Dear Music Industry, There is No Saviour Machine!

My beloved music industry is winding itself up again in one of its periodic pursuits of a saviour, and this time the lucky victim is the blockchain. It will go through much the same process as any of the other manic episodes in our recent history, and end up in the same kind of bewildered slump.

To be clear, it seems obvious that blockchain based technologies can make a big difference to some industries. They reduce the cost and risk involved when many parties, who might not know each other, have to trust each other to honour the terms of transactions. Traditionally this function has been done via trusted exchanges, intermediaries, and insurance, all of which help manage risk to some degree. Blockchain substitutes for some of this a shared and mutually verified ledger. The transactions on that ledger can be governed by similarly verified contracts, so that if conditions are not fulfilled payments won’t be made.

Charlie Chaplin in Modern Times

Charlie Chaplin in Modern Times

Like many innovations, blockchain is emerging in a ferment of enthusiasm and speculation. It might indeed transform many industries, but its impact on music will be more modest. Here’s why.

  1. Very few transactions in the music industry carry significant financial risk, and the ones that do are generally between two parties who know each other. The risk around the amount of uncertain future income is of a different nature. Blockchain won’t be able to guarantee that your next album will be a hit, just that you will get paid for the licence you sold to exploit it.
  2. Music has billions of events with financial implications (each click on a play button) but relatively few of them are actually transactions. It makes no sense to increase massively the number of transactions that need to be recorded and reconciled, and would be absurdly expensive to do so.
  3. Music benefits from a kind of semi-formality, where we can freely move audio files around between devices and platforms, some of which are part of the tracked and royalty bearing infrastructure and some not. Ensuring that the many stakeholders in a single audio file had given permission and were compensated at the point of each transfer would add massive cost and inefficiency.

So once you take out the dafter ideas about what blockchain might enable – or given that this is the music industry, what it might be coerced into preventing – what is left is a more modest but nevertheless important set of back office functions. I hope we can all agree these are worthwhile even though they are not so sexy as the complete and waterproof total music rights permissions and royalties machine that some visionaries seem to be offering us.

But this is the music industry. We’re not traditionally a recruiter of qualified and experienced scientists or technologists, but a community driven by hope and emotion. So, in the hope that a great artist’s emotion will make more of an impact than a bit of rational analysis, here’s David Bowie explaining far better than I can, to a video that blockchain would make utterly impossible:

Update: June 2016

The video originally embedded had so much third party copyright material in it as well as a presumably unlicensed copy of Bowie’s track that it was only matter of time before it got a take down.

Update: August 2016

The video seems to be back online.

Here’s another:

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Two Ideas for a Bigger, Better Music Industry

We have come a long way in the music industry since the first faltering attempts to sell music online in the mid 1990s. A couple of personal anecdotes (names withheld to protect the guilty) from those years illustrate just how much music industry attitudes have changed. A top UK band manager raged in one meeting, ‘get [my band] off the internet’. A top record label CEO told a company conference, ‘we think the internet will prove to be like CB radio’. 10 4 good buddy!

Behaving badly and getting away with it

Public perceptions of the music industry have changed too, and continue to evolve. What made it attractive as a career to a certain kind of person before the millennium, is perhaps best summed up by this misappropriation and misquotation of Hunter S Thompson:

The music business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.

That the original was about TV, not music, and that the twist was added, just serves to demonstrate the sense that success in music was about behaving badly and getting away with it. The potency and validity of that idea seems to have been draining away fast in the 21st century. One of the most enlightening studies of the music industry’s war on internet piracy came not from an economist, but a professor of marketing, Markus Giesler, who looked at how attitudes changed over a period, casting the undoubted disruption almost as an argument between lovers. The title, ‘Conflict and Compromise’, tells us a lot about modern commerce, and music is no exception.

There is too much in Giesler’s paper that is too good, but I shall pull out a quote from his conclusion:

consumer heroism also plays a formative role in directing the historical process of market evolution

Yes, consumers are heroes, and are neither passively compliant, nor victims of whatever tricks the music industry might want to play on them. Consumers do not exist merely to solve our cashflow problems.

