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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

WASHINGTON, D.C. —  The wild, wild West of Internet anarchy that was the first decade of the new century has a new sheriff.  And she paid a visit to the 10th annual Future of Music Policy Summit with a  badge bearing a 33-point strategy for restoring law and order.

The summit concluded Tuesday after three days of presentations and spirited dialogue among tech heads, policy makers, artists and recored-label executives plotting a new future for the music industry. But it was a visit by President Barack Obama’s new copyright czar, Victoria Espinel, that was the talk of the conference.

The music industry’s implosion has become a cause that even the federal government can’t ignore because the same issue – unfettered exchange of Internet files – has bled into the movie and publishing industries. Now any intellectual property that can be digitized can also be shared/stolen/cannabalized within seconds of hitting the Internet, and multibillion-dollar businesses — most of them with roots firmly planted in the pre-digital 20th Century — are crying foul.

At the Future of Music summit, Espinel waxed rhapsodic about the artistic community, echoing the Obama adminstration line that American innovation and intellectual property are key to its economic recovery.  But without directly indicting consumers, she outlined a strategy for containing file-sharing that suggested that many digital music fans will need to alter their behavior or else risk being cut off from the Internet at the very least.

Espinel noted that 95 percent of file-sharers consume music “illegally” — that is, they traffic in copyrighted music files that are readily available on the Internet. Does that mean tens of millions of Americans are technically “criminals” by federal standards? Espinel didn’t directly answer.

When questioned about the apparent disconnect between government policy and the way many American citizens behave when using their computers or cellphones, she merely insisted that there is “no inherent conflict” and that “the majority of consumers don’t want to engage in illegal content.”

She added that the administration would focus its crackdown on Web sites distributing illegal content, particularly those attempting to profit from it via advertising or subscriptions. But that’s a small percentage of the problem.

The rest of the conference took a more conciliatory approach, attempting to engage the way ordinary citizens/music consumers actually behave (regularly downloading music in their homes without checking into the nuances of copryight) and searching for ways to turn that behavior into a revenue stream that could eventually trickle down to artists.

“Everyone here is a file sharer,” said David Touve, a professor at Washington and Lee University. To restrict people from sharing files would compete against the basic design of the Internet — “and good luck with that,” he added.

“The last thing we need is more sticks” to beat down file sharers, said Eddie Schwartz, president of the Songwriters Association of Canada. “We need to find legal ways to file-share.”

The most popular trend is to insist the Internet service providers become part of the solution. A number of European countries have enlisted service providers to police their customers; those who engage in illegal file-sharing have their Internet access restricted or cut off.

“You can’t get revenue until you get the ISP’s to the table, by force if necessary,” said David Basskin, president of the Canadian Musical Reproduction Rights Association. His agitation was palpable, reflecting the attitude of many license holders and content providers tiring of seeing certain technology companies profit from music without cutting in content providers on their profits. Among the many examples derisively cited were the Google search engine that leads consumers to an illegal music file, or the Apple iPod that stores countless music files of dubious origin.

“If you are making money off artist content you have to ask yourself whether you are helping that artist pay his mortgage,” said Jesse von Doom of CASH Music, a nonprofit that creates tech tools for artists.

Steve Marks of the Recording Industry Association of America, which represents the major labels, said, “It’s not a secret that all content holders are interested in pursuing deals with ISP’s that make sense.”

That could mean the imposition of additional fees on Internet users, which opens up another set of issues: Who would collect the fees and who would distribute them not only to license-holders but to the artists themselves — often the bottom of any revenue food chain? Those questions are crucial, said Jim Griffin, a longtime tech consultant.

“Until we know how to properly distribute the money, is it even worth doing?” he asked.

These reasonable doubts clamored for space with anxious content creators and license holders who want to see revenue streams open up as soon as possible. No one questioned that music still has considerable value — more people are listening to more music than at any time in history. But how to turn that stream into a river of green for artists remains unresolved.

