The music industry decision makers have made all the responses of any complacent, moribund industry that mistakenly assumes they are immune. ‘Decision makers’ include record company senior executives, artist ‘managers, rights societies and music publishers.
In my positions at internet, interactive TV and mobile companies between 1997 and 2005, they were the only market sector who weren’t transparent and collaborative about their revenue models and adapting them to the new business and consumer interfaces being created. They were also the only sector who tried to tell us how to run our business, using threats when they didn’t get their way. It never seemed to dawn on them that the businesses they were dealing with were much bigger financially and saw music as just one of many opportunities, one which could and would be quickly dropped if it proved too irksome.
P2P downloading is only one factor in the industry’s problems. In addition, radio in the US and commercial radio in the UK has ceased to be a vital source of discovering new music.
It’s not a hermetic world of music where competition is just between musicians for the customer’s money; it’s between music and video games and DVDs. Frankly, ‘Grand Theft Auto’ is better value for money than most new mainstream music releases—and you get loads of music in it as well!
The music industry seems to ignore what the games industry knew a long time ago: their customer has a limited amount of annual discretionary income, which will be spent on music, films, games, DVDs and going out, so to get some of it you need to give real value for money. What that value is and how it can be applied is multiple and variable.
Another issue is unrealistic licensing terms for music services. Labels seem to think new services are cash cows to prop up their existing business, without recognising there are a limited number of failures before venture capital avoids the music business. Licensing is antiquated, too complex and too expensive for how the internet works, how customers use it, and the creative solutions tech entrepreneurs create. It’s especially too expensive. Vested interests in each part of the licensing arena seem determined to protect their fiefdom at the price of ruination rather than creative engagement.
The principle of collective licensing is good, because it doesn’t ask customers to change their habits, just pay. It also sweeps into the payment net everything being shared, regardless of whether it is an official album release, demo, historic bootleg or live recording.
There are two routes with a collective licence: either it is a discretionary fee paid for by those who download music; or it is a blanket licence paid for by everyone.
An elective model is a form of subscription and implies it is a premium fee. So far, subscription services have had a hard time achieving scale and to date threat of litigation has not proven a successful marketing strategy in migrating potential paying customers from P2P. In this scenario an ISP subscriber would have to agree that if he doesn’t subscribe to the ‘music fee’ he also does not use P2P networks. If he then uses P2P, he would suffer a penalty. To me, an elective system can only be effective coupled with accurate, granular file tracking, so that offenders can be caught and punished, whether through fines, bandwidth throttling or some other means.
A mandatory licence fee would have to be extremely cheap and probably positioned as a ‘culture fee’. Although I favour a mandatory licence fee because it’s far easier to administer and creates much higher revenue than an elective fee, it has a number of problems. Someone who uses retail e-shops (iTunes, et al) and not P2P sharing is paying twice to buy music. Only about 20% of internet users download music; to tax 80% of your subscribers for no benefit the fee has to be so low that while they might grumble they wouldn’t revolt. Music is only the first tier—soon film companies, news networks and book publishers will be demanding their slice of the revenue to compensate for their various media being taken, and the fee will keep increasing to compensate. It rapidly reaches an unacceptable price point.
I don’t think the music business needs government mandate. It needs businessmen with will, persistence and stamina. It needs to create a robust, scalable system that can accurately recognise and track media files across the internet, then log the data for payment. It needs to integrate into ISP networks without affecting their bandwidth or traffic flow. It needs to work within various national data protection laws. Rights societies are already set up to make incremental payments—we can negotiate an agreement to supply them with the reporting data for payment to the copyright holders.
I think that Spotify and Last.fm demonstrate the potential to create revenue by being 21st century radio, but so far they’re both making a hash of it. In both of these I think advertising can play a much bigger financial role than it is currently, but you have to provide an engaging experience within which it can function. I would love to have podcasts on Spotify that essentially fulfil the role radio used to have—DJs who can be knowledgeable and interesting and play both the music I’m currently loving and introduce me to new music. I mean exactly like radio, with, especially, rotation. It often takes a few listens to ‘get’ a new song and radio can let that happen organically because a lot of the time it’s in the background, whereas when friends recommend new music it’s heard with concentration and judgments can be made very quickly on the first listen. Advertising is part of that radio process. Surely this is an opportunity for Puma or Urban Outfitters or L’Oreal to own. And if I could have, say, NPR radio or London radio or NYC radio, with news and events from that locale woven in, that would be even better. Before radio consolidation, part of the excitement of visiting NY or LA or London was hearing the DJ talking about clubs or playing megamixes or anything else that reflected the local culture. I guess you have to get out of your boardroom/limo/private club existence to see the obvious.
The pain with which the ability to sign up to pan-European rights collection hasn’t happened is indicative of how difficult it will be to implement a global collecting and distribution system. You have up to ten or eleven different parties involved, each reluctant or unwilling to concede any power.
Record labels may not want to include unreleased demos or audience live recordings but managers and artists may differ. Who owns that live recording anyway? The label? The artist? The guy in the audience who made it? And what’s it worth? Is that amount the one in the country from where it was uploaded or the one in the country where it was downloaded?
When Dee Hock invented Visa he created two companies—one to run the system and one in which the rights holders could hash out the remuneration system. He knew they would take years to achieve an acceptable conclusion; in the meantime all the accruing money was placed in escrow. I suspect a similar system will have to be instituted while managers, labels, publishers, ISPs, rights societies and other parties negotiate.
In the future, I think that copyright licensing will be simplified. Fees and retail pricing will fall to reflect that it is a volume commodity business and not an ‘elite’ premium business. (Someone will finally accept that 10 million sales at 10 cents is a lot more than 500,000 at $10.) Music will reside mostly in the Cloud, but there will be a very profitable business in high-end limited edition physical packages.
JOHN INGHAM is head of music and content at ESP, a technology company creating and building interactive entertainment channels (its first format is www.1click2fame.com), but he has been involved in interactive media since 1985. He has worked in the music, film and advertising industries in Tokyo, Los Angeles and London, first working on internet content in 1994 while working with Peter Gabriel.
QUOTE BOX
There are two routes with a collective licence: either it is a discretionary fee paid for by those who download music; or it is a blanket licence paid for by everyone.