Nobody is probably going to like everything I say here today; maybe anything!

I have been and remain totally conflicted as to how to deal with the mounting digital business crisis. The rights of the services, the rights of the copyright holders and the rights of the public seem to be in an escalating conflict. Each side claims the other is disingenuous, unreasonable andor greedy. There’s seems to be a total disturbance in the Force, we can’t just seem to strike a reasonable balance. We are witnessing a very real death spiral.

Since the late ’90’s, I have tried to believe in the free market solution to the launch of digital enterprises. New ventures would be able to sit down with the relevant rightsholders and stakeholders and strike a sustainable business arrangement, one that allows that entity to come to market with the promise of success. This is proving to be more and more difficult to believe in.

Many legitimate offerings have not been able to secure terms that support longevity, let alone short-term survival. Even Spotify, the current industry darling, is beset with rumors of financial doom. “Do the math!” is the war cry. “The CPM’s are not achievable”, another oft-heard refrain. So if Spotify isn’t the answer, what is?

Last year, we thought it was Nokia’s ‘Comes With Music’, before that we held out hope that iMeem, Last FM and iLike were going to provide the solution with robust ad-supported music buffets. It hasn’t worked out so far.

Having been on the label side, I understand the desire AND need to extract value from assets. In my current ongoing work with start-ups, I appreciate their passionate desire to do something innovative with music. These two goals shouldn’t be at odds with each other, and yet they are. The ‘asks’ by the rightsholders are frequently substantial, the expectations from the start-ups are often unrealistic. Neither side is really listening to each other, they are each focused on their own immediate concerns. Understandable, but not very productive.

Would compulsory license constructs solve the problem? Does the ISP-based access fee fix things? Do transparent revenue sharing models offer hope?

The only way we’re going to find out is experiment with all of them. At a Grammy-sponsored Tech Summit two years ago at Skywalker Ranch, it was proposed that the labels, publishers and PRO’s support an experimental license. This would have allowed nascent entrepreneurs the opportunity to prove their model without writing “the big check”. The concept was to incubate new models & platforms, let them get some traction and then enter into meaningful negotiations with the appropriate parties. At the time, the idea was rejected. I humbly submit that, based on the increasing revenue declines suffered by the music industry, it’s now time to revisit the proposal.

As I’ve stated many times, here and in other forums, I believe the future of music is service-based, not product based. Ubiquitous access with robust curation obviates the need for ownership. But this is truly a bright future, one where everyone experiences the music they love while artists, composers and rightsholders receive a just return on the labors. Is this a bit optimistic? Yes, and why not?

We need to find the balance quickly, the alternative isn’t pretty.

What do you think is the answer?


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  1. Ted, great article.
    IMHO, the balance artists seek will be found by “unplugging” from most of the current retail models(ITunes, Amazon, Spotify) and moving towards a revenue model that will incorporate something very basic – the 80/20 rule. I believe the “super fans” in that 20% will be the ones supporting artists in the future. Artists will know every single one of them intimately and will have constant and regular dialogue with them. Artists will have to provide more access and more tangible things, but these “super fans” will pay for it. In the old days if a “casual fan” wanted the single they had to buy the whole album. Now the casual fan can get the single for free and see the artist as a disposable commodity. Why? Because they are not FANS of the artist – they just like the single. The “super fan” will still buy the whole album. Why? Because they love the artist and will buy pretty much anything they put out. Radiohead anyone?
    In today’s model, the artist rewards both the casual fan and the super fan equally. That is a problem. The new model will be to create a two-tiered retail approach. Will you still have to work with Apple? Sure, at least for the next few years. But my advice for any established artist with an established fan base would be to make sure you know every single one of your customers by name(or email). Then you need to start a dialogue with them and reward them for buying your art. Quit focusing on the masses and start paying attention to the actual people who support you.
    The hard truth is this: Between the Internet, Cable TV, Gaming and other distractions of life, music is just not as popular as it used to be. Now even the good bands have to fight harder for people’s attention. The casual fan did provide a nice revenue stream for a long time. Those days are gone. The goal now will be to harness and monetize the power of your “super fans” and work on converting all of the casual fans as fast as you can. The best way to do that? WRITE GOOD MUSIC!

