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Power to the people

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Suing the Hand that Feeds You

P2P SUITS MAKE NO SENSE FOR MUSIC BUSINESS

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

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

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

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

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

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

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

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

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

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

From Billboard.biz

See also previous post on this subject

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

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

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

Sounds vaguely familiar…

Reported by Digital Music News

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Piracy is a red herring

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

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

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

From Digital Music News.

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MC Lars – Download this Song

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

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

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

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

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

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Gaming the System

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.

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“Worst Year Ever”

In the January issue of Rolling Stone there is a year end wrapup piece on the continuing woes of the ‘music business’.  Readers should note that in the same issue is a piece about how the concert business has suddenly rebounded.  Now even the venerable RS should know that the Music Business is not just the Record Business, and should be able to connect the dots, but…

"It was yet another unhappy New Year for the music industry: Despite
hits by Mariah Carey, 50 Cent and Green Day, 2005 saw album sales
drop 7.2 percent as labels continued to struggle with adapting to
the age of the iPod and the Internet. Overall, consumers bought 48
million fewer albums than in 2004, marking a disastrous twenty-one
percent slide from the industry’s peak in 2000, according to
Nielsen SoundScan. And the holiday season, which typically accounts
for forty percent of annual sales, was a bust. "It was arguably the
worst in the music business’s history," says Steve Bartels, Island
Records president.

In contrast to CD sales, digital-song downloads jumped 150
percent in 2005 as consumers bought 352 million of them. "With
digital technology, everyone’s figured out that a business built
only on the manufacture, distribution and sale of CDs has ended,"
says Dixie Chicks manager Simon Renshaw, echoing many other
industry veterans. "The traditional model can’t continue."

The labels continued to battle piracy, filing hundreds of
lawsuits against peer-to-peer downloaders. But in the month of
November, for instance, twenty-one percent more users traded music
online than in the same period the year before.

The Indie Scene

As the majors stumbled, independent labels gained market share,
accounting for eighteen percent of CD sales in ’05. Indie labels
proved especially adept at Internet marketing via outlets like
MySpace; the emo label Victory Records sold 558,000 copies of
Hawthorne Heights’ album The Silence in Black and White
without radio play. And several hip indie acts — the Arcade Fire,
Interpol and Bright Eyes — sold more than 250,000 copies each. The
indie model of earning profits on a broad range of small-scale
releases, rather than focusing on blockbusters, may offer a new
direction for the majors."

Best quote of the year so far:

"The major labels want to say the glass
is half full," says Gwen Stefani’s manager Jim Guerinot. "I think
everybody’s getting the message: You better get a fucking smaller
glass. The music business is a different game."

Read the Rolling Stone 2005 Record Business recap here.

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Push versus Pull

There is an inherent difference between receiving information from some service like radio or television, and going out and acquiring information at a music store, video shop or filesharing network.  In the first instance, information is being ‘pushed’ at you by some programming network, and in the second instance, you are ‘pulling’ information to you.  The first is passive and the second is active.

There is little doubt as to the success and popularity of the push services.  Radio and TV have grown to be hugely profitable businesses reaching hundreds of millions of listeners and viewers all while pushing content to willing consumers.  People make the argument that these services became popular because they were free and did not cost anything.  This is not entirely true.  As consumers we are deluged with advertising from these services and we do pay for that advertising as part of the cost of goods that we purchase, often as a result of being influenced by the ads.  It is not really free.  And, you don’t own or store the programming.  It is either on or it is not on when you listen or view the service.

Cable TV began as a paid push service.  Millions of consumers pay a subscription fee for cable and endure the advertising on top of that.  Cable TV has since evolved into a paid push/pull service with the addition of Pay Per View and On-Demand.  You actually have to pay more to pull the programming to you than the basic push service costs.

There is a debate today over music subscription services (push) and paid download music services (pull) and whether one approach is better than the other.  Apple’s position with iTunes is that they don’t believe that people are interested in a subscription service – so you can only pay to download music.  BUT, they have also released a podcast service which allows you to ‘subscribe’ to feeds – albeit for free at the moment.  Seems like a bit of a mixed message to me.

Services such as Napster 2, Rhapsody and Yahoo music all have a combination of push and pull services allowing you to stream music programmed for you, and letting you pay to download tracks.  This approach makes a lot more sense than simply a download service.  Many people argue that subscription services that provide tracks that play for you only as long as you continue to pay for the service are not what they want.  They claim instead that they want to "own" the music – like a CD – rather than "rent" the music.  The point that they are missing is that you never have really owned the music you purchased on CD, you simply licensed it from the labels for your personal use.

