Why Google Should Buy the Music Industry

Rumours about Google's music service have been swirling for a while now, but they certainly seem to be reaching a new stage with stories like this:

The latest rumor to emerge from the Google campus is that the company’s much anticipated music service is just about at the end of their rope with the major label licensing process. A source close to the negotiations characterizes the search giant as “disgusted” with the labels, so much so that they are seriously considering following Amazon’s lead and launching their music could service without label licenses. I’m told that, though very remote and my guess is that it would never come to this, Google may go so far as to shut down the music service project altogether.

When there are rumours that you're about to give up on a project, you know it must be real.

But what really caught my attention was the following paragraph and its final, throwaway line:

I’m told that this is when the idea of launching without licenses came up. Google may be starting to think that if the industry weren’t going to sue Amazon, then why would they take on Google? After all, who needs whom the most in this scenario? Could you even wrap your brain around the legal costs? As a source pointed out to me, “Larry, Serge and Eric could buy the entire music industry with their personal money”.

The fact that this is literally true tells us something that is often overlooked: the music industry is economically quite small and unimportant compared to the computer industry. And yet somehow - through honed lobbying and old boy networks - it wields a disproportionate power that enables it to block innovative ideas that the online world wants to try.

On a rational basis, the music industry's concerns would be dwarfed by those of the computer world, which is not just far larger, but vastly more important in strategic terms. But instead, the former gets to make all kinds of hyperbolic claims about the alleged "damage" inflicted by piracy on its income, even though these simply don't stand up to analysis.

But that throwaway comment also raises another interesting idea: how about if Google *did* buy the music industry? That would solve its licensing problems at a stroke. Of course, the anti-trust authorities around the world would definitely have something to say about this, so it might be necessary to tweak the idea a little.

How about if a consortium of leading Internet companies - Google, Microsoft, Yahoo, Baidu, Amazon etc. - jointly bought the entire music industry, and promised to license its content to anyone on a non-discriminatory basis?

At the very least, the idea ought to send a shiver down the spine of the fat-cats currently running the record labels, and encourage them to stop whining so much just in case they make the thought of firing them all too attractive to the people whose lives they are currently making an utter misery....

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Should the Music Industry Pay ISPs for Piracy?

In the wake of its “success” in pushing through Digital Economy Act, the British music industry is hoping to move on to the next stage: using it as a lever to get more money out of the system (even though the music industry is currently thriving).

The UK royalties collector PRS For Music has just published a rough blueprint [.pdf] for how this might be done, entitled: “Moving Digital Britain Forward, without leaving Creative Britain behind”. It's a fascinating document, and merits close reading.

As the title suggests, there are essentially just two players in this analysis: the music industry, and the ISPs (the public are obviously irrelevant here). The ISPs are no longer lowly bit-mules, mindlessly obeying Net neutrality by conveying digital files hither and thither without a thought as to their content, but are to be regarded as “Next Generation Broadcasters”:

operators of networks that connect supply with demand in a market for media.

That's important, of course, because it reframes the debate about file-sharing in terms of old technology: radio and TV. It permits the argument to be made that such “broadcasters” have to pay for the privilege of broadcasting all that content – just like the radio and TV broadcasters do.

The paper makes a very good point about the increased capacity networks that are being built:

One of the few studies to be published comes from MoneySupermarket, who found that more than a third of consumers surveyed believe the advent of high-speed, next-generation broadband services would encourage greater piracy and make it easier to illegally download content. The report concluded that: ‘Illegal downloading is already a big problem for the likes of the music and film industries ... with superfast broadband packages set to become commonplace, the problem seems likely to get worse.’

I think that's true, but the analysis dismisses too easily the main reason for this:

Perhaps, like iTunes, these legal venues could increase the range of content on offer, but this increase comes at a high cost when already at a significant disadvantage to “free”.

That's a vicious circle: music companies won't offer more content to compete with free, unauthorised sites because it would cost too much, which means that there won't be so much authorised content as unauthorised, which means that people will continue to be forced to opt for unauthorised downloads, which music companies aren't willing to compete with.

The report even mentions iTunes, which backs up this view: for once iTunes made available most of the content previously only found on unauthorised sites, it started raking the money in. And yet the report chooses to ignore this rare data point, and stick with its circularity – the reason being, it has a Cunning Plan. The ISPs – sorry, Next Generation Broadcasters – must pay:

If changes in the scale of unlicensed media can be measured, we can put a price on this spillover to bridge the value gap. Simply stated, at some date a price would be placed on the indexed measure of unlicensed media on ISP networks. If at a later date the measure of infringement increases, the value transferred (from ISP to rightsholders) would increase accordingly.

