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!

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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?

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”.

Spotify vs iTunes?

The excited reporting in the FT today of Spotify’s most recent fund-raising round raises the question of whether the upstart freemium subscription service might actually represent a challenge to the mighty iTunes.

The question is no doubt weighing heavily in the minds of the Apple executives who are to make a decision whether to accept the Spotify iPhone app into the hallowed portal of the iPhone App store.

Having raised the ire of the FTC earlier this week by rejecting Google’s talk app – which would enable voice over ip on the iPhone and threaten Apple Telco partners AT&T’s business model, they now have to ask themselves which is the greater risk – stopping Spotify and possibly incurring further Federal Trade wrath or letting in a possible competitor to the mighty lynchpin of their own content sales effort?

Of course, arguably the value of iTunes as a sales channel is much less than its role as the cement between the user and the i-devices that sell for lots of money, but recurrent revenue from content over time has got to be attractive  – particularly with the new high priced codename “cocktail” service sitting in the wings alongside  new devices which, if the rumour mill is to be believed include:  a souped up ipod touch with microphone and a new tablet netbook.

So are the aptly named Li Ka Shing Foundation, simply Kashing in (sorry!) on the success to date of Spotify, are Wellington partners to enjoy a Waterloo at Apple’s expense? Will the US of A adopt Spotify with open arms? The opportunities are exciting, the platform is subtly sophisticated with its simple interface and its powerful backend p2p infrastructure. And the move into neighbouring verticals of film, tv and even games are all so alluring to the beady eyed investor. But of course, Spotify still has to raise enough advertising revenue to interfere with its free service just enough to give people the incentive to upgrade to the paid subscription service – no easy shout in a recession where ad spending has been sliding over the cliff. So this is an exciting company – but now it’s not all down to execution – it’s also about how Apple chooses to respond to the invitation to joust.

Watch this space.

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.

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.

File-sharing and Digital Britain – the fall-out

As he stood in the Royal Society of Arts’  Great Room, adorned by James Barry’s celebrated paintings The Progress of Human Knowledge and Culture on the upper walls, I wondered whether Stephen Carter’s work had afforded us any real progress in either knowledge or culture. The final Digital Britain report feels more like the usual mangled series of ongoing compromises that has lost the pioneering innovation edge that the debate around the interim report suggested it might at one point have aspired to. The news of his imminent departure from government doesn’t do much to encourage confidence.

One of the key messages coming out of the final Digital Britain report was that Lord Carter would like to see Ofcom given further powers to implement technical means to reduce file-sharing and prevent online piracy. There are a number of serious concerns about this which need to be addressed.

Carter’s views on an approach to file-sharing are worth exploring. At one point during the launch, he explained that he saw a spectrum of views on file-sharing which he described as having, at one end, the “nay sayers who believe that nothing can be done about it and so let’s just move on and  those that believed it is morally wrong and who want something done to prevent it.” Carter positions himself firmly at the latter end. But, and I quote Carter again  “let’s try to be rational about this as opposed to irrational which is so often the British way.” Indeed.

The spectrum Carter depicted is a confused one. There is a moral spectrum which at one end has liberatarians and others who believe in a highly extended version of “fair use” and a notion that file-sharing without remuneration is acceptable – and at the other end those that think that file sharing is morally wrong and should not be allowed. Of course, if a creator says “share my files freely – I don’t mind” then there can be no moral wrong. If he or she is silent on this matter which mostly they are because they’re all as confused about this as the rest of us,  then we enter the terrain of debate.

The moral question is quite separate from the technical one which has its own spectrum of belief. At one end sit those who say “copying of digital media may be slowed but never prevented” and at the other end of the spectrum are those who say “it must be stopped and we will find stringent technical means to do so.” But of course the more morally outraged you are, the more you are prepared to invest in seeking technical solutions and going head to head with rational scientists who say it can’t be done.

There is a third spectrum of opinion to line up here too – the commercial spectrum. At one end of this spectrum sit those who say “file-sharing is really helpful, it is promotional and people who file-share often spend more on digital media than those who don’t”.  Their motivation to seek preventative measures is clearly quite low. At the other of the commercial spectrum are those who say: “This is theft and it is damaging our business because file-sharing is substituting for sales and therefore must be stopped.” Their motivation is quite high.

