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The Future of Music – by Dave Kusek and Gerd Leonhard

The Future of Music book is available in various forms.

future of music

 

You can buy the book on Amazon.

 

You can purchase the audiobook from Audible.

 

You can listen to the book on iTunes as a podcast for free. Go to the iTunes store and search “Future of Music” podcasts and subscribe.

Here are a few of the reviews.

Publishers Weekly
Two innovators in music technology take a fascinating look at the impact of the digital revolution on the music business and predict “a future in which music will be like water: ubiquitous and free-flowing.” Kusek and Leonhard foresee the disappearance of CDs and record stores as we know them in the next decade; consumers will have access to more products than ever, though, through a vast range of digital radio channels, person-to-person Internet file sharing and a host of subscription services. The authors are especially good at describing how the way current record companies operate – as both owners and distributors of music, with artists making less than executives – will also drastically change: individual CD sales, for example, will be replaced by “a very potent ‘liquid’ pricing system that incorporates subscriptions, bundles of various media types, multi-access deals, and added-value services.” While the authors often shift from analysts into cheerleaders for the über-wired future they predict – “Let’s replace inefficient content-protection schemes with effective means of sharing-control and superdistribution!” – their clearly written and groundbreaking book is the first major statement of what may be “the new digital reality” of the music business in the future.

5.0 out of 5 stars THE FUTURE OF MUSIC IS NOW
Gian Fiero (Hollywood, California)

This book is so brilliant that it makes the vast majority of music industry books that are being published seem irrelevant. It discusses in detail, the reasons why the future of the music industry is headed into the digital/mobile entertainment era. It also provides statistical information that professionals, marketers, entrepreneurs, and educators can use constructively. Both Dave and Gerd (the books co-author), have their fingers firmly planted on current music industry activities and trends. They also possess and display a clairvoyant eye toward the future that offers beneficial insight and foresight to those who may not be aware of what this whole digital (i.e. independent) revolution is about, and most importantly, what it will entail to prosper in it. The book is easy to read, easy to understand and simply brilliant. If you buy just one industry book this year, this should be THE one. Buy it now!

5.0 out of 5 stars Indispensible
Stephen Hill “Producer, Hearts of Space” (San Rafael, CA USA)

A stunningly candid source of concentrated, up to date insight about the music business and its turbulent transition into the digital era. This book tells it straight and will make the dinosaurs of the music industry very unhappy.

Like Martin Luther’s ’95 Theses’ nailed to the door of Wittenberg Cathedral, Kusek and Leonard drive nail after nail into the sclerotic heart of the old-fashioned music business. Their rational vision of the future of music rests on the idea of unshackling music from the hardcopy product business in a yet-to-be-realized era of open content licensing, facilitating sharing and communication among users, and growing the business to its full potential.

It provides as clear a vision of the future of the music industry as you will find, from two writers with a rare combination: a solid grounding in the traditional practices of the music business, an up-to-the-minute knowledge of the new technologies that are changing it, and the ability to think through the consequences.

I’ve dreamed about a book like this, but thought it would be impossible in today’s hyperdynamic environment where every week seems to bring a breakthrough technology, device, or service. But by digging out the underlying trends and principles Kusek and Leonard get under the news and illuminate it. Along the way they provide a brilliantly concise history of the evolution of digital media.

I can’t think of any book more important for artists to get the full re-orientation they need to survive and prosper in the digital era. It’s no less critical for members of the music and broadcasting industries who need to consolidate their thinking into a coherent roadmap for the future. In a word: indispensible.

Other things to do from here:

We have a wide variety of blog posts and articles on the music business and the future of music. Please click on any of these links to read more.

How to Promote Your Music

How to License Your Music

How to get your Music on Spotify Playlists

How to book bigger and better Gigs.

Instagram for Musicians

Earlier this year, Edison Research and Triton Digital released their Infinite Dial Report describing the trends in music, streaming, radio and digital music. They report that:

  • Mobile devices are quickly rewiring behavior, especially with young users and image sharing (Instagram and Snapchat)
  • Internet Audio is growing at a fast rate with Pandora as the #1 player in online radio by far
  • Podcasts are increasingly growing their listener bases

The smartphone either is or will shortly become the dominate way that people interact “online”. If you are trying to break new music, you need to make sure that your presentation is mobile friendly.