Conversely, were the measure of infringement to decrease, the amount transferred would decrease accordingly. The options for pricing such spillovers should be the subject of further research.

They should indeed: I think this is a splendid idea – if we could make just one tiny tweak.

For this to be fair, we must of course make sure that we capture all the effects of unauthorised file sharing so that its true economic effect is measured. That is, we shouldn't be measuring anything so crude and vague as the flow of allegedly unauthorised copyright materials across a network. After all, it's impossible to say whether some of that flow might be permissible uses, and then there's the question of whether people would have bought the equivalent content etc.

Instead, what needs to be ascertained is the knock-on economic effects of that file-sharing in the *real world*. And of course, one very important aspect that has to be included in that is the fact that those who share files buy more, not less, music. As Mike Masnick explains through a splendid series of links:

Study after study after study after study after study after study has shown the exact opposite -- noting that people who file share tend to be bigger music fans, and are more likely to spend on music.

So I think we should try out this report's suggestion that ISPs should pay for the consequences of their users' actions – provided the recorded industry pays the ISPs if it should turn out (as those six reports linked to by Masnick might suggest) that file sharing actually *increases* the sales of recorded music. What could be fairer than that?

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Spot(ify) the Trend

One of the reasons that digital music will be free - whether the recording companies want it or not - is basic economics: the marginal cost is practically zero, which means that the price will tend to that point, too. And now we have this:

Spotify is slashing the cost of its advert-free music streaming in the UK and Europe, in a bid to win more paying customers besides just mobile users. It comes in two new tariffs Spotify’s introducing…

—Spotify Unlimited: £4.99pm/ for no-ads music, but no mobile access, no offline or MP3 play and no higher-bitrate quality.

—Spotify Open: Free, with ads, no invite required, but no mobile, no offline or MP3 play, no higher-quality and limited to 20 hours a month.

What's interesting here is that Spotify has already been accused of not paying artists much for each play: this new pricing scheme is likely to mean their fees won't be going up anytime soon. The sooner artists use free digital music to enable them to make money from analogue scarcity, the better.

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Copyright Infringement: A Modest Proposal

The UK government's Canute-like efforts to stem the tide of online copyright infringement have plumbed new depths, it seems:

Proposals to suspend the internet connections of those who repeatedly share music and films online will leave consumers with a bill for £500 million, ministers have admitted.

The Digital Economy Bill would force internet service providers (ISPs) to send warning letters to anyone caught swapping copyright material illegally, and to suspend or slow the connections of those who refused to stop. ISPs say that such interference with their customers’ connections would add £25 a year to a broadband subscription.

As Mike Masnick points out:

Note, of course, that the music industry itself claims that £200 million worth of music is downloaded in the UK per year (and, of course, that's only "losses" if you use the ridiculous and obviously incorrect calculation that each download is a "lost sale").

So this absurd approach will actually cost far more than it will save, even accepting the grossly-inflated and self-serving figures from the music industry.

Against that background, I have a suggestion.

Given that the UK government seems happy for huge sums of money to be spent on this fool's errand, why not spend it more effectively, in a way that sustains businesses, rather than penalising them, and which actually encourages people not to download copyrighted material from unauthorised sources?

This can be done quite simply: by giving everyone who wants it a free Spotify Premium subscription. These normally cost £120 per year, but buying a national licence for the 10 million families or so who are online would presumably garner a generous discount - say, of 50% - bringing the total price of the scheme to around £600 million, pretty much the expected cost of the current plans.

As I can attest, once you get the Spotify Premium habit, you really don't want to bother with downloading files and managing them: having everything there, in the cloud, nicely organised, is just *so* convenient (well, provided you don't lose your connection). I'm sure that my scheme would lead to falls in the levels of file sharing that the government is looking for; and anyway, it could hardly be worse than the proposals in the Digital Economy bill.

Update: On Twitter, Barbara Cookson suggested a clever tweak to this idea: "absolution for ISPs who include #spotify as part of package". Nice.

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Hamburg Declaration = Humbug Declaration

You may have noticed that in the 10 years since Napster, the music industry has succeeded in almost completely ruining its biggest opportunity to make huge quantities of money, alienating just about anyone under 30 along the way (and a fair number of us old fogies, too).