Wading into the middle of this decade-long debate is Victoria Espinel, copyright czar. Though she wields considerable power, she has a daunting job ahead of her reconciling a legion of business interests all looking for a stake in the new digital money pool and a nation of consumers who are used to getting their music for free.

Espinel was appointed by Obama earlier this year as the nation’s first-ever U.S. intellectual property enforcement coordinator.  A few months ago she introduced a strategy for dealing with Internet file-sharing  (or “smash and grab” as it was described by Vice President Joe Biden), which has been linked to a 50 percent decline in music-industry revenue over the last decade.

From Greg Kot – Chicago Tribune

Photo credit: http://bit.ly/18lnuFf

Photo credit: http://bit.ly/18lnuFf

Former Pink Floyd and T Rex manager Peter Jenner, now emeritus president of the International Music Managers’ Forum, talks online music, copyright and the future of the music industry.  It is very satisfying to see the ideas expressed in our Future of Music book becoming mainstream concepts in the industry.

>As physical sales decrease, how should the music industry be monetising its content?

Record companies believe that music is about selling bits of stuff to people in a retail environment. They always looked on the internet as a potentially huge retail environment and it’s actually a service environment. The record companies should be working out what services they can provide.

They should also be talking to ISPs instead of fighting them. The key thing is people are going to want music as part of what they get on their digital connections. The ISPs are going to have to invest more and more to develop better services, and in that context they will have to start charging for content, whether they charge for content directly with a meter or whether they bundle it or use advertising or sponsorship.

Another way to go would be to look at statutory licensing for different types of usage. It would be incredibly bureaucratic but it would be one way. So let people access whatever music they like and pay a set rate. The same with commercial businesses.

>Do record labels still have a role to play in the music industry?

Yes absolutely, particularly for investment and promotion and marketing. And they could become very good at licensing, at helping artists to develop their website. But they have to get away from this idea of control and instead become partners of the artists. Many of the record and film companies are very enamoured with the idea of control because it’s how their model has always worked, with in-house lawyers and copyright advisors. There is huge inertia in the way the industry licenses and administers content. We have to fight this.

>How have the sources of revenue in the music industry changed?

Until the CD came along I think artists overall got a better deal and more control and a better bite of the money. After they invented the CD the record companies increasingly fought back, decreasing artists’ revenue share and increasing their control. That’s just got worse with the advent of the internet because there is less money available. You used to be able to sell 5,000 albums, now that is incredibly hard so the industry has to look at digital options, but a lot of web services don’t pay properly. Google will pay you a share of the revenue you generate for them, but if you don’t make them money you don’t get money.

>Has social media changed the way bands are marketed and content is discovered?

Yes, but it has huge potential to do more. At the moment, because it isn’t licensable, it isn’t doing the job that it ought to be doing. But what it can do is alter the value chain. With less money available in the music business we have to instead look at what we do have. And what we have is lots of data on music fans. Marketing has always traditionally been more expensive than recording but we can cut these costs by using social sites and viral links. And maybe we can cut out advertising costs because acts can just directly email their fans.

>Can music-streaming services support the music industry?

They are good, but they don’t have all the music. I manage Billy Bragg and there are a hundred versions of his tracks online. I can get a recorded version but a lot of the times on these services there are no live versions. And globally there are billions of tracks so the problem remains of how people find a particular piece of music or if they like something how they find similar bands. People aren’t just looking to buy the music, they are looking to buy a service which is personal and recommends music and enables discovery and which saves them time. I’m not sure anyone is really offering this yet.

>Is there a future for physical music?

Yes, but its role in the industry will become less. Probably physical music, like CDs, will become very expensive and luxurious and they will be like hardback coffee table books and people will only buy maybe one or two a year. The music industry’s job is to make as much money as it can from a track or album, and that includes physical sales alongside digital sales, access services and anything else they can come up with.