So here are two big ideas, that between them will do much to improve music for all of us who value it beyond its ability to convert clicks into cash.

1 we must be guided by a model of the kind of consumer we hope to engage.

In music I would say that our ideal consumer is knowledgeable, about music and artists, and about culture with all its facets, and able to connect between music and other forms of art and craft. Our music consumer is interested in the world too, and what music can do to bring comfort, joy, freedom, ideas, into the many dark places as well as our comfortable developed societies. They are not the super rich. It would be absurd to ask that 99% of the world should be paying for music; but what about pricing within reach of 66%, as a start? And finally, the ideal music consumer is ethical in approach and habit, always choosing the fair and sustainable over a short term buzz with dubious provenance.

2 we must remove the risk for our partners who innovate and invest to carry our music into the world.

We should license our partners long term, so they can plan to improve the consumer experience through many iterations. We should be willing to trade some short term benefit for long term stability, so that music licensing risk is never again mentioned in statutory stock market filings. Within the music industry we should collaborate to present our partners with a complete set of copyrights, and a complete set of information about the music. We should take perhaps a seven year, rather than a one or two year view. Our ideal partner is one who will over many years invest to support music with their networks and their infrastructure, and return revenue so that we can reward the creators and investors and regenerate our industry.

Growing up in public

We are having a debate now in the music industry about transparency, about data, about interdependence and its risks for us, and for how we can continue to work together. That some of this debate is leaking into our collective conversation with consumers seems to me to carry its own risks. Do artists want to be more transparent about their own business? Or do they only want the rest of the industry to be more transparent to them? Should we be lifting the kimono fully on the small group of writers and producers that dominate chart pop? Does the music consumer have a right to know whether the string section got paid?

If we continue to go into this debate as though we are unaware we are being observed and judged by our ideal consumers, we will be in danger of perpetuating the perception that we are an underserving industry, that each of us is simply out to get what we can no matter whom we swindle in the process. But if we can get over ourselves and concentrate on being fit to serve our ideal consumers and our ideal partners, a bigger and better music industry awaits us.

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It’s a Playlist World. Time to Break the Lock-in!

Playlists are moving to the front and centre of music discovery and consumption. They alter the balance of power in the industry in some obvious, and some less obvious ways. So who is winning in a playlist world, and how can we make sure the power of the playlist is used for the benefit of music fans and artists?

It helps to know which playlists are important, and for what reasons. For artists and record labels playlists can now make the difference between success and obscurity. Lorde was famously a beneficiary of Sean Parker’s Hipster International playlist, back in 2013. Since then the music services themselves have made sure they own the lists that matter. As though it needed underlining, here’s Will Page explaining how Spotify used its playlists to make Meghan Trainor’s “All About That Bass” a hit:

Spotify can proudly claim over 90 percent of the credit for this historical achievement, and our curated Browse playlists were the biggest factor.

What artists are looking for is the chain reaction, where exposure on one playlist leads to additions to other playlists and so to positions in interactive charts. There’s some data showing that this now happens ahead of mass media coverage, for instance through broadcast radio.

Even if charts and pop success are not the main aim playlists can deliver a solid number of plays (and therefore revenue), or bring high engagement from a community. Spotify’s Paul Lamere generously gave us a lot of detail here, including a helpful breakdown of different categories of playlist – genre, context, mood… So for the platforms, playlists are a critical user experience feature, as well as a tool to manage their relationship with the music providers.

For users, playlists solve some of the paradox of choice problem, while ceding less personalisation than radio or non-interactive streaming. They are also, of course, a digital era reinvention of the mixtape, with all the personal and public status and communication amplified by global reach. For cheapskate families (sorry, hardpressed and hardworking families) playlists solve the dilemma of sharing an account between many people without getting too much in each others’ way. They are a scratchpad for research, and an amazing way to express one’s inner librarian.