Alas, it seems that some parts of the newspaper industry have been doing their job of reporting so badly that they missed that particular news item. For what does it want to do? Follow the music industry's lemming-like plunge off the cliff of "new intellectual property rights protection":

On the day that Commissioner Viviane Reding unveils her strategy for a Digital Europe during the Lisbon Council, and as the European Commission's consultation on the Content Online Report draws to a close this week, senior members of the publishing world are presenting to Information Society Commissioner Viviane Reding and Internal Market Commissioner Charlie McCreevy, a landmark declaration adopted on intellectual property rights in the digital world in a bid to ensure that opportunities for a diverse, free press and quality journalism thrive online into the future.

This is the first press communiqué on a significant meeting convened on 26th June in Berlin by news group Chief Executives from both the EPC and the World Association of Newspapers where the 'Hamburg Declaration' was signed, calling for online copyright to be respected, to allow innovation to thrive and consumers to be better served.

This comes from an extraordinary press release, combining arrogant self-satisfaction with total ignorance about how the Internet works:

A fundamental safeguard of democratic society is a free, diverse and independent press. Without control over our intellectual property rights, the future of quality journalism is at stake and with it our ability to provide our consumers with quality and varied information, education and entertainment on the many platforms they enjoy.

What a load of codswallop. What makes them think they are the sole guardians of that "free, diverse and independent press"? In case they hadn't noticed, the Internet is rather full of "quality and varied information, education and entertainment on the many platforms", most of it quite independent of anything so dull as a newspaper. As many others have pointed out, quality journalism is quite separate from old-style press empires, even if the latter have managed to produce the former from time to time.

Then there's this:

We continue to attract ever greater audiences for our content but, unlike in the print or TV business models, we are not the ones making the money out of our content. This is unsustainable.

Well, at least they got the last bit. But if they are attracting "ever greater audiences" for their content, but are not making money, does this not suggest that they are doing something fundamentally wrong? In a former incarnation, I too was a publisher. When things went badly, I did not immediately call for new laws: I tried again with something different. How about if newspaper publishers did the same?

This kind of self-pitying bleating would be extraordinary enough were it coming out of a vacuum; but given the decade of exemplary failure by the music industry taking *exactly* the same approach, it suggests a wilful refusal to look reality in the face that is quite extraordinary.

Speaking personally, the sooner all supporters of the Humbug Declaration are simply omitted from every search engine on Earth, the better: I'm sure we won't miss them, but they sure will miss the Internet...

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Why Music Companies are Doomed Regardless

One of the favourite tropes in the music industry is that they'd all be rolling in it like the good old days if it weren't for those nasty people downloading music for free. Here's a perceptive analysis that explains why that isn't so:

the newspaper industry is in the same death spiral as the recording industry, without the lawbreaking that’s commonly blamed for the recording industry’s troubles. And it seems to me that this poses a philosophical challenge to DeLong’s theory that the problem is a lack of respect for “property rights.” The decline of the newspapers is clearly a story of technological progress producing increased competition and entrepreneurship—precisely the sort of thing libertarians normally celebrate. The news business has gotten far more competitive over the last decade, and we’re now seeing a normal shake-out where the least efficient firms go out of business.

I think the fact that this is happening in an industry without a piracy problem should give us second thoughts about blaming the decline of other copyright industries on BitTorrent. The newspaper example suggests that even if we could completely shut down peer-to-peer networks, we should still expect the recording industry to decline over time as consumers gravitate toward more efficient and convenient sources of music. Piracy obviously accelerates the process, but the underlying problem is simply this: the recording industry’s core competence, pressing 1s and 0s on plastic disks and shipping them to retail stores, is rapidly becoming pointless, just as the newspaper industry’s core competence of pressing ink on newsprint and dropping them on doorsteps is becoming obsolete. Not surprisingly, when a technology becomes obsolete, firms who specialize in exploiting that technology go out of business.

Gotcha.

The Kids Are Spot-on

Interesting figures from new research:

Marrakesh Records and Human Capital surveyed 1,000 15 to 24-year-olds highlighting not just how important music is to young people, but their changing attitudes to paying for content. 70 percent said they don't feel guilty for illegally downloading music from the internet. 61 percent feel they shouldn't have to pay for music. And around 43 percent of the music owned by this age group has not been paid for, increasing to 49 percent for the younger half of the group.