I’ve tried to express this debate in a simple graphic:

I’m more than happy to have anyone who wants to elaborate on this. I have tried to maintain its simplicity for the sake of clarity, but really I ran out of dimensions. After all, you may well believe, as I do, that file-sharing is immoral but not believe that it damages businesses particularly badly or that preventative measures are technically feasible.  Equally, you might feel as many kids do today that it’s not morally wrong, it does no-one any harm and there’s nothing you can do about it anyway.

Lord Carter’s high moral belief in this is of course in tune with the times. We are entering a new era of economic austerity, but also of high moral outrage brought on in the UK by both our bankers and our members of parliament. Illegal file-sharing sits on the other side of the table from the bankers and MPs’ scandals. Here is a proud and venerable industry, which would never dream of engaging in any kind of behaviour contractual or otherwise that people might think of as “immoral”, which has suffered unwarranted and crippling blows arising from the “wrong and immoral” behaviour of hundreds of thousands of consumers.  The music industry maintains proudly that illegal file-sharing is 95% of the activity out there and that is why they have lost so much value. The fact that hard disc sharing, blue tooth sideloading, and simple e-mailing of mp3’s is likely to equal if not exceed the amount of material that is file-shared does not enter the argument. The moral argument is in tune with the zeitgeist but it ignores its own complexity. What do we say of the student who downloads 15 albums but doesn’t listen to any of them? What of the student that downloads two albums and then goes and buys the CDs afterwards?

When the Digital Britain report refers to the prevention of “egregious offenders”, what does it mean and how will we know an “egregious offender” when we see one?

I have two concerns about the proposed provision of further powers to Ofcom. The first is about privacy and the second is about the consequences of these actions.

In relation to privacy we are facing some of the most complex tensions of opportunity and challenge. The capabilities of companies like Detica to carry out deep packet inspection (DPI) and see almost anything that they want flying across a network are troublesome to civil liberties and privacy.  This kind of company is employed by our national security services to spy on potential militants, agitators and forces of evil intent. Should we feel comfortable that such powerful probes should be deployed against consumers and fans of music or TV shows too? If you’ve done nothing wrong you have nothing to fear comes the old reply – but if in the dystopia of Orwell’s 1984 it didn’t make Winston Smith feel too comfortable – why should we feel any different? At the same time, of course, the power and sophistication of data processing and analysis could have immense benefits for contextual advertising and content discovery. If only Phorm hadn’t screwed up their opt in opt out procedures so badly we might all be feeling better about this end of the spectrum.

The second concern is about consequences. The folk at Pirate Bay have allegedly already launched their encrypted paid for service which will enable all their users for a small fee, to render all their transactions anonymous and impenetrable. That suddenly places teenagers and students in a far more dangerous kind of environment where much more seditious material is likely to be flying around and showing up unexpectedly in search results, etc.  It’s precisely the kind of environment we would really have considerable social and security concerns about, but it would be much less easy to control or supress.

So we do live in a troubled time where the positions on these different axes do not point to clear or simple solutions. Many artists feel highly conflicted in discussions of this kind. They do not wish to see the very fans with whom they are trying to develop longterm relationships, turned into criminals for listening to their music. At the same time, they feel very strongly that work they have produced should not be exploited for profit by anyone who is not contracted to them in some way.

My personal belief is more carrot and less stick. The development of businesses that can attract customers with delightful services that are a pleasure to use will be the real way to win this struggle, not by giving more government agencies even more draconian powers to spend tax payers money on technical measures that will only serve to divide us further from each other and send our children into deeper darker undergrounds. We need to continue lobbying against the recommendations in Digital Britain – a lot more balanced thinking is required here about how to encourage the true potential of digital UK .

