MusicTank Newsletter - Jul 08

The big news last week was the signing of a government brokered Memo of Understanding between the BPI, the UK’s six largest ISPs – representing some 90% of UK internet connections – and the government and film industry.  While most of the headlines focused on whether the letters being sent would curtail filesharing, that seems to be missing the point a little - most stakeholders agree the real solution is not the stick but the carrot of decent legal alternatives, and beyond the ISPs’ acknowledgement of their responsibilities, and indeed the letters themselves, the real hope is that this Memo will help to create and environment in which new digital services can flourish.

As regular readers will know, we’ve long been urging for decent legal alternatives, and we’re delighted to be able to publish two opinions below which consider what the alternatives might look like and how they might be licensed.  Peter Jenner outlines the case for a collective licensing approach, while strategy consultant Keith Jopling argues that while it may be appropriate to licence a certain level of interactivity collectively, any service approaching on-demand downloads, such as filesharing, needs to be licensed individually by labels. 

So while some reports suggest we’re mere months away from compelling legal alternatives to filesharing, there’s still clearly plenty of debate over how we’re going to get there. We’re sure there’s a lot more to be said on this, and you can respond to the pieces below by emailing editor(A)musictank.co.uk.  We’ll be posting comments on the web site, so be sure to let us know if you don’t want your comments published.

As MusicTank prepares to take a short break over the summer thus marking the end of another highly successful season, we'd like to thank you - our MusicTank community - for your continued interest in all that we do.  With mushrooming audiences and a rapidly increasing subscriber-base, it's gratifying to know we're hitting the spot - at least some of the time! 

Sam Shemtob

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JOE POX: The Mercurys

YOUR SHOUT: Keith Jopling & Peter Jenner comment on the recent Industry/ISP Memorandum

MUSICTANK LOUNGE: Event review and online archive

FROM OUR OWN CORRESPONDENT: Secret Garden Party

MERRY-GO-ROUND: Other industry events

"Music Like Water?  Evian Would Be Nice" - Keith Jopling.

With recent developments between the BPI and UK ISP’s and Sky’s announcement of its new music subscription service, so comes another major in the 'music & ISP' debate.

I’ll be unequivocal – I have never believed any 'flat rate levy' model can work for music.  I didn’t think so when first looking at the model as research director at IFPI.  One year ago, in assessing the concept with Cap Gemini for the UK’s Value Recognition Strategy group, I became doubly convinced, based on hard economic evidence and detailed analysis.

Finally, more recently on the business side, in reviewing recent service offerings from Nokia (Comes With Music) and Sky, I have become even trebly convinced, because 'all-you-can-eat' or 'total music' solutions are already arriving under these new branded service models, without any notion of an ISP flat rate, government intervention or even the need for file-sharing functionality, thanks to the demise of DRM.

Basically, the world has moved on. In high-level detail I’ll run through these three categories of issues: politics, economics and business.

Firstly, politics.  I have never supported the idea of a government directly meddling with an industry’s business model, particularly one where technology is dictating the pace of change.  How would they know what to do to intervene?  I don’t think the UK Government would go that far.  In his round of interviews last week regarding the BPI and UK ISP memorandum, Fergal Sharkey clearly emphasised this, stating on Sky 'There was never any discussion of any levy or tax or anything resembling that whatsoever.'  Government generally does what business wants, and where business can sort itself out, Government is happy to sit back and let that happen.

Secondly, economics.  Without government setting a mandatory levy, a music ISP solution would need to be two essential things: voluntary and cheap. Consumers want to pay for music through their own choice.  And they want music to be cheap.  Let’s review the economic objective for an ISP solution – offset losses from file sharing.  The Cap Gemini work for the VRS called this the 'Value Gap'.  Without revealing the confidential numbers in that report, there is one fundamental and to some less numbers-orientated thinkers, perhaps surprising problem: the revenues from a voluntary, reasonably priced 'total music' solution do not offset the music industry’s losses from file-sharing.  Got that?  It’s true.  The UK trade music business value gap over five years would be nowhere near offset by music revenues (after conservative assumptions for price, take-up & churn, substitution of existing revenues, cost of service provision and re-distribution of income to right holders).  Then factor in revenue share and anti-piracy costs (such services after all exist alongside pirate services). And those figures are trade, so assume whatever you like for the future of music retailers.

