneurship from which our business has a lot to learn.

And the message to government is this: ISP responsibility is not a luxury for possible contemplation in the future. It is a necessity for implementation TODAY — by legislation if voluntary means fail.

There’s more exciting music being made and more listened to than at any time in history. Cheap technology has made it easy to start a band and make music. This is a gathering of managers; our talented clients deserve better than the shoddy, careless and downright dishonest way they have been treated in the digital age.”

(Paul McGuinness delivered the above speech January 28 at Midem, Cannes.)

David Byrne and Thom Yorke

Wired has some great articles on music in the current issue. Mike King already posted on David Byrne’s music models, ground that has been covered here and in the Future of Music book.

But Byrne also did an interview with Thom Yorke from Radiohead about the In Rainbows experiment and his views on the music biz. Here’s an excerpt:

“Byrne: What about bands that are just getting started?

Yorke: Well, first and foremost, you don’t sign a huge record contract that strips you of all your digital rights, so that when you do sell something on iTunes you get absolutely zero. That would be the first priority. If you’re an emerging artist, it must be frightening at the moment. Then again, I don’t see a downside at all to big record companies not having access to new artists, because they have no idea what to do with them now anyway.

Byrne: Are you making money on the download of In Rainbows?

Yorke: In terms of digital income, we’ve made more money out of this record than out of all the other Radiohead albums put together, forever — in terms of anything on the Net. And that’s nuts. It’s partly due to the fact that EMI wasn’t giving us any money for digital sales. All the contracts signed in a certain era have none of that stuff.”

Pretty interesting interview.

A study by Nokia predicts that up to a quarter of the entertainment consumed by people in five years time will have been created, edited and shared within their peer circle rather than coming out of traditional media groups. This phenomenon, dubbed ‘Circular Entertainment’, has been identified by Nokia as a result of a global study into the future of entertainment.

The study, entitled ‘A Glimpse of the Next Episode’, carried out by The Future Laboratory, interviewed trend-setting consumers from 17 countries about their digital behaviors and lifestyles signposting emerging entertainment trends.

“From our research we predict that up to a quarter of the entertainment being consumed in five years will be what we call ‘Circular’. The trends we are seeing show us that people will have a genuine desire not only to create and share their own content, but also to remix it, mash it up and pass it on within their peer groups – a form of collaborative social media,” said Mark Selby, Vice President, Multimedia, Nokia.

Selby continues, “We think it will work something like this; someone shares video footage they shot on their mobile device from a night out with a friend, that friend takes that footage and adds an MP3 file – the soundtrack of the evening – then passes it to another friend. That friend edits the footage by adding some photographs and passes it on to another friend and so on. The content keeps circulating between friends, who may or may not be geographically close, and becomes part of the group’s entertainment.”

Tom Savigar, Trends Director at The Future Laboratory added, “Consumers are increasingly demanding their entertainment be truly immersive, engaging and collaborative. Whereas once the act of watching, reading and hearing entertainment was passive, consumers now and in the future will be active and unrestrained by the ubiquitous nature of circular entertainment. Key to this evolution is consumers’ basic human desire to compare and contrast, create and communicate. We believe the next episode promises to deliver the democracy politics can only dream of.”

Of the 9,000 consumers they surveyed:

– 23% buy movies in digital format
– 35% buy music on MP3 files
– 25% buy music on mobile devices
– 39% watch TV on the internet
– 23% watch TV on mobile devices
– 46% regularly use IM, 37% on a mobile device
– 29% regularly blog
– 28% regularly access social networking sites
– 22% connect using technologies such as Skype
– 17% take part in Multiplayer Online Role Playing Games
– 17% upload to the internet from a mobile device

As part of the research they identified four key driving trends; Immersive Living; Geek Culture; G Tech and Localism. As these trends become more mainstream, they predict that they will have a collaborative, creative effect on the way people consume entertainment and, we predict, will lead to the Circular Entertainment phenomenon.

Immersive Living
Immersive Living is the rise of lifestyles which blur the reality of being on and offline. Entertainment will no longer be segmented; people can access and create it wherever they are.