All of the above is an investment in a service; you would expect much lower churn from users who had made more playlists. As such this is a form of lock-in. The cost of switching to a different supplier now includes reconstructing important playlists, or abandoning many hours of work, even where there might not be a significant repertoire risk. And as social and communication tools infiltrate ever more deeply it’s just going to get harder to leave an interwoven graph of music and connected people.

I suggested elsewhere that the music industry should be considering how we can achieve playlist portability between services, much as mobile network switching was really stalled before you could keep your number. There is a wholly understandable conservatism when users, and artists and labels, have invested heavily in an aspect of a service which is technically tied to that service. We end up working to preserve a service not because it innovates and offers great value, but because we don’t want to lose the work we put in.

So this is the playlist panorama. A small revolution in discovery and listening, but not a democratic one as the platform owned playlists have almost all the power. A new layer of sharing and self-expression for users. A new dynamic in value which pushes users and music providers to work unpaid to increase the value and stickiness of the platform. Oh, and new opportunities for payola, which frankly are just as bad value as they ever were, and just as uninteresting.

As so often, the music fan’s interests are wholly aligned with the artists’ and labels’ for a fair, open, and portable playlist format. So take this as a very gentle warning that the benefits of a playlisted world need to be a little more evenly distributed. We should not tempt the platforms to prefer rent seeking to innovation and competition, even if it’s working for us right now. Portability would make playlists perfect.

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Equal Pay for Equal Play is Only Fair for Streaming

Popular music is popular because it is listened to by more people, and that includes more people who are not such great music fans. The music industry needs to take this kind of information on board as we plan for the future. We have enough perverse incentives already embedded in the way we do business without wilfully amplifying or adding new ways to make fools of ourselves.

It took a bit of research to clarify how and why music becomes popular. We like to know what other people are listening to, so popularity is in itself a driver of additional listening by more listeners. It turns out we think we like music better if we think it is more popular too. The hyper curious can chase down work done by Salganik, Dodd, and Watts, who studied this phenomenon, even to the extent of faking popularity, with depressing results for those who think that cream rises despite our biases.

Some of us like a wider range of music than others. But it turns out that the model of an eclectic listener who dives deep and never surfaces is mostly a myth. Pop seems to be pop with eclecticists, as well as the casual listener; Anita Elberse has studied this in detail with Felix Oberholzer-Gee, in response to the influential Long Tail ideas expounded by Chris Anderson.

As her online bio says, “Professor Elberse is one of the youngest female professors to have been promoted to full professor with tenure in Harvard Business School’s history”. Looking at some large data sets Elberse found that nearly all of us start at the top of the pop pyramid; most of us stay there; a some explore a bit deeper and further. Elberse put this much more succinctly than I can:

consumers of the most obscure content are also buying the hits

The people who only like popular music turn out not really to like much music in their lives. They are the classic light listeners. Again, that should be no surprise as they don’t demonstrate much deep interest with their music choices. And conversely, the eclectics are the heaviest users of content services. Of course they are. They are passionate, and adventurous.

Many people wish all these awkward findings were not so evident, and despite what the world is showing them are campaigning for a change in the way that subscription fees are divided up and paid to copyright owners and musicians. Their big idea is that the money from each subscriber should be paid out only for those tracks that particular subscriber listened to. It seems to be fair, as it treats the monthly sub as a kind of pre-payment for actual consumption.

This was proposed by Pedersen in a study of a small data set from a Danish streaming service. His conclusion was that the popular artists did better with per user distribution (although some Danish artists also benefit), but that it was an open question how consumers would respond if they knew about the method. I shall quote his own conclusions:

Switching from the current pro rata distribution model to a per user distribution model would primarily benefit the most popular artists.


There are two primary benefits of shifting to a per user distribution model. First, it re-establishes the economic connection between the consumer and the artist, where the fees paid by the subscriber is distributed among the artists she actually listens to. Secondly, it benefits local artists, which could be interesting from a cultural policy perspective.