Finally, business.  No ISP would sanction a flat rate levy on file-sharing. How would they control quality of service to consumers?  How would they sell other entertainment content like movies?  How would they administer payments to rights holders?  It’s a minefield of issues that in combination is impossible for business institutions to navigate.

Currently in a utility business themselves, ISPs (especially new generation ISP’s like Sky, Virgin and BT) are far more motivated by the idea of providing branded, value-add services that keep their customers (and subsequently shareholders) happy.  They are wedded to three models: service provision, ARPU (average revenue per user) and customer retention.  That is what music providers need to leverage for future commercial models for music.

Keith is a freelance strategy consultant for numerous music organisations including EMI, Nokia, SonyBMG and most recently Live Nation.  He currently blogs at
http://juggernautbrew.blogspot.com/

"The recently announced Memorandum of Understanding (MOU) between the Music and Film biz and the ISPs is both an historic and a huge non-event" - Peter Jenner

Historic in as much as it opens doors on both sides.  The ISPs implicitly recognise they cannot continue to rely on being dumb pipes to deny all responsibility for copyright infringement by their customers, as we all know, and they admit that they know what is going on and have a lot of control.  Implicitly, this confirms the view that they have driven the growth of their business on the back of the unauthorised usage of copyright material by their customers.

On the record companies’ side there is an equally implicit recognition that they have failed to provide the music in a way that is acceptable to the public, and at a price which recognises the enormous cost savings involved in digital distribution, and now, having failed to bludgeon the public into submission – after 10 years, or is it 20? - TPM (Technical Protection Measures) is dead.

The record business has had to come to terms with the fact that it cannot control distribution and that the internet is not just a huge shop (though it can be that, too), whose job is to sell units of music. As the technology changes, so does the society around it, and the way that we use and access music is a reflection of those changes in social attitude that reflect the functionality of that technology.

At the same time the MOU was a non-event as it gave no lead as to how the necessary fundamental change in behaviour and charging for content was going to be delivered, except for writing to some of our customers to tell them that they had been caught being naughty.  It was a classic Nuclear Non-Proliferation Treaty type document.  Everyone could find something to their own liking and nothing much was going to change immediately.  But the conditions have been laid for future discussions between the two industries.

But one thing is for sure - the business on both sides will change.  The ISPs are going to have to find a way of paying for the content that they deliver.  It might be through advertising, it might be through a bundled charge, it might be through band-width user charges, or any other models someone can come up with.

The record business has got to change from a granular business to a service business.  These are huge changes for both sides, and it is easier to say that they need to change than to actually do it. 

The essential problem is this. Any system must start by competing with both the range and variety and the uncontrolled nature of the FREE option.  The un-licensable UGC (User Generated Content) of You Tube, MySpace etc, the bootleg recordings, the radio shows, the live recordings from festivals and gigs, the content from the non-English speaking world is as valuable as the licensable content from the big four record companies.  Music from both out-of-contract artists and the not yet contracted artists is also hard to license if they are not going through one of the big licensors, as is music from the musician-owned and micro labels from all over the world, as are the podcasts, the radio streams and the music blogs.

It is the wealth and diversity of accessible content that is a key part of the attraction of the net.  Without some easily accessible place to pay for ALL THE MUSIC, and to negotiate the price for its use in any specific business model, it is hard to see how legal services will have the vitality and openness to innovation that the new technology demands.  The business model must not be restrained by the thought structures, contractual and accounting systems and culture of the old music business model.  All this change has to occur whilst fulfilling the basic consideration of supplying the listener/user/customer/fan with the music wanted, in the way wanted, at the price that competes with alternative entertainment/cultural offers available and competing online. 