This debate will rage on in the years to come as digital music services try out different models and features to try and find the optimum mix and consumer satisfaction.  Look forward to seeing services that provide downloading, streaming, and file-sharing – and a whole lot more.

Here is a good article on this subject from the Hollywood Reporter special fall 2005 report on the future of entertainment.

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New Formats for Music Lifestyles

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…

 

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Digital Sales Fail to Live up to Expectations

After nearly 5 years of full blown operation, the legitimate digital music distribution business seems to have failed to deliver the volume of sales that many in the industry have hoped for.  The much trumpeted Apple effort with iTunes and the iPod have yet to deliver on the promise of digital music as a path to salvation for the recorded music industry.

According to Nielsen SoundScan, average weekly download sales as of November 27th fell .44% vs. the third quarter.  That’s no growth at all.

According to a recent Bloomberg article, overall the numbers don’t support a exploding market.

"Digital music sales in the U.S., the world’s biggest market, have hardly budged in the past five months. They almost tripled to 6.6 million downloads a week in the year through May, and were at 6.7 million in the week ended Oct. 23, according to Nielsen SoundScan, a unit of Dutch media company VNU NV.

The iPod, with more than 28.2 million sold, isn’t providing the panacea that the music industry seeks. EMI Group Plc Chairman Eric Nicoli forecast in May that digital sales would help revive the $34 billion recorded music market. For now, they’re unlikely to offset falling CD sales that are causing global revenue to shrink for a sixth straight year.

Digital optimism seems to be crashing in on itself,” says Simon Baker, a media analyst at SG Securities in London, who has a sell” rating on shares of EMI, the world’s third- largest music company.

Downloads in the U.S. have alarmingly plateaued. This has devastating implications for predictions that digital sales would grow exponentially.’

The shares of EMI, whose roster includes Coldplay and The Rolling Stones, have dropped 20 percent this year to 212 pence in London. Warner Music Group Corp. Chief Executive Officer Edgar Bronfman Jr. has seen his company’s stock fall to $15.47, below its May initial public offering price of $17.

Music stocks have declined while Apple soared. Apple shares have climbed to $57.50 in New York from $9.50 in October 2001, when the iPod went on sale. Fiscal fourth-quarter net income at Apple, which also makes Macintosh computers, rose to $430 million from $106 million a year earlier, as it sold 6.45 million iPods, the company said Oct. 12. Revenue from iTunes Music Store and iPod accessories accounted for just $265 million of Apple’s $3.68 billion in sales in the period."

Read all the gory details from Bloomberg here.

Billboard Article here.

See also "iTunes is a Scam" here.

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iTunes is a Scam

Let’s face it.  Even though Steve Jobs and Apple almost single handedly led the major labels into the digital age of music, the numbers just don’t make sense, for anyone but Apple.  With the licenses for the music that Apple sells on iTunes coming up for renewal, it is time for the music industry to take a cold, hard look at the reality of the deal that it made, and consider their options.

According to research firm Fulcrum Global Partners, while the installed base of iPods will quadruple from 2004 to 2005, the average number of paid downloads per iPod fell by nearly 50%, from 31 to 16.  All of those iPods are almost entirely filled with ripped, copied or pirated music.

Here are the numbers as of Summer 2005:

While CD revenues have declined by some $1.7 Billion dollars on an annual basis,
iPod revenues are predicted to total over $4 Billion dollars in 2005.
At the same time, iTunes gross revenues for music downloads are about $200 million annually, with the labels taking home approximately $130 Million.

Do the math:  CD revenues down $1.7 Billion.  Download revenues up $130 Million.  That leaves a shortfall of $1.57 Billion for the music labels.   At the same time, Apple makes $4 Billion off of the iPod this year alone.  Surely the labels cannot be happy with this.  As a major label shareholder I would be outraged.

Those precious music licenses are up for renewal soon.  The future of music is at stake.  What does the smart money say the labels should do?

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New Formats for Music Emerge

Sdram_chipThe recording industry has always been driven by new formats throughout its history.  From wax cylinders to vinyl records, from cassette and 8-track tape to CD and more recently MP3 files. The music industry has always moved forward by introducing successful new formats and migrating people to a better product.  The CD has been around for nearly 23 years and is a tired format.  The major labels refused to license unprotected MP3 files and this decision is one of the reasons that they are in trouble today.

The future of music lies in embracing and developing new formats that give people increasing value and convenience – and makes music more attractive and makes it sound better. 

In our book, ‘The Future of Music’, and in recent industry presentations we proposed new formats for music, such as those to be delivered on flash memory cards and in jewelry.

Now, the vision begins to come to life.