Quotes from CISAC Copyright Summit 2009, Washington DC

“The degradation of the quality image is the only thing I fear from the digital age.” (Frank Stella, artist)

“How do you value consciousness?” (Frank Stella)

“Artists are lazy but they are capable of being mobilized. But they won’t organise around financial things but more about moral protests and causes.” (Frank Stella)

“In 1967, I turned up at A&M Music in a stolen car. I looked like a kid until you put me next to a real kid. Then I looked like a kid with a hangover.” (Paul Williams, songwriter)

“The Internet is like a supermarket shopping bag with all the things in it for free too.” (Milos Forman, film director)

Limewire in the limelight

In Brighton at The Great Escape festival,  I had the interesting opportunity to interview Nathan Lovejoy from Limewire Networks Inc in New York.   Limewire, as you know, has 50 million users, is one of the longest running filesharing clients and sits on top of the opens source gnutella network.

They are also being sued by all the major record labels in the US in a case that has been running for two or three years now. Their key defence is “substantially non-infringing uses” ie: there are a lot of really cool things that you can do with our application that are entirely legal and that, gosh, we never thought anyone would use it for filesharing in an unauthorised way that might infringe someone else’s copyright. Oh and by the way – we have absolutely no idea what goes across our client – we simply make the software and hope people will pay us money for the upgrade to our super Pro version – but we really have no idea what people use us for.

Now Nathan Lovejoy, as his name suggests, is a very nice, smart and engaging gentleman. However, he is also not totally unaware of the British TV series of that name featuring, as Wikipedia puts it “a British antiques dealer based in East Anglia whose scruples are not always the highest”.

Sadly, disingenuous is a word that springs to mind.

But I’m not really interested in giving them a hard time. There are plenty of lawyers paid by dinosaurs out there to do that. After all if it wasn’t them it would be someone else – and they didn’t invent the gnutella network – someone else did that – they’ve just given it a reason to live. The key question is really, having established a user base of 50 million, and having a lawsuit that you would have thought they ought to be able to settle soon, what kind of value-creation can be generated here going forward? How do we avoid a repetition of the wasted experience and potential that was Napster?

In other words, never mind if they’ve been naughty boys (and girls but, actually, mostly it seems boys) in the past, is there anything here of value that can be preserved, learned, expanded upon or taken seriously from a business and creative perspective?

Now some would argue that they are the perfect interface to place over a network to which you had applied a blanket licence. So all the music could be freed up by the ISP having charged a small monthly licence fee – and then for the users Limewire could continue to feel like free. And this might be ok – if we could believe that ontop of that real money could then be made with so-called value added services – like recommendation, discovery, bundling etc. I want to be convinced of this, but so far I have yet to see anyone produce the economic model or financial case study to prove it.

So for the moment, as far asLimewire is concerned, the future, based on my interview with Nathan, would seem sadly to not hold much of value for their experiment. The main problem seems to be that the lawsuit prevents them from either admitting much or developing more interesting features. But they do have about 75 developers so may be they are beavering away as we speak inventing the future in an ingenious fashion. We can only hope so.

Because while they can talk creatively and constructively about contextual advertising and recommendations and discovery, the reality is that they can’t currently be seen to offer either since they profess to have no idea what’s going on across their application or the network is attaches too. Never mind the fact that Eric Garland’s Big Champagne has been monitoring and analysing the flow quite successfully for several years now.

So, nice and simple though the interface is, Limewire is going to have get its act together techicallly, legally and commercially pretty fast  if it’s going to convince any of us that it has some means of leading us all into a more enlightened and profitable future by monetising the behaviour, interests and passion of its 50 million music lover users.

Experimentation Time – Again

At the Digital Britian Summit last week, both content owners and telco network operators complained that consumer behaviour is killing their business and making it more and more difficult to make money. “We’re right and the consumers are wrong”, they say. What’s wrong with this picture? Willing seller, willing buyer is a concept used in law, as far as I understand it (which may not be far),  to try and ensure notions of fairness in trading and in contracts. What seems to be happening today is that the buyers are willing because the service looks great – content in the clear that you can move around and do loads of things with, bandwidth that costs a fixed fee but I can use as much or as little as I like. Seems like a good offer – only one problem – the companies involved seem less and less willing to offer their products and services that way because they can’t make money. Well that would be their problem then wouldn’t it?

