Leapfrog or Lag? Music Tech in Developing Markets

Posted on 15 December 2012 by paulsanders

We have been conditioned to think that developing nations are somehow privileged to have the opportunity to skip whole generations of technologies, moving straight to what we in developed economies are embracing because of its promise for the future.

Here’s the Economist, writing in 2008:

The mobile phone is also a wonderful example of a “leapfrog” technology: it has enabled developing countries to skip the fixed-line technology of the 20th century and move straight to the mobile technology of the 21st. Surely other technologies can do the same?

The full article is here, and despite the common sense conclusion, that sometimes new technologies are dependent on a whole set of building blocks that might not be present, it reflects a prejudice against the past that only the rich can afford.

Another example, from an arbitrary blog:

The internet is growing in India, and most of it is on the mobile phone.  Many, perhaps most of the world, will access the internet only on their phones.  They are skipping the PC and not even blinking or thinking twice.

So how important is the mobile OS market?  It will rule the digital world sooner than you think. (the rest here)

On a visit to Vietnam in 2008 I too was struck by the way that the mobile phone had become the ubiquitous and essential tool for business, and for all the normal traffic of life. But there was something else too. Computer shops came in two types, one familiar from poorer shopping streets in developed countries, with components and a few low end desktops and laptops, second hand and repairs. The other type presented top end tower systems in perspex cases, objects of aspiration and desire.

Market research site iSuppli sees this same pattern in China, with the PC being the aspirational home media centre for emerging middle class households.

…the PC appears to be winning as the main source of evening entertainment in China’s households—for playing games, reading, watching videos, listening to music, communicating and emailing, as well as shopping.

The fact that we are excited about our smartphones and tablets, and are devoting less attention to our two year old home PCs, should not lead us to assume that a broadband connection and a PC would not therefore seem like the apogee of well equipped home life in countries where it has so far been unattainable for the vast majority of families.

So perhaps when you have had a fully connected and well equipped home for ten years the next frontier might be mobility. Ordinary families in developing economies might prefer to catch up with the rich, rather than go without the benefits of the last decade of connected home computing.

For music this means preserving what we have learned about music on the PC, about downloads and home media servers, and about a more social and versatile approach to delivering music. It might well mean multiple modes of acquisition, including peer-to-peer, for much longer than seems likely in developed countries. Synching with cheap and portable MP3 players would be much more important than music through the cloud to smartphones and tablets.

In fact, while the CD remains a mass market music product, we see in some developing markets all the conditions that fed the growth of Napster, but on a far larger scale. The disutility of a music subscription service, tethered inconveniently and expensively to an account and a limited number of devices, seems to be less exciting a vision of the future than the idea of ‘leapfrogging’ suggests. I suspect, given a choice, many of us would happily leapfrog right back to 1999. Maybe in China, Latin America, Malaysia, Vietnam, and many other countries there will be more of an incentive to embrace and develop with the market rather than fight it this time around.

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Networks or Services – Who is Music’s Better Partner?

Posted on 30 November 2012 by paulsanders

When I formed the idea for a new business bundling broadband with music, in 2003, my thinking was guided by two simple principles. The first was that customers already saw music and broadband as a natural bundle. And the second was that making ISP networks able to manage and account for music services was a difficult but achievable stretch, and once completed would be a much stronger partnership and more effective competitor for unlicensed music than would over-the-top services.

November 2012 saw Google tightly integrating its storage locker service to its email product, so that up to 10GB of files can be quickly and simply shared with friends, family, and colleagues, as email attachments. One simple and obvious use would be an email revival of the tape trees that <irony> nearly saw off the recorded music business in the 1980s </irony>. So what the right hand giveth with the very innovative and exciting new music service in Google Play, the left hand might not exactly take away, but it certainly helps music fans level the music distribution playing field a bit.

The commentary on Google’s move is about competition between services, how Dropbox and Box might struggle against such convenient integration, and how email is a natural sharing medium. It illustrates how fierce that competition is, and how much churn there is as one service displaces another. This is also true in music, both licensed and unlicensed.

