Category Archives: music 2.0

Bring back the music nerds!

Musical evolutions are hard to trace sometimes. There is a section in the opening of a song called the Dark of the Matinee by Franz Ferdinand that, to my cloth ears sounds exactly like the beginning of the immortal Jewish folk song Hava Nagila – it comes right at the beginning of the track and lasts about 22 seconds before repeating again throughout, if you want to check it out. Then there’s the tiniest brief line in the Chilli Peppers’ Zephyr Song (just about at the 2.04 minute mark) that seems to morph weirdly for a moment right into Oliver’s Army by Elvis Costello. Argue with me about that one if you will, but I swear, it’s there somewhere.

 

Sometimes these are just things that occur to you when you’re singing badly in the shower (is there any other way to sing in the shower?) and sometimes they might be deeply buried treasure that even the song writers didn’t really think of. Then at other times they’re totally sophisticated samples planted or extracted (depending on your point of view) right in the middle of a song to make us all feel smart or just to get off on a brilliant musical juxtaposition or cultural reference or even maybe to achieve some subtle commercial goal. A sample is a way of paying respect or making a connection with someone else’s scene. We all delight in spotting these things, they enrich not impoverish the music.

 

Sometimes, it’s a bit of a joke or is it faintly sinister when you are taken all the way back to an embarrassing nursery rhyme – Hey Diddle Diddle, the Cat and the Fiddle and find it reappearing in a way that still makes me cringe in the classic Aerosmith Walk This Way, then even more famously redone by Run DMC and then riffed on by Stiff Little Fingers in No Sleep Til Belfast which was itself a cover of the Beastie Boys’ No Sleep Till Brooklyn, which was then sampled brilliantly in Fat Girl by Easy E of NWA featuring none other than Freshly Done. Well what more can I say? The path of true love never did run true.

 

So what are we to make of the wily ways of musicians, songwriters and producers in their apparently endless reworking of respect and satire, of tribute and rip-off. When exactly do the Blurred Lines get crossed into something where, well, you just Got to Give It Up? Well never, allegedly, if musicologically the songs are technically musically different and it’s just a sound or a vibe that kind of connects them. Except, that is, in the case of Bitter Sweet Symphony, which I have talked about extensively elsewhere in a TEDx talk I gave a couple of years at the British Houses of Parliament. Suffice to say that what the Rolling Stones may have borrowed from Gospel and the Blues was all apparently fine, but when someone else wrote a classical composition based on their borrowings and the Verve borrowed from that – well there was all hell to pay – or at least all the royalties on the track – for ever. Perhaps ABKO Records might like to re-think the artist-relations politics of that particular issue sometime before Richard Ashcroft gets too old. But I’m not writing this to complain about the injustices of sampling or the appropriateness or otherwise of the protections that copyright laws afford. On the contrary, it’s the joy of discovery that interests me the most.

 

When exciting new streaming music services seem to be fighting for differentiation on a daily basis, it’s the journey of music itself that ought to give them the best chance to educate us. WhoSampled.com is one of my favourite but most under-exploited music resources, because when I sign in to my favourite streaming service, whichever one that is, I would love to be educated about the music I’m listening to. I would love to be presented by the Horace Silver Song for My Father that supplied the key riff to the Steely Dan song Ricki Don’t Lose That Number or on hearing their classic Do It Again be led into a brilliant mix with Michael Jackson’s Billie Jean by Club House (Michele Interlandi and Stefano Scalera) to hear how those bass grooves interweave so perfectly.

 

The musical skills that lie behind the perfect playlist are sometimes just the perfect segueway from one track to another, but at times it is the musical connections and real interconnections buried deep inside the songs themselves that make for the richest musical experience. Only the rare music afficianado and blacksploitation fan would probably have gone back to the Chi Lites’ Are You My Woman? (Tell Me So) – but Beyonce made its brass stab the signature of Crazy in Love and now far more people would have a reason to go back and revisit the track. So that one might start to look like strategic back catalogue marketing. Equally, would Major Lazer have quite the same profile if Run The World (Girls) hadn’t featured their utterly identifiable beeping whooping sample from Pon De Floor or was it more that Beyonce was garnering some fresh street cred from the Lazer collective? What comes up from the underground to the overground takes everyone forward.

 

When iTunes first appeared and made digital music such a slick experience, everyone got excited. They created a digital music revenue stream that had not previously existed and saved the recorded music industry from the bottomless pits of Napster and the other file-sharing sites. In the process however, for whatever reasons of efficiency or plain old technology ineptitude, all the metadata that fleshes out the music got stripped away. No liner notes, no acknowledgements or special thanks and no credits. When Spotify came along, I hoped that they would do something about, but no. When Apple Music came along, I hoped they would do something about that, but no. To this day, it is almost impossible to tell from what a digital track gives you which musicians played on a track, let alone who produced it or engineered or where it was recorded or when. When we combine the richness of that kind of metadata with the surprises and delights of who sampled what, music gains a richness that is what got nerdy kids excited by it. We have to get some of that back, and encourage a return to the nerdiness of music fans. Yes, “lean back” is great for the massive passives, but I believe it’s the earnest enthusiasm of a new generation of music nerds that will really return a passion for music to the market.

