Category Archives: Midem

Apple’s iCloud Service as P2P Amnesty?

The recent announcement from Apple about its iCloud service was met with the usual rapture and admiration. The record labels according to the New York Post have been paid some $150 million to license the service while Amazon and Google felt compelled to launch their services with no licenses at all. Of course iTunes has been placed on a pedestal; it represents something like 85% of global digital revenues to the record companies. Just as MTV used, in the analogue era, to be the record companies’ best friend until they started running scared of the power they had given them, so Apple today has been elevated to a privileged, protected prime position which (regardless of the alliteration) offers it similarly low levels of competition. This apparently anti-competitive allegiance to one company promoted to the status of market maker, seems to have become a defining characteristic of what it is to be a major music company today. This model, that looks a lot like “control or be controlled”, seems to fit traditional record businesses ways of working.

But haven’t they just scored a huge own-goal in issuing these $150 million worth of licenses for the iCloud service?   The licenses are presumably in order to allow Apple to scan a customer’s hard drive, identify what music files they have and then allow Apple to enable for streaming to a portable or mobile device, a copy of those music files via their digital iCloud locker. This provides a great competitive advantage over Amazon, Google and other digital locker services that require the end user to upload all their music to their locker before they can stream it.  And therein surely lies the own-goal… When Apple scans a consumer’s hard drive, there is absolutely nothing to distinguish a file that has been ripped from a CD owned by the consumer and a file that may have been ripped from another users CD and subsequently accessed by downloading it via for example Bit Torrent or the Gnutella network.  So when Apple does its scan and adds all your music to your locker, under license from the labels and the music publishers and for the modest annual fee of $25 – haven’t they just legitimised your entire collection regardless of whether you paid for it or not? And by the way, since your $25 is an annual subscription, haven’t they just done that going forward for whatever else might find its way onto your hard drive for the next twelve months too?

This looks like a file sharing amnesty via the back door.  Unless perhaps Apple intends to restrict the files you can upload to ones that have been ripped by you on your copy of iTunes? Details of the service have yet to emerge properly. Are we suddenly going to find that the familiar Apple walled-garden has just added another few feet of  barbed wire to its walls because, by the way, Apple has still been rather coy about what kinds of devices you will be able to stream to from its digital lockers, but we can only presume they will be Apple devices not Android ones…

Based on the damages of $75 trillion that the RIAA sought to claim from Limewire  –  or even the $1bn or so they eventually settled for, it does looks as if Apple’s friends in the music industry gave the “Great Turtlenecked One” (as The Economist recently dubbed him) an incredibly heavily discounted rate on monetizing all P2P in the US market for at least for the next twelve months. Is that really what just happened?

2011: A progressive agenda for the music industry

I was prompted by the initiatives of the current UK administration to draw up an agenda for growth and renewal in the music industry. So here is a five point plan.  I put it here for comment and discussion. It’s probably not comprehensive, but hopefully it does sketch out a blueprint for a new architecture for the music industry. It might also be of help to other content and media sectors who are migrating to a digital market online.

1) Where money is made an artist must get paid – where money is lost, artists should not bear the cost.

Encourage the pursuit of big rogue pirate web-sites, discourage expensive and ineffective pursuit of music consumers who file-share. Put an end to parochial skirmishes with ISPs, collaborate with them to build a fully digital media industry. Reform the Digital Economy Act.

2) Protect artists integrity but set usage switches to “on” not “off”.

Reform copyright legislation to make it recognise that copyright is primary in respect of the creators right to attribution, remuneration and integrity, but that the power to control the online reproduction right is now fundamentally eroded.

Establish a direct moral right that connects an artist and their work (termed recently by Sandie Shaw as a  “mother right” –  this is law in France).
Encourage extended collective licensing that would fundamentally allow people (consumers and b2b) to use music at pre-agreed prices on pre-agreed terms.
Give artists the right to opt works in or out of this scheme.
Establish base-line levels of control around the integrity of a work (eg: not for use in advertising tobacco).