Geek Culture
This triumph marks a shift as consumers become hungry for more sophisticated entertainment. Geek Culture rises, consumers will want to be recognized and rewarded – the boundaries between being commercial and creative will blur.

G Tech
G Tech is an existing social force in Asia that will change the way entertainment will look. Forget pink and sparkly, it is about the feminization of technology that is currently underway. Entertainment will be more collaborative, democratic, emotional and customized – all of which are ‘female’ traits.

Localism
The report uncovered a locally-minded sprit emerging in entertainment consumption and Localism will become a key theme of future entertainment. Consumers will take pride in seeking out the local and home-grown.

Now all that is great, but presents significant challenges to the notion of intellectual property, copyright and ownership – all subjects that have been discussed here before. It is one thing for young hipsters to want to create and mash-up their own material, and an entirely different matter to do so with other peoples property. How this will all shake out remains to be seen.

While I generally agree with the trends they are highlighting, I still wonder how this all plays into the business of music and the opportunities for careers in the music industry if everything is free and can be readily absorbed, modified and regurgitated without any concern for commerce or rights. This would be great for device makers like Nokia and others, but not great for the producers of art seeking to make a living off of that activity.

We have already seen how Apple has benefited dramatically at the expense of the artists, writers and record lables – and shifted the income stream out of their hands and into Apple’s own. Powerful motivation for Nokia to follow suit with an even bigger world view of media and their place in it.

Watch the Nokia Videos:


Overview


Future of Mobile


Future of Wikis


Future of Music


Future of Blogging

Doug Morris on the state of the music industry. The problem, he says, is that “there’s sympathy for the consumer, and the record industry is the Shmoo.”

Oh my God.

Wired writer Seth Mnookin interviews and skewers Universal Music Group Chief Executive Doug Morris in the latest issue, which speaks for itself. You just got to read this interview.

“There’s no one in the record company that’s a technologist,” Morris explains. “That’s a misconception writers make all the time, that the record industry missed this. They didn’t. They just didn’t know what to do. It’s like if you were suddenly asked to operate on your dog to remove his kidney. What would you do?”

Well, for one, maybe – instead of suing the technologists from Napster 1.0 – perhaps you should have considered hiring them. Just a thought…

Unbelievable. No wonder we are in the situation we are in.

Total Music. Hmm… Why do they think they have it figured out now?

For another great history lesson on how the major music labels ignored change and tried to impose their will on the masses, read this. Disturbing and painful. Great work Seth.

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.

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

CDs are now sliding precipitously, especially in the United States, and that has intensified media diversification efforts at major retailers.  At the halfway point, year-over-year disc sales in the United States dropped 15.1 percent, according to Nielsen Soundscan.  That gap has since broadened to 18.4 percent.

For retailers like Trans World, Hastings, and Virgin Megastores, diversification has now become an accelerated survival tactic.  During the recent quarter, music-specific sales at Trans World dropped 19 percent on a comparable store basis.  That is more severe than dips of 16 percent recorded during the same quarter last year, and represents a worsening trend.  "Trans World has 950 stores and we would expect them to continue to deemphasize music over the next 12-24 months," said Richard Greenfield of Pali Research during a recent investor note.  Greenfield noted that Trans World has already lowered its music-specific selection to 43 percent of total inventory, down from 47 percent last year.

The decreased selection means less consumer matches, and lowered sales volumes.  "As floor space continues to contract at physical retail, we are increasingly concerned that the rate of decline in CD sales will materially accelerate in 2008," Greenfield asserted.

From Digital Music News

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.

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

See the whole hour long movie here.

Mark Cuban is a smart guy.   He dashed off a couple of ideas here that make a lot of sense.  I completely agree with him that the big copyright holders (labels and publishers) can act as "networks" and bring their music to market.  It is interesting that none of them are thinking this way at the moment, and the old way of thinking is guiding the day.  Namely, why do they need aggregators like Apple’s iTunes to replace the failing Tower Records of the past?  Why can’t the labels go direct to the customer with their product.