 

 

WHERE CREDIT IS DUE

I gave a talk at TEDx Houses of Parliament earlier this year. It centres around some basic questions of culture, creativity, ownership and attribution.  When does a piece of music cease to be the private property of the creator and become a part of the culture of the community?  Different copyright laws in different countries have their rules about this. The actions of creators and communities, especially on the internet, are very different again. This particular story starts in 1955 with the Staple Singers and continues to play out with Beyonce in 2013

Do take a look if you have a spare 12 minutes. I’d be interested in your comments and any other examples you might know.

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?

Tallinn – the Baltic Tech Hub

Last week, I had the great pleasure of giving a keynote address in Tallinn, Estonia during the Creative Hotspots conference. The event was organised by the British Council.  You can catch the video of my presentation here and the others including the fabulous Jenny Tooth of the Angel Capital Group, the dynamic Elizabeth Varley from Shoreditch’s Tech Hub.  a visionary from Skype and a founder of Angry Birds creators Rovio.  The event, organised by the Brits brought together, Finns, Swedes, Russian, Germans, Poles, Brits and Estonians – who would have thought it?

Tallinn is an extraordinary town, picturesque with its medieval centre and still lots of snow on the ground, but also boasts a bit of a tech hub including a NATO cyber warfare research unit – borne out of its recent history and mentioned in the Economist last week.

On the Friday morning, the President of Estonia came along to open Tallinn Music Week  (TMW) and talked with great passion in Estonian about Alvo Part – the greatest Estonian composer. But then talked at great length about how he had discovered Arcade Fire a few years ago and thought for the longest time that he was alone in all Estonia to know about this band. Until he read a review by Helen Sildna – the amazingly dynamic woman who organises TMW. He sent her an email telling her this,  but she thought it was a fake and ignored it. There’s a moral in there some where.

Maybe one day, every country will have a President who loves the music of some hip alternative act from a foreign country and then will come and open an international music event, and talk about them,  in a casual, low key kind of way.

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!

Rights Registry

Last week, in the middle of the TED conference, I had the opportunity to talk to the Westminster eForum about file-sharing, remedies and how to move beyond the UK’s Digital Economy Act. As I’ve worked on this problem and explored what others have proposed as remedies, I am more and more convinced that Rights Registries are part of the solution we need to move to. In a digital networked world where our content moves around in mysterious ways, we need a digital networked solution to mirror and reflect that activity in order to create a new means of managing digital rights in a fluid marketplace.

But this cannot be a wholly owned solution, along the lines proposed by Google.  Instead we need authoritative metadata databases that are open to search and open to updates, that are regulated by governments, moderated by authorised boards and not-for-profit. This kind of structure starts to offer significant benefits over our current proprietary closed systems which are hemorrhaging rights owners revenues.  I have written a white paper based on my talk last week on the subject,  which you can download from here: The Rights Registry 1.5

I’m very interested to hear other people’s thoughts about how we move forward the development of real practical solutions for digital media on the internet,  based on going with the flow of consumer behaviour and encouraging all kinds of  usage not punishing consumers for what the technology allows them to do.

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!

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.


universal logoSo 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.

spotifyIf 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”.


Piracy, Pirate Bay and the Pirates’ Pirate

A few weeks ago, on a sunny spring evening in Stockholm, a friend of mine asked me to come and have dinner with a guy who he thought I might find interesting. We arranged to meet at a fabulous old restaurant located high above the city, looking out over the water – over the original Pirate Bay itself in fact.  As we went up in the rickety elevator reached through a rather down-at-heel office building, my friend turned to me and said: “Oh yes, by the way, he has an interesting idea, he wants to buy Pirate Bay.”

We sat down and were shortly afterwards joined by Hans Pandeya. A native Swede, Hans comes from an Asian Indian family and spent several years working in Sydney Australia before returning to his native Sweden.  His current company specialises in running internet cafes in various locations around the world. Hans is clearly an entrepreneur in the classic mould. We spent the evening discussing the pros and cons of the deal, the way in which it might look like a repeat of the Napster scenario, how we might avoid that and what my partner and I might do to help with a little scheme we were hatching.

I explained to him at length that whatever he thought he was buying, if he changed the service to one that pays rights owners  and charges users – almost by definition – the users would flee – en masse.  All that he would really be able to buy is the brand.


piratebay

And a brand whose values and business model are radically altered from what they were built from is a decidedly diminished asset.

Not to mention the lawsuits – the current one – and the ones that haven’t woken up yet…


Nonetheless, Hans remained determined. For a start, the tax benefits of one Swedish business investing in another might mean that he would only end up paying 50% of the asking price – so his investment is not $7.8m but nearer to just under $4m. Secondly, Hans felt certain that if the Pirate Bay had 100 million users and that only 10% of them stayed with the brand, then there was a great business to be built. My partner and I disagreed, but we had an interesting and enjoyable meal and as the sun set over the winking waters of the bay , it was clear that Hans was determined to go ahead with his plan. We wish him luck.