more on collective licensing

So my main man Mike Masnick – he of Techdirt fame has been paying a lot of attention to music recently. When I came out earlier in the week in favour of everyone taking a much closer more constructive look at collective licensing, he said (because he is the consumate professional arguer):

” However, I have to disagree with his suggestion that the answer is a collective licensing regime, because I think that introduces way too many questions where it’s not needed. A collective licensing scheme puts yet another bureaucracy in the middle, just for the music industry (well, not for long, because then suddenly everyone else wants one too: the movie industry, the software industry, the video game industry, the newspaper industry, etc. — and why should it stop there, new industries will jump on board too: don’t we need a collective license for people who view blogs too?). As it stands, I just think that we’re finally seeing free market business models that are working, and it’s way too early to jump in and distort the market with a collective licensing scheme.”

Now that’s a really intriguing comment – and lots of Mike’s thousands of followers have jumped right in to the debate- slagging off any notion of enforcement of copyright at all really …

But there’s a really simple distinction to draw here Mike and you have to capture the essence of the difference. Here it is: back catalogue – tons of it – everyone wants to experience the sense that they can get “all the music all the time everywhere” – then… there’s all the new stuff from people we’re just discovering and just finding out about.

The new stuff doesn’t need to be collectively licensed today because the only people who care about it – find out about it mostly through direct artists relationships of the kind that we’re all pushing so heavily right now.

But the old stuff, the classics, the sex pistols, the eric claptons, the elton johns, dare I say it yes… the frank zappa’s (not to mention the bluenote, motown, led zep and metallica – the bell curve of the top 40) – they are quite frequently the subject of what mass consumer music services want to be able to serve up and those acts are not busily pushing themselves into direct one on one relationship with consumers because their music got hijacked years ago by the labels – who now hug it tight to their corporate chests. So that’s why collective licensing is so important because it would liberate all that stuff…. the argument about what’s needed to make  tomorrow’s Hendrix a totally accessible star – is utterly different from the argument about what it will take to make Hendrix an utterly accessible star today.

License to control?

The Digital Economy Bill that is wending its glacial way through the UK parliament has produced an interesting row between the BPI (representing the interests of the major record labels) and the ISPs, telco’s and mobile network operators. They are arguing over who should pay how much to fund remedial measures to clamp down on illegal file-sharing. The BPI is in a tough place since the cheaper they argue the cost will be, the more the ISPs respond by saying “well then you can pay for it.” Minister Stephen Timms recently suggested the split should be 75/25 (with the BPI paying the greater amount).

The irony of this is that few people really believe that these remedies will make a blind bit of difference. Increasingly, the mood of the zeitgeist is that rights owners are wasting their money by trying to control file-sharing. They are neither succeeding in their efforts nor acting with fiduciary responsibility to the content originators whom they are failing to recompense properly.  Their vain efforts at control are merely Canute like attempts to maintain an anachronism of a business model.

The chorus demanding collective licensing of recording rights is growing ever louder. The argument is very simple, instead of spending money trying to stop file-sharing,  simply agree to monetise all the activity that is out there by licensing it, making it legal and charging for it. Essentially, this would create a baseline of revenue through a flat rate subscription which would legalise and remunerate the flow of music around the networks.

The first point in the argument is that a small levy of say £3 per month per subscriber to every UK ISP would generate more than the current £1bn that the recorded music industry earns at dealer price today. It’s of course a moot point and hard to argue without a) trying out a version of it somewhere small and harmless and b) seeking the active cooperation of the ISPs in trying to envisage how it might work.

The second point is that we could build added value services on top of the baseline revenues.  Services like recommendation and discovery engines, market/user analysis and data-crunching, ticket sales and gig guides, digital bundling with physical products, quality of service – higher speed delivery solutions, etc, etc. What’s not to like? And what’s not to recognise – when all of these kinds of products and services are already being offered by up-and-coming businesses out there online?

One objection from the majors to this, of course, is that these kinds of businesses are not owned or controlled by them and they are all broadly based on the presumption of access to all content – not on the nurturing and distribution of some sub-segment of it.  It’s true of course that innovation comes from elsewhere. They don’t own or control these new kinds of companies – although as we’ve seen very publicly with Spotify – the majors do take a stake if the market-entrant foolish enough to seek to jump over the licensing hurdle. The cost of jumping is very high – in cash and in equity.  If we can’t continue to feed our old business model, the majors argue,  how will we nurture and develop new talent? We invest in talent for the UK and make it internationally successful and these new ideas do not support that model, they protest.