I have often said that when Napster 1.0 first emerged, the labels realized that they actually had customers.  And those weren’t Wall Mart and Target, but people like you and me.  And instead of embracing these consumers, communicating with them, drawing ’em into the fold, marketing to them – they decided to sue the people.  The legal people overran the marketing folks, and the chance for creating a direct to consumer business slipped through their lawyers hands.

It has taken a while to grasp the totality of all this, but perhaps someday soon, a large music content company will decide to get into the business of marketing to consumers, and creating an infrastructure to support and make it happen in the digital age.  Can’t wait to see that happen.

The major record labels made two massive errors that will ultimately lead to their demise.  The first error was releasing their entire catalog in unprotected perfect digital format, i.e. the CD.  As many have said, the current debate over DRM (digital rights management) is ludicrous as they labels have already released all of their music without any DRM whatsoever.  These unprotected CDs are the source of nearly 100% of the files being shared on Limewire and other file sharing networks.  Why they are trying to force consumers into purchasing DRM wrapped files on iTunes, Napster, Rhapsody simply makes no sense.  They already took that option off the table with the CD.

The second error, and the one that will drag them all over the cliff in relatively short order, is that they consolidated their retail distribution into the hands of a small number of "big-box" retailers, i.e. Wal-Mart, Target, Best Buy.  These retailers became the 1,000 pound gorilla, responsible for nearly 80% of all sales of CDs over the past 10 years or so.  The labels are totally dependent on these retailers for sales.  The irony of it all is that music sales at these retailers represents less than 1% of the retailers overall sales volume.  So the mistake was, lets get completely dependent on a retail sales channel that in fact, does not need our business.

A recent WSJ article (and others) describe the beginning of the end of this relationship, where the big-box retailers are beginning to acknowledge that they indeed don’t need to sell CDs any longer, as there are more profitable offerings (DVDs, video games) that can occupy the same shelf space.  The reality is that if these retailers do indeed cut the number of titles that they stock by any significant amount, the major lables will lose whatever remaining oxygen supply that may be sustaining them, and drop like stones into the abyss.

Read the story here.

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

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!

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

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"

(CelebrityAccess MediaWire) — Barenaked Ladies grossed $978,127.99 in revenue from intellectual property in its first week music sales from their new album, Barenaked Ladies Are Free (Desperation Records/Nettwerk Music Group). Understanding this sales figure requires looking beyond the numbers on the charts, according to Terry McBride, band manager and CEO of the Nettwerk Music. McBride notes BNL released their album on their own artist-run label, Desperation Records, in multiple formats, from physical CDs to digital albums, deluxe editions, USB flash drives, ring tones, multi-tracks for remixing, streams, etc.

Not only is revenue generated from all of these outlets, but also the percentage the band actually sees is significantly higher since they own their Intellectual Property. Additionally, when the digital sales of Barenaked Ladies Are Me and Barenaked Ladies Are Me Deluxe Edition are combined, BNL actually hit as the #4 digital seller in the US and #3 in Canada. Barenaked Ladies Are Me, the first original album in three years from BNL, charted at #17 in the US with 36,811 albums sold and #7 in Canada with 8,008 albums sold.

In addition to a physical album, the band found it important to make their songs available to fans in a wide variety of ways…from digital albums to a 27-song deluxe edition (physical in Canada/digital in US), individual tracks, USB flash drives and even vinyl.

"Nettwerk and BNL are trying to get people to see beyond the physical number," says McBride "Generating revenue, especially in the artist-run model, is about selling music in various mediums, selling concert tickets, licensing music to TV, ring tones, packed USB drives, etc. That is how success is measured, not by the physical album sales." McBride notes that missing from the regular sales charts are individual digital track sales, digital albums purchased directly from the BNL, Nettwerk and MySpace websites, the combined sales of the standard album and Deluxe Edition, USB flash drive sales, ring tone sales, stem sales from their remixing contest and more.

