This is a simplistic description of how I see the basic situation:
The (UK) Government wants urgent action on Next Generation Access, to improve broadband coverage and capacity as a key to economic recovery and future growth.
The Government also sees the content industries as key players in recovery and future growth for employment and financial reasons. The creative industries are a key part of the economy, which survived and flourished in the last 30 years, both economically and in terms of UK Plc’s image.
The problems for the DSPs*: *data service providers, aka ISPs or internet service providers
In order to justify the extra investment they need to see potential growth of revenue to give an adequate return on investment, and realistic potential future growth. This requires a user experience which provides additional benefits to justify higher fees in the domestic/personal market.
At the moment competition in the DSP market is focusing on price differentials for a simple product which is providing a ‘dumb pipe’ through which content flows, but which has little to do with the service provider’s proposition.
In fact the consumer is buying the package because of the content that is either rather chaotic and ‘free’ or else based on granular models that are expensive both in money and attention for the user.
In this context, ‘free’ content has become the norm and there is a resistance to any granular paid model, especially when the service linked to those models are more limited in scope and restricted in functionality compared with the ‘free’ alternative.
All attempts by DSPs to gain content to use legally has been seen by the music business as a threat to traditional business models and the enforcement of physical copyright laws and structures has made the provision of legal content a total nightmare and not worth the bother when the consumer seems happy with the ‘free’ offers.
The problem for the DSPs is to differentiate their offer, and as the marginal cost of an additional customer is virtually zero the price is being constantly forced downwards, as price is the only way to compete for access to a ‘dumb pipe’. The costs of customer acquisition and retention are however huge in this context and have become a major proportion of the DSPs total running costs.
If the predictions are true that calls and data charges will become virtually zero within the next ten years, and that the revenues of the DSPs will come from the provision of content, the problems of content distribution, and charging for it, is as relevant to the DSPs business as it is to the content industries.
The problems for the Recorded Music Business:
Despite any smug press releases from the BPI, the fact is the UK industry is imploding/falling off a cliff/stuck in a vicious downward circle. Sales are declining, prices are being slashed, margins are suffering, so investment is being cut, so the money available for A&R and marketing is slashed, so interest in music declines, so retail outlets shut, so sales decline etc. The financial position is grim and the industry has to either completely rebuild its business models or it has to accept it is just a minor branch of show biz and/or a little boutique business. There is a desperate need for new revenue streams.
Digitisation of music has led to a situation where anyone can make an exact copy of a recording with little if any loss of quality, and that copy can be distributed with great ease directly through p2p services, through home burn copies, memory sticks, swapped hard drives, bluetooth copies etc.
It is arguable that the prime requirement for the music fan is not ownership of recordings, but rather access to all the music – ownership will survive, but not as the only way for those who want access to the music that they want at the time and place that they want.
One of the things that the industry wants is an extension of copyright so that they can maintain their monopoly rights in the classic pop repertoire for a little longer, thereby helping the valuation of their copyright assets.
Government wants vigorous improvement in the digital infrastructure of the UK, especially now, in response to the economic collapse. It is seen as vital for the rebuilding of a British economy that is based on creating, building and doing things rather than just playing with money.
It also sees that the ‘creative economy’ is one of the few consistently successful spheres of UK economic activity. This sector is built on IPR, and investment in the sector is also dependant on IPR and efficient and effective administration of those rights in a manner that is socially respected and accepted.
The development of ‘free’ content on the web, with its accompanying army of ‘Freetards’ who maintain that because it is on the web it should not, as a matter of principle, be paid for, presents a crucial challenge to the whole IPR structure. ‘If it can be digitised it can be distributed for free’ is not a principle which encourages investment of time or money, and undermines the whole idea of IPR. This challenge undermines patents and trade marks as well and therefore can be seen as undermining the very heart of the capitalist system.
The supreme irony is that it was only through legislative action, in order to assist the spread of the digital infrastructure that the ISPs were given safe harbour protection, and were treated as dumb pipes. The problem that arose is that the growth of broadband was carried on the backs of the content industries, the very industries which now need to step up to provide economic growth, but whose economic model has been thoroughly undermined.
Pathetically, neither the Content Industries, nor the DSPs made much of an effort to look ahead and see that they might need to work together, and instead have spent the last 10 years bitching and moaning about each other. The government for its part has just hoped it would sort itself out, or has left it to the courts to try and ram a square peg into a round hole.
But that has all been blown away and all parties are now in a different space and realise that they have to do something otherwise there will be no Next Generation Access or else it will mean that it will be sold in effect as a way to pirate more and more varied content, especially TV and Movies without paying.
A solution has to be found that gives all parties something.
Hey Presto – A Solution
The Government can insist compensation has to be paid by the DSPs for the non-commercial, unauthorised use of copyright material. How they pay for this nominal amount is up to them. Maybe it gets paid out of customer retention and acquisition budgets, maybe through higher fees tied to higher capacity services, maybe through advertising or sponsorship or any combination thereof.
In return the Music Industry, as the most sinned against body to date, would have to provide a solution to collect and distribute these monies in a way that is fair. They might also have to help provide tools to track the music that is going across the net and to do the best they can to account for this activity. These monies could also be a compensation for all the other off line infringements that occur thanks to the marvels of digitisation. This system would in effect compensate for the User Generated Content, websites, pod casts, etc that use copyright music without clearing it.
It is worth noting that the payment of £2 per month per customer with a broadband connection would generate £1.2 Billion, if there were 50 million broadband enabled customers in the UK. This sum is as big as the highest gross value of the UK Record Industry at its height, and at full price with no allowance for discounts, returns etc. This revenue would come through allocated to track without any need for warehouses, shipping, returns, salesmen, distribution, retailers etc.
A system such as this would require a new body to be established, a Meta Collection Society, that would collect, allocate and distribute revenue via existing societies, rights holders etc. If the music industry could achieve this it would have created a body that could negotiate a price for music. This body would license new business models in a dynamic way, and the DSPs and other service providers could focus on their primary and core business and merely have to pay an appropriate sum for the use of music.
Rates would have to be negotiated, government would have to regulate, there would have to be appeals processes. This whole process could open up the Internet to all sorts of value added services for the benefit of everyone. The Artists, the Music Industry, the DSPs, the Government, and most of all the public could discover untold new opportunities. This would benefit new artists as well as old, big as well as small. It would make the development of new music services far easier, and new filters for the public would develop. No doubt the big labels would still have an advantage, but only through their investment, not through their position as gatekeepers. Competition both between songs, music services and DSPs could lead to a huge expansion of the digital market, and give everyone a chance to get in the game.
It is difficult to see how this sort of result can occur without the help of Government and it is hard to see how this could not have an enormous beneficial impact for the DSPs and the Music Industry. Most of all it would be a huge benefit for the public, who would have the world’s music at their fingertips and available to them in all qualities, with or without programming or personalisation, helping in discovery, and making music available for their websites, mash-ups, podcasts and music blogs.
This is a proposal for the beginning of a new era, not a solution, not the answer. Drastic times require radical solutions, and this is one radical suggestion. The devil will, as always, be in the detail.