July 1, 2007 - Today I want to present my views on what I like to
call Music2.0 the next generation of the
music industry that is being created as we speak. This new model
is dramatically different: many old ways of doing things, many old
relationships, and many outmoded traditions cannot and will not
I want to seduce you,
the leaders of the independent music industry, to go down this new
road with me, to take a leap, to leave some of your assumptions
and your religions aside, and to make bold moves
because this is required to turn this ship around.
Scott Fitzgerald, the
famous novelist, said: The test of a first-rate intelligence
is the ability to hold two opposed ideas in the mind at the same
time, and still retain the ability to function. This will
clearly be the music industrys challenge going forward!
Technical and economic
innovations have, for the past 10 years, stripped away many traditions,
social and economic hierarchies and monopolies in the music industry,
and if there is one thing we can say for sure I guess that would
be that its now show-time: the music industry is finally
reaching a major inflection point; 10 years after the first .com
ventures shook the ground. It took a lot longer than we all thought
but its hitting much harder now: CD sales are down between
20 40% YTD, and digital sales are not making up the difference,
any time soon and the one-horse race with iTunes clearly
is a dead-end.
We are very quickly
nearing a point to where we are forced to dive into what I like
to call Music2.0 a new ecosystem that is not
based on music as a product, but music as a service: first
selling access, and only then selling copies. An ecosystem based
on ubiquity of music, not scarcity. An ecosystem based on mutual
trust, not fear.
As Don Tapscott says,
in his great book Wikinomics , we can think of Web1.0
the old web - as some sort of digital newspaper,
while Web2.0 is a canvas that allows information to be put up, shared,
changed, and remixed. Its about the interaction, the send-and-receive
options that make it useful and special. And in music,
its always been about interaction, about sharing, about engaging
not Sell-Sell-Sell right from the start.
Stop the sharing
and you kill the music business its that simple.
When the fan / user / listener stops engaging with the music its
all over. Today, you urgently need a canvas for music not a one-way
product (such as the CD).
Lets face it:
most leaders of the major record companies as well as
some independents are, by and large, still in denial about the fact
that their unit-sales-based model is utterly broken and crashing
quicker than they can fathom, and many still hope for some magical
technology solution to solve a business problem.
Billions of $$ have
already been lost due to misguided strategies, outdated policies,
and lack of true leadership. Forgive me, but it's time to get your
act together and do whatever it takes, not just what fits comfortably
into your current landscape this is a make-it or break-it
How come many societies
and PROs / MROs are still at a total loss when its about licensing
the un-licensable (as my dear friend and colleague Jim Griffin
puts it)? 1000s of companies with innovative business models are
left unlicensed, by default (or shall I say by design?), and most
of them have given up on even trying. Major money is left on the
table due to tardiness and internal squabbling. Many of the traditional
music licensing organizations have utterly failed in their mission
of making music available in fact, they have, by non-action,
succeeded to make it unavailable. What you need now is action
not continued excuses.
Today, we have the
paradox situation that any startup that wants to use music will
not even try to go legal right from the beginning, since there is
no reasonable way of doing so. Look at the biggest exits in this
turf, during the past 2 years: myspace, youtube, last.fm
either they did not bother with proper music licenses, or it was
unclear if and where and when they would even need one. Non-compliance
succeeded and was handsomely rewarded.
The music industry
must admit that it has failed to act. Their leaders clueless-ness,
incomprehension and general lack of willingness to embrace true
change allowed the paying for music to become voluntary. Congrats.
Don Tapscott points
at the year 2006: the losers built digital music stores, and the
winners built vibrant communities based on music. The losers built
walled gardens while the winners built public squares. The losers
were busy guarding their intellectual property while the winners
were busy getting everyones attention. Warner Music Groups
stock nose-dived from $30 to $14 in less than one year; Google rose
from $323 to $526, Apple went from $50 to $127.
For the independent
music industry, the question is: which side do you want to be on?
Do you want to become another major player, and stay
stuck in music1.0, or do you want to lead the way into music2.0?
In this context please
allow me give you a glimpse of the future, so that you can make
some decisions based on what is coming.
1. Within 18 months,
in many key music territories around the globe, wireless broadband
networks and device-to-device ad-hoc networks will connect every
conceivable device with each other, as well as with gigantic online
content depositories or shall I say switch-boards - that
will contain every imaginable song, film, or TV show.
If you think sharing
is a big deal now, wait another 2 years it will be 100x as
fast and enabled on every single device (not just computers). 3
Billion+ cell phones and 1 Billion+ music players will connect seamlessly
to each other.
access and devices will become so cheap, super-fast and ubiquitous
that sharing content will become the default setting, at very high
speeds and with anyone that is close by. Search Find
Select Exchange. Click and get.