"Additionally, you won’t see the difference in revenue that a band generates from an artist-run label as opposed to a band on a major label; an artist-run label can earn as much as $5 per album," he explains; "once all of these missing entities are factored together, a difference close to 30% of North American sales is missing from the chart equation. "The artist-run model is the future. If we can break bands using this model, the industry will be forever changed," McBride continues. "We are making a music company, not a record label." –Bob Grossweiner and Jane Cohen   

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.

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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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.

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

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

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.

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.”

Vivendi Universal
Games has reported sales of over one million units of "50 Cent: Bulletproof," available
on both the PlayStation 2 and Xbox. In a brilliant multi-format strategy, the
game includes four CDs worth of music, including exclusive
tracks from 50 Cent. More than a dozen music videos are also part of the
offering. "Gamers and 50 fans alike have enthusiastically responded to the
groundbreaking fusion of frenetic gameplay and the lyrical imagery of the
exclusive 50 Cent music tracks," said Cindy Cook, chief strategy and
marketing officer at VU Games.

50 Cent has been on a tear, making movies and diversifying his empire into new physical formats. His fans loved the
"Bulletproof," concept with songs,
videos, and other extras, supporting an strong video game and demonstrating that people still buy music, albeit in disquise.  The product was produced as a collaboration of labels Interscope Records,
Shady Records and Aftermath Records and represents some clear thinking about how to overcome some of the challenges in music today, and once again providing value and convenience for the fans.

I have been traveling quite a bit this past year speaking about the Future of Music at industry conferences, tradeshows and other music related events.   The topic of music formats always comes up and I encourage people to think expansively and try and paint a picture of a future where digital music integrates even more closely into our lifestyles.  Here are a few examples of what I have been talking about, and things that are beginning to appear in the marketplace that points towards the "Music Like Water" future we describe in the book.

Card_2Fixed Media

There are other hard formats to compete with the CD such as Flash Memory.  Capacities these days of 500 MB – 1GB are commonplace at prices around $50 retail.  Why not buy some data along with that USB drive or SD card?

Now we see SanDisk, a huge player in personal storage and the #2 maker of MP3 players announcing the Gruvi Card containing the Rolling Stones album, A Bigger Bang. You can listen to the Stones on mobile phones, selected Palm, Windows Mobile or Pocket PC OS
devices.

The Barenaked Ladies also announced that they plan to release their next project on a USB flash drive, called Barenaked on a Stick, containing 29 songs, live tracks, album art, photos and videos. Look for a lot more of this to come.

ThumbBiometrics

In the "Music Like Water" scenario, your music is available to you anywhere, all the time.  To identify you and match your musical selections to you as an individual, some kind of authentication will be required, such as a login on a pc, or IP address, or some other means of identification.

VeriTouch a company providing
biometric hardware devices, algorithms and encryption technologies, has announced
MuViBOXX!
, a new entertainment
company that
will introduce the world’s first legal P2P file-sharing network
in a consumer set-top TV box.  The device will use a thumbprint as part of it’s Digital Rights Management solution.


EarLifestyle Digital Music Players

We are going to see a real explosion in digital music players that are tightly coupled to some marketeer’s vision of the way people want to incorporate music into their lifestyle.   If the iPod is a fashion accessory with it’s white earbuds symbolizing the solitude of the current digital music experience – we are going to be deluged with variations on that theme.  Expect to see some really bizzare products.  They are already starting to hit the market.

Thump_2Oakley is into it’s second generation of digital music eyewear, Thump.  I am a proud owner of the first incarnation of this concept and they are great for skiing and running and hanging outdoors, so long as you don’t want to talk to anyone else.


SonyearIt is one thing to identify a digital music player as a piece of
jewelry, and entirely another thing to actually pull it off.  It’s not
to say that that hunk of plastic hanging off your neck isn’t
attractive, it’s just that the execution of the concept could be better.  Here is an example of Sony trying really hard to be cool.  Not something I would enjoy having swinging from my ear…  but a clear indication of things to come.

Pez
And finally, my current favorite digital music lifestyle device, the PEZ MP3 player.  The only thing missing (unfortunately) is the candy…