It also has to compete with all the music being available free.  There is no sensible way of predicting what models will emerge, except to say it will involve the creators providing services that the customers want. It is the job of everyone operating between the creators and the customers to work out how they can enhance this relationship, not worry about how they can protect their current business.  

In as much as any intermediary is enhancing this relationship, they will flourish.  If they fail to give value to the relationship they will fail.  This applies to record companies, ISPs, managers, publishers, aggregators, hardware manufacturers etc.  It is hard, therefore, to predict the future.  But collective licensing, based on a 'remuneration structure' (like radio) is likely to be the best solution.  The necessity to negotiate all the necessary licenses required for the 'exclusive rights' model for every piece of music is either too cumbersome or excludes too much product from the legal market.  In that case the difficulty of getting the users to transfer to paid-for models is doubly difficult.  It is hard to see how the legal model can ever compete with the unauthorised model until this problem is addressed. 

It is also hard to see how any system that only pays some of the creators (or the companies that control their work) whilst not paying the economically weak, and which also limits new services to those with enough money to hire enough lawyers, software and hardware to make the granular model work will be permitted to control the market in the long run.

Licensing is the way to sort these problems out.  If the industries cannot resolve their differences sensibly and develop mutually agreeable licensing systems and structures, with sensible payment systems not lumbered with impossible transaction costs, the government will step in and they will mess it up.  It is rare for the government to be humble in its assessment of its skills, and we should recognise and rejoice when they do.  The government wants to foster both creativity and outlets for it.  It also wants high speed universal broadband to make enough money to keep on investing in upgrading the infrastructure.  But it also wants the artists to get paid enough to go on creating if their work has value in the market.

There is a need for an open, accessible market, with level playing fields and few hurdles to entry.  The present system is not level and the hurdles for new services and new artists are huge and daunting.  The MOU opens the door to discussions about how the ISPs (and in time the MSPs) and the recorded music industry can explore solutions.    

Peter Jenner - Purveyor of fine management since 1966.

As ever we are always pleased to receive your e-mails and invite contributions for future publication.  Please send them to editor(A)musictank.co.uk and be clear to mark it 'Not For Publication' if you do not wish it to be published.

Face To Face With The Millennials

Following on from the recent MusicTank report 'Meet The Millennials', we decided to challenge the report’s author and CEO of Nettwerk Music Group, Terry McBride, to further expound his theories, face up to his critics and kick off an exciting experiment where Terry would come face to face with a Millennial artist and live on stage, map out their next twelve months.

Delivering an inspirational keynote address, it soon became clear why Terry's insights are sought the world over. Where others see problems Terry sees opportunities, where some see their artists' content being given away freely, Terry sees, in his own words, 'a sh**load of money' and a $2,000,000 cheque.

Terry McBride - "I've seen songs given away for gratis [on TV] in about a ten week period sell 170,000 downloads at 70 cents a time - the value of that placement was over $100,000.  A very big publisher stateside will not allow their tracks to be given away gratis - lost opportunity."

Imploring us to keep experimenting, Terry left the stage and with the crowd's applause still ringing around the room, it was time to hear from MTV Network's Philip O'Ferrall and Peter Rupert of Entertainment Media Research on how their companies profile, view and respond to our millennial generation.

Having heard the grown ups discuss them, it was finally time to hear direct from some Millennials themselves.  Any thoughts that our youthful chorus would be muted facing a massed crowd of penniless music industry professionals were soon dispelled and we were treated to a confident, combative display as our Millennials, coaxed-on by compere Tom Robinson refused to apologise for their generation’s light-fingered ways with MP3s and instead, turned the tables on the assembled adults with a plea to 'get over it' as we were beginning to bore them.

Anna Goss (Millennial) - "...it’s no one’s right to get paid for their recorded music anymore."

Tom Robinson - "And if I could just make a personal declaration...Before I worked in radio, I made 14 albums and now all the recordings to which I own the rights I've now put them all up for free, because it’s more important to me that people still hear music rather than getting 79p for one track once a month.  I now have a donate button and have made more money from that donate button than I made from record companies in the past ten years."