3) Restore balance of power in artists contracts:

Outlaw “life of copyright” contractual terms (this is law in Germany).
Enforce an international audit right, outlaw NDA terms around audits.
Make “use it or loose it” a standard term in record contracts.
Allow artists to sell their own work off their own websites.
Enforce artists ownership of their own “key domain” websites.

4) Be in business not anti-business on licensing.

Make it easier for us to have our music licensed and for third parties to license it:

Encourage bundling of rights offered at the licensee end and better management of payment systems at the creator end.

It should not be a trade secret who created what or who owns what rights in a song or a recording – it should be a matter of public record:

Demand the making public of key commercial metadata on all recordings, artists and works.  Support the creation of a networked global repertoire database, and demand the use of small amounts of public money to create the infrastructure to compel the data to be made open to public access.

Demand legislation to reform collecting societies. Demand the rapid merger of their data-gathering activities. Demand competition between them for service to their members to motivate them to increase efficiency. Ban the monopolistic hoarding of data subsets.

5) Get real with consumers.

Consumers want to and do copy privately, they mash up video and music, they mix tracks, time shift consumption of streams, transfer stuff from one device to another.  Let them – by law.

And… make it easier for the creative among them to explore the commercial opportunities that their work produces by making it easy for them to connect with rights owners who are compelled to be cooperative in licensing. See above.

DISCUSS!

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?

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!

Spotting the gaps in the new music industry landscape

At the beginning of every year, as the music industry gets over its winter hangover by inducing another one at the Midem conference, the pieces of the puzzle that used to be called the industry fall into place again. The process of getting together and discussing the state of the nation is ever more needed when everyone is embarked on rebuilding the architecture of an entire industry. Taking stock and gaining a fuller perspective are more and more valuable when the ground is constantly shifting beneath our feet.

A few of course are also tasked with the additional burden of trying to maintain their living from the dwindling pieces of the old industry. The majors have a really difficult task in doing that and,  as they struggle to manage their transition from one model to another, they do everything they can to try to slow the whole process down and prevent other players coming in and stealing the ground from under their feet. It’s a sad fact that after ten years of creeping transition and increasing economic pain, the process hasn’t changed that much. The majors are still making it difficult for others to do business with them and try to extract as much cash from technologists and venture capitalists as they can, whilst paying out to their contracted artists as little as possible.

But there are a lot of reasons to be optimistic about the new digital media business that is starting to grow up between the cracking paving stones of the old analogue one. The number of startups and vigorous new companies trying out new models is larger than ever. Despite the recession raging around us, many of these companies have got sufficient funding to struggle their way through the next twelve months and come out the stronger on the other side. For those that don’t, there are still plenty of people looking closely at this industry, searching for bargains and seeing the potential becoming clearer daily.

So what does the new landscape look like and where are the gaps?

Increasingly, it really does look as if the distribution piece of the puzzle is sorted out pretty well. There are the major retailers of the catalogue for download or stream or subscription (iTunes, Amazon, Rhapsody, 7Digital, Nokia, all playing in the game – as well as the advertising funded crew We7, Spiral Frog is apparently still going and maybe even QTrax ). There are the new digital platform providers who are trying to offer artists clean and simple means of going direct to consumers (Myspace, Topspin, Mubito, Musicglue, Audiolife, bandcamp, etc). And there are the consumer focussed folk who are either trying to aggregate content to make the fan’s life easier (Facebook, iLike, Shazam, etc)  or provide discovery and recommendation services – either by human intervention (the playlist) (Mystrands) or by algorythmic cluster analysis (Imeem, Muxtape, Songkick for gigs, etc).  There are the radio/tv type services that really just happily stream stuff at us and try to make that a bit more of an interactive service (Pandora – US only, Last FM, Spotify, and of course YouTube, Hulu – US only, Muzu, for video,  etc).