I would argue that we should be cautious about relying on any conscious and deliberate economic purpose from music listeners when we are thinking about how to develop our industry. It seems too much to ask that consumers should choose between royalty structures when they are wondering how to get their music, even where we might expect some to prefer suppliers that try to be fairer.

But a small group of commentators have jumped on the per user distribution idea and turned it into a campaign. Some clearly don’t understand the data, and claim that it benefits indie and niche artists. Others simply consider it fairer. It is an odd kind of fairness however, that decides in retrospect that one listen is worth more than another listen, and that listens by light listeners are worth more than listens by committed and engaged music fans. And it would have the very obviously unfair result of rewarding artists more to the extent that their listeners could be persuaded to spend less time with music as a whole, and with other artists.

We have to decide what kind of music fans we want. I have argued elsewhere for diversity and discovery as the signs of a healthy market. It seems to me that we get there by making sure that all the incentives are lined up so that we in the industry want our audiences to love more music from more artists, rather than less from fewer.

In subscription that means each listen should be paid out at the same rate, or at a rate that the copyright owners and musicians have negotiated. We have a huge range of choices for people who want music, and for the lighter listeners perhaps a few good compilation albums bought as CDs or downloads are better value. But there is no justification at all on the grounds of either fairness or outcomes to hypothecate subscription fees.

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Fairness and Advantage in Future Music Markets

A debate is being conducted by the stakeholders in the future of the music industry, about who should get paid, how much, and by whom. So much devilish detail is being left out that an intelligent observer would get a very distorted view of the present, and that is no basis on which to build a future.

So what is missing, and why does it matter?

First, the spotlight on streaming shades all the other ways that musicians can make money, as recording artists, composers, and performers. It might indeed be that apart from public performance and synchronisation, streaming becomes the overwhelmingly dominant way that recorded music gets paid for. But there is a long way to go yet, and short term advantage over the transition (if there is indeed a clean and substitutional transition) could translate into long term advantage for the winners. ‘Winner takes all’ is not great for music, which benefits from innovation and diversity as much as the rest of civilised life.

Second, it’s easy to miss the fact that there are many parties between the artist and the streaming royalty, all negotiating their share as best they can. An appearance of transparency can hide as much as it reveals. An artist might agree a 10% royalty from a record company in return for a recoupable investment in their career, in cash and effort. That same record company might agree a 20% royalty with another artist, because there is more competition for their recording rights. Another artist might use a DIY platform that pays out 100%, but have to borrow the money to record the music and hire their own team (or really do everything themselves in their spare time). In a debate about fairness the percentages are meaningless, unless there is coercion or bad legal advice when these agreements were made.

Third, the famous ‘black box’ exists because some income from selling the right to use a catalogue of music is inevitably unattributable to the subsequent actual use of a piece of music. This is evident at every layer between performer and audience, and it can be dealt with contractually, using proxy values if necessary. If particular companies get a reputation for growing the black box at the expense of attributable revenue in order to retain a larger share of the profits, they will have to compensate by growing the attributable revenue even faster or they will find musicians migrating to where they get a better deal. There’s enough ‘unfair contract’ case law in music to serve as a warning to record labels and music publishers which set out to rip off musicians.

Fourth, and a more subtle point, is a concern that the mechanisms for calculating how the music owners, and ultimately the musicians, are going to get paid is inherently unfair. This appears in two forms; one in which stakeholders in a single payment (for instance composers) argue that they should get more of that payment, and the other over whether large pools of money from subscriptions should be considered aggregates of individual subscriber payments, or a single collective payment for the totality of the music offered and used. Neither yields easily to an argument based on fairness, and both are re-distributative. In particular the latter overlooks some very critical points. The service has to provide the music in advance, with the payout being partly for the opportunity to listen, whether it’s taken up by a particular individual or not. Services also have to consider consumer satisfaction, which might just as easily be driven by lots of listening to a wide range of music as by the ability to increase royalty payments for any particular recipient. Artists with very broad appeal will do very well in all cases, but other artists whose audience is more open-eared and experimental might well turn out to be critical for the long term health of the music industry.