Smartphone Growth

This may be old news to many of you, but if you are trying to break music or gather a fan base and you are not on YouTube, you have little or no chance of success these days.  YouTube is absolutely dominating the listening/viewing habits of 12-24 year olds as you can see in this chart from Edison Research and Triton Digital.

Youtube 1

While radio remains the top source for new music discovery, YouTube was the No. 1 source for the very important young listener market aged 12 to 24 years.

Youtube 2

And finally, nearly half the audience in America is listening to online radio (Pandora mostly).

Online Radio

Why do most music players look like spreadsheets?

Discovering music on your own requires that you listen to a song for a period of time to see if you like it. Sure, if one of your friends tells you about a track you may “discover” it through them, but you will also spend some time listening to the song before you decide if it’s for you. This is the nature of the beast. Music is a time-based phenomenon.

Unlike with videos where you can “time compress” a video into a single frame image that you can easily visually scan, with music there is no alternative format that represents the song that can be easily scanned, except for the song name. This explains why most music interfaces display playlists, with song names as text not unlike in a spreadsheet, or list of song names. These can be easily scanned, but have no direct correlation to the sound or feeling of the song itself. I have always found it odd that in this era of digital music and highly designed interfaces, that most players default to a spreadsheet of song names to present music – true of iTunes, Amazon, Spotify, Rdio and many others.  Spreadsheet music players.

Sure you can have a thumbnail of the album cover, but rarely do you see this on a song-by-song basis. Maybe in parts of Beatport or other DJ sites that are focused on tracks, but not generally on the web for the mass consumers of songs. And yes we have also seen many different visual interfaces like Sonorflow that let you visually traverse music genres or the linkage between bands, but these do not convey information about the songs themselves or the emotions that they convey.

What if we had a way to make a song come alive visually? This was the whole idea behind the original MTV and it was wildly successful for decades. What is the online equivalent, or even better, what can we do to push the whole boundary of music discovery and showcasing to new levels by embracing the time-based nature of music and coupling it with visual expression and a modern interface that lets you experience and interact with music in new and interesting ways. And no, I’m not talking about the waveform displays on Soundcloud.

I am working with a new company called Viinyl which is in the final testing stage for a whole new video-based version of their Music Showcasing platform that is very hot. I haven’t seen anything like Viinyl 2.0 and I think it represents a whole new way of presenting music. Viinyl amplifies the emotional content of songs visually, in a way that is enjoyable and super easy to use. This is a whole new way of showcasing music.

Viinyl is re-defining the way music and videos are experienced. In fact their video player is a new way to attract attention, engage an audience with the emotion of a song, and make money on singles and tracks. From a simple URL you can run a full screen video with interactive overlays and gather email, sell tracks and tickets, connect to your social networks and literally showcase music thru video. You can sell any digital file including music and movies, and provide relavent information directly in the context of the song including bios, links, credits, contacts, concert dates, lyrics, etc.

Here are some examples of the new Viinyl 2.0 in action:

http://hiphopdraft-ghost-in-the-machine.new.viinyl.com/
http://synthetica-mini-documentary.new.viinyl.com/
http://destination-brazil.new.viinyl.com/
http://idareyoubeta.new.viinyl.com/

The new platform supports audio file sales with fixed or flexible album pricing (minimum price and Pay What You Want) along with various free distribution options. The software is lightning fast, with just a few clicks, musicians and labels will be able to share their work independently – and hold onto all revenue generated.

The new Viinyl 2.0 LP format delivers a visual playlist, giving listeners and fans a far richer, more immersive and inviting music experience compared with the current spreadsheet format.  This new software will be available in the coming weeks.

Roger McNamee is probably the coolest investor I know.  He has called it right so many, many times and just did it again with Facebook.  You have to pay attention to him.  I have been “schooled” by him on more than one occassion and for that I am eternally grateful.