SanDisk has announced plans to deliver music content via its microSD, flash based memory cards. The company will offer the new Rolling Stones album, ‘A Bigger Bang’, on the format starting in November. The price point will be $39.95, and the cards will be available through a large number of retailers. The Rolling Stones deal is only the beginning with the cards eventually including other forms of media. The company also announced that its Gruvi cards will be compatible with the Yahoo Music Unlimited service, allowing consumers to listen to subscription-based content across the same range of devices. To achieve this, the Gruvi cards will be compatible with the Yahoo Music Engine software client, which lets listeners manage music, create playlists, and purchase downloads.

Read more here.

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Nightly Business Report on the Business of Music

Watch this week’s Nightly Business Report on NPR and Public Television to see a special series on the Music Business, featuring Dave Kusek and Gerd Leonard.

"On December 6th, 1877, Thomas
Edison shouted a nursery rhyme into his new talking machine. The recording
industry was born.

Over more than a century, the technology evolved from wax cylinder to
shellac platter to long-playing vinyl to cassette tape to compact disc.

But the business model remained the same: The artist recorded to the
label`s satisfaction, the label did the manufacturing and handled the
distribution, and the consumer could take it or leave it.

That changed in the mid-1990s, when personal computers got the ability
to make digital compact discs. Unlike analog, digital recordings are
simply computer data files, and the tools need to create, capture and
manipulate digital music are inexpensive, high quality and widely
available.

Now, consumers can use the recording industry`s compact disc to create
their own compilations, re-edit to produce derivative products, and yes,
make perfect copies.

When the cost of the blank needed for a copy fell to pennies, the
industry`s business model fell apart.

If the ability to easily copy compact discs was a problem for
the recording industry, Napster and other file-sharing systems were a
disaster. Created in 1999, Napster let consumers freely trade the computer
files of songs with others over the Internet. The artists, publishers and
recording companies never saw a dime.

Nearly 40 million people were said to be using Napster when
it shut down. And for every Napster that was shut down, another method to
share files sprang up.
The industry`s trade association sued thousands of people, mostly
college students, to stop the practice. The lawsuits, tens of thousands by
some counts, continue today."

More info here.

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Digital Matchmaking for Music

A very clever application for linking your music library to upcoming concert appearances is available from Passalong Networks.  OnTour provides a way for you to find local concerts featuring your
favorite artists, to purchase music by these artists, and to buy tickets to these concerts.  OnTour scans the digital music files already on your computer and generates concert listings by matching artist names to upcoming concerts in the your area (U.S.).  Artists with upcoming shows in the area are listed. Click on a link and details appear with concert dates. Buttons that link with Mapquest, the venue schedule and Ticketmaster are at the bottom of the window. Choose "Recommended Artist" from the drop-down list and the application compares your artist list with data gathered from thousands of other music lovers to make recommendations.  OnTour also allows you to scan by concert hall, to see which artists are scheduled to play at your favorite venue. Additionally, OnTour allows you to manually add artists to track and can display ‘all artists’ for your city. This application will ensure you ‘never miss a concert again’.

Check it out here.

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Woodie Awards – direct marketing extraordinaire

Welcome to the "mtvU Woodie Awards" — the only show honoring the music voted best by the college audience. Winners will be announced at the "mtvU Woodie Awards" live ceremony and concert event November 2nd at the Roseland Ballroom in New York City which will premiere on mtvU and mtvU.com November 10th. "College students are prophesying the future of music, today," said Stephen Friedman, GM, mtvU. "With our first ever live Woodie Awards event, the music they live their lives to takes center stage, and the rest of the world gets to see what’s about to break big."   

Last year’s first-annual "mtvU Woodie Awards" were a resounding success as college students declared their favorite artists and bands, propelling them to mainstream success with record album sales, sold out tours, and accolades at other award ceremonies.  Modest Mouse and Coheed & Cambria were the big winners, with each walking away with two nods.  Modest Mouse was recognized with the "Woodie of the Year" award for Best Artist, and the "Silent But Deadly Woodie" for Best Music Video honoring their single "Float On."  Coheed & Cambria won "Soundtrack of My Life Woodie" honors for Best Album with theirrelease "In Keeping Secrets Of Silent Earth: 3," and the "Road Woodie" for Best Live Performance.  Other winners included N.E.R.D., Taking Back Sunday, Sum 41, Incubus, as well as The Killers and Fallout Boy who both won honors at this year’s MTV Video Music Awards. 

To vote for the second-annual "mtvU Woodie Awards," college students around the country are invited to visit http://www.mtvU.com before October 28th.

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Is there copyright reform in our future?

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

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

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

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

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

Read the complete CNET piece here.

