Three Conditions for Independent Music to Survive

Posted on July 17, 2017 by ratpie

A little over two years ago I set out three reasons why I thought indie music was poised for a period of cultural and commercial success. Those reasons seem still valid now, but a series of events in the indie music world has shown that I overlooked some important factors.

Floral Matryoshka set

My biggest mistake was to assume that major labels would not want to buy margin-shrinking and inherently weak independent distribution companies. Since 2015, several ‘insider’ distributors (the kind whose founders and owners sit on trade association boards) have been sold to major labels, or major owned distributors. It’s impossible to understand these acquisitions any way other than by the damage they do to market access for successful small record labels; these deals must be strategic.

The second mistake I made was in over-optimism that the ‘digital dividend’ would materialise for small businesses. Online platforms have revolutionised how teams can operate around the world, but indie labels seem to have missed out somehow. Perhaps their needs are so specialised that more generic tools – productivity suites, online accounting – just don’t have the same impact as in other industries.

Time then for a rethink. And it is one from the same fundamental optimism of a few years ago, but with some caution and new caveats. So instead of offering reasons why indie music will thrive, here are three conditions for survival as we head towards the end of Q1 of the 21st century:

Efficient Collective Rights Management

The indie music world seems to me to have fully accepted the need for intermediaries, aggregation, and where it’s necessary, collectivisation. What’s more, Merlin has set standards in rights management that have lifted the quality of licensing across the whole market.

A Thriving Marketplace for Services

Small businesses buy in more and use in-house teams less. Our community has not generated an effective market in the services we need, from sales and royalty systems to production, design, marketing, business information, and intelligence. Instead we have churn in providers, and risk for investors that customers will disappear at a moment’s notice.

An Indie Scale Connected Digital Platform

New music markets need new digital infrastructure to help indie labels manage releases and coordinate their relationships, not just with the music services they supply, but also the other services that they need to buy in. Platforms can transform industries, becoming almost like a computer operating system in the way they connect resources and processes. A platform is what connects the rights, the assets, the businesses and the people together to deliver all the other benefits of the digital world to independent music.

…And What Won’t Work…

And it is worth setting out what clearly won’t work, as aggressive major labels and VC funded businesses continue to take bites out of indie music infrastructure and catalogue.

The first and foremost of our impediments is the attitude that scale doesn’t matter in technology – that somehow a two person startup with a rented database and some code is an adequate answer to the massive platforms we now interact with daily. Our dependence on technology I have heard described, depressingly, as ‘the tail wagging the dog’. This particular tail has been wagging the dog for at least the last 15 years.

And a new respect for the strategic importance of technology should be accompanied by a scale up mentality in how we nurture service providers, rather than a start-up culture with the inevitable failure rates and, even worse, success through acquisition. All the best new talent is being snapped up by the big music services, leaving us data and capability poor. Better prospects over the longer term for the smartest people will mean that the other great benefits of working with music – the culture, and the community – really do help us stop the brain drain out of the supply side of our industry.

I remain optimistic that another two years could see us starting to gain traction with a global community of independent music companies and service providers, leading the conversation with the big tech platforms, and setting the terms for our businesses and for music. We just need to straighten up and fly right.

Posted in markets, strategy, technology | Leave a comment

My Platform, Right or Wrong!

Posted on May 5, 2017 by ratpie

It was an early hero of the United States navy, Stephen Decatur, Jr., who gave the world the dubious chant of nationalist zealots, reportedly in an after dinner toast to,

Our country – in her intercourse with foreign nations, may she always be in the right, and always successful, right or wrong.

a notion which has horrified educated and sensible people ever since.

Along with much of the rest of our cultural and communication industries, music finds itself ever more beholden to a group of platforms which combine massive technical capability and the ability to operate at global scale. What happens to our world when more of our industry moves on to those platforms? GK Chesterton’s response to the jingoism of Decatur – “my wife, drunk or sober” – does not quite capture the indifference of the technology to the impact it has, or the awed helplessness with which we watch it reshaping our lives.

Mappa Mundi

The Royal Higden map – England is the red bit, bottom left.

These platforms are now our central strategic challenge; how to service them and their users with our music in such a way as to shape a sustainable and profitable future for professional recorded music. We can see and measure the value that is draining from the surrounding ocean into these relatively closed ecosystems; with truly remarkable precision an EU study found during 2013-2015 that ‘137 Spotify streams appear to reduce track sales by 1 unit’, with an overall neutral effect on gross revenue. (Industry watchers will note the name Waldfogel on the cover – he’s got form in pushing an academic opposition to music industry lobbying.)

But they are competitors for the value of music as much as these platforms are customers. To understand this from music’s perspective with harsh clarity it’s only necessary to look at how playlists change the marketing game. In the last few years we have moved from offering people a choice of platforms to buy our music from, to competing for mindshare within each platform with no sense that we either can or should ask a listener to switch from, for instance, Apple Music to Amazon. We know they won’t not matter how much windowing we do. The wholesale price captures only part of this value as platforms find more scalable and profitable revenue in advertising and consumer data.

With a degree of complexity far beyond the old service or retail model these platforms are multi-sided business, which makes the challenge of servicing them and optimising our performance within them many times harder. At a technical level it’s no longer enough to set up some simple pricing and descriptive metadata, then drop the music and hope. More and more we are being offered continuous feedback on performance, and the tools to try to improve it. At a business level, competing within each platform while coordinating activity between platforms is becoming like three dimensional chess.

Serpiente alquimica

Serpiente alquimia – an ouroborus.

