Tag Archive for 'music'

The music industry and a glimpse into its future

Published on March 15, 2009 in Media, with 0 Comments. Tags: , , .

Before I share this insight, I want to explain how I met the guy which just validates the uniqueness of SXSW. Otherwise, skip to the subheading below the first image to get to the meat of this post.

sxsw2009

At 6pm, I went to my first social event at SXSW, and walked around a pub ("divebar" in America - I'm learning!). I was alone, didn't know anyone, and so sat down on a couch near the pool tables sipping my beer.

Some dude was sitting there, and we got into conversation. We had absolutely nothing in common - he was a project manager from Virginia, and I was an accountant from Sydney. The conversation was strained, and was injected with occasional remarks where this fairly camp guy was trying to find out if I was gay. When it was clear I wasn't, he got up to get another drink, and that's when the man of the hour sat down.

Again - I introduce myself. I'm the accountant from Sydney, but this guy was a product manager at a music company. After realising that he effectively drives strategy in one of the world's biggest music companies, I couldn't help myself and started prodding him with questions about the new music model.

And so that's my story. I randomly came across one of the more influential people in the music industry. I also finally found someone that thinks about the same problems I do, which is how to monetise content. And after I revealed later on I was the vice-chair of the DataPortability Project, I floored him and so ensued hours of conversation where I got to test some of my unpublished thoughts about business models.

The fact this conference is the intersection between interactive, music, and film - is the reason why we know each other and could challenge each other on ideas. Austin is for this week a city with the worlds best minds in New Media. SXSW - we are both thanking you for creating this relationship!

So now to the insight I got, which was before I corrupted his views with what I think!

Artist

A view where the music industry is going
The record label model is actually going to work (as I was told). What's happening is a change, and the crisis the industry has faced is actually a good thing, because its forced them to rethink and renegotiate their value proposition.

Record labels have realised that the value they provide to artists is that of a talent management agency. In fact, an almost complete parallel can be made with the venture capital industry. A new internet startup, like a new musician, is fresh and not able realise their potential. Venture Capitalists discover this talent, and invest in them for a future return. The VC's will give them money and access to their exclusive networks - and the startup in return, gets to grow in ways they never thought possible.

The record label is now evolving into a similar model. Overnight, they can make a new star by giving them exposure to foreign markets, the capital they need to record music and distribute it to the masses, and all the other costs that are needed to become a big star. In return, rather than deriving 90% of their revenue from CD sales as record labels used to, they instead ask to get a 50% stake in the artist.

I raised this is effectively like slave labour, but when you think about it, a five year contract is completely reasonable given the amount of investment the label puts in. The labels are finding they can generate a lot of money on the merchandise and live concerts sales, as opposed to just the distribution sales. By taking a more diversified revenue mix, and taking more of a partnership approach to an artists career, what we are seeing is a more robust music model.

Records

Will that mean music can now be free? Well this company makes several billion dollars a year on music sales still, of which 75% are due to CD sales (and just the fact they make 25% in digital amazes me in itself). If music going free is the trend, my friend doesn't see it happening for at least another decade.

And by that time, they'll be ok. It appears the music industry is experimenting with a new approach to monetising artists based on the "experience" and is more about creating a connection with their fans. It's still early days, but after our very long chat, I've now come to realise the record label isn't dead - it's just evolving. And they are well onto that path of a future model that works in this new world.

The change brought by the Internet is a correction

Published on January 26, 2009 in Media, with 0 Comments. Tags: , , , , .

I was sitting at a restaurant with Mick Liubinskas of Pollenizer the other week, who I regard as one of the best minds in the Australian tech scene. Mick in a previous life used to run marketing at Kazaa, which was the music-industry's anti-Christ during the early 2000s. Kazaa was one of the higher profile peer-to-peer technologies that made the distribution of music so widespread on the Internet.

I said to Mick how one of the things that plagues my thinking is trying to work out the future business models for content. Naturally, we ended up talking about the music industry and he explained to me the concept of Soft DRM which he thought was one avenue for the future but which the record labels rejected at the time.

DRM

DRM or Digital Rights Management is the attempt by companies to control the distribution of digital content. Hard DRM places control over access, copying and distribution - while soft DRM does not prohibit unauthorised actions but merely monitors a user’s interaction with the content.

The basic difference, is that Hard DRM protects copyrights by preventing unauthorised actions before the fact, while Soft DRM protects copyrights by giving copyright owners information about infringing uses after the fact.

As I questioned Mick on this, he compared it to us sitting in that restaurant. What's stopping either of us from getting up and not paying the bill? The restaurant let's us sit, serves us food - and only at the end do we pay for the service.

Hard DRM is not congruent with our society
Part of the music industry's problem is that they've focused too much on Hard DRM. And that's wrong. They could get away with it in the past because that's how the world worked with controlled distribution lines, but now that world no longer exists with the uncontrollable Internet.

In a restaurant, like any other service industry, the risk that you don't get paid is real but not big enough to prevent it from operating. Our social conventions are what make us pay that bill, even though we have the ability to avoid it.

To insist on the Hard DRM approach, is going against how the rest of the western world works. Our society is philosophically based on the principle of innocent until proven guilty. Likewise, you pay after a service has been rendered - and you pay for something that has unique value (only scarcity is rewarded). What existed with the media world was unique over any other industry, but unique purely due to technological limitations, not because it was genuinely better.

The record companies (not the artists) are hurting
Artists practically sell their soul to get a record deal, and make little money from the actual albums themselves. This change for music is really a threat to the century-old record company model, of which the Internet has broken their distribution power and their marketing ability is now dwarfed by the potential of social media.

Instead of reinventing themselves, they wasted time by persisting with an old model that worked in the industrial age. They should have been reflecting on what value people will pay for, and working out the things that are better than free. Unfortunately, the entire content business - movies, television, radio, magazines, newspapers, books and the rest - have made similar mistakes.

The Internet is transforming our world and every object in our lives one day will be connected. In some ways, the great change brought about by the Internet is actually a step back to how things used to be (like it is for music where the record model was an anomaly in our history). Even the concept of a "nation state" is a 20th century experiment pushed after the first world war, where for our entire history prior to that, our world was governed by independent cities or empires that governed multiple ethnic nations - the Internet is breaking down the nation-state concept and good riddance because its complicated our lives.

Future

We need to clear the white board and start fresh. The Internet is only going to get more entrenched in our world, so we must re-engineer our views of the world to embrace it. With content, distribution was one of the biggest barriers to those industries to get into, and now it has been obliterated. Business models can no longer rely on that.

We should not let the old world drive our strategies for business because the dynamics have changed completely. If you are looking to defend yourself against an oncoming army - stop polishing the sword and start looking for the bullets to put in the machine gun.