But the battle to get them to pay for music has not been lost entirely:

This age group felt £6.58 is a fair price for CD album, but that a downloaded album should be just £3.91 and a single 39p - almost half the price charged by Apple's iTunes Store.

Clearly, if the music industry wants to stand any chance of retaining people's willingness to pay for content, it had better move its prices down to this level pretty sharply. If they don't, it's not hard to predict what will happen the next time they carry out this research.

Of Digital Abundance and Analogue Scarcity

Recently, I’ve started buying records. I’ve decided that CDs just aren’t enough of a collector’s item. Since I can own all the music I could ever want digitally, I want to buy something that looks nice, special, and something that’s going to be fun to browse through in a couple of years. Records are beautiful collector’s items, CDs don’t even come close; especially because records are almost always available in special limited editions with coloured vinyl, posters, extra sleeves and whatnot. I also prefer the warm, soothing sound of records compared to the sound you get from CDs and especially MP3s, which - contrary to what some may believe - do not have nearly the same sound quality as CDs or records.

This is one way for the music industry to make money: sell *records* again....

Somebody's Heard the Music

Some people in the music biz are finally getting it:

The music executives behind Kaiser Chiefs and Primal Scream are backing a new website that will allow music fans to invest financially as well as emotionally in hotly tipped new acts.

The venture, dreamed up by a music business lawyer and backed by the founder of Friends Reunited, is being billed as the latest innovative funding model that could provide artists with an alternative to major labels.

Bandstocks will let the public buy a stake in an artist in £10 increments. Once funding reaches a preordained level, for example £100,000, the money will be released for the act to record an album.

Investors will get a copy of the album, a credit on the CD sleeve and a percentage of the profits from its sale and licensing. They will also get priority ticket booking and the opportunity to buy limited edition releases. For the artist, founder Andrew Lewis claimed that Bandstocks would offer a better return than a major-label deal, as well as more freedom and control over copyright.

The Guardian's headline - "Don't just buy the music" is also a sign that people are beginning to realise that there is more than one way to skin a digital cat....

Free Music Goes Mainstream

What's interesting about this piece in the Guardian describing how the music industry is finally waking up to the virtues of free is that it brings together most of the arguments that I and others (notably Mike Masnick on Techdirt) have been banging on about for years. Looks like the industry has (almost) got it. We shall see.

Kids Today - The People Tomorrow

Nice story here:

I just could not find a spot on the spectrum that would trigger these kids' morality alarm. They listened to each example, looking at me like I was nuts.

Finally, with mock exasperation, I said, "O.K., let's try one that's a little less complicated: You want a movie or an album. You don't want to pay for it. So you download it."

There it was: the bald-faced, worst-case example, without any nuance or mitigating factors whatsoever.

"Who thinks that might be wrong?"

Two hands out of 500.

Now, maybe there was some peer pressure involved; nobody wants to look like a goody-goody.

Maybe all this is obvious to you, and maybe you could have predicted it. But to see this vivid demonstration of the generational divide, in person, blew me away.

I don't pretend to know what the solution to the file-sharing issue is. (Although I'm increasingly convinced that copy protection isn't it.)

Er, David, it's called changing the business model. It is just not sustainable to try to enforce analogue-type laws on digital content, and ultimately it's counterproductive - as the music industry is finding to its cost.

Darwinian Selection, Where Are You?

As I've pointed out many times, Darwinian selection lies at the heart of much of openness's success. So this is really, really bad news:

Imagine if we threw money at record labels, in the hopes that they'd publish better music. What do you think would happen?

Unfortunately, that's exactly what the Fed's doing with the financial system. But throwing liquidity into a rotten system is just giving the virus new stuff to infect, consume, and decay.

Oh dear.

Likely to Take a Bit of Stick

Well, part of the music industry seems to have got half the message - that it needs to offer something beyond the music that is circulating freely around the Internet. But I don't somehow think that "something" is a USB drive:

Universal Music, the world’s biggest music company, is to release singles on USB memory sticks this month, in an attempt to arrest the decline in music sales.

The Vivendi-owned company plans to charge about £4.99 for USB singles starting on October 29 with releases from piano rock band Keane and Nicole, the lead singer of the Pussycat Dolls. That compares with £2.99 for a typical CD single.