How can you monetize
this? By licensing participation and the networks
and the devices that enable it. You must license the use of any
and all music on these networks, and make irresistible, irrefutable
and compelling blanket offers to those that run it. These license
deals must be conversations not monologs. Not a stick to the ISPs
but a huge, shining and attractive carrot.
2. 10s of 1000s of
new TV, online video, and gaming channels will be born in the next
2-3 years and all of them will need music to go with the
visuals. Millions of songs will be synched to video this
market will positively explode. It may well be that those B2B licensing
revenues end up being more than 50% of your future income.
these opportunities will only be possible if an efficient and frictionless
system for transactions is available this is, imho, where
the huge opportunity for the Merlin initiative (where AIM is
a member) lies. Think ebay+ chemdex +ricall + pumpaudio+. Every
$ invested in better B2B processes will make 10s of 1000s for music
while they sleep, or better yet, make more
3. Streaming music,
on demand, will be everywhere. On every website, every widget, every
mobile, every device supported by ads, sponsorships and commissions
on transactions. Performance-based income will surge beyond your
wildest imaginations, But again, only if you finally chose to play
ball, to participate, to make irresistible license and rate offerings,
create reliable standards and go flat-out for liquidity not try
to maintain artificial scarcity. BMIs revenues have grown
from $630 Million in 2003 to $779 Million in 2006 not bad
considering the overall demise of the recorded music market, at
the same time! So read my mouse: Its not the copy of the
recording that makes all the $$$, its the use. In fact,
the use of your music is the next big format you have been looking
4. Rich media (i.e.
ads with music, video, animations, audio etc) will become the default
advertising format for online advertising, representing yet another
huge growth opportunity for music. Soon, 10%+ of all ad-spending
will be on the Internet; and 16% of all Internet ads in 2009 will
be rich media. With an estimated $ 700 Billion of global ad spending
by 2009, that means $70 Billion for online ads, and over $10 Billion
spend for rich media ads. 100s of millions of $$$ for music licenses!
5. Digital radio will
deliver 100% time- and place shifted music experiences, stopping
only a tiny bit short of becoming another iTunes. The reality is
that net radio is just another Tivo for music. Radio will indeed
become the feels-like-free, on-demand music box, once again: the
only remaining Radio1.0 factor will be that it will
continue to be curated and expert-produced, as well as taking in
social recommendation and smart technology agents. The best radio
stations will become very strong brands (Radio 1, KCRW etc), out-doing
what used to be record labels. How will you license Radio2.0 if
you insist on staying with a per-copy model?
6. All music companies
will become video companies, too music will be multimedia,
by default (music + video + audio + text + games). If you arent
already diversifying into video and TV you really should.
7. China, India, South
America and Africa will explode with new models of usage rights
bundles and flat rates based on access. And guess what: they
will indeed have those $100 computers that Negroponte is trying
to bring to them!
But again, you will
not have truly liquid (i.e. efficient, low-friction, vastly scalable)
markets until you allow, support, and enable them. You must swing
this ship around, because right now, the music industry is failing
miserably: failing on technical and on licensing standards, on flexible
pricing offerings, on competitiveness, on compatibility, on being
trusted, on transparency.
The music industrys
past was based on:
Guarding / Protection
Secrecy / Non-Transparency
if you chose to go there is based on:
A truly global outlook
I predict that as much
as 60% of this new music business - and with that I mean a $100
Billion music business - will be independent within 3-5 years
but only if their leaders dont follow the major labels into
LIKING CONTROL MORE THAN INCOME.
Here are a few of my
favorite bottom lines:
1) The media ecosystem
of the future is frictionless. That means music anytime, anyhow
and anywhere, ranging from free and feels like free
to bundled, up-sold and premiumed. Your job as a music company
is to do away with the friction, not to add to it, or even to re-insert
it: on the Internet, every hurdle is treated as damage, and the
traffic is simply routed around it. Create friction and be side-stepped.
2) Its all about
participation not prevention. Because of the utter impossibility
of maintaining any real hurdles, it is absolutely crucial that you
find ways to participate in any and all forms of commerce that use
music. Charge smartly for access but make music available the same
way that cell phone operators make cell phones available: a very
low-cost, irresistible way of engaging people
from there. Whether its streaming on demand, remixes and mashups,
play-listing and social network music applications, to add-music-to-video,
to digital radio being part of it is what its all about.
3) Lets face
it: the web is like a giant Tivo, a huge recorder or DVR - all performances
are or can be recorded, all broadcasts really are deliveries. You
need to stop distinguishing between music to keep / own
and music to listen to our users have done this
a long time ago! License the USE. Share revenues. THEN upsell
4) Copyright is the
principle, usage right is where you monetize. Usage is where you
need to focus your energies, not the protection of Intellectual
Property. This is a tough spot but again
do you want
total control, or do you want revenues?