But let’s imagine for a while that we can move the business end of music copyright out of the services market and onto the networks. For an ISP, music is currently just data. Charging for it as music, and using the ability to build library management and playlists, and offer a coherent delivery path to consumer electronics, all this would add up to a considerable win. For services of course, authorised music is just a more expensive form of unauthorised music. Licences buy the right to innovate around the identity of the consumer and a knowledge of what they listen to, but the benefit seems not to be there for many businesses, or at least not significant enough to go through the licensing pain and cost.

My 2003 startup – Playlouder MSP – now operates a white label service enabling networks to offer music tightly integrated into their customer management and billing systems. Record companies have not yet been bold enough to offer true network licences, preferring the comfort of a managed service environment. Meantime competition rages over the attention and data that network users create, without really discovering the services they might actually directly pay for. ISPs and other network owners are music’s ideal partner in the quest to turn data back into music, while services push back by selling music by the GigaByte.

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Floating on a Sea of Demand for Music

Posted on 7 November 2012 by paulsanders

Tin Cheuk Leung at the Chinese University of Hong Kong published in 2009 a paper entitled, ‘Should the Music Industry Sue Its Own Customers? Impacts of Music Piracy and Policy Suggestions.’ The updated version is available here.

Parts of Leung’s paper need special training to understand (which I do not have) but some of it is easy to grasp. Lots of music makes an iPod more valuable to its owner. People want much more music than they can buy. Demand moves between channels as the cost per track changes, but being a simple pirate is quite rare – most of us buy, beg, and borrow in differing proportions.

I am pulling out just one of many interesting sets of numbers where Professor Leung tries to model worlds with either no piracy, or free music. Killing piracy he suggests would reduce overall consumption of tracks by 68%, where making music essentially free would increase consumption by 527%.

More music translates into more iPod owners, and demonstrates how the cost of a transitioning market falls on content creators, through leakage as well as through the need to get the new means of consumption into as many hands as possible.

Knowledge of the shape of the music industry however highlights another aspect to the complex picture of music demand. Diversity and opportunity in music would seem to come from a middle class market, with hardware manufacturers benefitting from the explosion in consumption free music would bring, and the biggest music companies benefitting from total anti-piracy.

Somewhere between what we have now and making music free there is a sweet spot which can deliver more good music to more people, while at the same time sustaining the skills and infrastructure which will create opportunities for the musicians coming into the market in the future. We owe it to music makers and music lovers to try to work towards that destination.

 

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What Happened to Vint Cerf?

Posted on 27 October 2012 by paulsanders

This August, 2012, on FT.com Vint Cerf was quoted in an article about the upcoming UN discussions over Internet governance.

But Mr Cerf says that pricing structures are antithetical to the internet as they could stifle innovation. “When Larry Page and Sergey Brin started Google, they didn’t have to go and cut a deal with every ISP in the world. It’s a gun-to-the-head model to say: ‘You’re making a lot of money, give us some.’ An alternative would be to compete – improve your own value-added services.”

What a concentrated and irresponsible little bundle of words this is! Cerf has many public roles – as a scientist, and as an honoured innovator, and as an expert on set of technologies that are important for many aspects of the improvement of the human condition. How disappointing to find that his role as a paid evangelist – a faith based persuader for money – overrides all of these honours and achievements.

He starts with a half-lie. As a startup, Google did not have to negotiate with every ISP because they were able to buy connectivity in the market, like every other internet business, and piggy-back on the deals ISPs had done with each other. Today’s new businesses can follow the same path, and can also take advantage of a much more developed infrastructure market that puts massive processing and connectivity within reach of almost anyone. In fact Google preferred to move away from the wholesale hosting market in favour of public and private peering, where in effect it did cut a deal with many many more ISPs, in order to get preferential treatment and lower costs for its traffic.

What Google demonstrated conclusively was that when you generate a little traffic it’s your problem, but when you generate a lot it’s everybody else’s. Peering was not supposed to be quite so asymmetric, so a market was never fully developed. Now Cerf is lobbying to prevent a market being created and to preserve privileges that Google enjoys over newer startups; the original gun was Google’s when it bought YouTube, and Cerf wants to make sure the other side remains unarmed.