>What do you think the music industry will look like in 10 years?

Probably very similar. But what we might look on as broadcasting income will hugely increase. Most revenues will come from users paying to access the content. You won’t notice that you are paying for recorded music so much.

I think the artists ought to be much more powerful, whether they will get it together is another matter. There will be record labels, but whether they will be labels that own content or just be agents I don’t know. They might be more like the Performing Rights Society and less like Universal.

Read the whole interview here from Sara Vizard at Strategy Eye

Artists will kick off about digital rights

Several artists have already clashed with their labels over digital royalties – for example the Allman Brothers Band suing UMG – but expect more rumbles in 2009. Not least because artists are potentially getting stiffed when it comes to the raft of new deals being signed by labels for unlimited, subscription-based or ad-supported music services. Expect managers to be pressing for fairer remuneration from these deals, with new bodies like the UK based Featured Artists Coalition to the fore as well.

More unlimited music services

Comes with Music (UK) and TDC Play (DK) were just the start. There’ll be many more examples of unlimited music being bundled with other products or services around the world in 2009. The unique aspect of these new models is that consumers appear to get the music for free; and ISPs, handset companies and brands are all taking an interest. We also expect to see DRM-free files becoming a selling point for these services if they can persuade the major labels that they won’t spur piracy.

ISPs under more pressure

One of the reasons ISPs are so keen to launch branded legal music services is the pressure they’re facing from the music industry to do more to combat file-sharing. And by that, we mean more than send out ‘educational’ letters scolding persistent file-sharers for their naughtiness. We predict more filtering at ISP level, if they can find filtering technologies that actually work. Meanwhile, we wonder if the recent Danish lawsuit in which an ISP was ordered to block access to The Pirate Bay will set a precedent for other markets.

The industry will wake up to web-based piracy

We wrote about the growth of Rapidshare and other online locker services last issue (27th Nov 2008), as well as the ecosystem of blogs showing people where to find copyrighted music on them. Web-based piracy – including browser plug-ins as well as these locker sites – will be much more on the music industry’s radar in 2009, even though industry bodies may prefer to keep focusing on P2P and BitTorrent in their public utterances on The Fight Against Piracy. There could be more GEMA-style legal action against the Rapidshares of the world, though.

The Torrent tipping point

BitTorrent is still a bit geeky, even though plenty of consumers are using the technology to download free music, films and TV shows. But in 2009, there’s something of a perfect storm building, with more users sitting on super-fast broadband connections, and more inventive ways of helping them find copyrighted content. If you think BitTorrenting is about downloading individual tracks or albums, think again: nowadays, people are downloading artists’ entire discographies at the click of a button.

Streaming and downloading to converge

You’ll hear a lot of blather in 2009 about The Cloud – the idea of accessing stuff stored online from any device you like. The impact on music next year will be to accelerate the blurring of the boundaries between streaming and downloading music. For example, iTunes might evolve into a cloud-based service, allowing people to stream their iTunes library to whatever device they’re using at the time, over whatever network it’s connected to. Third-party software already allows this, of course. The point is that consumers increasingly don’t care whether their music is stored locally or remotely, as long as they can listen to it right now.

Comes With Music to grow slowly

Nokia’s unlimited music scheme won’t definitively succeed or fail in 2009, but we will get a good sense of just how sustainable it is as a business model. It’s no secret that Comes With Music will roll out on more sophisticated handsets than the launch 5310 XpressMusic, and likely with at least one large mobile operator. However, we sense that Nokia may push the scheme more in emerging markets than in, say, the US. Watch for developments in Latin America in particular. We also have a mischievous thought that Nokia may ‘sign’ its first band in 2009, becoming a pseudo-label.

More DIY social media campaigns from artists

We expect artists and their managers to take social media by the scruff of the neck and dream up some really good online viral campaigns in 2009, alongside the efforts of their labels. Artists will be using the web in innovative ways because they’ve grown up with it, not because they’re following some kind of Web 2.0 marketing template. Although there’ll be plenty of people following Web 2.0 marketing templates too, in an effort to copy the (inevitably) more successful grass-roots stuff.