It could easily be that the music industry as a whole is at a great disadvantage to its technology driven partners, whose users naturally enough want to upload and download without a debate about fairness and legality. Certainly in recorded music a very heavy price is being paid for the transition from physical to digital, and consumers and the new music services and device makers are capturing a lot of the new value created. Within the music industry however, there are warning signs that those who arguably already benefit most will try as hard as they can to embed their advantage. It should be a warning to us when ageing and wealthy musicians are presented as the future of the music industry, or asked to argue for fairness in the way all musicians get paid.

Here’s just one example:

“Why is someone who pays 9.99 Euros a month just to listen to ABBA in the same basket as my daughter, who streams thousands of songs?”

The answer to me is obvious. As an industry we need to help new artists get discovered and supported, and we need to develop young and paying customers for music. Helping more money go to the creators of 40 year old sound recordings will achieve neither of those aims; instead let’s choose discovery of new music, and more music, as the way we judge whether the market is working, and fair.

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Musicians seem to be on a permanent campaign for more money, and a larger share of whatever’s going. There’s no doubt it’s tough to make a living in music. There are more musicians than there are living wages, and as an industry the way the money is shared out often leaves all but the top players out in the cold.

But beyond a general sense of fairness, that music and artists should be paid something and should if they are good be able to make a living, the public seems at best only mildly interested in music’s fair pay debate. Why should that be? And what can be done about it?

Thirty years ago Dire Straits summed up one attitude to pop success with ‘Money for Nothing’. Then or now, scamming it and behaving badly is not going to convert even passionate music fans into musicians’ rights lobbyists. And the Tidal megastar love in might have been a PR disaster if anyone had cared enough.

So, instead of esoteric arguments about how to share out 0.07 cents between the cast of thousands behind a popular song, here’s a shortlist of suggestions to help really get the public on music’s side.

1. Show the public at every opportunity what a lot of hard work is involved in creating, performing, and recording music. Tell them about the sacrifices we make to get just the right sound, the obsessive practising that delivers the perfect inflection, and the sheer nerve of putting a life and a career on the line day after day. If if they don’t like the result, they can’t disparage the effort.

2. When we claim to be doing something, make sure we can back it up. Sure you can mime to your own guitar solo or vocal on a video. But if it supposed to be sung, sing it, don’t fiddle it together with Melodyne and brazen it out. If it’s a work of studio wizardry that is fine too, as long as the truth is told.

3. Be scrupulously fair to others in our own industry, by crediting all performers, making sure the songwriters are acknowledged, and the information is all there so everyone involved gets paid properly. Nobody sides with a cheat; nobody can break through a wall of honesty and virtue.

4. Hardest of all, don’t oversell music! We’re not going to fix the global economy. When people say they can’t live without music they don’t really mean it. At best we are the sign that a society is developed and civilised enough to care about more than subsistence. A little gratitude for any help we get will go a long way.

If we show respect to each other, and make it easier to work with us and help us, and if we are duly thankful for the privilege of working with one of mankind’s greatest gifts and achievements, there is no doubt that the public, and the politicians who represent them, will reciprocate.

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Europe’s Digital Single Market is Good for Music

Accustomed as music companies are to territorial licensing, pricing, windowing, and marketing it is understandable that there should be at least scepticism if not outright hostility to the European Union’s Digital Single Market strategy. Swedes with an average GDP (PPP) per capita of $45,000 can afford more music than Bulgarians with $15,000. It doesn’t take much imagination to understand that the inequalities in such a large and diverse market make it hard to price a service or a product which is available to all.

These inequalities are unsurprisingly reflected in the relative sizes of Europe’s national music markets, with Germany and the UK each more than half as much again as third place France, then a long drop to fourth place Italy. Populations and the size of the economy and the amount of discretionary spending are relevant of course, and it’s gratifying to see that the UK is second only to Japan in the amount spent per capita on music. The wide disparity in the size of the market as a whole and the per capita spend is illustrated well by the fact that the US is only fourth largest in the latter, while being the leader by far in the former.