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Digital Rights Management (DRM) is the ‘Long Box’ of the 21st Century

Shortly after the CD was first introduced to the marketplace in 1983, the  music industry decided that the “jewel case” in which the CD was packaged was too hard to merchandise and too easy to steal. So, they invented the ‘long box’, a cardboard sleeve that housed the jewel case and disc. Two of the long boxes fit neatly side-by-side in the existing LP racks. They figured it would also be a good deterrent for shoplifting, since it was too long to shove into a pocket to steal. However, the impact that this abundantly wasteful idea had on the industry, and the backlash felt by insulted consumers and ecologically minded artists, has been well documented. Suffice to say that the long box was eventually abandoned.

There has never been any DRM that has not been cracked by diligent hackers one way or another, whether commercially exploited or not. This is true for DRM used in computer software, video games, cable television, cellular phone transmissions, DVDs, and for many other forms of encryption. Leading computer software makers like Microsoft and Intuit pulled the plug on overly restrictive copyprotection schemes long ago, after consumers became increasingly disgruntled with legally purchased programs that still would not install or run properly. If the software business can live with 57 percent piracy, how can the music industry claim that less than 20 percent is killing them?

Today the industry blames the pirates and the evil file-sharers for its woes, but it can certainly be argued that the industry brought this upon itself by releasing the Red Book–audio CD format, not realizing that in just a few years, advances in home computer technology would make it possible for people to replicate an infinite number of perfect digital copies of every song ever released on CD. The billions of files that are traded on Kazaa, Morpheus, Grokster, iMesh, Limewire, and other P2P networks are the direct result of the record companies’ decision to go with the CD format.

For all the music that has already been released on CD, the genie is already out of the bottle. There is no turning back to a time when the music could have been “mechanically” protected. Therefore, for all the music available on existing CDs, there is no possibility for DRM to ever be effective, retroactively. This is also true for the thousands of new CD releases being introduced into the marketplace every month by the record industry. All attempts at post-natal abortion will prove to be fruitless.  The simple fact is that if you can see or hear it on your computer, then you can copy it, one way or the other.

Read what the EFF has to say about the current ‘authorized’ digital music services and their use of DRM.  The Customer is Always Wrong.

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Was words for the Music Industry

24a_donwasGrammy Award winning producer Don Was had a few choice words for the music moguls in this past issue of Billboard. 

Was, who produced the newest Rolling Stones studio album "A Bigger Band", Bonnie Raitt’s "Nick of Time" and Bob Dylan’s "Under the Red Sky" echos many of the views put forth in the Future of Music book.

On recording costs: "I’ve always advocated spending less money.  Greed is the biggest problem facing the music business.  People are tending to make shitty records and charging way too much for them and are not running the business in accordance with established principles of good management.  We should take our energies a little bit away from chasing down teenagers who are file-sharing and go after the real problem and deal with those issues:  Make better records and run the businesss better."

On the current state of the music industry: "It’s really a beautiful business.  It reminds me of a national park.  Maybe we should be thinking, ‘why don’t we leave this in a little better shape than we found it?’ And if you’re dumping garbage at your campsite and being reckless with matches, the ranger’s going to throw your ass out of the park."

On music marketing with car manufacturer Lincoln Mercury:  "We’re talking about some larger things.  Lincoln sells at least 5000,000 cars every year.  What if you put a CD in every car?  People aren’t buying music through the conventional means the way they have been.  So get it out there by other means."

Excerpted from Nelinda Newman’s interview in Billboard 9/05/05

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Music Labels vs Apple

‘Apple’ is now girding for a showdown with at least two of the
four major record companies over the price of songs on the iTunes
service.

Signs of conflict over pricing issues are increasingly
apparent. This month, Apple started its iTunes service in Japan without
songs from the two major companies – Sony
BMG Music Entertainment and Warner Music Group – leaving artists like
Avril Lavigne, Beyoncé and Rob Thomas out of the catalog because the
companies refused to license their music to iTunes, executives involved
in the talks said.

That gap in the Japanese music market, the
world’s second biggest, is considered a harbinger of what may await
American consumers as the contracts that record companies have with
Apple in the United States come up for renewal early next year.

Read the NYTimes article here.

Read a similar take from Pollstar here.

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Should ISPs Pay for Music?

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

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

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

Read the Red Herring Article Here.

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Interview with Napster President Brad Duea

The BBC has published an interview with Brad Duea, president of Napster. A few interesting sound bites:

Online music will become an ”exploding multi-billion dollar space in the next two years.”

”A lot of time people think of ownership as this ultimate thing with music. Has owning cassettes in the past really benefited people?”