Having positioned Google as a startup at the mercy of arbitrary behaviour in wholesale connectivity markets Cerf goes on to deploy all the sophistication of the teenage sneer. While for an online advertising business Google owns a lot of infrastructure, compared with the investment it requires from other network providers to keep its platform connected it is still well on the right side of the deal. The excitement surrounding a very limited trial of Google fibre internet access seems to have died down a bit since the limits and the price, as well as the behind doors politics, have emerged. And no ISP is more upfront than Google about preferential treatment for its own value added services.

And yet the answer is almost certainly not to attempt to regulate paid peering, or paid for QoS at peering points. Content and services gain in value the more they localise, and while it’s Cerf’s employer who is as he says ‘making a lot of money’ at this point, competing on thousands of local exchanges is not the same as competing on dozens or hundreds. Regulators would do well to preserve the mostly unpaid and informal peering model, not because Google does so well out of it now, but because it is more likely to deliver a platform for Google’s competitors in the future.

Preserving the openness of Internet Exchanges in the future from crowding out and from anti-competitive contracts will be a far more important regulatory challenge than defending Google from pricing of traffic exchange is now.

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Orphans Don’t Belong in Collective Farms

Posted on 8 July 2012 by paulsanders

The case for exemptions from copyright for some limited purposes, such as preserving our cultural heritage, or advancing scholarship, is surely uncontroversial. Who would really argue that old photographs or diaries, letters home, and the ephemera of life should not be allowed to become a window into past times or important events. With some minimal adjustment to our copyright laws, diligent preservation and digitisation can make material available, free of legal risk and without touching any markets.

Without really bothering to explain why, or for whose benefit, the UK Government plans to go far further, effectively nationalising anything that is found without a copyright assertion, and creating a State sponsored competitor to the national copyright industries. This much was clarified at the recent Hooper enquiry session, by the Intellectual Property Office – presumably to be merged with the lost property office as it seems to want much the same function. There might be a fight as the legality of the move seems open to question given Berne’s clarity on automatic copyright. Win or lose however the UK Government seems to be indicating with this move that if it thinks it needs to choose between creators or users of copyright material, it’s firmly for the latter.

But how did we get to this sorry state? The presumption behind Hargreaves’ and Hooper’s enquiries was that copyright management had failed to keep up with the demands of digital businesses. Hooper has been keen to stress that he sees a huge amount of excellent work going on. In response he moved the focus from trading platforms, of which there are many and more coming, towards coordination, to make sure the full value of all the investment could be realised. This is all smart, and admirable. The Government however seems irritated – firstly by all the digital detritus hanging around untaxed and poorly managed (to you and I these are our photos, our lame attempts at making pop music, and our fan fiction etc.) – and secondly by the copyright industries rather monomaniacal demand for protection before reform. Hooper seemed last month to have been asked to convey a message to the copyright great and good at his last big meeting, that not until the Government (Vince Cable) had seen dramatic improvements in licensing efficiency would the enforcement agenda creep up the priority list.

More than this though, it seems that the UK Government has given up on the ability of the creative industries to generate value directly and by private negotiation. Given a simple choice, between a Wikipedia world, where free to re-use content on a huge scale provides context for search driven advertising, and a Britannica world where expertise is packaged and sold to consumers who care about quality, the UK plumps for flat rate, low to zero cost content as a superior engine of growth. And it is prepared to go into competition with its own domiciled creators and copyright businesses to achieve this aim.

Given that they can change the law (probably), the UK Government seems to have a great opportunity here to ensure than it can never be proved wrong. After all you can’t really do A-B testing with copyright law. If the outcome is not great the copyright industry lobbyists have spun such a tale of trouble and decline that you’d be forgiven for thinking that saving them was an impossible task anyway. No situation is so dire it’s not better than it might have been.