5) Very few things
end completely when new inventions are taking hold usually,
the market just grows larger. And it will be no different here.
Yes, the fax machine and the Internet killed the Telex and telegraph,
but we still have books even though we have Xerox machines. CDs
will decline, and may fade out completely, eventually, but nothing
you do in digital music will completely wipe out physical media.
This is just another format, and its called ACCESS. And even
better: after you provide access, you can sell ownership again,
too (think HD!)
6) Remember that the
only real limit to growth, in music and in media, is TIME. Media
consumption will rise and rise and rise, as the offerings become
cheaper and more ubiquitous, and as more of the Digital Natives
consume multiple media at the same time. You are now engaged in
a battle for the wallet and the clock but the clock comes
first. Mind share means time-spend means money spend! Again, this
is where attention translates into money, and this is why the first
objective is to get attention, and only then to get money. The biggest
problem for most artists (and their labels) is obscurity not piracy!
7) Engage not enrage:
stop anything that enrages the users. And do it now.
8) Guess what: you
can compete with free because what you can offer is not free. Yes,
a copy of a file is free. A CD burned from another CD is free, a
USB sticks content copied to my computer is free. But the
real-life connection to the artist, the experience that is happening
around the music, the added values such as videos, films, games,
chats, books, concerts and merchandising, the context (!!!) - all
of that must not be free. You must stop the obsession with trying
to make money merely from selling copies, and instead provide access,
because only the legitimate and authorized source (i.e. agent-label-manager)
can provide the whole bundle of values that the users, fans, the
people formerly known as consumers, will buy.
Music2.0 is an unprecedented
opportunity, very much like when music when from acoustic to electric.
Everyone wants music. More music is used on more platforms, all
the time. An unprecedented hunger for music that you need to fulfill!
Finally, here are some
challenges that I believe a music industry led by Independents must
1) Once released, a
recording becomes, in reality, available by default and must be
made usable under a default license all else
equals tacitly conceding that its free to use without permission.
As a result of such a new default license, some
rights principles that we have gotten used to probably wont
translate in this environment such as the moral right of
deciding where you music is being performed or maybe even otherwise
used. However, I dont think this will apply to commercial
use in films or ads - unlike the private or semi-private use in
UGC and web-generated content, and of course, to public performance.
2) The traditional
definition of copyright and intellectual property
can, for the time being, not be the sole key to monetizing your
creations. Because it is no longer about copies, its no longer
about the right to copy, its no longer about reproduction
its about how music is being used and how to participate
in those much larger revenues.
Call it ephemeral copies,
tethered downloads, rented media, streaming, buffering, caching,
storing, time-shifting, downloading, ripping or whatever
the fact is that digital technology has done away with the distinction
of a so-called performance being different than a so-called DPD
(digital phonographic delivery). All computers - and that means
all cell phones, too ! are by definition copying machines.
As overwhelming as this may sound, you must therefore discard the
idea of charging more to keep music, as opposed to just
listening to it as in radio. Instead, you must focus
on charging for added values (such as a better way to keep the music
;), and on collecting revenue at every point of access, and then
go from there. I dont want to get into my good old music
like water rant again, but charge for music like utility companies
charge for basic water & electricity service, and then charge
more for all the other options. The bottled water business is a
$100 Billion industry!
3) Your revenues from
selling copies of songs will soon dwindle down to maybe
30% of your total income the rest will be revenues from licensing,
sync, performance, bundling, flat rates
revenue sharing and
the many other streams that are yet in their embryonic stages. Get
busy creating and supporting those new revenue streams!
4) You cant afford
exclusive rights representation at high rates any longer, unless
these institutions give you 100% coverage and a flawless solution.
5) Forget territories
except for when serving local repertoire (which is on the rise,
too). Most talent is global, and your audience is global, or at
least virtually local. Internationalize right from the start and
build systems that will support that. Build a worldwide licensing
and B2B-transactions system that makes all repertoire available
for all types of use, and build it quickly.
6) Resist the temptation
to do as the major labels have done (e.g. extract huge one-off payments,
extort equity shares, license at unreasonable rates, refuse access
for no reason but for market control concerns, sue their own customers
etc) that is a certain death wish. In fact, now you can force
them to follow you!
7) Resist all attempts
at locked / protected formats, and go for open systems.
8) Bundle and package
music in new ways: with other services, with other products. And
prepare for the Flat Rate because this is certainly coming.
9) Remove any and all
hurdles to complete market liquidity: pricing inflexibility, lack
of standards (technology), lack of licensing transparency, territorial
10) Embrace outsiders
to jumpstart the music business. Niklas Zennstrom disrupted the
telecom business, Hotmail changed email, Stanford dropouts started
Google the innovation often comes from the outside.
Call me a Utopian,
call me a Dreamer, call me a ruthless Optimist, but I think this
is the Future of Music.