So everyone wants new models – and there are no silver bullets.

Since the dawn of the web back in 1993, we have been experimenting. We have all been trying to figure out new models. And our learning has been evolving quite slowly. It’s not that surprising perhaps because plenty of those who appear to be leading the charge to help innovation are actually just busy turning the investment risks of others into revenue streams for themselves. Since new models for music have been largely dependent upon unlocking the coffers of major content holders, it’s hardly surprising that the price of a key has remained high. It’s a great model for them. Appear to encourage innovation and experimentation, drain the resources of those who try and make minimal investments of your own but only into things that you think you can control. The old command and control mentality of music moguls is live and well and making money from the internet – just in a hurry up and slow down kind of a way.

We have all struggled to get our heads around business models, ideas or solutions that go beyond mere per unit transactions or advertising revenues. And as the recession has taken hold and ad spend has declined,  the solution for some has been to throw up their hands and say:  “blanket license, flat rate charging for access to music set against pro-rata payments to rights owners” – is  the only solution. Others have been quick to query the nominal levels of revenue that would flow from this kind of solution and therefore how small the music industry would become and how little would be left to “invest” in artists. The flat rate or Access to Music folk respond by saying, ah but the flat rate is only the beginning, on top of that there are lots of value added services to be created that would make up more than the difference and return the industry to a new and golden age – made glorious by my old mate Pete Jenner. He is the lion at the heart of this argument and  has been vociferous in promoting in a style that only he can get away with. Which is basically tell everyone they’re up the creek without a paddle and that his solution is the only that will work. And tell everyone the same thing whether they care to listen or not.

I’m only partly in agreement with Pete. I do think that the idea of a flat rate is compelling and could be made to work within walled gardens of networks, but I don’t think it’s the only solution and I think it may be problematic because of the kind of comprehensive coverage it requires. But the key thing about it is that no one has seen it in action. Pete was trying to make it happen on the Isle of Man – obscure but possible. Now these folk appear a little tainted by their unfashionable tax-haven status. Away on the campuses of American universities, another old friend, the indominatable Mr Jim Griffin is hammering away with his Warner Music Group sponsored effort called Choruss which is an effort to bring the flat rate idea to reality in various forms in the ivy-clad self-contained networks of US colleges.

Experimentation around these kinds of idea is crucially important and we need it now. But there are two gating items: one is the availability of the content itself and the other is a level of transparency and intelligence in the networks themselves. If we could envisage an internet in which the free movement of content aorund networks was encouraged because the more it moved and the more it was consumed the more value it created, we could abandon expensive and fruitless anti-piracy efforts, encourage new and interactive modes of music consumption and stop sueing people who have proved themselves to be the best distributors in the world. Instead of worrying about how to compete with free, we could start to derive value from the patterns of sharing, the clustering of content, the relationships between different groups of content,  the geographic spread of content, the different platforms upon which it was most consumed, etc. In other words,  a whole a battery of new and so far invisible ways in which value could be created from content which are hard to envisage today and even more difficult to place a value on.

And they need to be prepared to remove some of the barriers that their current models require in order to discover what the future might look like.  It’s not reasonable to expect start up companies or the (un)venture community to subsidise that effort when the power is in the hands of the incumbents.The only way to find out is to try some experiments at real scale with real consumers and real content. We need to create the conditions in which the content could be made available for pilot projects that would benefit both the content owners and the network operators. Over in the world of teleco’s, the network operators and wholesalers are trying to figure out how to build next generation networks. The Digital Britain report and debate has been full of the breathless excitement at the benefits that higher speed access will create.

My view is that we need smarter pipes not just faster ones. We need to be thinking about the software environments that will be at play on next generation networks that can be much more intimately bound up with the behaviour of content on the networks.

I believe that it’s time for the major record and film companies to participate in some real field trials with some real technology partners, declare a Royalties Amnesty for these trials and explore some radical new ways to create revenues and profits in conjunction with the network operators. And from their side, for the purposes of these trials, the network operators need to be allowed by law to give up their “mere conduit” exoneration of liability over knowledge of the content on their networks – and take the opposite approach and become actively involved in sharing ways of monetising that knowledge. Of course, we have to be very careful of Phorm-like invasions of privacy. The protection of personal privacy is paramount as we move forward with these kinds of ideas and the levels of permission that consumers must be offered needs to become more sophisticated.