For an analogy we can look at the adtech industry, itself a direct response to the impact of big platforms on media and marketing. Within the platform economy adtech creates no new value from the attention of consumers, but rather chases and coordinates value within an already closed system. Funding for adtech businesses reached $3.2b a year in 2015, after 5 years of growth.
That is a lot of pricing power being hypothesised in what is essentially a tertiary business sector.

In music we can afford a slightly different perspective, in that we can demonstrate the ability songs and recordings have to create new value. Apple’s colossal growth was at the very least seeded by the combination of great music and the iPod platform to unlock digital mobility, a transition that was partly funded by piracy as people filled up devices with illegal downloads. We need nevertheless to understand that we are essentially competing with our biggest customers to grab our share of the value that we jointly create with them, and we also need to build strategies that acknowledge the asymmetry of this relationship.

Put simply, they have more data about our music and the people who listen to it, and more brains and more computers to understand that data with than we ever will. This is not however an argument for ceding the platform advantage and simply becoming tied tenants. The same reach and scale that enables the platforms we work with is available on the supply side, and we have the distinct advantage of being able to create competition and diversity against the inherent conservatism of big tech.

To achieve this we need to take some simple but brave steps.

First we need to break down our own data silos, to level the data playing field. Big data is truly our friend here as data needs to be sufficient rather than complete for patterns to emerge that really can guide and inspire business decisions. But no single label’s data is remotely near sufficient, so we need an environment that incentivises and rewards sharing.

Next, we need to understand our competitive dynamics better, so we know when by fighting each other we are harming our whole industry. Many industries face similar strategic problems, and find ways of overcoming them, for example by forming standards bodies, or pooling intellectual property. Perversely music’s most collectivised parts – the collecting societies – are foot draggers in the world of open standards.

Finally, we can look at what really creates new value and expands the market, and reward and celebrate it. This means a degree of unbundling of the unholy trinity of rights, supply chain, and marketing, along with much more transparency, at least for interested parties. Observable and measurable excellence should be what we honour with awards; we can and should invest in and recognise real expertise in relevant fields.

None of these are easy, and all rely on music growing its own supply side platform ecosystem, as well as some parties reconsidering where they think their competitive advantage comes from. But we already do similar things in many areas of music, through collecting societies, through indie rights licensing body Merlin, through the standards consortium DDEX, and sometimes via trade associations. Strength, coordination and dynamism in the middle layer of the market will make a much better world for musicians and music lovers; it deserves our best efforts.

Posted in markets, strategy, technology | Leave a comment

A New Social Contract For Music

Posted on February 19, 2017 by ratpie

Music, in its various forms, has done quite well in the age of copyright. Digital technology has brought with it many tipping points, when old certainties give way to chaos before finding new stable states.

Any new stability will rely, as copyright always did, on some strong ideas to act as a foundation on which we can share music efficiently and fairly with each other.

We know what the old ideas looked like. Copyright is mysterious and complex enough to have its own creation myths which set the tone for the codes that followed them. One of the most romantic of these concerns the earliest surviving manuscript written in Ireland, a copy of a Psalter, ‘made in haste by night in a mysterious light’. The King is said to have ruled with the rustic phrase, ‘to each cow its calf’, that the owner of the original kept title in the copy. This is an elegant statement of the parental ideas behind the droit d’auteur and moral rights as any.

A pamphletOther myths more prosaically bind copyright to printing monopolies and exclusivities granted by the 15th century Venetian senate. In mid 17th England similar monopolies granted by the king rather lost their force. The English Commonwealth was a regime that shut theatres and banned dancing on Sundays, an authoritarianism which saw copyright as a tool of political control, perhaps spurred by fear of the power of the pamphlet which had played so effective a part in the breakdown of the old order.

The regime was rewarded by a powerful blast from no less a voice than John Milton, poet, moralist and political activist. Areopagitica was issued as a pamphlet to argue for the repeal of the 1643 Licensing Order, which Milton saw as an attempt to bring printing under government control. State censorship exercised through the printing press was, said Milton, tantamount to:

the discouragement of all learning, and the stop of Truth

Milton failed in his campaign. And this was the backdrop to the Statute of Anne at the beginning of the 18th Century, which was either a shoddy backroom deal between publishers and government, or an enlightened recognition of the natural rights of authors, depending on your tolerance for conspiracy and progressive optimism respectively.

And so it remained for 300 years, with an ebb and flow between a strong sense of the fairness of giving creators control and reward, a continuing suspicion of corporate and commercial monopolies, and a general acceptance that the public too, expressed through access rights and term limits, has a stake in the game.

This tension is even found in the Universal Declaration of Human Rights. The two clauses of Article 27 are hard to reconcile:

(1) Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific
advancement and its benefits.
(2) Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.

The UDHR is a powerful statement of the rights of the individual which it seeks to protect when there might be a threat from cruel or repressive states.

The primacy of the individual however is far from being a universality in copyright just as in the rest of human history. Mark Rose has argued cogently that until there was a grant of rights to the author as an individual there was little expectation of originality and therefore no sound basis on which to elevate mere scribbles to the status of property. Ideas of personal genius perhaps rest on the property right, and not vice versa.

Corporate interests too can act in such a way as to cast doubt on the sanctity of a material interest in such as spiritual thing as creativity. All copyright owners know the dangers of overreach when enforcing exclusive rights against innocent infringers. We know that words and music are meant to be shared, not blocked; this is a cultural certainty ruthlessly exploited by platforms of mass participation. One might call this the revenge of Article 27(1): the corporate interests of the record company might deserve to be flouted, but the moral and material interests of the artist should be respected, a popular but unreconcilable discourse which plays out continually.