Here are his thoughts on the road ahead, taken from a Mashable keynote presentation he made the other day.  Great stuff if you want to try and make money in web and mobile tech in the years ahead.

 The shift is away from the desktop experience of free undifferentiated content. Mobile users don’t navigate the Internet with Google searches. They use apps, which deliver a better experience. And they spend much more time within those apps than on any web story.

Instead of needing tens of millions of lightly engaged users in order to be considered successful, McNamee hypothesizes that future success will come from smaller numbers of even more engaged — and thus more valuable — users.

It will, he believes, will be built not on the Google-controlled HTML4 web nor within Apple-controlled apps, but using HTML5, which allows for differentiated, engaged experiences without the downsides of the app store.

“The basic success factors going forward are going to be exactly opposite of those we’ve had in recent years,” he said.

You can get his entire presentation here.

Awesome stuff.  I’m definitely paying attention.

My friend Roger McNamee, a founding Partner and Managing Director of Elevation Partners has been getting some great press lately on his thoughts on the new music business, investing in technology, Apple, Google, Facebook and much more.  Here is the transcript of a speech he gave at NARM earlier this summer, a must read.

“Our band – Moonalice – is inventing new opportunities in music. We would like you all to join us.

I have been a working musician for more than 30 years, and a technology investor for 29 years. I have played about 1000 concerts over the past 15 years, which means I have personally experienced everything in Spinal Tap except the exploding drummers. I also spent three years helping the Grateful Dead with technology and many more advising other bands, most notably U2.

My band is called Moonalice. We play 100 shows a year in clubs and small theaters, mostly on the coasts. Moonalice was the first band broken on social networks. What broke us was 845,000 downloads – and counting – of the single “It’s 4:20 Somewhere.” We’re the band that Mooncasts every show live, via satellite to thousands of fans on iPads, cell phones, and computers. We’re the band that has a unique psychedelic poster for every show. After four years, Moonalice has 371 poster images from the likes of Stanley Mouse, Wes Wilson, and David Singer. Licensing those images will eventually a big business for us. We’re the band that offers the EP of the Month for $5. And we’re the band that uses the latest technology to radically improve both the production cost and commercial value of the content we produce. Now I’m looking for people who want get on this bandwagon with me.

The first question I hope you ask is “Why now?” The world of technology is beginning a period of disruptive change. The old guard – represented in this case by Microsoft Windows and Google search – is under assault and hundreds of billions of dollars may become available for new and better ideas. I hope that gets your attention!!!

The biggest beneficiaries of this disruption should be the people who got the short end of Google’s business model, especially creators of differentiated content. For the past twelve years the technology of the internet has been static. Every tool commoditized content by eliminating differentiation. The most successful companies monetized content created by others. Google was king.

I believe Microsoft and Google are about to get a taste of what the music industry has been dealing with for a decade. Their world is going to change and they won’t be able to stop it. Not so long ago Microsoft’s Windows monopoly gave it control of 96% of internet connected devices. Thanks to smartphones and tables – especially the iPhone and iPad — Windows’ share of internet connected devices has fallen below 50% … and it will fall much further in the years ahead.

Consumers are abandoning Windows as fast as they can. I expect businesses to follow suit.

This is a HUGE deal. Businesses whose employees use smart phones and iPads instead of PCs will save up to $1000 per employee per year in support costs.If corporations buy fewer PCs, they will save tens, if not hundreds of billions per year.

This is happening because today’s strategic applications – email, Facebook, Twitter, LinkedIn, YouTube and other internet applications – don’t need a PC . . . in fact, they are far more useful on a phone.

Microsoft has been in trouble since it first missed the web in 1994. Then it was unable to prevent Google from taking charge in 1998. When Google showed up, the World Wide Web was a wild environment. No one was in charge. The prevailing philosophy was “open source” . . . and free software.

Google had a plan for organizing the web’s information that treated every piece of information as if all were equally valuable. To create order, Google ranked every page based on how many people linked to it.

What we all missed at the time is that by treating every piece of information the same, Google enforced a standard that permitted no differentiation. Every word on every Google page is in the same typeface. No brand images appear other than Google’s. This action essentially neutered the production values of every high end content creator. The Long Tail took off and the music industry got its ass kicked.