Around the UK right now, there are a nine or ten “next generation access trials” taking place for high speed networks – perfect places for pilot schemes of this kind to be run – safely self-contained, but large enough to produce meaningful results.

The End of the Last Word? What sort of future is there for copyright?

Daring to say that our copyright system is in crisis is regarded as heresy by those in the recorded music industry – to suggest that it is obsolete is unthinkable.

In 1616 the playwright Ben Jonson, became the first author to assert the copyright in his Workes by depositing a copy at the Stationer’s Registry. The first poet laureat, he was at the height of his popularity and he wanted to assert the primacy of his version of his plays.  Up until this time it was common practice for theatre companies to roam the land, staging plays with huge variations in how the parts were performed and the lines that were delivered because they simply didn’t know how the original went.  Today, artists in all areas of the creative arts are changing things and mixing things up precisely because they and their audiences know exactly how the original goes.

The copyright regime that we have enjoyed for the last three hundred and ninety three years has of course been gradually refined since Ben Jonson, but the dramatic changes of the last ten years brought on by the internet have made it look increasingly archaic. Copyright law can no longer protect artists from consumers copying their work and the mechanisms by which it is enforced have made it almost impossible for mash-ups and remixes to happen legally with any speed or fluency either. We neither properly provide for conventional content creators nor fully enable innovators. The system is broken, it needs fixing and as a result there is a fascinating debate going on in which rights owners’ rhetoric vies for the attention of governments against a global cultural community at grass-roots level who doesn’t have access to funding or lobbyists, the tech-savvy next generation of creatives, who want to talk about the exciting possibilities of the future.

The simple technological truth is that digital media can be copied and no one can stop that happening. The only thing that content creators and distributors can do is to put speed bumps in the road. Global culture increasingly wants music, video, games, and software to be available easily, interoperably and preferably for free. Fortunately there is also lots of evidence to suggest that online consumers are interested in spending dollars on content online – especially if it is easy, the format is attractive and the experience is enjoyable. But nonetheless, the IFPI insists that 85% of traffic across internet service providers’ networks is attributable to illegal file-sharing. And of course, it’s over the music industry, by dint of its small perfectly formed file sizes, that the waves of the digital tsunami have crashed first and most violently. The recorded music industry has lost something like 30% of its value in the last eight or nine years – and at least some of that is down to increased internet file-sharing.

Seemingly recognising this and a range of other contributing factors, the UK government has launched two public consultations in the last few months. Lord Carter’s Digital Britain report focuses largely on the future of broadcast, radio and wireless networks, but tries its hand at offering some kind of regulatory solution between rights owners and the internet service providers who are accused of benefitting from the traffic of all this illegally shared content across their bandwidth. The UK Intellectual Property Office sensing the insecurities and perhaps the inconsistencies in copyright legislation has launched its own “informal stakeholder consultation” into the future of Copyright in the 21st century directed by junior Rights Minister, David Lammy.

In Europe, the highly controversial EU Medina Report is due to be voted on by MEPs in the next few weeks. Medina aims to update the EU Copyright Directive in a number of different areas including extending the term of a recorded music copyright from 50 years to 95 years.  Considering how difficult it is to enforce any protection at all currently, it is hard not to feel that the EU is looking in the wrong direction on this one. The UK is already standing out against this recommendation and suggesting a compromise at 70 years. Given the current appetite for remixing and reworking, some are arguing that maybe 10 years would be more enforceable and lead to greater exploitation opportunities by allowing works to be open sooner for incorporation, adaptation or pure mashing-up (perhaps this might be feasible if there would be some compulsory remuneration involved for a set period before becoming fully public domain).