Now we’re just starting to see a few companies focussed on the data that’s thrown off by all of this work (Hitwise, Bandmetrics, etc).  I’ve talked before about data because I see it as the component with the greatest potential in all of this. If there’s one thing the web throws off it’s tons of data. In this area one big question is whether the killer app is an aggregator service that scrapes and mines and spiders and tries to track everything that moves – and then license that back to everyone. That’s the Nielsen model. Or is it customised, commissionable tracking service you can hire for your artists and their competitors? Or is it a built in set of metrics that some of these platforms start to offer to help provide and sharpen the feedback loop of marketing and consumption?

So I think there are two key gaps – one is really good web marketing and promotional tools. Where are the companies that are creating simple tools for artists to create viral word of mouth affects across Myspace or Facebook or stickiness for official artists’ websites?  A new data-driven one might be Buzzgain – but it’s early days to tell what they’re doing and they look like quite an expensive service upfront. Seems like the digital platform providers need to develop more tools like this and incorporate them in their offerings to artists – and I’m not convinced that they’re doing that too well yet.

The other gap is for the fully comprehensive business that brings together the artist services side with the consumer offering and makes use of all the data that it is gathered from both sides of the equation to sharpen up their effectiveness in bringing fan and artist together. The bigger players like MySpace Music ought to be well positioned to do this, but somehow they’re not there yet. Newcomers like Topspin or Imeem could be consolidated together to create that opportunity and then build out the switch in the middle to make it really effective.

So expect to see this coming during the next few months – and somewhere to confuse us all on top of this is the increasing need to find ways of using the cash flow of brands to stimulate the content flow of bands. That’s what we used to call an advertising revenue model but which today can’t be called that – because we know that’s going away. So here is the really interesting key to all of this. The biggest advertising driver on the web is Google and their biggest revenue mechanism is serving TEXT classifieds in our faces. Wow! With all the creative, design and styling skills that have made advertising so interesting over the last few years – in the beginning of the 21st centry – it’s back to TEXT and all the intelligence is in the back-end contextualisation analytics. Truly we are still in the foothills. There really is some very cool stuff yet to come!

Further thoughts on Broadband TV and Music

The irony of the current parallel engagements of the UK ISPs with both the film and TV industries and the music industries is that their conversations are coming from completely different directions. The ISPs are running to the broadcasters and complaining about the BBC’s iPlayer and the imminent Kangaroo player which will have ITV and Channel 4 content on it as well. The complaint is very clear – you are soaking up all our bandwidth and gaining revenue at our expense. In the case of the BBC – the argument is uniquely British – you are fulfilling your Public Service Charter by reaching more people in the community at the expense of commercial service providers who are having to “subsidise” the additional bandwidth usages. In the case of the commercial broadcasters, the argument could be even simpler, but equally difficult to resolve: you are raising ad revenue through programs transmitted not on your broadcast network but on our broadband network – we want a piece of that.

In the case of the music companies the argument is the exact opposite. The music folk are going to the ISPs and saying – you are making money out of our content. All this p2p activity on your networks is illegal and it’s not yielding us rights owners a penny, while you continue to compete with each other on better bandwidth for your buck packages. We want some of your money.

Seems to me, given the size and health of the respective industry sectors and the general balance of power in the cultural stakes, that the music companies might be a lot better served trying to persuade the p2p folk to go legal and share the ad revenues accordingly – or to try to persuade the ISPs that only legal, ad revenue or subscription revenue bearing schemes should be allowed on their networks and illegal p2p should be closed down – and then negotiating for the right splits.

That would of course require that the music companies be prepared to license a few services to show the ISPs that they mean business. At the moment, they seem very concerned about doing that. Let’s hope that the majors don’t go try to down the usual control and command route and offer some home-brewed service of their own, but act on some of their words and collaborate with some of the new businesses out there that might just add value to the whole sector  – given the right licensing terms.