The problem is that they are spending a lot of money defending the old model and it’s hard to find evidence of a single major record company investing in new ways of nurturing talent or developing artists careers online or offline. The nature of the recording contract has not fundamentally changed in fifty years – it has simply evolved recently to try to encompass even broader areas of an artist’s creative output.

So what might be the total added value of all these kinds of new services which live on top of the content?  Nobody knows, but clearly the opportunity is very significant. In fact it is so great that, in my view, it exceeds the value of the entire recorded music and live industries put together. After all,  it represents what the architecture of the new digital content industry will look like.

If we can shift from compulsory control (which has failed) to compulsory remuneration (which is highly feasible) then we can allow file-sharers to go crazy in consumption and we can all make money.

Independent labels (like Beggars Banquet and other smaller labels) are increasingly seeing the economic arguments in favour of the new model. The Zelnick report just published in France has recommended it. The UK Music Manager Forum has been calling for it for nearly a year. The UK music industry group called the Value Recognition Strategy group have been planning to trial a version of this on the Isle of Man for about eighteen months, but the major labels and the music publishers have prevented it. Universal music themselves proposed a form of collective license for unlimited downloads to the Virgin Media group for their music service and this has not launched due to the objections of the other major labels.

Running out ahead of the crowd,  a group of thinkers with a great deal of experience and insight into digital media has been proposing this for some time. Myself, Pete Jenner, Gerd Leonhard, Paul Sanders, Paul Hitchman, Matthew Brown and occasionally our cousin Jim Griffin in the US have been meeting for about five years to develop the thinking around this. But we have often felt ourselves to be in the wilderness. Jim has been trying to work through the issues with his Choruss group courtesy of Warner Music in the US but his proposed trials on US university campuses have yet to launch – hopefully we will see some action this year. Meanwhile, the UK Government’s Digital Britain programme has spawned Digital Test Beds which are being managed by the Technology Strategy Board and which may become precisely the kind of platform that could help try out some of these new models in a relatively risk free fashion – and with some public subsidy – how enlightened is that?

Of course all sorts of issues remain unresolved, desperately in need of further practical examination. It’s only when you try things out in the real world that interested unexpected questions surface and can start to be resolved. If a collective license were compulsory how could artists protect their moral rights? On what kinds of grounds would it be legitimate for an artist to refuse permission for their work to be used?  It is perhaps not well understood or recognised, but today’s songwriters, lyricists and composers enjoy the fruits of a compulsory license by law. But should the law be reviewed for other matters? What is the relationship between the statutory license fee and the contractual sums agreed between artists and publishers? How do we balance the economic needs of creators against the creative competition of the market place? Perhaps artists should be arguing for statutory minimum royalties for any contract – over and above which publishers could offer premiums according to the status and value potential of the artist? What kinds of new agency should we establish that could collect and administer royalties appropriately and with the lightest touch enabled by technology? How could we group rights together using their meta-data tags so that they can be handled with the maximum efficiency and rights owners can get paid in real time – not with the kind of 15% overhead charge and six month delays that are the norm among current collecting agencies?

The Digital Economy Bill has not helped any of these discussions surface. It has sought to listen to the high cost lobbying efforts of the incumbents and paid little attention to long view policy proposals.  It has found political expediency in the short termism of the big business driven by quarterly results rather than really trying to place the country’s long term benefit at the forefront of its objectives. Perhaps the time is right to turn to Brussels for hope in this area with its broader perspective and more radical agenda – despite the bureaucracy and opacity of process – maybe change can be effected across all of Europe?

Technology Strategy Board Webcast

Check out this latest Technology Strategy creative industries video – I had the honour to chair with illustrious and sexy team of Rory Sutherland (Ogilvy), Julie Meyer (Ariadne Capital), Peter Buckingham (UK Film Council) and Fred Bolza (Sony Music UK).

more about “Technology Strategy Webcast“, posted with vodpod

find more here.