There might be many reasons why, even corrected for purchasing power and the availability of discretionary weekly cash, some cultures buy more recorded music than others. In some places music is universally considered an appropriate gift, and record tokens or gift cards deal with the preference problem. Historical differences in economic development mean that the dominant vectors for recorded music are much less present in some countries (and this is why universal high speed broadband is so critical for Europe’s cultural industries).

But what would a European digital music market look like? It would start out at about €4b, or roughly the size of the US market. But it would have 500m consumers, versus 300m for the US, and a per capita GDP (PPP) of a very respectable $36,000. It would also have two powerhouse centres of music export excellence, in the UK and Sweden, and the benefit of an extraordinary array of local and regional cultural support programmes.

Back of an envelope maths says that is already an additional €0.75b just by taking away artificial barriers (GEMA, I am looking at you). Other positives might come from innovation, particularly in finding a way to address the less wealthy areas with affordable products and services, without undermining pricing for the higher end. If Europe can crack that there are a few more continents that could prove excellent importers of both music and the digital services and technology that sell it. The necessity of being multi-lingual and serving a very rich and diverse set of cultural preferences would surely give Europeans a strong advantage over the parachute business model strategies of our friends across the pond.

Even more, where there is already excellence in copyright administration and the digital skills that drive value, a larger internal market would strengthen the good and drive out the bad. Why would local artists trust their careers and livelihoods to inefficient and corrupt collecting societies if they could just join the best and get paid for the world’s biggest music market from one source? And perhaps regional diversity would re-create the middle class of record labels that provided so much value, before they were destroyed by the wave of enfeebling consolidation that left us with two and a half global businesses in a market a third the size it was at the millennium.

If Europe’s politicians are wise they will consider not the interests of those global businesses, even if one of them is headquartered in Paris, but rather regulate for the music industry we could have. One that has more opportunities for artists, no matter where they are from, and one that takes advantage of our diversity as well as our size. I can only see good in a European digital single market for music.

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Three Reasons Why Indie Music Will Thrive

There’s a professional and independent music industry, sandwiched in between the largest corporate and VC funded businesses, and the hobbyist and part time music makers. It is vitally important as a repository of skills and cultural memory, as the guardian of meaningful values in music, and as an engine of innovation for the future. And I think that its future is very bright indeed.

Indies Provide a Better Home for Better Artists

It used to be that their superior financial resources, and, further back, their ownership of the best studios, gave the biggest labels a strong advantage when it came to helping an artist develop a career. No longer. The necessary blend of experience, skills, knowledge and dedication is found everywhere in the music industry, but in the bigger companies it is warped by the demands of financial managers and corporate apparatchiks.

The best and most interesting artists know this, and increasingly are making the choice to treat the industry as a menu of services that they can buy in when they need them. I think that these artists will over the next few years rediscover the indie record label as a deep and long term partner, where they can find accessible and approachable support for their creativity, along with an unprecedented marketing reach.

The Digital Dividend

Professional and independent creators and producers benefit proportionately far more from the revolution in digital tools and technology. Of course access to capital is still important, but the creative playing field is now much more level.

Music is no different to any other endeavour in that it can often benefit from skills, experience, and teamwork in bringing the artist’s original vision into the world. This set of competences is supported now by technology that enables global scale business networks to be pulled together even by small local businesses. So record labels can help artists who don’t want to start at zero, and can stretch those with ambition to do more with their talent. Digital production tools make quality and authenticity affordable in a way that for many was previously out of reach. And once the music is ready, the digital revolution provides a global market.

Real Independence is Rare and Valuable

Real independence is very much in tune with today’s sophisticated consumer, who is more and more rejecting the mass market in food, in coffee, beer, and all areas where your choices say something about your values. Quality matters a lot, but not at the expense of authenticity. For today’s consumer, the way that the corporate music companies manage risk, with focus groups and ‘outsourced’ creative teams, has negative value; this audience has taken DIY to heart and shops in advance of production on crowdfunding platforms, and in small stores.