  2. I think the answer is that in many cases almost all the middle parties such as labels, actually dont have a place between the artist and the fan any more. It’s over. The labels trying to work out how to still be labels just demonstrates ongoing oblivion to the reality that they’re walking dead. Like the protagonist in the Sixth Sense. Once they realise this, they’ll be much happier, they’ll move on to becoming something else entirely. Probably being ISPs, or Cisco, or some other such part of the infrastructure where they can control the game the way they used to but from a seemingly removed and more invisible place in the chain. The deals between the likes of Spotify and the majors is again, part of this oblivion. Spotify thinks they need the majors because they are the rights holders (licensed, anyway in the short term), but more and more so the only important content providers are the artists themselves and if your not facilitating a direct artist to fan connection, then you are in the way. Spotify is a fantastic product, but they unfortunately havent seen the dead people.

  3. I totally agree with Bopstar.
    The 20th century model of music is built entirely on the distribution of a scarce commoditity. That commodity is now ubiquitously abundant in almost every way. There are many more competing artists in a myriad of genres and the entire music industry is also competing against an entire world of entertainment that is broader by orders of magnitude. To top it all off, instant global distribution is now at the fingertips of even a 5 year old from the comfort of their bedroom.
    The opening paragraph is actually an excellant demonstration of exactly what is going wrong with all of this. The central impasse in this confflict is that the middle men just cannot accept the fact that they have become utterly redundant.
    The very fact that you can even present the situation as a conflict between the businesses (services/rights holders) and their customers shows that you’ve forgotten one of the fundamental axioms of customer service…
    The customer is always right.
    As soon as you start preaching to customers about your right to their money you have totally lost the plot from a business perspective.

  4. Sam,
    Please elaborate. Are you saying that a vendor, a service in this case, has no right to ask to be compensated by a customer for the use/enjoyment of that service?
    If so, I’m not clear what you consider the plot to be.

  5. Ted – fantastic article!
    I also agree that the music business will be a service-based industry, at least for those who truly realize it’s future.
    I believe that every band/artist/songwriter should receive payment for their work/art. We at SongClash.com provide the band/artist/songwriters with the 80/20 model everytime someone buys their work. The artist should be in charge of how they use their work to be utilized towards their own personal goals of their career.
    Creating a place where the artist has the benefit to provide their work to many is our job as an entity that wants to support the music business.
    The compulsory license constructs does not provide a solution without all the amendments necessary to protect the songwriters/composers against the GDA and it’s transparent service, operational fees and yearly meetings where they pass on the expense to the licensees.
    The ISP-based access fee is yet to be tested, but there will be a cost and the need to, once agin, have a representative board that is in charge of protecting the rights of the artists.
    The transparent revenue sharing models, not transparent at SongClash.com, seem to be the best alternative at this time. I do, however, agree that the artist music will eventually become a very useful service. A service-based music business seems logical because it serves the artist (exposure, just payments) and the music fans (listen to what they want when they want and how they want) once they are served with this model.
    Juan Carlos Cruz
    “Bring the music…”

  6. Ted,
    What I am saying is that the consumer is the one who decides the value of a service. A product is worth what the market will bear, and no more.
    I think the part that makes this so difficult to swallow for the existing industry is that music distribution went from being difficult and expensive (and therefore, of value) to being utterly trivial and essentially free in an incredibly short amount of time.
    So, putting distribution aside, how can people justify the notion that the music itself is worth nothing? Let’s look into that. The way music has been sold and presented in the past has been based entirely on charging for it’s distribution. There have always been many forms of the music that were free or feel like free, right from the very beginning such as radio, television, and various kinds of music played in public places either recorded or live.
    The music industry has been giving it away for free right from the start in order to penetrate the pop culture and draw in paying customers. Only after hooking people in with the various forms of free access did they monetize the situation by getting people to pay for a physical copy.
    People feel like music should be free because THAT IS WHAT THE INDUSTRY HAS BEEN TELLING THEM SINCE THE VERY BEGINNING! The industry, conciously or not, has always implied that music is “cultural property” and that when you buy an album you are merely paying for a physical representation of it, not for the music itself.
    The one and only thing that has really fundamentally changed is that distribution is now completely free and uncontrollable. Consumers have NOT sudenly all “gone bad” and decided to flip the bird at an industry they previously loved.
    Now that they can’t use distribution to control their product anymore, the industry thinks they can just wave their copyright notices under everyones nose and expect to instantly change the fundamentals of a social contract that has been deeply embedded into the global music culture since the recording business began.
    Really, nothing is new. It’s the same as it always was. Hook them in with free, and then find a way to monetise it. All that has changed is that you can’t monetise by controlling distribution of data anymore. The CD is now merchandise, end of story.
    I will write more soon detailing how i think things will work going forward.