Ed Vaizey asked on Linked-in What is the best way for an incoming government to address the issue of online piracy? My reply…

Hi Ed,

You ask a topical question with a value assumption built in. Is online unauthorised file sharing “piracy” or an “un-monetised” opportunity? There is no question that the economic impact of file-sharing is being felt by creators and rights owners alike, although how its impact may be disentangled from the effects of the recession are less easily discernible.

Suggesting that we all agree that technical measures are applied to a problem like this is a bit like saying that we all agree that breathing air is a good idea. We all agree we have a problem, but we don’t all agree that trying to threaten people with various degrees of punishment is necessarily going to act as much of a deterrent.

My personal belief is that legislating for technical measures on the internet is like asking a snail to act as a line judge at a football match. The speed of technological innovation and circumvention means that any preventative measures can at best be speed bumps.

There are also dangers to invoking technical measures. Consumer groups have highlighted the difficulties of accurately identifying offenders on the internet and the breaches of personal privacy that would be required to try to do so. Additionally, the teenage response to being pursued is to lie and to hide. Both of these options are now available in the form of new encrypted services which lead in a sinister line to “darknets” where far more sinister materials and characters are to be found. Creating legislation that might drive our young folk in that direction should be considered for its implications very carefully indeed.

So what of positive remedies? Very simply, threefold:

1) A wide ranging, creative education program that expects to achieve results over years not weeks to change the cultural expectations of a generation. This is a huge ambition worthy of a far-sighted government of any complexion. It is expensive and long term and is required by the entire creative community if it is to retrieve value from the current detritus.

2) A programme to encourage and enhance new paid-for services that will make p2p look shoddy, unreliable and dull. Ambition, aspiration and imagination are required here. Rights owners need to move beyond the restrictions that they have clung to in an effort to preserve their existing business models. We must be willing to embrace new models and unexpected ways of offering content. The Digital Britain Testbeds project is an exciting and potentially visionary means of exploring some of these ideas. Some more active form of compulsion might also be considered. Some have proposed compulsory blanket licensing of ISPs. Versions of these solutions need to be much more actively explored.

3. And longterm, we need a radical overhaul of our copyright legislation so that rights are made more accessible, more simply defined for the digital age. This does not mean that they can’t be equipped with the sophisticated metadata required to ensure all rights holders get paid, but let their’s be a right to remuneration not a right to make available. The internet has already enforced the latter – what we need to do is to make the finance flow with the usage – not against it.

Hope that helps – of course it’s a synopsis – plenty more to be worked through!

PRS and PPL must merge and license One Digital Right for Music

PRS for Music and PPL must merge and they must do so now. They cannot any longer hope to hold out against the conflicting forces that beset them. They must be allowed to combine the intellectual property rights that they offer into a single comprehensible and efficiently licensable bundle and they must do this in the UK however much short term pain it will incur – and then spread the model to Europe and the rest of the world.  PRS has already announced cost cutting measures and regrettable redundancies, but the fact is that these are small measures compared to the fundamental reform that is required.

The music industry crisis is nearing the eye of  its perfect storm.  CD revenues of the majors continue to fall apace despite valiant efforts to breath new life into the old model (beautiful job on the Beatles re-releases is the fab retro example du jour).  The fundamental pillars of the industry,  its royalties collecting societies, are being pulled apart by a combination of the aggressive but confused European Commission, the self interested actions of its own members to grab rights business back for themselves, and by two Boards of Management who seem inexplicably slow to respond to the urgent calls of their valiant executive. As the recession bites and performance rates for music continue to be collected in inefficient and uncoordinated ways, then increasingly music played in public is starting simply to be dropped from public life.  It won’t even be a question of cost, it will simply happen because it is too damned difficult in this digital and recessionary world to deal with an unreconstructed music industry

There are lots of comments about how the competition laws and EU directives are preventing the majors from resolving the problems of the industry. There are also lots of attempts to bring in protective backward-looking legislation which seeks to protect the old model. But the old model is just that. None of the lobbying and activist efforts of the music industry will do anything to build a new model.