It’s not as if the legal fraternity has not attempted to address the problem. Stanford Law Professor, Lawrence Lessig has created a new framework which is designed to allow creators to permit others to use their work in non-commercial circumstances.  There is an entire movement gathered now behind Creative Commons (CC) and its non-commercial licenses are visible increasingly, often from more philanthropic or public-service oriented media producers like museums and galleries, through to the TED-talks or new young musicians interested in collaboration like those who work is on sale from CC only store Jamendo.  Ironically, although Lessig seeks to democratise certain aspects of copyright and enable a degree of legalised freedom of usage, Lessig’s licenses still depend upon a legal construct to impose some kind of control over the swirling, liberalising inevitabilities of digital technology. And so scary is the prospect of change that Lessig is regarded by the recorded music industry as some kind of pariah plotting the downfall of musicians everywhere. One senior record company executive whispered to me without a whiff of irony: “He’s funded by Google you know, there’s a massive technologists’ conspiracy to bring down the music industry”.

So strong has been the scandalised outrage at illegal filesharing and the daily abuse of copyright that it has been hard to start to talk about what the world might actually look like when the reality of the old copyright mechanisms are not just much reduced but vanish altogether.

There are plenty of signs of how to begin to envision a culture in which music, games, stories, news, movies – are produced collaboratively and interactively. The games industry, the newest of the content industries and now the biggest, has also been the earliest to adapt. For example, the latest release of market leading game Grand Theft Auto – “the Lost and the Damned” is innovative both because it will be sold as a digital download only, but also because it comes in the form of a modified version of the previous release. The dramatic setting remains in the fictional Liberty City but the gamer gets to play from a new point of view of a different character with new story lines and new situations. For these recessionary times, this has the merit of saving RockStar Games, the developers, lots of cost on rendering new cityscapes and at the same time lets the gamer extend the previous episode from a new angle.  In the case of Sony’s Little Big Planet Playstation game, released last year, part of the appeal of the platform is how it allows users to create their own levels and their own characters and allow others to play with them. So far, says Ray Maguire, SVP of Sony Computer Entertainment UK, there have been some 2,500 new levels created and over 2 million plays of them.

One key effect of this is that the single author, the individual of vision, is displaced by multiple contributors who may lead or follow, play major or minor roles, agree or disagree with each other. In this culture the idea that any one statement or creative gesture can represent “the last word” comes to an end.  Instead there’s seamless versioning. Morphing of works becomes the expected. Charlie Leadbeater has called this “mutual media”.

Until very recently the listening majority has been content to hear some meaningful music when they’re driving in their car or doing the washing up.  For them, the world of interaction and collaboration seems remote, too much like hard work, not part of the couch-potato passive consumption they’re used to. But whether it’s in Little Big Planet, as we’ve seen, or in World of Warcraft with it’s current 11.5m monthly subscribers, new consumers are increasingly creators themselves. And the good news for the creators of these platforms is that people are keen to pay for the privilege.  The same is visible in the massive popularity of games like Guitar Hero and Singstar where it’s all about the player’s active participation. The quality of creativity may vary but the model in which users interact and create their own elements in a game is more and more visible.  The many thousands of video mashups on YouTube are further demonstration that this is a more common behaviour than you might think. Apple’s Garageband and other music creation applications like it are starting to attract the attention of lots of users at home and in schools. They’re beginning to level the playing field of music creation. Anyone can start having fun making music that sounds half decent – and from there it becomes something else and quickly can belong to everyone else too. Try listening to all the various re-mixes of Radiohead’s track Nude that their fans have submitted to the band’s website or the one they’re opening for remixing currently: Reckoner.

For the most part, rights companies like games publishers or even software creators like Apple, still try to retain a lot of control over their users’ behaviours. They tether the games to the platform devices and, only a year ago Apple was still adding its own form of copy protection to music on iTunes so that it could not be played outside their platform. The decision to cease doing this and the major labels’ agreement to remove digital rights management (copy protection) from their files on iTunes was an acknowledgement on their part that the system did not work and that it inconvenienced people too much. So even as they protest and lobby to try to protect their version of the copyright system, their commercial actions suggest that they are starting to understand how broken it is. The recent decision by the BPI and the RIAA to stop suing consumers for illegally downloading music is a further indicator that even the rights owning companies recognize the damage they are doing to themselves of going against the flow of where new active consumers and the internet are going. This does not mean the end of creators’ rights but it does demand big changes in the mechanisms for applying those rights. (It’s all about the meta-data stupid!)