Nor can this set of values be faked or bought in. It’s part of the natural cycle of business that founders often end up selling to the big conglomerates, but they can’t sell the love and support of the customer who joined them on the early part of their journey. And of course, in music, the artists that join do so because they share the values. Independence has the chance to become not just a slice in the music industry, but a social and cultural movement.

So for the following three reasons, I think that indie record labels will grow their role in the music industry of the future:

Reason number one: The best and most interesting artists need a supportive and sympathetic environment to develop their art and their careers; indies can provide this far better than investor driven corporates.

Reason number two: Professional indies will be helped by the digital revolution to reach a bigger and more sympathetic market than ever before, with a product that is enhanced by digital recording and sound production technology.

Reason number three: Today’s consumers are embracing the values that can only reside in independent record labels, and will join the movement if they consider it authentic and worthwhile.

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Spotify Cannibalises iTunes; Universal Cannibalises Music

Universal Music has been turning in some very unimpressive numbers for parent Vivendi over the last few years. Traditionally record companies blame everyone other than themselves for their failures (I did a brief survey some years ago here). Now in the frame is Spotify, which relies heavily on drawing users in on its free offering, from where it can sell data about them to advertisers and hope they upgrade to a paid plan. That free tier, said an unnamed Universal Music executive to the Financial Times, is not working hard enough for the music company, and moreover it steals consumers who might otherwise be buying downloads. iTunes, by far the dominant download store, is suffering slow but steady attrition.

Quoted in the same Financial Times article (March 2015), Spotify managed to both prove and deny this simple proposition:

The company also rejects the suggestion that its ad-supported tier is responsible for declines in download sales. “Spotify is not cannibalising iTunes,” it says. “Spotify is monetising people who have never been monetised before.” Only 12 per cent of former iTunes users are on Spotify and of that number more than 40 per cent subscribe to the paid tier, it adds.

You don’t need PhD level statistics to see that if 1 in 8 of the people who stop using iTunes do so because they are spending more than they would on a Spotify subscription, and if nearly half of those high rolling stoppers trade down to a spend which is capped at £120 per year including VAT there’s going to be less money in the system for recorded music. Access to all the music they either lacked the time or the money to acquire might convince some lesser spenders to push the boat out, but for the majority of infrequent or parsimonious music buyers, big value 100 track compilations would remain a better deal. The gifting market has a bit of inertia and is more likely to stick with CDs, or default to an iTunes voucher.

More contentious however is that free of charge tier in the subscription service model. For the many who never or only very rarely bought music in any form, the subscription business is as irrelevant as hipster vinyl. But again common sense says that there will be  cannibalisation; between free tiers of service and whatever advertising or taxpayer funded licence fees can be scraped together for broadcast or webcast services, and between free and the paid tiers. And while some services, most notably Spotify and its direct competitors such as Rdio and Deezer, strive to find a balance between free and paid plans, for others, including YouTube and Pandora, paid plans remain commercially insignificant.

I previously calculated very approximately a net loss to recorded music revenue of about 30p for every £1 of subscription revenue. Some analysts say that streaming is just too expensive, and that the revenue maximising full service price is more like £3 per month rather than £10. One of the clearest explanations, by David Touve, can be found here and in more detail in this presentation here (but please ignore the Swedish Internet traffic data as there was a much more plausible explanation than iPred for the drop recorded). At such low prices the cannibalisation effect would be even harder to deny. And even within a single service it seems hugely important just what you get for nothing and what you have to pay for.

So this has been a brief survey of just some of the moving parts in the market for recorded music. But why is it that spats over the finer points of music service revenue models reach the world’s financial press? And why do some of the biggest and most savvy businesses seem to be pushing so hard for apparently sub-optimal results?

That cannibalisation word is a horrible one and nobody is eating people we hope – the idea is contention for finite resources. Record companies and services each have their specialised capabilities that combine to capture value from music, so to some extent they must cooperate. But naturally all music services compete with each other, as do all record labels; and in the middle is a pot of value that could legitimately go to any of the contestants, or indeed to consumers, or to the providers of the devices and networks that connect us to the music.