What is needed now is to create the new music industry – the big bang for music – akin to when the UK financial markets changed to dynamic electronic trading and at a stroke, overnight became a global powerhouse. What it takes to do that is to create one digital right for music that encompasses streaming and downloading, with the public performance and publishers’ “mechanical” royalty built-in, all licensable through one technologically efficient, digital agency where the onus is on opted-in content not opted out. It’s not the blanket license that some have called for, but this is an industry structure fit for purpose in the 21st Century that music’s customers – consumers and businesses could understand.

Lawyers and accountants have created the complexities, business people and true creative industry executives have to unravel it and reconstruct it. That’s a proposal worth asking for government help on. If this project is not started properly, not piecemeal and started now, then the market will continue to do what it is doing to the industry and it will unravel itself. How long will it be before EMI implodes under the massive pressure of a record company and a publishing company that still don’t talk to each other  (or share databases of IP) and a burden of debt so harsh that none of the leaders knows which way to lead?  Guy Hands has a reputation for the structural re-architecturing of industries he enters. He needs to start work fast on this one if he is going to have a chance of coming out of the mire positively.

The IP issues need to be addressed and they need to be tackled at the institutional, licensing level and at the artist level. Labels need to fundamentally reconstitute their relationship with their artists so that they become transparent and accountable and gain the cooperation of their partners. The treatment of the artists as assets to be exploited needs to end. Instead, partnerships where all revenues are shared equally on all revenues generated – whether cash or equity – need to be established fast

When things get as hard as they are right now. The old established players joke that they will be retired before the edifice crumbles completely and so somebody else can sort out the mess – meanwhile they have their targets and their bonuses to think of. That culture is over and the blood is already on the carpet. There won’t be much of a carpet to bleed on soon. Fundamental reform is needed and it’s needed now.

At this year’s Innovate09 event, Lord Mandelson called upon the UK to innovate its way out of recession. He encouraged the entrepreneurs and businesses to find new ways to do business. “Why waste a good recession?” He asked jovially. The 800,000 people employed in the creative industries and the 400,000 employed in creative tasks in other industries are looking at the music industry. They’re wondering whether the early experience this industry has had in dealing with the onslaught of digital media and the challenge of the internet can provide a model to help them as the rest of the sector suffers. They’re looking and are even joining in as the industry response is to lash out at consumers as “pirates” and to seek retrograde legislation to try to stop file-sharing. In Sweden – that’s already gone well underground and anonymity is the order of the day.  So in the UK, we’re leading and they’re following but to what destination?

Innovate out of recession, innovate on the internet – these are fine sentiments, but they are only part of the story. The music industry will need fundamental reform of its IP offerings, its creator relationships and its customer relationships – and it needs the leadership to make that happen.

1.2 million employees of creative industries need more encouragement than they can find today. If the industry were to demonstrate in a constructive way that it is making real efforts to change, not the cosmetic end-run of the Virgin-Media deal, but real radical and fundamental change, then there are plenty of those in government in the UK and Europe who would welcome it and seek to assist – whether  that’s the kind of assistance we would want is another matter – but let’s make a start now!

File-sharing, artists and the egregious offenders

It has been a tumultuous few weeks in the Compatible World – a raging debate about file-sharing has got a lot of people very emotional.  It’s mostly been in the music world, but all sorts of creators and creatives in different sectors have been watching with breath held trying to see which way this argument goes. There is nothing like a threat of regulation and legislation to sharpen a debate. There is nothing like a recession, loss of jobs and incomes, to make it emotional. After all, file-sharing is at least ten years old now, but this has only served to amplify the arguments.

On the one side, the libertarian argument – on the other, the conservative view – there’s been little middle ground. On the one hand those that argue there is much promotional value to be had in file-sharing – on the other, those that argue it is totally destructive and leads to an inevitable decline in sales.

With regard to new business models – everyone argues that we need them – even the labels agree. But the conservative argument is that as long as file-sharing persists it hampers the launching of new products and therefore file-sharing must be suppressed.  The libertarians argue that file-sharing cannot be suppressed and that the new models need to be encouraged as quickly as possible and that the labels are preventing them by not licensing more innovative models.  But, even as one label tries to innovate, another holds back – afraid of cannibalising with a new model the only digital revenues they already have (iTunes).