”I do not think the argument about ownership is such a wonderful thing. What do you really want as a music fan? It’s to access music and listening to music.”

Music to our ears.  Read more here.

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An authorized P2P service that makes sense

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

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

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

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Sony vs. Apple

Sony NW-E507 colors

In the past, Sony with it’s Walkman brand, dominated the personal electronics market for music.  Today it is Apple and it’s iPod that dominates the market.

Many
Wall Street analysis publicly stated that they didn’t feel Apple could
sustain its growth in the iPod market, but last weeks quarterly results
demonstrated that Apple’s high-water mark may have not been reached.
Apple sold 6.2 million iPods last quarter. Six million! Their revenue hit $3.52 billion up from $2.01 billion the year before, exceeding
predictions and buoying the stock.

 Sony still has serious work to do to consolidate its battling divisions, and integrate its hardware players with
Sony’s Connect Music Service. With the 50 year old culture of internal one-upmanship instead of teamwork, this is not going to be an overnight affair.

Read the whole story here.

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P2P file sharers found to be avid online music buyers

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

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

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

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KCRW audio interview: The Politics of Culture

The Digital Age and The Future of Music.

It’s no secret that the music industry is challenged on multiple fronts. Now that we’re in the digital age, how can they change their outlook? Celia Hirschman, KCRW’s music industry commentator, speaks with Gerd Leonhard, co-author of The Future of Music: Manifesto for the Digital Music Revolution.

Listen to the Interview (Real)

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Stocks That Will Rock Your World

The new names in digital music are familiar, but they specialize in commercial music. Everyone knows Apple Computer as the company that is now moving more iPods than Macs. Former peer-to-peer bad boy Napster is now the lobotomized pimp of commercial music subscription services….

The broadband migration continues. Bandwidth and servers get
perpetually cheaper, yet the market seems to think that the only money
to be made in digital music is in pitching popular tracks for a buck or
less, or coming up with some portable aural smorgasbord solution of
commercial tunes. In a word, strategy is primitive.

That’s why I believe that, years from now, the major labels won’t be
the same batch of old-school vinyl pushers you see today. As ludicrous
as it may seem, I think that the real power brokers in the music
industry will be Google, Yahoo!, and Microsoft.

Read more from Rick Aristotle and the Motley Fool

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Fans Spread Jams With Music Mixes

Music fans once turned to radio DJs to expose them to new music. But as
music grows on the net, listeners are relying on friends and strangers
to feed them — often in creative combinations.

Forget the album and corporate radio. Fan-built playlists and mixes are taking over the way people get their music.

Read the whole story at Wired.

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CD Baby founder Derek Sivers on musicians of the future

"Before, say, ’94 or ’95,
before the Internet came around, there seemed to be a sharper divide
between those who create and those who consume: It seemed like you were
supposed to be either one or the other. I love to see this kind
of American rebellion, fueled by extreme hate for the record label, not
just from the fans but from the people like Prince, Ani DiFranco, Aimee
Mann, that have loudly said how they hate their label and they’re never
going to work for a label again. I have the feeling that a new
generation of musicians will grow up not having to be converted to that
way of thinking.

Like right now, I meet lots of 30-something
musicians, who maybe spent their teens and 20s wanting to be a rock
star, and now are kind of starting to think, “Well, maybe I can make a
good living just putting out my music directly and doing it on my own.”
But they kind of had to fall over to that way of thinking. What I think
will be really interesting is, imagine being a 13-year-old musician
right now, growing up surrounded by this mentality of “Fuck the label,
the label sucks, indie is cool, go direct, never sign over your rights
to somebody else”! Imagine growing up in that mentality, and what
that’s going to look like in 10 years!"

Read the LA Weekly interview here.

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Digital Train Leaving the Station

As TVT’s chief executive officer, Steve Gottlieb, puts it: "Manufactured pop culture is disintegrating before your eyes as the Net takes hold," and the nimbler, less risk-averse indies are best positioned to take advantage of the digital transformation. While the majors look at P2P file sharing, podcasting and other forms of digital distribution and see thieves, pirates and the willful disregard of copyright, the indies increasingly see a chance to connect directly with their customers – and an opportunity to steal a march on the Big Four. As Gottlieb points out, independent artists now account for 30% of internet radio play, and labels such as Artemis Records (Steve Earle, the Pretenders) have been distributing files over P2P networks for over a year. Add the fact that podcasters, at the wheel of the fastest-growing media phenomenon around, almost universally avoid major label music due to potential licensing infractions and it starts to look like there’s a digital train leaving the station – and the majors aren’t on it.

Read more in Digital Music News

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