The old paradigm suited an era in which education, production, distribution, and of course markets, used to be constrained to elites. Now perhaps half of humanity takes all this for granted. The 21st century is an inversion of the age that gave us the old style of copyright, and needs a new myth.

So what new foundations might a new social contract for music rest upon? In an age of self-expression we should preserve strong rights for the creative individual. With so much of our public identity now digital it would seem absurd to allow the music we create and perform to be misappropriated; and those who suggest that authorship is too much of a technical challenge just need to consider the thousands of datapoints held about them in marketing databases. Of course your attribution rights can be respected, persistently, and if your identity can be known so can your economic interest.

But alongside this we need to acknowledge that the idea of the lonely genius has passed into history. In some ways we are recovering our pre-copyright communitarian approach to creativity. Certainly Shakespeare expected to borrow and lend, and to collaborate where it was expedient. Today’s digital creative and casual producer of recordings can be inherently collective and collaborative, layering and modifying the material more than shaping the void. We should find ways to support and reward participation with the future life of creative works rather than seeking to preserve the creator’s control. And perhaps we should recognise collaboration as a joint endeavour – one for all and all for one – rather than the sum of several contributions.

There is a danger here that each item could end up dragging with it an infinity of attribution and reward, or that free riders could pile into and dilute the success created by others, just as search terms and hash tags get hijacked in today’s social media. Perhaps we need to consider degrees of creation and originality, with secondary creativity very much a subsidiary economic right. We have precedents. There is a separate right of arrangement in musical works which does not need to be exclusive; there are many thousands of private contracts made each year around the use of samples in new recordings, which could perhaps be collectivised.

Today we share, we participate, we have a strong sense of fairness, and we respect the individual. It’s important to recognise that we now have the digital tools to express all these ideas in our copyright framework, and even, thrillingly, to allow different copyright rules to co-exist and compete with each other for the affiliation of the best and most popular creators.

Posted in markets, regulation | Leave a comment

Record Labels! Beware of Fake Independence!

Posted on November 1, 2016 by ratpie

Giant corporate groups are a fairly recent development in the music industry. The most extraordinary and wonderful music has always been produced outside the city walls by innovative and committed independent record labels.

Around 40% of recorded music industry value is created by independent record labels, but 65% of that independent music is captured by major label owned distributors. Only 14% is truly independent all the way through the supply chain.

This is not really so surprising. Scale is very important, and bigger platforms can provide global coordination between digital and physical products that is not available to the flock of indie distributors. That is an active choice and is fair enough. Much music migrates into major label systems by default though, and much is there despite the preferences of the indie labels.

How does it get there? Some labels see themselves as incubators of talent, intending to pass successful artists up to the layers above for a price, and for them the relationship with a major label is valuable. Many labels get bought, or do a deal for financial support which locks them in.

Probably the biggest factor is that many distributors start independent, but either run out of cash or have investors who want to get a return on their money. The Orchard, for example, started out as a beacon for independence, took investors’ money, and sold out to Sony Music. On its way it took other potential icons with it into the corporate belly, a migration taken by IODA, IRIS, DRA, Essential, and others. Feeding the beast seems to be a Sisyphean task. It’s not just Sony; the other global music behemoths are just as hungry.

Here’s what this looks like from a drone:

If music distribution was as simple and transparent as it should be these major label owned, pretend independent distributors would be a great adornment to the commonwealth. For many reasons they are a blight. Here’s why

One: Stealing by stealth from the famous black box

Fake indie distributors provide a very easy way to funnel unattributable revenue – the famous ‘black box’ – into central corporate bank accounts. Other benefits too, such as delivery fees, deal fees, marketing and promotion opportunities – all these are essentially stolen and allocated to global priorities and corporate profits.

Two: Gatekeeping the label’s own metadata and music

Labels and artists have many reasons for wanting access to their metadata and files, from public performance to promotion and synch opportunities. Understandably the effort of preparing digital releases and data is not something they want to go through twice. Instead of sticking to their service ethos, some distributors (and not just the fake indies) forget where the value comes from and end up acting as a gatekeeper to a label’s own catalogue and assets, or worse, trying to herd them into rights admin deals instead of letting them collect directly where they can.

Three: Sitting on sales and analytics data

All distributors act as a conduit for sales and other analytical data. But beyond feeding some selected parts into a pretty dashboard, many don’t pass it through to the label, and so end up with more insight into the music and artists than the label is able to get for themselves.

A fair tradeoff?

These might by themselves be a fair tradeoff for the services and scale that bigger companies can offer in the marketplace, and the advantages of access to some major label deals might well balance out some leakage. But more recent developments are highlighting just how pernicious fake indy distribution can be for genuine indie labels.

So What’s New?

A major label buy out was always a reasonable exit for an indie label owner wanting a quieter life. That is how the majors ended up so big in the first place. But digital distribution has almost certainly accelerated this as new dependencies make that sell out happen sooner. And given the data asymmetry, the buyer now has much more information than the seller about what a catalogue is worth. So from being that indie beacon, The Orchard is now one of the biggest acquirers of catalogues and labels in the market, on behalf of its corporate master, Sony.

What this means is that with each acquisition there is more internal competition between owned catalogue and distributed catalogue, and you don’t need to be a genius to guess which will win.