So as everyone tries to adjust, we’re starting to see the ways in which artists, writers and other cultural producers might begin to be paid again for their work – in ways totally different from today. Some have foregone value in the content altogether and go find it in the accompanying experiences. So, for example, the album becomes a promotional tool for the tour. It’s been that way for years for the Rolling Stones whose old catalogue is way more valuable than their new songs will ever be. But new or unknown artists are also finding that they can give their music away and use the recordings to drive their fans to their gigs. A little company called MusicGlue has created a platform that allows artists to take advantage of the huge, viral word of mouth effect of online communities and make the file-sharing networks become the opportunity to reach an audience and grow it not the means by which value is lost. In the new creatives’ rights culture, the way creators are getting to publicise new work is precisely by allowing it to be passed around and rewritten or mashed up by friends, partners, enemies – or total strangers from the other side of the world. Possibilities for our  new copyright culture start to emerge in which it’s not the content itself that retains the value, but the path that it takes, the hands that it passes through and the other content it consorts with along the way.

Of course, there’s still loads to figure out. Even the leaders of the pack, YouTube and Facebook, are still experimenting with how best to make real money out of the relationships they enable between “friends”. Some of the more extreme or innovative new businesses like Twitter, MusicGlue or MusicMyne are emerging despite their economics not because of them.  Different sectors are at different stages and will respond in different ways. Amazon has launched the updated version of its new electronic book reader. The Kindle 2, released this month and the Sony eBook reader are the beginnings of the breaking of the digital wave in the book world.  eBooks currently represent a mere 0.01% of total book sales, but their year-on-year growth for the first nine months of 2008 was over 55% while physical book sales declined by some 3.8% in the same period. In November the growth was over 100%.  The book has tremendous enduring characteristics that suggest it will never vanish, but eBooks’ growth suggests that, albeit slowly, even the stuffy world of book-publishing is opening itself to the opportunities of digital distribution and ultimately collaborative interaction.

For some, it all looks too much like a medieval, lawless, anarchic world in which the rich and strong, the famous and the corporate survive – and everyone else rips each other off all the time and flounders in the mud. But our current copyright fixation on the ur-text is antiquated. Instead, we will find ways to be engaged by the conversations that the work provokes, by the paths its super-distribution takes, the iterations that it undergoes and the interactions it provokes.  This implies a totally different model of consumption as well of production of creative works – and one that we already have glimpses of in our blogs, Twitter, the music mixes on MySpace, the video mash-ups on YouTube and mod-ed (modified) video games posted on game sites all over the web.

So does this mean that there will never be any masterpieces ever again? Does this imply that a fixed and perfected work of genius will never emerge as the must-read book or the must-see film or the must-listen album? Of course not, we live in a highly individualistic, even fetishistic, hero-worshipping culture. We will always crave that defining statement, the single authoritative view, the unique voice of the star. Just as newspapers, radio and television have not been superseded by websites, so digital culture will only be enriching.  But however detached, crafted, manicured and “finished” a work may be – if it’s digital, it is appendable, amendable, adaptable too.

Whether content is merely shared or produced by active collaboration, as it is passed from user to user and clustered with other works, it begins to tell a new story that has its own value. And in that story, the patterns of consumption, ordering and selection reveal as much about the users as does the content itself  (we’re just not sophisticated enough yet to understand the new stories that will be told).  Interactive responses to this new cultural richness are becoming the norm in all sorts of better-informed, super-smart ways today. It is the complete opposite of the ill-educated, oral culture of the dark ages before Ben Jonson, but it might just possess something of the same spark and vitality of that medieval pre-technological anarchy. When millions of songs are available to choose from and smart systems guide us to the songs it thinks we might prefer, then the way we spread the word to others, to whom we speak, and how we modify the messages with our own voices, become new sources of knowledge and value – and maybe just hint at what our digital future looks like.