Perhaps for the first time, the Music industry could be unified enough and easy enough to deal with so that it might make common cause with film and tv – rather than lagging behind them in the commercial stakes. But even so, it will need to back some players – wether they be last.fm or playlouder in the UK – to be the added value providers on top of the network capabilities of the ISPs. That means new players in a new value-chain and margins that might be not end up being all that different from the old distributor and retail cuts…

A whiff of digital optimism?

There seems to be a whiff of optimism in the air, a little hint that somehow progress is being made. Is it in the effort to bring all the music industry’s constituent parts under the single banner of British Music Rights? Is it in the coy first blushes of a dalliance between the recorded music companies and UK Internet Service Providers? Is it in the notion that new models and new experimentation might just yield meaningful financial returns?

When I read back some of my earlier callings for radical change and the appealling but somewhat simplistic view of technology being 100% disruptive of past models, they seem a little naive in the light of what may be beginning to emerge.

A new pluralism? A multivalency of co-existence? Certainly no-one feels comfortable enough in the shoes they’re wearing today in the digital media business as a whole to believe that ongoing change will not be the norm for several years to come.

But, there seems to be a suggestion of a new springyness in the steps of those companies who are creating some of these many new ways of doing music-business.   The persistence of companies like Last.FM or their clone IMeem, the steadfast promotional/transactional evolution of companies like Seven Digital into brand relationship building linking artists and products, the quiet persistence of Playlouder in its music/internet service provider model, chasing the monetising of p2p. All of these are exploring and surviving. It is really hard work to do this. The level of commitment and passion involved is pretty high. And the kicker of the occasional big-cash blip, such as Last.FM enjoyed, certainly adds a frisson to the task, but it doesn’t make it any easier.

Of course, several degrees of murkiness do continue to cloud our little enlightenments.

Even as we all started to feel that the live scene might just be sustaining everything, major rows at Live Nation between Michael Kohl and his aptly named colleague Michael Rapino – which seem to have ended with Kohl’s departure albeit glossed over – would suggest that there is no simple cohesive view of the world going forward in that sector either.

Michael Kohl of course is the doyen of the finely sliced IP right. It was he, in the early nineties with the Rolling Stones, who devised the most sophisticated, regionally segmented, windowed parcelling-out of broadcast, cable, satellite TV, radio, streaming and downloading rights for the Stones’ infamously spectacular tours. And for the Stones, even then, album sales meant very little compared to the value of promotion and marketing that Kohl could “persuade” the label to provide which in turn clearly supported the tour.

Who knows what caused this latest rift, it’s as likely to be personality clash as much as divergence of business strategy. But the notion that, aside from publishing, performance and licensing revenues, ticket sales alone should be an artist’s primary source of revenue still seems a diminished result whichever way you look at it. None of us, it seems, is simply prepared to give up on the value of a recording and walk away from it completely.

This is how LiveNation presented the picture to GoldmanSachs earlier this year:

It’s a great multivalent graphic – but just a tad curious when you come to examine it. Broadcasting appears to have replaced publishing and there’s no mention of the internet at all although digital is a huge part of their business. I wonder when the THEN was and when the NOW is supposed to be?

I had the good fortune earlier this week to chair a public panel of some amazing expertise on the occasion of the Music Publisher’s Association’s Annual General Meeting. Gathered together were Kip Meek of Ingenious Consulting (previously at OfCom and now of the Broadband Stakerholders Group), Conservative MP and media specialist John Whittingdale, Spencer Hyman of Last.FM, Andrew Connell of Nokia as well as Andy Heath – the newly elected chair of British Music Rights and Gary Maclarnan who manages Mr Scruff. Joining us as experts were also Will Page Chief Economist of the MCPS, Andrew Orlovski Editor at Large of the Register and Paul Sanders – philosopher in chief of Playlouder, Consolidated Independent and State51. An august and impressive crew to the last. And it was no coincidence, dare I say more, that Andrew Orlovski’s intriguing article on music industry discussions with the ISPs appeared only two days after this illustrious event?