And back to that data asymmetry, which sets up a very bad incentive for the distributor and its owner by giving insights into artist development way ahead of when a label might be thinking it’s time for an artist to move up to a bigger home. Anecdotally some distributed labels have already seen artists getting targeted by the corporate owner of their fake indie distributor. The fact that major labels are buying sales report processing companies, such as RoyaltyShare and Korrect, shows you how strategically valuable this data is.

Again this might be a fair and reasonable tradeoff for the scale, service, and access provided. But it might also be a toxic mixture of foreclosure and unfair competition. And if the latter what can be done about it?

Prevention is better than cure…

Starting with the basics, it helps to know who owns a distributor, and what their long term intentions might be. As a rule of thumb, the major labels are gatekeeping the more profitable revenue lines and trying to commoditise the rest, as well as ensuring as far as they can that there is less competition to sign the most promising new artists. Any distributor with venture capital or private equity funding – no matter how much they protest their indie credentials – will be looking to sell itself at some point, and will have given up to the financiers the right to decide who the buyer is.

Next, read the contract! Carefully!! It’s normal in many contracts where there are potential future conflicts of interest to include ‘change of control’ clauses in case you don’t like the new owners after a sale. But at the very least it helps to know what rights and privileges are changing hands before it becomes an issue, and what you can expect not to be provided as well as what is being offered. And any gotchas, like the right to use your sales data without your knowledge or permission.

And the practical steps. Keep your metadata and assets where you can use them without interference from your distributor. Those web based product uploaders might be convenient, but you can end up with no organised metadata at all about your releases and recordings. Store your sales and trends data too where you can use them yourself if you need to.

Of course the best defence against being packaged and sold is to remain independent, and only work with partners who value independence as much as you do.

Posted in markets, strategy, technology | Leave a comment

A Fair Way to Bridge the Value Gap

Posted on October 13, 2016 by ratpie

The music industry says that artists, labels, and songwriters are getting a raw deal from services that allow users to upload content. The beef is that user-uploaded songs, which may generate advertising revenue for the service and the uploader, compete directly with those same songs uploaded by the copyright owner. The difference in revenue between a user upload and a professionally supplied version is what the music industry means by the ‘value gap’.

And they don’t like it. As explained by record company trade body IFPI’s Frances Moore:

The value gap is about the gross mismatch between music being enjoyed by consumers and the revenues being returned to the music community.

Copyright terms and conditions always make the uploader responsible for any copyright permission or licences, but sometimes uploaders don’t have all the rights they need. If services remove the content promptly when asked they benefit from what is known as a ‘safe harbour’, and the copyright holder has no claim against them for infringement or loss of revenue.

So what does the music industry want? Frances Moore again:

The “safe harbour” regime designed for the early days of the internet should no longer be used to exempt user upload services that distribute music online from the normal conditions of music licensing. Labels should be able to operate in a fair functioning market place, not with one hand tied behind their back when they are negotiating licences for music.

Unusually for the music industry the IFPI position has managed to generate broad support among artists and indie labels, as well as songwriters and publishers. Over 1300 artists have now signed a letter to the EC President Juncker, which you can read online here:

Re. Securing a sustainable future for the European music sector

The music industry is not calling for safe harbour to be abolished, rather that the qualification to benefit from it is drawn far more narrowly now that many platforms are less file hosting services and more media and advertising businesses. And the European campaign is mirrored by similar efforts in the US asking for changes to the DMCA safe harbour provisions.

The pushback has been quick and predictable, and based on the same set of positions that have been rehearsed over the last 20 years of internet history. Some feel that copyright should be abolished, and artists who can play live should make money only from from ticket and tee shirt sales. Some suspect the campaign is just the biggest artists and labels wanting to add even more millions to their already vast riches. Many think that the music industry should share out more equally what it already has first before seeking to get stronger rights. Some think that over-zealous labels and artists are harming other creators by issuing unfair take-down notices.

Legal sophisticates will recognise some important principles wrapped up in this debate. Citizens and consumers are clearly right to demand that an industry with unfair practices is not rewarded. And in a commercial environment in which only a tiny proportion of new work achieves a return on investment there is a balance to be found between the value of distribution and promotion to the creator, and the value of the content to the service. There are too a whole class of either inadvertent, incidental, and innocent infringements where the uploader has no intent to profit to the detriment of the musicians. The can be no possible justification for chilling such activities as saving something to read later, or sharing an extract or a link with a friend.

But does the music industry have a point at all? The disparity in the money the music industry gets for the same consumer experience is real enough. IFPI calculated wholesale subscription revenue per user at just under $30 per year for 2015, while advertising brought in about $0.72 per user per year, albeit from a much larger user base. The advertising rates on UGC are generally much lower than on professionally supplied content, so where YouTube and other services are being used as a music jukebox the hit to music industry revenue from this competition is very significant.

Internet advertising has its own set of issues quite apart from any music industry griping. We are learning that the cost of relying on advertising to support media generally is paid partly in greater intrusion into our private lives as trackers try to squeeze more value out of our daily traces mostly with nothing like informed consent. High quality journalism is expensive. It might be weakened even as more people have greater access to publishing platforms, with subsequent harm to political process and public life.

Chauncey Gardiner -

Chauncey Gardiner in ‘Being There’ -” I like to watch…”

But of course there is no way to know whether all that intrusion is really necessary, or whether there’s more money to be found. The services currently benefiting from safe harbour have every incentive to increase their own revenue. Other old copyright businesses that are moving to internet economics seem to be suffering similarly, so it might just be inherent in the way internet media economics works. For an entertaining rant about this here’s Professor Scott Galloway:

For me one of the ironies of the long standing conflict between copyright and internet businesses is that if copyright was a tech startup innovation it would be lauded as a thing of progressive genius. It would not be organised in national silos, nor looked after by people who refuse to cooperate with each other of course, but there’s no more natural way, in a world of infinite replication and trackability, to incentivise and reward creators. And that is what ad-supported UGC services do, through unique digital object ids, channels, and the massively complex world of consumer tracking and advertising markets.