Suitably chastened, it was time for Terry to take to the stage again and for our Millennial act, James Yuill to be unveiled.  Joined by his manager, Amul Batra, James was probed and prodded by Terry into revealing his history, beliefs and ambitions, as well as details of the various social networks that James moves in and can draw upon.  Bouncing ideas around the room, Terry soon began to piece together various plans that ranged from the sublime to the ridiculous, drawing from the crowds and his own experiences.  By the end of the session James and Amul were sent packing with a shopping list of new ideas to choose from and plenty for the rest of us to mull over too.

A few days later, word reached us from Amul: "For James, the event was as near to a total success as possible.  Following from all of Terry's advice, James has already set up an MP3 blog, has added Google Analytics, we are in the process of crowd sourcing live visuals and we are working on a plan to get fans to vote for each of the remixes for 'No Pins Allowed'…and will be having a team meeting in the next week or so to properly digest and make some concrete plans."

Next month we will be returning to Amul to hear in depth just what they took away from the event and what they have now lined up for James in the year ahead. 

Meanwhile, there was a fair amount of buzz and industry comment about this event, incl.

http://www.guardian.co.uk/world/2008/jul/23/avril.lavigne.youtube

http://www.music4games.net/News_Display.aspx?id=967http://www.music4games.net/News_Display.aspx?id=967

http://www.paidcontent.co.uk/entry/419-musictank-weekend-video-terry-mcbride-ceo-nettwerk-music-group/

http://billboard.biz/bbbiz/content_display/industry/e3i5d81a13910668277d04a88035a7ec0b2?imw=Y

Online archive

The full podcast and transcript is now online at http://www.musictank.co.uk/events/face-to-face-with-the-millennials . Members must login to the MusicTank website in order to access this. Hear are some teasers...

TERRY MCBRIDE...on price-tipping points...suing filesharers...and the value of 'free'...

"I look at this debate going on in the media about the music business. Physical sales are down - I think it's 5% - this year it's more like 15%, and digital sales - gross dollars - is not making up for that difference. The last time I looked, any company that had a bottom line focused on net profit, not on gross dollars. I for one know that the profit margin inside the digital space is about 300% of that of the physical space. So that tells me at a certain point you're going to hit a tipping point where physical continues to go down more than digital goes up and yet the company becomes more profitable..."

"We saw we were never going to win this battle of litigation, we were never going to win a battle of legislation. I believe that legislation works in a business-to -business relationship, as that can change behaviour, but legislation or litigation I have yet to see work in changing the behaviour of millions to tens of millions of people..."

"What is the value of free? In the digital space anything that can be copied has zero value, anything that's scarce has huge value. So what's scarce? Well you can't copy an artist, so the actual person - that essence - is scarce, so access to that essence is scarce and has huge value, so you can build a whole platform around that - you can create a brand and all the various verticals around that brand and have those be part of what you build by giving away music..."

If there were a festival to freeze in time it would be this.  Starting with the clownlike gazes of the stewards checking our happiness level driving in, to the surreal call of ‘good day’ as we hobbled back to sleep at dawn, no stone had been left unturned in the quest for perfection.

How could chaos be taking place everywhere, simultaneously, in such a relaxed and well-woven fashion, I kept thinking?  The answer almost certainly lay in an incredible level of planning. 

Take the pirate ship, built from nothing out of wood (how long did that take?) and plonked in the middle of the lake in the centre of the garden.  Having spent Friday night looking pretty, Saturday it’s full of people dancing their faces off.  Suddenly, rebel marauders are using a three-person catapault to shoot water balloons from the lake’s bank across the 50m or so of air–splat – right into the dancing pirates – cue much rejoicing from pirates and marauders alike, as the remaining 20 or so water balloons are unleashed. 

Hours later that same pirate ship explodes into as mass of colour and flame as fireworks leap from its decks before the whole thing engulfes into an impressive fireball.  And – whatever your opinions of firejugglers – dozens of them lined across the far bank of the lake fire twirling, while a hundred Chinese lanterns are let off into the sky and the pirate ship burns brightly is indeed a pretty sight.