Google captured about 80% of the index search business, which gave it a huge percentage of total web advertising. Google’s success eventually filled the web with crap, so consumers began using other products to search: Wikipedia for facts, Facebook for matters of taste, time or money, Twitter for news, Yelp for restaurants, Realtor.com for places to live, LinkedIn for jobs. Over the past three years, these alternatives have gone from 10% of search volume to about half.

As if all this competition wasn’t bad enough for Google, then along came Apple with the iPhone and App Store. Apple offers a fundamentally different vision of the internet than Google. Google is about the long tail, open source, and free, but also had to remove 64 apps from the Android app store for stealing confidential information. Apple is about trusted brands, authority, security, copyright and the like. In Apple’s world, the web is just another app; it is called Safari.

People who have iPhones and iPads do far fewer Google searches than people on PCs. The reason is that Apple has branded, trustworthy apps for everything. If they want news, Apple customers use apps from the New York Times or Wall Street Journal. If they want to know which camera to buy, they ask friends on Facebook. If they want to go to dinner, they use the Yelp app. These searches have economic value and its not going to Google, even on Android.

When Apple and the app model win, Google’s search business loses. Like Microsoft, Google has plenty of business opportunities, but the era of Google controlling all content is over. Consumers compared Google’s open source web to Apple’s app model and they overwhelmingly prefer Apple’s model. Software development and innovation has shifted from “web first” to “iPad first” . . . which is a monster long term advantage. Get this: Apple may sell nearly 100 million internet connected devices this year!

Apple’s strength can be seen best in the iPhone vs. Android competition. There are many Android vendors. Together they sell more phones than Apple does. But Apple gets around $750 wholesale for an iPhone. The other guys get between $300 and $450. This means Apple’s gross margin on the iPhone is nearly as big as its competitors’ gross revenues. Game over.

The other thing that makes Apple amazing is the iPad. No electronic product in history – not even the DVD player – can match the adoption rate of the iPad. Apple may sell another 30 million this year. At this point, the competing products have not put a dent in the iPad. Image what happens if Apple’s share of the tablet market remains closer to the iPod (at 80%) than to the iPhone (20%)?

This sounds like, “Game Over, Apple wins” . . . but it’s not . . . at least, not yet. The open source World Wide Web has finally responded to Apple. A new programming language has come to market called HTML 5. HTML is the foundation of the World Wide Web. For the past decade, HTML has been static, which allowed Google to dominate.

HTML 5 is a new generation of HTML and it changes the game fundamentally. It allows web developers replicate the iPhone experience, but with many extra bells and whistles … and no App Store. One reason HTML 5 matters is because it eliminates Adobe Flash, which has been an inadvertent barrier to creativity

Creativity enables differentiation. Differentiation can be monetized. Huge differentiation can be monetized hugely. With HTML 5, creative people can now use the entire web page as a single canvas. For the first time in a dozen years, web pages will be limited only by the creativity of the people making them. They can create experiences that will be more engaging to consumers and more profitable for advertisers than network television.

New forms of entertainment will emerge. New forms of business. Companies the size of Facebook and Google will develop in categories I can’t guess at. Companies as important as Amazon, iTunes, and Netflix will emerge to support what new content comes to market.

Whether you view Apple as friend or foe, HTML 5 offers real opportunity. Why?

Because you can deliver a better experience than an app . . . without an app. HTML 5 is cheaper to build, cheaper to support, no 30% fee . . . oh, and the apps perform better, too.

I believe Apple’s best response would be to focus on selling hardware and accept that consumers will demand products that happen to bypass the app store. Based on the argument with Amazon, I sense Apple is not ready to concede the point. That’s ironic, because the only way Apple can get hurt would be if they try to force all commerce through the App Store. The would create a real reason for customers to buy a tablet other than iPad.

Let me review my key points so far:

Google and Microsoft will remain huge, but their influence is evaporating, which means we can ignore them

Apple is winning big, which means we have to support their platforms first

For people who make content, Apple is a better monopolist to deal with than Google.

