Tag Archives: pricing

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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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.

The Value of Nothing and the Price of Everything

In the frenzy of the last few weeks of the economic crisis, there has been much that is familiar to the recorded music industry in the performance of the global economy.  The markets of the world are in crisis over value. Albeit for very different reasons, the recorded music industry has been on a quest to arrest evaporating value for the last ten years.

The recorded music industry has long attempted to blind both paying fans and creative artists with complex explanations of the enormous risks and costs in the industry. The regular practice has been to create contracts in which the true mechanics became opaque and to offer perverse pricing structures which seemed to ignore intrinsic value. The sophisticated segmentation of intellectual property rights in music where no physical good ever existed, and a questionable belief system of trading those rights looks a lot like the house of cards complexities of the broader capital markets. What’s happened in music is comparable to the very sophisticated financial instruments which have sought to conjure profits from counter-intuitive commercial outcomes (hedging that you will ship silver and return sub-prime platinum) and from the parcelling out of debt so that risk averse investors could no longer see what it was that they were putting money into (invest in my label, I’ll do the A&R).

Ironic, given that the one investment mantra that financial wizards repeat with consistent banality is “know your market”, understand what you’re investing in. Yet, what we have witnessed is the detachment of value from substance. It used to be that we thought it was only in creative industries that this kind of crisis could occur, where technology (recording and distribution) has enabled us to invest in and ascribe value to a cultural good. Technology has also undermined that ability and insists that we create a new means of adding value. The value of the music has long been separated from the cost of plastic in the CD but consumer journalists still even occasionally today want to ask how could labels charge £15 for a piece of plastic that only cost 50p?  Today though, consumers have already moved on. The majority of music consumers now happily pays for music as a service while the recorded music industry still tries to sell it as a product. In the volatility of the world’s stock markets over the last few weeks, what we have seen is this same critical separation of value from price.  It would seem that once the cultural, pyschological and technological underpinnings of value are rendered opaque or anachronistic, then any price is as meaningful as any other and none is low enough – until it looks like a bargain and then you can buy like crazy!

But there is a very broad spectrum that goes from Damien Hirst’s £10.3m Golden Calf to the Volkswagen share price spike which confounded the hedge-funds.  Hirst’s prices seem as if were achieved by manipulation and propping up of value, Volkswagen’s price spike appeared to derive from an unexpected  realisation of and faith in the management team behind the business. And it is the Porsche team that brought back the confidence with a reputation for design, innovation – and making very fast cars!

Blinded by bling or putting faith in management and the quality of innovation?

As we look towards 2009, the characteristics that we will see coming to the fore are going to be all about transparency, quality, and experience in innovation. We will see a move away from the most technically dazzling and a preference for good execution on more tried-and-tested ways to innovate. But there can be no deviation from innovation – that is still be a requirement to grow markets by responding to technological change and by racing to take advantage of what it has to offer. And in the current climate the best way to do that is to temper the risks by a greater depth of experience in innovation itself.