And that leads me to my greatest criticism of the UK Government approach, for its inability to see the industry behind the lobbyists, or look for a simple intervention that helps creators to bring their work to fair and open markets. We don’t need the British Library setting up a commercial content library with whatever its interns can shovel in off the web, and with rates set at two thirds the expected advertising CPM. That will simply divert much needed investment away from new creation, while undermining the markets that do support creators. Instead, the Government could, if it wanted to, help creators find and use the markets that already exist, through training and encouragement for market infrastructure, without sending any orphans to the collective farm.

 

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Don’t Give Up On The Music Market Just Yet

Posted on 10 June 2012 by paulsanders

The huge and growing catalogue of music digitally available through an expanding choice of retailers and services might suggest that any supply side problems are well on the way to being solved. Look a bit closer however, and something is missing. There might be more songs, but the hits are coming from an ever smaller group of companies. And there are signs that, outside of a small handful of contenders for international success, less money is being spent on each new track.

This matters, because a thriving music sector depends on more people rather than fewer having access to the best studios, the best arrangers, session musicians, and everything else required to make excellent new recordings.

Chris Anderson noted that a long tail world favours aggregators over producers; how can the market be reshaped to put the incentive back into making great records, rather than simply collecting as much generic music as possible and tagging it for SEO? Some commentators advocate giving up on the market, and replacing it with a flat rate and a layer of bureaucracy. This seems to me a counsel of despair; we surely have not run out of other ideas quite yet!

Perhaps part of the answer is to look at how new music is coming to the market. Is there a flattening effect which is failing to reward creators who make an extraordinary effort? I’d say there is; a track that was made in a rush by people who don’t care is most often on the market at the same price as a piece made with love by a skilled and careful craftsman. The reward that flows back is a reflection solely of popularity, which clearly penalises musicians who are chasing something other than broad appeal.

This is carried through to the retail layer, where the way catalogues are traded makes it difficult for a business to find and develop a focus. Retailers and services are forced to buy huge quantities of music they don’t want in order to get what they need, and denied the chance to capture the value that they might otherwise have an incentive to create by serving a niche or two with currently undervalued music.

Between these two effects we have strong incentives to avoid diversity and to invest as little as possible in risky new music. There is no reason why music should have to do without the tools that just about every other market uses to allocate resources and signal value to producers. Both price and popularity can be expressed and captured in a wholesale market with fine granularity on the same kind of electronic trading exchange that supports future contracts in commodities, or shares in public companies. Discussions about databases would evaporate as the ability to interact with the market would depend on robust and reliable data management and standards. Exclusion and unfair trading would be a lot easier to detect. There would be no need to collectivise anything, or force participation, as better conditions for trade would by themselves attract buyers and sellers to the market.

This is easy to say but of course much more difficult to attempt, and might well do nothing to improve either liquidity or incentives in music. What can be said with some certainty is that it would create both openness and a lot more information about the value of music in the market, and would by necessity force the creation of sophisticated trading strategies on both sides. At least then we would find out what the market wanted, even if we might not like the answer.

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How Art Changes the Architecture of the Internet

Posted on 1 June 2012 by paulsanders

Reading Neelie Kroes’ recent blog post on net neutrality (link updated Dec 2017) reminded me of a startling presentation that was given to Nanog in 2009 (I was not there so was thankful that the slides were made available here) which brought into focus some vague ideas I have been thinking about for the last few years.

That 2009 report was one of those ‘everything you thought you knew about x is wrong’ moments. Because by 2009 the open, public, internet, with a predictable hierarchical cascade from core to access, was over. Instead we had arrived at a world of private connections between big content and service platforms where IP protocols carried private bits over private networks. And what drove the change was, bizarrely, art – or rather content if you want to avoid aesthetics. More specifically, Google’s YouTube acquisition could create so much traffic for ISPs that it was uneconomic to carry it via IP transit, bought from upstream providers. Google had to be let into the peering points, and the biggest ISPs choose to peer privately with large partners to avoid overloading the public switches and getting into complicated recharge discussions.