There is a great deal both sides can do to show they are fit for purpose. The music industry should finally deliver on the promise of digital technology and make it easy for everyone to identify and pay the creators and owners of the music, just like YouTube does with its own creators. Services need to show they deserve a safe harbour by demonstrating respect for the rights and privileges of everyone, from fair dealing student to striving artist to privacy deserving citizen. I would like to see the value gap closed by giving songwriters and musicians more say in the deals that affect their livelihoods, and by demanding more transparency from services on what they do with all of our data.

(A version of this appeared on the ORG blog)

Posted in markets, regulation | Leave a comment

Pricing Music Fans in the New Data Economy

Posted on May 13, 2016 by ratpie

In 2003 digital artist Angie Waller released a wonderful project she called ‘Data Mining the Amazon’. Asked about it by art community Rhizome Waller offered the following:

I was surprised that books about military battles and corporate takeovers pointed to the soothing CDs of Enya and Sarah Brightman.

Battle of Punta San Salvatore by Spinello
The Battle of Punta San Salvatore by Spinello

No record shop until Amazon had been able to capitalise on Enya fans’ interest in military history, and Amazon had the choice to do so explicitly – ‘people who bought this also bought’ -, or in subtler ways. Today Amazon is advertising Vanish Stain Remover to me alongside Enya’s latest album – you can draw your own conclusions about that.

Traditionally, alongside selling records and supplying streaming services, the music industry sells music licences to restaurants and radio stations, where a band or jukebox plays to the diners, and a DJ spins the discs. The music station’s licence doesn’t apply to the talk station on the adjacent preset – despite being the same radio in the same car, this is metaphorically a different place. Perhaps luxury music attracts wealthy patrons, but it would be hard for the restaurateur to argue that the benefit spills down the street into the book shop next door. We’re often accused of being old fashioned. These models might as well be based on the classical unities described in Aristotle’s Poetics!

Angie Waller’s art is amusing in its own right, but points also to a fundamental disconnect in the way we understand media, our experience of it, and the commerce that sustains it. Amazon could extend its advantage even further, by making the data it holds about the preferences and behaviour of all its customers available anywhere on the internet, and to anyone who was willing to buy it. We have moved from a model of attention which is constrained by time and space, to one which is fluid and portable.

To understand this better, think about a normal journey to work. The music you listen to fits into a data-centric view of you as a person, and as a consumer. Your device knows where you live, and where you spent the night! It knows which apps you use, how you travel, where you work. All this data can be correlated with other data to build up a compelling picture of your daily needs and desires, the groups you belong to, and how you like to live.

To the apps you use and the websites you visit on that journey you are now an identity and a cluster of data points, all derived from your stored preferences and histories, your digital fact pack, and your recent behaviour. Like a magnet being dragged through iron filings, these tiny packages of data stick to your profile, and are used to select new content to show you, to build your ideal music playlist, and to add value to your attention as your presence is sold to advertisers. The terms and conditions and privacy policies of music apps make this very clear. Here’s Pandora’s privacy policy, which sets this out in detail.

Those apps and websites extend what Amazon was doing over a decade ago, and offer the new data they generate from your activity to other apps and websites in complex and dynamic marketplaces, where content and profiles are mixed and matched with marketing messages. It is in those marketplaces – some familiar names, such as Google and Facebook, many essentially invisible to the people they are tracking and selling – that music fans are priced and sold.

Codes of conduct and some regulation has grown up around this tracking activity, including the Network Advertising Initiative, who offer a quick view on who knows who you are, which may be seen here. 67 NAI member companies are currently tracking my web browser, and ironically, by using the NAI tool, I expect I am informing them that I am interested in my privacy. Pandora refers people to TRUSTe’s preferences manager, with a tracker code which tells TRUSTe where you have come from. The EDAA monitors the activity of 111 companies, and helpfully shows a nice green tick against that ones who are successfully tracking you.

What they all have in common is that none of them are really asking music fans for an informed permission to spy on them, and none are paying musicians for the data that music generates. Perhaps they shouldn’t. After all musicians made no extra investment or effort to create the technology and services that turn our traces into a marketable commodity, and music consumers get a convenient service at a lower price. This is a debate however we should have.

So what is the price of a music fan to a seller of military books, or indeed stain remover, holidays, or health insurance, or any of the things the digital marketing industry is paid to offer us? Right now, we in the music industry simply don’t know, but it’s not hard to see that some of the bigger music platforms value their advertising supported tiers very highly. And what if the music industry had a stake in that game? If we had the tools to participate in the revenue it might turn out that ‘free’ is much more valuable than being locked up in a $9.99 subscription service. The implications of this discontinuity in time and space could be truly revolutionary.

In the new music industry we need to understand the value that music creates in the data economy. But more importantly we need to have a conversation with the music fans themselves, because it’s their data, not the platforms’ and not the musicians’. We have a unique opportunity to stand alongside the people we reach with music, and make their privacy a condition of doing business with us. If we get this right, music can once again represent a free mind in a world of exploitation.

Posted in markets, regulation, strategy | Leave a comment

The Simple Maths of the New Music Industry

Posted on April 25, 2016 by ratpie

The pre-modern music industry could be navigated with some very simple maths. Bands made records, record labels sold them to shops. Wholesale revenue wasn’t that much more complicated than units x price. And what mattered to most bands was the size of the advance, even if recording contracts were adept at slicing percentages here and there.