However, the hope is that fans will be willing to pay extra because the extra storage capacity on a USB allows the addition of videos and other multimedia.

Riiiight.

So, they think kids are going to rush out to buy overpriced USBs offering some digital tracks plus a couple of music videos that will be available on YouTube? Hm, can't quite see this, myself.... (Via The Reg.)

Ninch Inch Nails in the Music Industry's Coffin

How many more of these will it take before the music business realises that it's over?

Let the Peoples Sing (Even if No One Listens)

Hey, music industry, I think the people formerly known as the audience are trying to tell you something:

Now in its fourth year, the survey - carried out by Entertainment Media Research in conjunction with media lawyers Olswang - found that 43% of UK consumers admitted to downloading music without paying for it, adding up to a hefty hike from 36% in 2006.

...

Commenting on the slowing growth of authorised downloads (up by just 15 per cent this year, compared to 40 per cent in 2006), Hart said that folks are donning their pirate’s hats and grabbing illegal downloads because official downloads are seen as too pricey.

The survey backs up that claim, with 84 per cent saying that older digital downloads should be made cheaper, while nearly half (48 per cent) said that they’d be happy to pay more for newer releases.

John Enser, Oslang’s head honcho of music, added: “The music industry needs to embrace new opportunities being generated by the increasing popularity of music on social networking sites. Surfing these sites and discovering new music is widespread with the latest generation of online consumers but the process of actually purchasing the music needs to be made easier to encourage sales and develop this new market.”

Time to Face the Music

I've been rabbiting on about this for some time; now The Economist is saying it too, so it must be true:

Seven years ago musicians derived two-thirds of their income, via record labels, from pre-recorded music, with the other one-third coming from concert tours, merchandise and endorsements, according to the Music Managers Forum, a trade group in London. But today those proportions have been reversed—cutting the labels off from the industry's biggest and fastest-growing sources of revenue. Concert-ticket sales in North America alone increased from $1.7 billion in 2000 to over $3.1 billion last year, according to Pollstar, a trade magazine.

...

The logical conclusion is for artists to give away their music as a promotional tool. Some are doing just that. This week Prince announced that his new album, “Planet Earth”, will be given away in Britain for free with the Mail on Sunday, a national newspaper, on July 15th. (For years Prince has made far more money from live performances than from album sales; he was the industry's top earner in 2004.) Outraged British music retailers were quick to condemn the idea. As far as the record industry is concerned, it is madness. But for the music industry, it could well be the shape of things to come.

Don't Mess With Our Thing

This litany of music industry woes is an object lesson in what happens if you fight the (Net) Family:

The major labels are struggling to reinvent their business models, even as some wonder whether it's too late. "The record business is over," says music attorney Peter Paterno, who represents Metallica and Dr. Dre. "The labels have wonderful assets -- they just can't make any money off them." One senior music-industry source who requested anonymity went further: "Here we have a business that's dying. There won't be any major labels pretty soon."

Amazingly, it could have all been so different:

Seven years ago, the music industry's top executives gathered for secret talks with Napster CEO Hank Barry. At a July 15th, 2000, meeting, the execs -- including the CEO of Universal's parent company, Edgar Bronfman Jr.; Sony Corp. head Nobuyuki Idei; and Bertelsmann chief Thomas Middelhof -- sat in a hotel in Sun Valley, Idaho, with Barry and told him that they wanted to strike licensing deals with Napster. "Mr. Idei started the meeting," recalls Barry, now a director in the law firm Howard Rice. "He was talking about how Napster was something the customers wanted."

So near and yet so far. (Via IP Democracy.)

From Open Source to Open Sewing

Nice: someone else who really gets it:

"Ours is an open-source approach to the sewing patterns," Abousteit said. "We removed copyright restrictions and actually encourage people to make money selling their improved versions over our own Web site."

The only requirement for people to use modified Burda patterns is to acknowledge the company as the source.

Removing copyright restrictions from the patterns that made Burda Moden money and fame was a move that required approval from Hubert Burda.

"Instead of opposing the removal of copyright," Burda "drew a parallel between sewing patterns and the music industry," she said. "He said we should not make the same mistakes as record companies did with copy restrictions."

So how do they make money? Easy - offer added-value:

The site gives away sewing patterns that can be printed on A4 paper which then must be taped together. For about $4 people can download a pattern that can be printed on a single large sheet on printers available at most print shops.

(Via Paidcontent.org.)