Earlier in the evolution of the internet CDNs had been let into the exchanges, to some grumbling, but as wholesale suppliers of connectivity they sit behind the consumer services so arguably were similar in their role to the wholesale transit providers. Having a consumer service in the networks club was a new experience.

Now here’s some conjecture and speculation. Carpathia, a Dulles, Virginia blue chip hosting business, joined a select club when it accepted a new customer, MegaUpload, in November 2008. Almost instantly it was generating 1/20th of all internet traffic. If Carpathia did not manage to use that leverage to move into the internet exchanges and form some private peering agreements it should have. Private traffic is cheaper and inherently less visible than public. And some more speculation on a historical matter – the apparent drop in internet traffic resulting from Sweden’s introduction of IPRED laws could at least partly have been the effect of some publicly peered traffic going private for similar reasons.

A minor version of this happened very recently when customers of UK ISP Virgin Media were reporting severe difficulty using Spotify. The Register extracted a comment from Virgin Media to the effect that they had been suffering from poorly configured peering with one of Spotify’s data centres. To fix it they will have either turned up the public peering, or gone private. Either way the shape of the internet changed in response to demand for music.

I suspect it would be possible now to avoid the internet entirely and just use private networks if your access comes from a major consumer ISP. And it is art/content that has driven this change. How much the content creators and their industrial representatives have been party to the changes is anyone’s guess, but I suspect not very much. That looks like an opportunity to me.

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Music v. Tech – How to Stop Fighting Yesterday’s Wars

Posted on 25 May 2012 by paulsanders

Google recently released some startlingly large numbers relating to the number of copyright infringement takedown requests it receives and continues to act upon. Almost at the same time (it can’t entirely be a coincidence) the UK book publishers’ trade association chief unleashed a broadside which looked calculated to prevent dialogue between content and tech for some time. For context, the Publishers’ Association chief used to be the lobbyist for the BPI, the UK record business body that appears in Google’s top ten complainants.

Round table discussions brokered by the UK Government are supposed to be finding constructive ways forward, but appear to have stalled. UK ISPs are far from engaging at a commercial level with music, apart from a half-hearted affiliate deal here and there.

Maybe the wrong people are in the room. Certainly more discussions happen between lawyers, trade associations, Government, and liability or anti-piracy staff than between the people who could actually do something to create new value. Does anyone really think a civil servant can invent the next decade of music industry infrastructure? No, thought not.

Even the diehard digital rights activists that I talk to are aware of many positive uses of copyright (the integrity of open source licences depends on it) and would be excited by a genuine collaboration between music and technology. And analysts in tech and telcos are sweating over spreadsheets constantly trying to justify a business case for investing in new and innovative services. Innovators and engineers have no shortage of ideas. That much is obvious.

So here’s a call. Skills, music, and distribution – let’s sideline the ranters, lobbyists, blowhards, politicians, and anyone else who thinks that they have a right to get in the way of progress. Music and technology are natural partners that should be bigging each other up, not trying to shame and hobble each other, and neither needs to go whining to Government for help. None of us want to end up being told how to live our lives by politicians. We can and must work together.

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The Relative Incompetence of the Music Industry

Posted on 1 May 2012 by paulsanders

Perhaps in the days of paper forms and typing pools it was excusable that the music industry shied away from line by line accounting in favour of statistical sampling and pro rata share outs of royalty pools. An additional copyright in those days meant a collective investment in administration that could be disproportionate. Now however the source of the largest imposition of cost is maladministration by copyright owners, leading to disputes and disambiguation. Yet it is still common for businesses and societies or other collective organisations to cry about burdensome complexity as they plead an increasingly feeble case against complete transparency in copyright administration.

Here’s Nic Garnett, in a report to WIPO about proposals for an International Music Registry:

To a degree a key question in rights management has changed. Before, RMOs needed to ask: “Is this data worth collecting and processing?”. In the digital environment the question can become: “Is there a legitimate reason for not processing all the relevant data?”