The modern music industry seems much more complicated. Alongside unit sales we now have subscription and advertising supported streaming in the mix. In 2015 the world’s largest market, the US, passed through a point where it was roughly divided into thirds between streaming, download sales, and physical sales. As streaming grows in importance it becomes more urgent to understand its hidden complexities. There are however some simple ways to understand the new model, and to build strategies to make the most of the modern music industry. Here are a few.

Zero slumming it, or, permanent total war…

In subscription services there is at any point in time a fixed number of subscribers, and therefor a fixed pool of money. This means it is impossible to win without some other artist losing. It’s known as a zero sum game – each unit of gain is balanced by a unit of loss elsewhere in the system.

The math involved here can be seen in windowing strategies, which are basically a gamble on whether over the short term fans will pay more than the streaming services would. Arguably this is good for the industry as a whole as it helps consumers understand that buying a music service does not guarantee access to everything in the world.

The caveat is that deploying windowing indicates to the music fan that you consider them a cheapskate who is there to be fleeced. For sure some will consider this part of the deal with fandom – if it doesn’t hurt the wallet it’s not nearly so much fun. So to decide whether or not to window you need to know the degree of pain an artist’s core fans want to suffer. If they are a hardy bunch you can take £8.99 off them in the first week or two; if they are lily livered then ubiquity on day one is called for.

Pricing in and out of bundles

Pricing is a dark art, and commonly misunderstood. The possibility of windowing tells us something important about price, and that is that the right price is different for each and every potential buyer and each product has its very own profile. Let’s take a hypothetical product and see how it works.

An artist might have 1000 fans, each of which is willing to pay £8 for the next album. It’s not a given by a long way that a lower price would magically increase the sales. If it did, a £1 reduction would need to deliver 1143 sales and we’d need 889 sales at £9 to be evens on total revenue.

Bundling makes sense in music just as it does in other businesses – would you buy lace up shoes without laces? And in music there are bundles all over the place, from albums, to subscription services, to playlists. Done right the practice delivers higher value to both producer and consumer, and doing it right means that each buyer gets the items they value within the bundle, rather than all buyers simply getting a lower cost for their goods. An example might be selling that £8 album in a £25 bundle with the back catalogue for newly converted fans.

Arbitrage – arbitrary + outrage?

This exotic word covers a very easy idea, which is that given two sources of the same thing, you have the privilege of choosing and selling the cheaper. It’s important however to have a sophisticated idea of what the thing is that is being bought and sold for profit.

In music, for a very clear example of arbitrage in action it is only necessary to look at the way Amazon builds a range of offers around a single product in its music store. Sadly, The Very Best of Prince is currently number 1 on the Amazon music chart and may be obtained for £4.50, plus postage and packing. But it’s never that simple with Amazon:

20 new from £4.50 2 used from £10.00 1 collectible from £29.99
Buy the MP3 album for £8.99 at the Amazon Digital Music Store.

Some of these offers come with free p&p as part of a larger order, some are sold by third parties, and Amazon’s includes a set of MP3 files delivered to your cloud account, which is itself a separate source of value. It’s a fun game to try to trace all the different ways Amazon can make money from just one album, right from the use of its cloud storage product before the music has been delivered from the studio. Algorithms can manipulate the relative price and visibility of each of these, ensuring that Amazon gets the ideal outcome. No other party to the transactions has the same command over the data and the environment to do that.

A more disturbing arbitrage in music is the way that licensed and unlicensed music sit alongside each other in UGC and search engines, with the advertising driven platform owner able to influence the consumer’s choice, and therefore the content cost of any click-through. In public performance, soundalikes are close to arbitrage, as are catalogues licensed privately in competition with collecting societies.

The new programmatic content marketing industry is built around a frenetic matching between personal profiles, content, and marketing messages; platforms attempt to maximise the value differences between essentially equivalent content and marketing impressions. Music has yet to play in this game at any scale, but the possibilities are exciting. Perhaps a track or a video could be more valuable for 24 hours outside any sales or subscription service, in the wild west of the new algorithmic web!

If you’re not doing maths, it’s being done to you…

These three examples show how different the new music industry is from the old, but also how an awareness of the way that digital platforms make decisions arms the music industry to fight back and win in the battle for value.

It’s easy to feel helpless in an unequal fight driven by forces way beyond the comprehension of most of us. After all, hardly anyone can play Go, let alone develop software which can beat the world champion, as a Google owned company has recently achieved. But all three techniques described above can be managed with some simple strategic thinking, and some readily available tools. And where it’s tougher, we can, as an industry, come together to explain our fears and ask for help, such as with the flaws in ‘notice and takedown’ for dealing with UGC copyright arbitrage.

And we do have a great strength, which can make much of the new maths irrelevant. People develop personal relationships with music, and with creators and performers, and even sometimes have a romantic attachment to record labels. It’s a privilege which the owners and operators of all the maths in the world don’t have, to be able to speak directly to people who love what you do, and ask them to support your work.

Posted in markets, strategy | Leave a comment

The Sadness of Crowds

Posted on March 20, 2016 by ratpie

Marillion’s 2001 release, Anoraknophobia, was a pun for a different age. Singer Steve Hogarth told the BBC in May of that year, “In those days everyone was pointing and laughing and calling us nerds. Now it’s the trendy thing to do.”