  7. I disagree to an extent with Sam’s point on “People feel like music should be free because…” – that is a hyperbole.
    Neither I or any of the people I grew up with, before the Napster Major Label blow, felt like music was free. Radio was used for promotional purposes. You get to hear it on the radio, you like the song and artist and people felt like they were a part of it. Their work was available for purchase and we would gladly buy it because we didn’t have anything else in place.
    I personally didn’t feel that music was supposed to be free. I bought pleanty of albums, merch, etc. because I wanted to be a part of the band – to relate with the trend.
    What we did realize was that when we would fork-up the $14 – $18 purchase for the albums, we would buy it just to get the one or two songs we really liked about the artist. Dubbed the songs into a tape where we dubbed other songs through our stereo units from other band records and make our playlists.
    Digital era came along and made that happened. Now the business model of selling the whole album gets crushed and we have the ability to get the songs we like without having to pay for the whole album. Made tons of sense, financially speaking. What’s wrong with that?
    New technology invites new ways of doing things; good or bad. The bad part of the digital world is the illegal P2P, CD burning and downloading.
    This is where we are at now…a conundrum of innovative ideas on how to manage it. Those who have lost control call it a PROBLEM. Those who have gain control call it a SOLUTION. Furthermore, as the new trend continues to expand, music will become a service-based industry.

    Unlike China, who has companies such as Cisco designing routers to censor information flow, we are not able to have much control over Internet behavior. It is the public’s behavior that needs to be understood, regardless of what anybody thinks about their rights. The public has choices for how to consume their music and they, like a river, will follow the path of least resistance. Recently, after upgrading to iTunes 9, my favorite Internet radio stations no longer appeared, so I turned to “The Open Music Player,” – http://www.getsongbird.com – Songbird.
    People will behave in ways that are easier for them and the Music Industry must learn to give fans what they want, when they want it and how they want it. Only by delivering that kind of service, will customers perceive “value” which they will pay for, whether it is with money or their attention, e.g. advertising.
    Here at Loud Feed – http://loudfeed.com – we offer white label technology solutions for Music Labels to control their content under their own brand and create feeds into dozens of social networking and blogging platforms. Companies like – http://boxee.tv. – Boxee are disintermediating gatekeepers such as Comcast and Time Warner in the cable channels space, making it possible for anyone to create their own channels and for consumers to filter what they want, when they want it. Boxee is also providing audio channels and contenders in the music space from Pandora to LP33 (actually video) are creating their own channels. Consumers are using their smart phones to connect to their car radios and listen to Internet Radio on the road.
    The Big Question is: Will Music Labels use tools like Loud Feed to control their content and their channels? If they can manage this new approach to their business they will be able to position themselves higher up in the value chain. Are Music Labels finally realizing that reproducing recordings used to provide value, but no longer does? The technology companies are breaking new ground in developing ways to create value for the consumer. To the extent that Music Labels have clung to old business models, they have come into conflict with technology companies. I have heard numerous technology companies argue that innovation is too slow, when you have to negotiate with someone who cannot envision a new and better way of doing things. Thus, technology companies often opt to just pay the legal fees and lawsuits in order to keep their first mover advantage, rather than be slowed down. Music Labels complain that technology companies are making profits off of the sweat of artists and labels without compensating them properly.
    If Music Labels learn to use the new tools available to build their own channels, then the argument as to whether they are being compensating fairly by MySpace or other Internet Music ventures becomes a moot point. Music Labels now have the option to build artist to fan direct relationships through channels that the Music Labels can create. If they are able to do this then they will position themselves higher up in the value chain. To the extent they fail to do this themselves, then technology companies and their business development people will create and own that position on the value chain, earning them the financial rewards they will reap.

