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Tag Archives: Music Industry
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?
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”.
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.
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.
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 .
“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)