But none of them was prepared to say the CD is dead completely or that it will ever die. I think that is not collective blindness to technology’s inevitable disruptive power, but a much more sophisticated understanding of how complex our new world is and how pluralistic the models are going to be.

And despite the optimism, there was much more divergence of opinion about how rapidly ISPs and network providers might find common cause with the media and content companies. Kip Meek seemed to suggest that the issues and concerns that the broadband providers have with the broadcasters and film industry are so much more severe than anything that they have to deal with in the music sector (because of the sheer size of film and video files), that the debate will really focus there. As the BBC’s IPlayer mutates into the imminent Kangaroo player – the issues of who pays for bandwidth and how content gets monetised will fly in a very different direction. The extent to which the music folk think a tax on the ISPs fits in with the broadcasters’ ad revenue model remains to be seen. To me, they certainly look like very different directions, but perhaps in one scenario, simple ad-revenue sharing is not completely unattractive. But it was interesting to note how keen both Last.FM and Nokia seem to be on subscription services which so far consumers have consistently ranked as their least favourite option.

The convergence of focus on ISPs is being driven by television in the UK and what we do here may or may not prove a model for other parts of the world.  One thing that is clear is that if it is to compete to be heard and to have a place at the table with the Broadband community, the music industry needs to be more articulate, more subtle and flexible, and more coherent than it has ever managed to be before.

As Andy Heath tries to pull it all together here under the British Music Rights banner, his challenges look steep but the prize looks impressive.

Hands On

I did not intend that this blog should only be about EMI. I do think about other things and I promise I will write about them. Love, death and the future of the planet spring to mind.

Meanwhile though, a few current thoughts about where optimism has gone. The takeover of EMI by Terra Firma caused me some optimism last year. Their pronouncements about their strategic direction, their desire to completely rebuild the model and to adopt a clearly digital approach, connect artists directly with fans, work closely with social networks, expand participation into other areas of musical activity, all seem to be essential elements in the creation of a new paradigm (sorry about that word – but it is sometimes justifiable) for an entire industry. Who knows, they might even begin to consider the clear need for blanket licensing of ISPs in order to monetise all that P2P – certainly telling the BPI and RIAA to stop suing the customers on their behalf seemed like positive moves.

And, although it’s painful, the need to let a lot of people go from the organisation seems almost inevitable. It’s very hard to turn a super-tanker when it’s fully laden. It may even be momentarily justifiable to scare a few artists off to lighten the load. What’s being done at EMI is only what is required at each of the major labels if they are to be transformed and survive – and although they are hated in their current form – and are never likely to be perceived as benign – major industries probably need some very big, major players as well as a healthy indie crowd too.

But things don’t seem to be turning out so well at NEW EMI and it’s interesting to observe.

Rumours circulating at Midem last week suggested that the new management team may have started to discover some royalty and accounting issues in the precious publishing side of the business which may lead to assets being written down by as much as 30%. A certain naivety in due dilligence about the significance of royalty structures or a certain obscurity to contracts that are only now becoming more clear? No doubt time will tell – my lips are sealed.

More apparent however, is the inevitable culture clash that’s taking place between the private equity, pure rationality approach and the music business, the people are the business approach. This does not have to be unproductive. But unfortunately it seems to be damagingly the case with Terra Firma and EMI currently.

You can probably discount the defection of a few major artists – Radiohead I’ve already talked about – The Rolling Stones never sell any records and haven’t done for years. Coldplay and Robbie Williams are rather more significant – although many say the latter is nearing the end – I suspect he is a world-class entertainer who will continue to carry a major audience for a very long time to come – and Coldplay continue to straddle the line between mainstream accessiblity and some vestigial, credibility among the more musically literate. If EMI can’t retain acts of that stature not only is it damaging to their bottom line and revenue projections, but it sends a massive message to the rest of the artist community.