The new proposal from Lord Peter Mandelson for the UK to adopt a policy of broadband account suspension to be applied to the heaviest sharers, the now famous “egregious offenders” has sparked the new row.  The Featured Artists Coalition voiced strong opposition to this and fuelled a heated internal argument inside the music industry.  Lily Allen piped up in a strong voice – unexpectedly putting the conservative argument and saying “it’s not alright” to file-share. As a result the labels got very excited and did everything they could to “help” her and a huge amount of  abuse came down on her head from the online community.

But Lily did speak out in a significant way. Her intervention highlighted the conflicted feelings of many musicians and artists. On the one hand they recognise the incredible potential and value of the net – on the other hand they can’t feel entirely comfortable knowing that their ability to make a living from their own creativity is being reduced by the actions of millions of people who consume without valuing their work – because they can.

So on Thursday night last week we gathered together at Air Studios in Hampstead, north west London, a group of about eighty recording artists – some well known – some more obscure – to try to explore the issues and where artists stood. Members from all sorts of  bands like Pink Floyd, Radiohead, Blur, Travis, Keane, Marillion were there, Billy Bragg who is as impassioned and politically savvy as they come, David Arnold who writes the Bond music,  Mike Batt who is an artist and the vice-chairman of the BPI all sat there together – ready for a ding dong. In an upstairs room, with his ear to the wall, George Michael was getting reports of the proceedings. Annie Lennox had her digital representative relaying events by phone.  We sat in the round, in the studio’s cosy wood back-room with the old church stained-glass windows looking down on us, the paraphernalia of recording equipment shoved back to the walls  and a couple of microphones to give people something to hold on to when they talked.  About fifteen minutes or so after the discussion began, a timid and tearful Lily Allen came into the room, crouching behind the back row at first. She was encouraged forward and applauded for attending – and was quickly given a seat on the front row to take part in the debate which I had the dubious honour to be chairing. She was tearful, she was angry, she was foul-mouthed and she was eloquent. The whole debate didn’t entirely revolve around her, but she and Billy Bragg became the respective voices of the opposing positions.

The arguments swung back and forth. The conservative view is as strong among many artists as is the libertarian position. There was no particular rationale to which artists adopted which position and for an hour or so the debate simply swung back and forth. One guy from the Long Pigs, got very angry and walked out, saying something about how he  “couldn’t understand why you’re being so soft on them – they need to be told”.  Billy Bragg delivered an incredible, rowsing speech to huge applause about the need to be nurturing fans and the relationship that an artist has with them is the only one that counts.  As the clock reached towards nine pm, I tried to push the room towards a vote. I thought that perhaps while they wouldn’t get agreement on the key issue of suspending peoples’ accounts, maybe we could all agree on the long term educational, cultural change that was needed and that new models were now critically required, perhaps we could conclude by emphasising the positive stuff we do all share.

But then something remarkable happened. As I pushed them to close, they wanted to argue on and the energy in the room suddenly lifted. Someone suggested that perhaps not suspension but bandwidth slowing could be a solution. Perhaps the ability to use email and basic web-serving could be preserved but the high bandwidth needed to make file-sharing worthwhile could be reduced. The room leapt on this compromise with a speed and a degree of excitement that we hadn’t seen all evening. No matter that it would cost the ISPs more to do this than to cut people off. No matter that people could still file-share just more slowly. No matter that squeezing might require as much of an invasion of privacy as suspension – a compromise position was in the air – and everyone leapt on it.

I called for a show of hands and about sixty percent of them went up, including Lily’s and Billy’s in favour of bandwidth squeezing. A significant minority voted against – mostly because they were libertarian, but a few who strongly insisted that hanging and flogging was too good for file sharers. There was a feeling of elation. Euphoria was in the air. Never mind the fine detail, much more importantly,  the artist community had become united. Talking face to face, not through the distorting lenses of the media but in privacy with no reporters and no photographers in the room – the artists found common cause and we all celebrated that.

And so the meeting ended with a feverish capturing of the sentiment in a brief statement that was put out to the waiting media.  And, as the hour neared midnight, the crowd drifted away with a sense that something important, even historic had just happened; something greater than reaching a consensus on a view about what to do about file-sharing to give to the government. Everyone had the feeling that the power of the artists’ community could be more powerful in this story going forward and that together they could work out solutions that might actually satisfy everyone – and that they were capable of practical deal making – more effectively than some of the other participants in the debate.  Argue? of course they did! Compromise? Hell yeah! Who said tearful, emotional, angry artists – couldn’t also occasionally surprise themselves and act more like adults than the corporate grown ups could?