More high-end physical product

People don’t want to buy $15 CDs, but they are happy to buy an $80 luxury box-set collectible… things. Radiohead and NIN showed that, while US country-pop singer Taylor Swift has recently been doing great business with her own $60 luxury box set (sold off her own widget, incidentally). Labels will spend 2009 trying to shore up their physical revenues with more imaginative collections, whether it’s five albums bundled together, or an entire artist’s discography in a Blu-ray box-set.

Microsoft will launch a ZunePhone

It may or may not have the Zune brand attached, but we’re confident that Microsoft will get into the mobile handset game early in the year, likely at CES (January) or Mobile World Congress (February). The rumours are pointing to a consumer-focused handset with an emphasis on music and messaging. We also predict hundreds of ill-advised claims that whatever comes out is an iPhone-killer.

More mini-albums and live EPs

The album isn’t quite dead yet – indeed, Amazon is actively promoting the idea of buying whole albums from its MP3 store. But we predict more mini-albums following in the footsteps of Coldplay’s Prospekt’s March, filling the gaps between major releases. Although whether that’s a positive trend or an example of fleecing fans for songs not good enough for the album is a matter of some debate. Meanwhile, intense competition among digital stores will see more exclusive live EPs and remix packages, thrown together to get homepage promotion.

Subscription services are dead

At least in the form we’ve understood up until now. The only way for services like Napster and Rhapsody to survive is by being bundled into the price of other products – home streaming systems, maybe, or mobile handsets, or computers. In short, they’ll shift to being unlimited music services akin to Comes With Music or TDC Play, as part of a bigger offering. The only company that can make subscription work in 2009, we predict, is Apple. If it chooses to.

Streaming startups thin out

Can you really turn a profit from ad-supported streaming music? If you can, why are so many of the popular sites up for sale? 2009 could be a harsh year for the iLikes and Imeems of the web, despite their millions of VC dollars, millions of users, and seemingly firm partnerships with major labels. We see many of these services selling up to larger companies who can afford the royalty payments, in the face of competition from CBS-backed Last.fm and Murdoch-backed MySpace Music.

The next Radiohead won’t be Radiohead

But at least one big-name artist will do something innovative in the digital space, probably after leaving a major label at the end of their contract. But it won’t be the same honesty-box offering as with Radiohead’s In Rainbows. We’ll be keeping an eye on firms like Topspin Media or Mubito and the artists they’re working with to try and figure out what the innovation will be.

The next Rick Astley won’t be Rick Astley

There’ll be another forgotten artist revitalized by The Power Of Viral Internet in 2009, following the rickrolling craze this year that led to Rick Astley being named best artist ever at the MTV Europe Awards. Who it’ll be is another question. Our suggestions include Tiffany, Jive Bunny, Ted Nugent and Menswear. Or all of the above.

Labels will intensify their Direct to Consumer efforts

The majors have been notably unsuccessful in selling digital music direct to consumers in the past, but EMI’s launch of a D2C website this month show that they haven’t given up on building direct relationships with fans in this way. However, the interesting aspect here isn’t huge all-encompassing portals selling a label’s entire catalogue, but more the slicing and dicing of this catalogue and monetizing it better.

The growth of emerging markets

We’ve already mentioned how Nokia may target emerging markets next year; but with the recession biting in the west in 2009 we expect to see stronger performance coming from Latin America; the BRIC countries (it’s an acronym you’ll need to know in 09) and Africa where mobile is seeing huge growth.

From Music Ally, a great digital music information service.

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

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

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

Number one – lets see if this actually happens, and

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

Read the whole Wall Street Journal article here.

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

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

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

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

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

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

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

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

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

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

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

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

Read more from Portfolio here.

The 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.)