The tone and stance of Terra Firma to the artists of EMI has not been well received. At a meeting of some 200 managers, the atmosphere was allegedly chilly to say the least. Critical comments by Tim Clark (Williams’ manager) in the FT have led to threats of litigation from Hands. According to Clark, “he’s gone rock’n’roll – he’s got blacked out limo’s, body guards, the lot”. There is a history of top level execs in a similar position going “native” in some way and making themselves embarrassing and absurd in the process. It doesn’t usually happen this fast though!

Meanwhile, an idea of centralised marketing seems to be emerging from the company which is also worrying. It seems to display a lack of understanding of the value of cultural positioning and the uniqueness of individual artist’s fanbases that require to be addressed in different ways – not with a single voice emerging from a single marketing team.

The degree to which marketing music is an inexact art is hard to underestimate. Of course some would argue that it’s therefore some kind of law of probability that if you throw enough of it at the wall then some of it will stick. But in this day of individuated artists and differentiated fans, the law of the long tail says “talk to me with an individual voice and treat me as an individual”. Commercially, you might say that to all the girls but culturally you’ve got to be smart and sensitive to artists’ needs and what fans are in to, to hope to get this right. The grass roots is where it’s at now – online the great levelling is happening – and some very finely honed tools are needed to reap what you sow here, dedicated applications which are currently not in the hands of the majors at all.

At the heart of this is a question which is almost about the cultural credibility of the organisation. Now, as we know, this has little or nothing to do with commercial success – on the face of it. There is a big area of music that doesn’t worry about cultural credibility at all – the reality TV, X Factor swathe of MOR pop does reach big audiences. BMG in particular has been pretty successful in this area. If that’s what Mr Hands is thinking of in the transformation of EMI, then perhaps he is doing the right thing.

It’s hard to read though. Certainly the legacy of catalogue (which presumably is what he invested in) is not about that area of music at all. EMI, Virgin, Parlophone, Capitol, Blue Note – these are labels who grew up with particular flavours, tastes, and acquired significance. Although they may have dabbled in the ephemeral pop tastes of the moment, they also had a sense of quality, a sense of responsibility to their artists to nurture their careers – but also to steer them – sometimes meaningfully sometimes misguidedly in some musical direction. Lots of artists famously complain about the labels’ A&R folk not understanding them and not trusting their directions, but as many great records made it out into the world with the help of the label as despite them.

It’s not clear where this kind of sensibility is on Mr Hands’ agenda. But, no matter which part of the market you target – and as a major – presumably these days you’re targeting all of it – having some credibility among the artist community and their quixotic managers is a primary ingredient – that seems to be missing from the new EMI. It’s nowhere near a lost cause yet – but the question that needs asking now is how will Electro-Magnetic Industries – get their magnetism back?

The Slow Spark of Low Heeled Boys – recorded music industry slowly implodes

Radiohead’s recent price promotion set lots of people talking about the new model but, behind it, really becoming visible are the sharp edges of the old recorded music industry factions – sizing  each other up for the power-play. Major bands and their management companies (like Radiohead’s Courtyard) are exploring on a daily basis the opportunity that their established bands’ brands have to take control of the business model in an unprecedented fashion. For Radiohead, the In Rainbows promotion was just that – a great vehicle for publicity for their new album. The web has played this role very well for over ten years now and there are plenty of great little online promotions businesses set up to help artists achieve exactly the kind of mass outcry and coverage that Radiohead achieved. But in fact while everyone was busy talking about how much money they may or may not have made from this, the management company and the band were undoubtedly exploring their longer term position and what kinds of partnerships are going to make the most sense to them.

With which of the warring factions hoping to become the Man in the Industry will they plight their troth – or will they themselves seek, in some metrosexual kind of way of course, the Man status?

Will they go the Live route as Madonna has done with Live Nation and throw their lot in with that side of the business or will they find a finance house like Ingenious and have them fund future recording/performance/A&R/merchandising/creative fantasy activities?