They were getting laughed at because in the mid 1990s they had staked their future on the Internet, and ‘anorak’ was shorthand used by ordinary people to describe those showing a weird obsession with computers and websites. And the reason the album was noteworthy for the BBC pop-tech journalists was that the band had emailed its fans asking them to buy it before it was even made, and had financed recording and production with the proceeds. In other words, they had introduced ‘crowdfunding’ to the recorded music industry.

The band and their manager explain the deal on their website in an archived news item. Two things stand out from the perspective of 15 years of technical and market development. The first is that the deal was extraordinarily simple. The band set a price, the fans paid, the band made the CD and sent it to them. As a thank you, all the supporters names were printed in the booklet. The second thing is that this was a small part of the release plan, with the fans only expected to account for 5% of total sales. Marillion was just as innovative with their deal with EMI, which seemed happy to pick up the other 95%. Access to finance meant that Marillion could keep ownership of the copyright.

From Marillion’s news archive:

EMI Liberty’s co-director Peter Duckworth added: “We were very impressed with this venture which we believe breaks new ground in the industry. We are all in a win, win situation, EMI are happy, retail is happy, the band are happy and the fans are extremely happy.”

For all the excitement Marillion were far from being the inventors of crowdfunding. The London Gazette of 24th May 1683 caries an advertisement from Henry Purcell to his crowdfunders letting them know that the Sonatas of three Parts were ready and that the price would go up for people who wanted to wait and buy them from the booksellers.

Serialisation, which really hit the big time with Charles Dickens’s Pickwick Papers, was another form of crowdfunding, with episodes being sold monthly for a shilling and sandwiched between pages of advertising. A popular story added readers month by month, with the advantage that a writer could extend the plot until the public tired of it. Buyers of the first instalment of Pickwick in March 1836 had to wait until October 1837 to read the last chapter. The deadlines could be gruelling even for a writer of Dickens’ facility, but the rewards could be great.

The demographics of the literate public changed dramatically between the 1830s and the 1930s, but the subscription business model proved resilient. Reader’s Digest started in 1920 as a monthly collection of condensed articles from other publications, one for each day of the month. It succeeded without advertising until rising production costs forced a change in 1954, and its readers choose ads rather than a higher price. Charging its readers in advance for writing yet to be created had gained the brand independence, credibility, and authority. In 1954 the Reader’s Digest was first to publish on the connection between smoking and lung cancer, something tobacco companies had much success in suppressing elsewhere.

Fast forward to 2016 and both the subscription and advertising models for funding new writing seem to be under stress, while in music, where advertising was only ever an adjunct, the risk capital provided by record labels has mostly retreated to the top of the charts. And Marillion is once again going to their fans to get the money to make a new album, but this time on a commercial crowdfunding platform. And what a difference that makes to the scope and nature of the project!

Far from being a single exclusive product, at a high price, with a sponsors list as the only way to say thank you for pre-ordering, Marillion now feel they have to deliver 17 different product bundles, many thousands of them signed, all exclusive. Even while they are making the album they are delivering even more exclusive content to the platform in the form of updates, photos and video clips. Sample tracks are there for free streaming. It looks like a lot of extra work. And who knows, with so much effort and exclusivity gone into this campaign, whether a record label would feel the residual sales are worth picking up, the way EMI did back in 2000?

But are the fans happier? A glance through the comments reveals some very telling whinges. The album is taking a long time. People bought one package and now they want to change their order. Limited editions have been made slightly less limited, so the value feels less. One set of signatures is not enough! Someone even wants the buyers to come up with the album title.

Customers are right to be demanding of course, but it is hard to ignore the impact of the platform in setting the rules, controlling the environment, and creating an entirely artificial competition between the projects on offer. Artists are understandably driven to create super-premium products and bundles, and work harder to attract attention as each week another tempting new project appears on the platform.

There is no harm in hard work, but what are they working on? Signing, for a start. Writing booklets, having more photographs taken, commissioning more artwork, even driving around the country to perform private gigs, and cooking dinners for buyers. It might seem like fun at the planning meeting, but probably palls after a while, as you become a combination of cottage industry and minimum wage domestic servant, chasing the crowdfunding dollar. And none of this makes a jot of difference to the record, even if some of it improves the product. Perhaps the budgets will stretch to strings and horns, and an extra few days in the studio to capture the elusive perfect performance, but perhaps they will be spent on thicker card for the record sleeves instead.

In what became both poster child and the first big scandal for music crowdfunding, some of the musicians were given a different kind of deal when Amanda Palmer raised over $1.2m dollars for her 2012 album, and offered love instead of money. An informed view of the costs of fulfilling all the various offers Palmer made suggests that actually $1.2m was not a huge lot, and she has since confirmed that she just broke even on it. But that did not wash with the public who just saw the money and thought it hypocritical. Crowdfunders are not buying art, it seems. They are patrons of their own particular definition of virtue. Palmer is crowdfunding again, this time on a platform called Patreon, and has again found herself criticised not for her art but for having a baby. Some patrons don’t want to be short changed, and don’t want such direct funding to be spent on childcare.

So what appears as freedom can turn out to be a behaviourist straightjacket. Platforms manage extreme competition between supplicants in such a way as to push artists to offer super-premium products and personal services. They choke off opportunities for other forms of finance. They divert time and money from the core – surely a great recording in music’s case – to the periphery of packaging and merchandise. And even many of the fans don’t even seem very happy. Music industry funding platforms should acknowledge and seek to address these pressures, otherwise artists risk becoming the Uber drivers of the crowdfunding economy. Perhaps the risk capital business model of the record labels, along with the ‘take it or leave it’ nature of markets was not so bad after all.