In that pot is the explanation for the more inflammatory proposition of my headline, that Universal cannibalises music. Here’s how Vivendi describes UMG for investors:

Undisputed global leadership position in recorded music:

  • More than 30% market share

Translate that into a set of rules governing what models and prices a dominant record label would be willing to tolerate, and the trajectory of the market becomes obvious. Dominance means that a market participant not only wins, but is also able to choose the terms of engagement such they will always win. In music that means Universal takes market share away from all the other record companies, and to the extent that it can, also takes value from music services. Those services in turn need to see more of the value they capture also coming from the other labels, and the biggest squeeze will inevitably be put on the smallest. The digital music market has the same kind of inevitability to it as a modulated Conway’s Game of Life. It ends, by the way, when there is either nothing left to contend for, or nobody left to contend for it.

And the lesson I guess for anyone who makes or owns music that they believe is as valuable, or more so, than Universal’s, is not to swim in a shark pool. It’s probably time to test the always dubious notion that a a platform without chart hits (dominated by UMG and Sony, with Warner and the indies taking turns every few weeks to get a look in) would be unacceptable to a consumer with more developed tastes.

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Listen to the Music, not the Audio Nihilists

The trade offs that made digital music possible, when storage and bandwidth were scarce, are no longer quite so necessary through much of the developed world. Some brave services are trying to take advantage of this technological advance by offering higher quality music on demand. They face considerable obstacles, and oddly, a chorus of voices shrieking ‘snake oil’ and calling the whole endeavour a con. We should listen to the music, rather than the audio nihilists. Here’s why.

A little compression is very hard to notice; unsurprisingly the more sound that gets removed the more likely the listener is to notice a degradation. This is only a small part of the story however. The best and most professional do everything they can to ensure the end product is as good as it can be, right the way through the recording and production chain. But they have a low target to hit, and nobody can easily justify overspending in a tight market. Many of course deliberately take short cuts in order to save time and money. Now that nobody can plead necessity, having a higher final target would be likely to raise standards generally, and this would be a good thing for music fans.

Not all ears are equal, but recording and compression by their nature target a mid point of hearing acuity. And now the discussion becomes a bit speculative. Higher pitched sound is harder to compress, but is important both for the complexity of timbre as well as locating a sound in space. Location in a stereo signal is a bit of a fake anyway, as obviously a single audio source needs to be converted to two separate sounds to be perceived as either to the left or the right in a normal listening environment. In nature, as well as tiny time and level differences, it’s the wrinkles in your ears that subtly reflect and modify high pitched sound in ways that you have learned to associate with position. Because of this complexity the recording or sound creation process has already made many compromises in order to sound mostly OK to most people, and compression adds another layer of compromise.

But still, as many experts say, most people can’t reliably tell the difference between the source and its compressed version, and express no preference either in listening tests. Surely depriving them of what they can’t hear does not hurt them!

Sound, however, is not music, and hearing is only part of perception. Nor can simple tests really hope to discover the immensely complicated ways we respond to music, nor how that might be affected by the ways we experience the sound. We all know this of course. Our imaginations fill in the missing parts of familiar instruments, so that even a sketchy recording of a violin shares some of the wonder of a platonic Strad. We are continually exposed to newly imagined sounds, which we fit into our own personal collections of virtual instruments and performances. Musical training even alters the structure of the brain, it is that affective. Even if the audio testing equipment says that the sound you hear now is exactly the same as the one you heard five minutes ago, your perception of it has been irrevocably altered by both memory and imagination. We create what we hear as much as perceive it.

So for these reasons we should not let the audio nihilists deprive us of the opportunity to create and experience a world of sound and music that could take us far beyond the standard fixed by the CD and then compromised by compression to fit the business needs of the late 20th century. We should and can encourage a music industry that can really stretch our ideas of what is possible in audio perception.

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