HTML 5 will give you a better product than the Apple app model at a lower cost and with more value.

Now let’s figure out what we can do together. My band Moonalice exists because T Bone Burnett wanted to produce an album of new and original hippie music in the old school San Francisco style. We put together an all-star band with in late 2006 and recorded the album. T Bone was about to win the GRAMMY for the Alison Krauss/Robert Plant album, Raising Sand, so we thought we were made.

We had a budget
We had an A-list PR guy
We had a really fine manager
We had custom label deal with a nice budget
T Bone’s innovative sound technology would make the album cutting edge

Old school music is good. Old school marketing wasn’t going to work for us. About four months before release, I reviewed the media plan with our PR guy. He said, “Sorry, man, but nobody cares.”

A few moments of somber reflection followed. Then, with great regret, I let our manager go. I let our publicist go. I let our label go. For all intents and purposes, we wrote off an album everyone was extremely proud of and which accounted for half of T. Bone’s portfolio the following year when he was nominated for Producer of the Year.

But I freed up most of our operating budget. Real money. And I focused it all on Twitter and Facebook. Our goal was to build an audience of dedicated fans around a Moonalice lifestyle. Three years later, we have 57,000 fans on Facebook and 75,000 on Twitter. We learned a great truth: as hard as it is to get people to spend money, it is much harder to persuade them to spend enough time listening to you to become a long term fan. We traded our music for their time. We discovered we could build an audience by giving away stuff that costs nothing to produce and distribute. These are serious fans who engage with us dozens and often hundreds of times a year.

The first thing we invented was the Twittercast. Before us, no one had ever done a concert over Twitter. Now we have done 103. Our marginal cost is exactly zero. Next we created Moonalice Radio, which has broadcast one song every hour on Twitter for the past two years. Then our drum tech bought a video camera and started recording the shows. Then he bought more cameras, put them on mic stands and started doing live video mixes. About a year ago, he figured out how to mooncast our concerts over the net for free.

Nearly all of our past 100 shows have been mooncast live on MoonaliceTV and then archived. Because we play mostly late shows on the west coast, only 10% of the audience watches in real time. But approximately 3,000 people watch EVERY show on a time shifted basis. Fans like the Moonalice Couch tour because they can chat, make friends, and do things that are not permitted at a live venue. They even buy Couch Tour tee shirts. And they are helping us create a new ecosystem where most of the music is free, because Moonalice art and life style products have huge economic value.

Thanks to HTML 5 and a satellite dish, Mooncasts can now be viewed on a smart phone without an app. Our video quality competes favorably with the best you have seen on an iPhone, and the technology to do all this costs the equivalent of six months of our former manager. He was a really good guy, but a satellite-based tv network is more valuable.

I want to finish up by recommending a course of action for you

Step 1: Remember that HTML 5 is just getting started, but the learning curve is less expensive and more profitable for those who commit to it from the beginning. The new business is going to emerge over a few years, not overnight

Step 2: Don’t wait for the labels to figure this out. Labels are not organized to get this right, which leaves a big hole in the new music market where labels used to be.

Step 3: Don’t wait for major artists to figure it out. The great new stuff is going to come from artists who have nothing to lose. Artists who come out of nowhere will create huge value for next to no cost.

Step 4: Make sure you are successful addressing the needs of next generation content creators … not just listeners. There are WAY more of content creators than you may realize. Thanks to Moore’s Law, Karl Marx is right at last: the means of production are in the hands of the proletariat. At the peak, there were 8 million bands registered on Myspace. They weren’t playing gigs, they were creating stuff, mostly for their own entertainment. Those people spent a lot more money creating the content they posted on Myspace than they did on recorded music. Thanks to Apple’s Garageband, the population of people capable of mixing something is now measured in tens of millions. Making these people successful is the key to creating new markets and new music products.

Step 5: Do everything in your power to encourage new product ideas and new forms of content. HTML 5 is a blank canvas and there is no telling what people will do with it. For all I know, HTML 5 may produce five or even ten amazing categories of product.