(RMOs are Rights Management Organisations)

This would have been a farsighted question to have asked in 1995, and right on the money for industry leaders to be asking in 2000. The fact that Nic, a highly experienced and knowledgeable copyright lawyer and consultant, is asking it in 2012 is strong evidence for the miserable failure of the music industry to make itself fit for business. Nic should know why this is so as he was CEO of IFPI during much of the 1990s, but he’s also enough of a diplomat not to point any fingers.

I can’t fault Nic’s list of music industry failings:

  • The necessary data systems are lacking
  • Music industry priorities are still, to a degree, shaped by out-dated structures designed for out-dated business models
  • There is insufficient interoperability between systems in different sectors of the music industry
  • There is even less interoperability with corresponding data systems outside the music industry’s core functions
  • There is little or no rights management infrastructure in emerging markets and what there is, is incompatible with systems in other markets

At this point the average music executive’s eyes start wandering, as though they have found themselves locked in a cupboard with a nutter. But imagine if other industries were afflicted with the same lax and stupid attitude to their basic infrastructure. What if car companies couldn’t manage to provide a set of standard wheel sizes to tyre companies? What if shoe lace manufacturers couldn’t or wouldn’t sell b2b to shoe makers or shoe shops, so you had to visit two shops to get a functional pair of shoes? What if a new and fabulous plane required an extra 100m of runway but the manufacturer couldn’t be bothered to tell the airports? Imagine if eBay decided it was far too much trouble to process any transactions under $10, so it would roll them up and divide the pool pro rata?

The music industry as a whole probably looks much like a failed state, such as Somalia, Chad, or Sudan, but thankfully with fewer guns. Reform is proving just as intractable as we move into the second decade of systemic incompetence. Nic’s handwringing at WIPO is a chronicle of failure, not a hopeful sign of reconstruction and recovery.

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Some Numbers In The Digital Music Industry

Posted on 30 March 2012 by paulsanders

There are now very few barriers to entry in the digital music industry, if you are lucky enough to be middle class in a developed economy. Production tools are essentially free if you have a computer; broadband connects you to a number of service providers that can put you on sale. Even if you have no musical skills there is a growing public domain of sound recordings that can be repackaged and sold. Low costs and no gatekeepering are driving a continuing expansion in the number of tracks in the market, with 2012 seeing perhaps 15 million already on sale and probably at least another million or two arriving each year.

I have gathered a few numbers from around the industry, which I shall present rounded off and anonymised or generalised to respect confidence and commercial sensitivity where they have not been widely published elsewhere. Some of them might well be wildly wrong, due to mis-remembered conversations or just poor data management.

One of the many music services that includes on demand streaming has delivered at least one listen for each of 720,000 tracks over a year, out of a catalogue of approximately 5 million tracks. A similar service, aimed at families, finds that each  account expands by 15 tracks the diversity of the music that gets listened to. A European neighbouring rights society knows about approximately 5 million tracks of which somewhere between 5 and 6% get payments allocated over a year.

ASCAP, the American organisation that collects and distributes royalties for the performances of compositions, shares the money it collects between the 200 highest grossing tours or concerts. It also makes discretionary awards to about 4000 applicants each year who would be entitled to be paid under a scheme that simply allocated royalties to reported performances. College webcast radio in the USA can pay an additional $100 on top of the $500 minimum fee to avoid reporting up to 825,000 performances of sound recordings per month, (9,900,000 performances per year).

The global digital music industry brought in $5.2b for record labels in 2011 according to the IFPI. If that were evenly distributed across the sound recordings in the market that would mean each earned approximately $350. Markets don’t tend to work like this; if the revenue followed one of the most likely distributions, 70% of the revenue would be generated by 1% of the tracks. Each of those 150,000 tracks in the top 1% would therefore earn a little more than $24,000 on average. Assuming the same distribution the top 150 tracks would average about $8.66m each. Just sharing that money out between performers registered in the International Performers Database, a joint project between neighbouring rights societies, would net each performer about $10,000.

Digital music is full of strangeness and contradiction, and as these numbers show, as a business its existence on its current scale is a triumph of either ignorance or hope over expectation. If any more interesting numbers pop up I shall update this article.

 

 

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