Update on Featured Artists Coalition on the MIDEM blog

I was asked to contribute a few words following Ed O’Brien from Radiohead’s announcement of a keynote interview at Midem next year. I contributed a brief update on the progress and perspective of the FAC.

JS interview on politics.co.uk

Check out the interview I gave to Ian Dunt a few days ago for his very impressive UK political influencer blog.

Spotify is 15% owned by major labels

Swedish web mag IDG reports today the true cap table for Spotify which reveals the holdings of each of the majors in what looks like an industry-standard content for equity deal.

As an addendum to my thinking yesterday, this makes much more sense – although it still leaves open to speculation who this “strategic industry partner” might be…. And whether the labels will  be taking advantage of their alleged “put options”.

Young little Spotify and the big old record companies

One of the smaller points in the Spotify fund-raising piece in the FT that flashed around the globe Tuesday was mention of a “strategic partner” in the wings. This was widely interpreted to mean a record company.  Some might have raised an eyebrow and wondered why a single record company would wish to take a piece of Spotify when it’s widely acknowledged that only when a service can offer all the content from all the labels can it be said to be in a position to offer a meaningful consumer offering (niche and genre-specific takes aside). These days however, Universal appears to be flying in the face of that truism by going alone in its recently announced services with both Virgin and Orange. Perhaps having such a high share of the UK market gives them that confidence. Music Week reported earlier this month Universal has currently 44.5% of the UK album market and 46.5% of the singles. As the FT argues, having a record label on board might allow the company to negotiate lower royalty rates. Artists signed to such a label might begin to query the value of such a deal to them however.

So might this “strategic partner” in the wings be Universal? Well earlier in the year, around the time of Spotify’s launch, rumours swirled around the industry about the cost and terms of Spotify’s licenses with the major record labels. Estimates from between £4m and £7m have been bandied about as the amount they had to pay in upfronts to the majors to achieve their slam-dunk comprehensive license pack. Hence perhaps the need to raise substantial sums again so early on. If that weren’t crippling enough, a new and sophisticated deal option was rumoured too. In the early naughties, taking some equity in start-up music companies as well as charging upfront royalty fees was common practice. I like to think I helped pioneer such deals during my time in Los Angeles with EMI.  It was therefore widely assumed that the majors had repeated this practice in the case of Spotify. But, it was  also alleged that the majors had created a ‘put option’ in their deals that would allow them to  cash in their shares in the event that the company’s valuation reached a certain threshold. Such an option would be attractive to both sides since it would motivate the labels to collaborate with Spotify to increase its valuation and help Spotify by incentivising the labels to help Spotify and not some of its competitors.

If the magic number was $200m then it might just be that this new round of investment is accompanied by a more significant re-jigging of the ownership of Spotify with several labels seeking to cash in and help their suffering bottom lines, while one or two others choose to enhance their holding position. One of the great advantages of cashing out in such a manner to the labels would be that no artists would need to be paid since the revenue came from the labels’ aggregated position not through individual performances.  Of course, until the day when Spotify goes public (something of a distant prospect in this market) we may never know. How any of this plays into Apple’s thinking about Spotify’s iPhone app is hard to fathom – if indeed Apple are aware of this dimension at all.

And from the perspective of a large record label, what real value would building up a single player like this bring in the long term? It is often argued that if one record company were to take some ownership in a big market-dominant player,  then the other competitor labels would never play ball and would support a competing player. But that was an argument made in the days when one major label didn’t control almost 50% of the market.  So this begs the larger question, as the architecture of the music industry continually evolves and reshapes, what path should a record company take in the digital arena and how does it achieve its mutation from a recording and marketing business to a digital relationship management company? How fast can one company alone, get ahead of the rest of the industry before the others catch up?  As the speed of change increases so, it would seem, does the opacity of the game. As Mr Grainge, Chairman of Universal Music, said to me recently with a twinkle in his eye: “Oh, I’m very, very opaque”.