This is all part of the breakdown of the business into increasingly acrimonious factions – each of whom hopes and needs to gain more control. On the one hand the majors are trying to find ways of endearing themselves to artists who they have historically had a power-hold over. And increasingly, they’re wondering how to create a relationship with the fans themselves – even while they task their “trade associations” with suing the same consumers to teach them a lesson the majors themselves are finding it hard to learn.

On the other hand, collecting societies and agencies – the encrusted old institutions of the industry are watching the developing debate over the need to license (and thereby monetise) the massive amount of p2p filesharing activities that continue on ISPs and other providers’ data networks. The notion is pretty widely held now amongst the brains in the industry (and the others too) that a new business model will be born out of full blown and automatic licensing of access to new content (and catalogue) across digital networks. Millions of transactions daily are not returning a penny to the artists or the labels or the publishers who own the rights – and the only people profiting are the network operators. Clearly there is a deal to be done – and once that happens – it’s the current collecting societies – the BMIs, ASCAPs, MCPS/PRS’s and PPL’s of this world who believe that they will be the new gatekeepers, the controllers of the switch at the heart of the industry. Unless of course someone new enters the game to do that whole thing more efficiently and economically.

On top of the flat rate revenues that may accrue from such a licensing scenario, new business opportunities are emerging and it is here that the start-ups, the new technology companies are now looking as much as to the old chestnuts of DRM and Digital distribution.

In fact, the irony is that while the warring factions shoulder-barge each other around the rights issues and control of digital distribution, the consumer reality has moved on. The flat fee will come to be in some shape or form and the place where the real focus should be is now on how to make money when distribution has been commoditised. Where are the real value adds that consumers will pay for and which yield the kind of returns the recording companies are used to?

The time for experimentation and shrewd bet placing is now upon us again. Only trouble is – that volatile community of investors, less risk-averse than the recording companies for so long – the Venture Capital community – are now looking at the huge levels of decline and flux in the music industry and preferring to place their bets elsewhere.

So the few folk who have made some very big bets, have got some really interesting opportunities to re-architect the business. But trying to build the new while hanging on to the still, significant revenues from the old model is a tough call on anyone’s business acumen.

Watch this space – the implosion is in slow motion – and if you can bear to look that closely you can see each of the individual sparks flying – quite spectacular!

At last! EMI accepts $6.3bn cash offer from Terra Firma

EMI’s announcement today that they’re recommending their shareholders accept the $6.3bn offer from private equity group Terra Firma is unlikely to be the end of their stormy ride. The turmoil and confusion in the recorded music market which stems mostly from the industry’s slowness to move to a purely digital model is reflected most prominently in EMI. The company’s recent volte face on DRM, announcing that they would release digital files via iTunes and Amazon DRM-free (without copy-protection) looks very much like the kind of showing willing, management window-dressing needed to attract a private equity buyer who wants to see the value in the digital and online markets. It will without doubt be easier for a private company, outside the glare of public reporting, to make the necessary transformations to its business model to encompass the digital opportunity.

Whether Terra Firma chooses to sell off the Music Publishing arm as its first step remains to be seen. For some the music publishing company represents a relatively risk free cash cow which could be used to balance the unpredictability of the recorded music side. For others, EMI Music Publishing might simply be seen as a quick way of recouping on the acquisition from the get-go.

One of the interesting questions for the new EMI to work out will be how to balance the global pull and impact of the internet against the increase in interest in local repertoire around the world. The dynamic between internet and mobile phone sales may help play into this, but one thing is for sure – EMI will no longer be able to sit and wait, hoping for a suitor to come along and sort out its strategic issues. Now the new ownership will take few prisoners, no doubt drop a lot of artists, and lose a good few of the “old-timer” staff – but in the process if they get it right they could well lead this most elegant of music companies into an exciting digital future in which much of the experimentation and learning of the last ten years finally pays off.