Contests, prizes and publicity will give you an opportunity to associate yourself with whoever creates the cool new stuff. If you have local stores, do local events. Think Alan Freed.

Step 6: Near term, focus your platform strategy on Apple.

Step 7: Long term, focus on HTML 5. The sooner you commit to HTML 5, the more likely you will produce something of economic value.

Step 8: Remember that HTML 5 will produce companies as important as Amazon, iTunes, and Netflix. It costs musicians practically nothing to create good digital video and fantastic audio, but they need distribution systems optimized for their content.

Step 9: Make music fun again”

And if that isn’t enough, Roger was kind enough to share with me his thoughts on investing in technology related businesses.  TechInvestingHypotheses

“There’s a set of data that shows that file sharing is actually good for artists. Not bad for artists. So maybe we shouldn’t be stopping it all the time.”

Doug Merrill–Douglas Merrill, EMI’s newly appointed president of digital

As reported earlier this week, EMI has hired Douglas Merrill from Google to head up its overall digital music group.

“I’m passionate about data,” Merrill said during a phone interview Wednesday with CNET News.com. “For example, there’s a set of data that shows that file sharing is actually good for artists. Not bad for artists. So maybe we shouldn’t be stopping it all the time. I don’t know…I am generally speaking (against suing fans). Obviously, there is piracy that is quite destructive but again I think the data shows that in some cases file sharing might be okay. What we need to do is understand when is it good, when it is not good…Suing fans doesn’t feel like a winning strategy.”

The hiring of Merrill, Googles former CIO, who has no background in music sales, represents an acknowledgment of how important digital distribution and technology is to the future of the music industry, and to EMI in particular. Merrill says he’s all about applying what he learned from Google about the Internet, digital distribution, and innovation. Expect to see EMI experimenting with different business and distribution models.

“You must do experiments and follow the data,” Merrill said. “That’s often hard because we all have intuitions. The problem is our intuitions aren’t always right and Google has shown that over and over again. We’ve had internal discussions about ‘Oh I believe the site should work this way.’ We go into the experiment and we’re wrong. And you have to be willing to say ‘I thought it was X, I was wrong. It was really Y. That has to be OK. You have to be OK failing because most of the things we try won’t work. That’s why it’s called an experiment. Those things are very deep in my soul.”

More specifically, Merrill said he would see whether a Google ad model will work for music. But he’s willing to try music subscriptions and even an ISP fee. Certainly, what came across about what strategies Merrill intends to use is that he’s not married to any one idea.

“I think there is going to be a lot of different models,” Merrill said. “Those are two (subscriptions and ISP fees) you can imagine. I’m not sure that either one of those will be the most dominant model. But they are both interesting. We should try them and see what the data says. Other options will be things like you can imagine supporting music through relevant targeted ads, the Google model. There is a dozen of other things…we should try them all. We should see what the data says and whatever it says, we should follow the data, and follow our users and let them help guide us. We should engage in a broad conversation about art.”

“I think it’s important to figure out where can record labels add value,” Merrill said. “I don’t know the answer. I think Nine Inch Nails’ experiments have been really interesting and enlightening. We need to step back and say what is the process of artist creation and helping fans find what artists create.

“Given that as a system we need to understand how record labels fit in there,” Merrill continued, “I think the Nine Inch Nails’ release of Ghosts experiment was fascinating. What a great problem to have: people are trying different things. If everyone tries the same thing you’ll never learn anything new. Instead we’re in a situation where people are trying things. How cool is that? Some are going to work. Some aren’t going to work. But we need to try them.”

It’s not often that you hear the word “data” come from the mouth of a record company executive. One thing for sure is that Merrill will either have a significant impact on the way that EMI proceeds to develop it’s overall music strategy moving forward, or he will be ejected from the Capital Records building in a few months. The clash of culture and thinking between an ex-Google exec and the traditional music industry mavens will surely be entertaining to watch and learn from.

As my friend Gerd Leonhard has said many times, “when the pain becomes great enough, the labels (if they are still in business) will have to change their path.” Apparently the pain at EMI is considerable. Lets wish Mr. Merrill the best of luck!

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.)