With a theme of Come the Revolution the organisers reached out to festival-goers to participate themselves – and lots took the hint, holding spontaneous 20-second discos at 4am with complete strangers (any excuse for a countdown), handing out free bottles of water, or simply hanging baskets of goodies in the trees for all and sundry (admittedly full of fag ends by Sunday afternoon).

So where in all of this was the music?  Everywhere but nowhere – with almost nobody having a programme, we suspect the organisers preferred people stumbleupon whatever was cooking.   But, by way of a quick skip through a handful of acts: - Grace Jones made up for a slightly stop-start dub / rare groove set with an incredible number of dress changes (I lost count after 7), culminating in a spellbinding rendition of 'Slave to the Rhythm' that saw her in a wind tunnel in billowing gowns and headdress, like the original 80s video.  Morcheeba played a rousing set showcasing a breadth of talent and good songwriting well beyond 'Down By The Sea', and there were plenty of other good bands; the main dance tent at times seemed to be playing the odd bit of old rope rather than locking into a groove, but this was more than made up for by the Fish meets Bicycle stage (with it’s own private LoveShack) and the dance bar opposite.

No traffic queues, or hassle of any sort with anything, which has to be a near impossibility. The only worry as with any festival is that its success becomes its undoing.  Somehow I don’t think that’s likely with the Secret Garden, but just in case I’ll tell you NOW – it was sh*t, don’t go there, Ben & Jerry’s was the one...

Oh and it wouldn’t be right not to mention the sheer electricity that emanated on Friday night – a sort of buzziness I’ve only seen 2 years ago. 

You can guess where.

SS

Sep 17: idesign 08

NMK (MusicTank's sister network), is pleased to announce idesign 08, the UK’s leading conference for interactive design. The conference will take place at the South Bank Centre, London on September 17.

Early Bird Rates: Admission to the conference, the exhibition and portfolio clinic is currently available for just £60 (£50 for concessions). This price will rise in August, so don't delay...

idesign 08 will showcase the best and most innovative work in the field and feature keynote speakers at the top of the profession. The programme is designed to be inspirational, informative and challenging. You will be a better interactive designer by the end of the day - or better able to understand the designers who work with you! You’ll also know about new opportunities and your pathway through this new digital world.

The event will also host portfolio clinics from London’s top digital agencies, and host the digital design day exhibition and seminars.

This conference is for you if:

- you want to be inspired with new ideas about web, 3D, interactive and mobile.
- you are a design professional who needs to keep abreast of the latest thinking and see best practice.
- you’re passionate about the future of the digital world.
- you want to share ideas and opportunities with like-minded creatives.

Speakers incl.
Brendan Dawes (MagneticNorth); Ann Longley (Media Edge: CIA); Adrian Shaughnessy (This is Real Art); Colin Jenkinson (Cogapp); Ximo Peris (Smoothe); Simon Waterfall (Poke); Michael Nutley (NMA), with others tba.  

More info:
http://www.idesign-london.com

Booking site:
http://www.nmk.co.uk/event/2008/7/22/idesign-08

Notes:
If you wish to make a group booking (five people or more) or believe you might be eligible for a press pass, email michelle.hardiman@nmk.co.uk for more information.  Concessions are available for students, unemployed, freelancers, not-for-profit companies and charities. idesign 08 is produced by dynamo London in association with NMK and AIG, and with the support of skillset (www.skillset.org).

If you have any queries regarding any of our events or activities, please call Jonathan on 020 7915 5412, or e-mail: info@musictank.co.uk

The views and opinions expressed are those of the author and are not necessarily condoned or shared by MusicTank. MusicTank is a non-profit organisation owned and operated by University of Westminster. University of Westminster is a charity and a company limited by guarantee. Reg Number: 977818, England. Registered Office: 309 Regent Street, London, W1. MusicTank is based at University of Westminster, Fifth Floor, Copland Building, 115 New Cavendish Street, London, W1W 6UW.