Posted in markets, strategy | Leave a comment

One Music Copyright Can Be Better Than Two

Posted on February 22, 2016 by ratpie

Music copyright was developed in nineteenth century France as a response to an obvious unfairness. Bars and restaurants could hire musicians to entertain their customers, raising sales and profits. The restaurant owner benefited, the musicians got paid, but the composers got nothing. No credible argument was offered that the sheet music sales or future commissions were enough to justify free use of music. Civilisation (represented by the French law courts) demanded that composers should share the economic value their music created.

This was of course long before the advent of sound recording technology, and the emergence of the music recording industry. The principle of tradable rights in the activities that generate revenue, either directly or indirectly, was later carried across to this new class of recording producers and performers. The assumptions on which these rights rested were clear and simple. A composer created a work, some musicians performed it, and it was enjoyed by the public either live or recorded. The recordings could be replicated and the copies sold, and the interests of the parties survived throughout the web of economic activity.

It turned out that some composers were also excellent performers, and some made recordings of their own and others’ music. The separation of interests nevertheless gave composers, whose interest is mostly in having more performances and recordings of a work rather than fewer, an important protection. Coercion to leave the market free of competition for a new waltz, or a new song, is always a danger; attempts would amount to restraint of trade so the system protected against such conflicts of interest quite well.

Students of 20th century music will know however that the recording process developed in ways that were far more creative than anticipated. Magnetic tape proved to be a flexible and compliant medium, allowing for delay, loops, multi-tracking, and cut and splice. Electronics made it possible to alter sound, extending what could be achieved through mechanics and acoustics. And then the digital revolution exploded the world of possible sound, handing musicians a superabundance of tools, tricks, and techniques.

And so it is that in the 21st century the recording and the composition are often one and the same; a single creative work, by a single person or creative team, frequently involving nothing that could be recognised as a traditional musical performance. No musical notation or instruction set pre-exists the creation, and any notion of a tune and harmonic structure is left to be extracted after the fact. Consequently the likelihood of other performances and other recordings is greatly lessened. But the world of copyright really struggles to provide an efficient way to manage these creations.

Copyright insists on the separation of composition and recording even when none is asked for or indicated, and this creates massive inefficiency and absurdity in licensing and payment. For musicians who don’t know their way around the industry it’s easy to miss out on a percentage of each and every sale or stream as the compositions side is licensed through a complex international network of societies and agencies representing music publishers. Even with good administration each unique sale or stream creates a secondary flow of money which moves mysteriously (and slowly!) around the world, in contrast to the normal monthly accounting and payment cycle for the recordings.

The suggestion therefor is that, at the creator’s option, a new unitary copyright in the combination of composition and audio object could replace the dual system that causes so many inefficiencies. Until and unless a composition is extracted and performed separately no other rights would be needed to ensure that the creators have the control and compensation that is now so imperfectly effected. These new rights could swerve the traditional music publishing world entirely, saving huge amounts of unnecessary data and processing. Using someone else’s composition and claiming a unitary right would of course be fraud, and a much more serious and risky offence than infringement. New technology is anyway in the pipeline to identify music similarly to how audio fingerprinting identifies recordings. A fingerprint of the original master file could provide the basis for highly reliable proof of title, and form the basis of a combined supply chain and royalty payment framework.

Such a new right could happily live alongside today’s dual system, using just enough of the existing infrastructure as necessary, and no more. In a world of fragmentation and disputes, where even the biggest music users claim not to be able to identify many of the creators who deserve and need payment for their work, a simple and commercial solution is overdue.

Posted in regulation | Leave a comment

Streaming versus Downloads? The Fight is Far From Won

Posted on January 14, 2016 by ratpie

The recent decline in the music download market, coupled with an acceleration in the streaming revenue numbers, has led many to predict the kind of transition that saw the end of the cassette tape, or indeed the cart and horse. There are a few reasons, some a bit less obvious, why this might not be such a certainty.

For a start, building the higher bandwidth mobile networks required for pervasive access is expensive and difficult. Ofcom, the UK telecoms regulator, says most of the country has 50% or less 3G coverage. There are plenty of ‘not spots’ due to topography and building materials, so there are likely to be connectivity constraints and disappointments for the foreseeable future. On one of Britain’s main train lines there’s only a 10% chance of maintaining a 15 minute mobile phone conversation. Even if we wanted mobile music on demand we’re not likely to get it cheaply and reliably for years.

The second aspect to look at is the nature of demand for music. Studies show that most people are happy with a library of 1000 tracks or fewer, a minute fraction of the 50 million tracks now available on demand. And by far the majority of music buyers, even in music mad countries such as the UK, traditionally listened to the radio and bought one or two albums per year.

In a recent study consumers cited the ability to play music offline as the biggest benefit of a paid for music subscription. They get that with downloads, and with CDs, which perhaps explains the resilience of compact discs, along with the resale opportunity of course. What’s more, mobile data storage is going to get bigger and cheaper much faster than any improvements in mobile broadband. A small personal library, with a radio, and the occasionally impulse track download, is perhaps the ideal package for the casual music buyer.

It’s likely that streaming’s rapid growth represents the migration of heavy download buyers to a more attractive value proposition, rather than the rest of the market trading up. There might be other reasons for the casual buyers to be enticed into streaming services, for instance their value as profiled targets of advertising. But as things stand downloads serve all but the top few music buyers with a much better mix of price and functionality, so they are likely to be around for a long time yet.

Posted in markets, strategy, technology | Leave a comment