  9. Music labels have lost track of their primary business purpose, which is to produce music. The new technology can redefine distribution and promotion, but the primary function of scouting, nurturing and presenting talent needs to be the focus. It’s a wild west out there, artists left to defend themselves, trying to get financing to do their work, building sweat equity and little else. It is time for labels, new or old, to invest in building their catalog (aka content). That means signing bands, signing A&R and promotion people, and focusing on the music. Create, facilitate talent, make it easy for the true musicians to do their thing. That’s your core product! The business has changed, but at this point no one who is paying attention can say that we don’t have a clue anymore about what the new game is about. As Ron (and others) point out, there are models for redefining the music label and the industry as a whole. All that is needed now is investment, big time, in music. Go take out a credit and produce 100 records, flood the ‘Net with your music, partner with the many services, support new media and let fans decide what they like. Then make some more records, get your bands in front of the public, via video, vblogs, etc. Build big and mighty companies that are about music. Music is America’s calling card in the world, one of our biggest industries. Some things have not changed: music is as important to people as ever.

  10. Ted Cohen suggested “meaningful negotiations.” From my outsider viewpoint, I’m not sure the music labels know anything about meaningful negotiations. Meaningful negotiations imply that the parties have alternatives; negotiations in the music business have seemed to boil down to, “Give me what I demand, do without my content, or I’ll send the cavalry to destroy your business on copyright infringement grounds.” That’s not a negotiation. (It may reflect the history of the business — see the book “Hit Men.”. :-) )
    Even if the labels wanted to negotiate meaningfully, they are pinned down by the music publishers. The publishers have NEVER had to deal directly with consumers — their business model really is, meet my demands or get sued, and then they collect the money. From the publishers’ point of view, creating a system which is appealing to paying customers is someone else’s problem.
    Too many of the rights holders have been waiting for a decade for the U.S. Cavalry to come riding over the hill and put an end to “petty”, home-based copyright infringement, so they can get their demands met. It isn’t going to happen, because copyright is a business regulation. Copyright law is not accepted by the public as governing its behavior, and it breaks badly when it is applied to the general public — it produces grossly disproportionate punishments, and it cannot scale to the level of infringement while protecting civil rights of the accused.
    Two stories struck me about the chaos from this week: (1) ASCAP and BMI want “public performance” money from Apple for 30-second samples, and for net-delivered TV and movies. Apple is supposed to be one of the good guys, the #1 music retailer. Ten years into the digital music era and we’re still not clear on the retailers’ obligations? (2) Lily Allen twitters that she gets no money from Spotify. Ms. Allen took a stand against file sharing this week, and Spotify is touted as one of the great hopes for turning back file sharing. But if Spotify produces no meaningful money for the artist, what is the point?
    The music business needs to read and understand the Clay Shirky essay from earlier this year: “Newspapers and Thinking The Unthinkable.” This is a revolution, and revolutions tend to destroy institutions, and no one knows what will grow to replace them.
    (I’m just an outsider who throws rocks, thank you for your time.)

  11. One thing is for certain, what people think will happen is not what will actually happen. I think Ted and everyone else on the music/software as a service bandwagon are going in a direction that will not save the industry. It will produce some results, but making better products is still a viable option.
    The music industry has not adapted to the digital revolution and needs to concentrate and invest more in the opportunities.
    The future is as likely to be driven by a British company as it is by an American or Japanese one, and given the track record of the global corporations, the next big thing is more likely to come out of a small company.
    It is time to start a fresh and develop new business processes and new products designed from the ground up for digital distribution. I’ve trying for years to get support for a new file format for music. Is anybody interested?

  12. Compulsory licensing was the answer back when the original Napster launched but greed and short-sightedness trumped logic then and have gone on to bring the industry down. Now it’s too late. Free is here to stay. The music business is, as you so accurately point out, Ted, in a death spiral.
    The industry grayhairs have fond memories of the glory days when good music (and plenty of crap as well) found an honest audience. Those born after 1985 will have to take their word for it that there was once a time when teenagers waited for a label-mandated release date and then actually paid for the product.

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