Why Google's free music deal in China is so important, and what it may really mean

Image via CrunchBase

I have mentioned Google's music-related activities in China a few times during the past 2 years; and just yesterday this topic seems to have heated up considerably. I think these developments are crucial and need further exploration.

As you may know, Google owns a good chunk (or all?) of the Chinese search engine Top100.cn, one of the biggest rivals of the Chinese super-portal and ruling search giant, Baidu. However, Google is still a more or less distant second in the Chinese search market (in 2008, Google had approx. 16.6% vs Baidu's 76.9%) and really needs its Top100 property to better compete with Baidu. The major issue here is - you guessed it - the availability of CONTENT- or rather, the simple displaying of links to millions of music & film files that those hungry freeloaders i.e. digital natives want to stream or download. Baidu allows this - in fact, thrives on it - while Google / Top100 does not (i.e. it filters and removes the links to the files). This is a huge handicap for Google, because the filtering of those content-links is basically driving away all of those 100s of millions of Chinese Internet users that are looking for just that.

Realizing that the real value of the users is in their participation and engagement, and then in paying-with-attention, Google has clearly pursued a strategy akin to the 'Music Like Water' model that I (and Dave Kusek, my partner-in-crime for  "The Future of Music") have also described countless times: Google will simply provide the platform where music can be turned into money, by connecting the user with the content they want right where they already are (i.e. the search page), while gradually but aggresively monetizing their presence and their clicks via 3rd party payments - and this does not mean just ads. Sounds simple but maybe this has not yet been financially feasible in the past - today, any new money for the music companies is welcome, I guess, so here we are, finally: Search with us and we'll give you Free Music. Kai Fu Lee Image via NYT.

Clearly, it is much better for Google to offer and develop a new payment logic and mechanism for the music that is being used, i.e. to somehow license and pre-pay for it (I call this 'being the lubricant of the ecosystem') until such time where the revenues from advertising, up- and cross-selling are big enough to pay for everything, and quite possibly beyond that, as well. And as far as the music licenses are concerned - otherwise a no-go minefield that few Internet companies have crossed in the past - China is clearly a very good place to start as most of these new revenues will be 'found money' for the record labels.

Total Telecom reports:  "Record companies will take roughly half of any revenue from banner ads placed on the page users see when they are downloading or streaming songs, with Top100.cn taking the remainder. Google could benefit from increased traffic on its Chinese site, and can sell its trademark search ads on the search page" The bottom-line? For all parties, it is better to deploy new kinds of ads (think mobile - that will certainly be key), sponsorships and affiliate links while the music is being used (fka consumed;) and to thereby fund the pool of music licensing costs, then not to get involved and leave the turf to all the other guys that don't play by the rules, anyway.

Now, Google has apparently licensed 350.000 tracks from all major labels (how long did that take... I am afraid to ask... *rant alert) and many leading Chinese record companies and artists, and if you are logged into Top100.cn, and based in China (sorry - no access from EU / US), apparently all the music is yours to stream and download.

So: Google pays for the music to get our attention for their ads - sure sounds like a familiar strategy. Radio and TV broadcasting, anyone?

Another interesting morsel is that apparently streaming and downloading is treated as pretty much the same thing (again, from the WSJ coverage, see link below): "Google's Lee said songs on the service are downloaded or streamed around 1.5 million times a day, and he hopes the number will eventually be many, many times that".  I believe I have mentioned this basic fact of Internet music a few times before, too: streaming & listening IS downloading, access IS ownershop, and that's that. The legal artifacts remain, I guess...?

Now, just because I won't want to agree with the major labels and their lobbyists too much;) - here are my big questions:

If this works in China, why not do this everywhere else? If this works for Google, why not for telecoms, ISPs and mobile operators?  If this works for music, why not - sooner or later - for music, TV, video, books and newspapers?

First: China does not have much of a business of 'selling units', i.e. there are no Billions of $ in selling CDs or single-track downloads. Therefore, any money that the rights-holders (i.e. the record labels and music publishers, and hopefully the artists) can actually get from anyone in China is probably very welcome; and that is exactly what the Google / Top100 deal will provide. And even though it would be a fair bet to guess that this deal is probably not coming cheap for Google China, it is probably still quite doable since the 'competition' of physical music sales is negligible and so-called 'cannibalization' of traditional music sales is not a major concern for the record industry in China. This would of course be substantially different in the UK or Germany where CD sales and the omni-present iTunes still generate Billions of Euros per year. But this is the lesson: someone had to put some money down. Congrats to Google / Top100. Next: the telecoms - within 6-9 months, imho.

While the cannibalization prevention is, of course, entirely reasonable (if you still sell units), it does beg the question: why do those lucky Chinese Internet users - many of whom may never had to worry much about potential copyright issues, 3 Strikes+Out ideas or MP3-server raids - now get a de-facto feels like free music service, while we - the  more or less faithful and compliant residents of 'The West' - still need to pay 1 Euro / 1 $ for each single download on iTunes, $3 / month for Last.fm (ouch) or run off to the record store, or order on Amazon.

This clearly does not make sense: it  feels a bit like we are being penalized for having actually paid for our music until now. So, some will surely argue, does this mean we should stop paying for music until such deal is being offered in Europe as well? You tell me - but it's sure worth a discussion, I think. It seems to me that this model is workable around the world now - and not just for / with / via Google - and that it should be pursued in Europe and the US, as well. Give us a licensed platform provides 'feels like free' music to the users, based on collective and public blanket licenses that can enable anyone that wants to offer music with what they do, while paying for the licenses with the traffic that those offerings, the added values, the platforms, will generate.

Here is another interesting quote from the WSJ: "I can't overstate how important the new Google service is, said Lachie Rutherford, president of Warner Music Asia Pacific, which is making its entire global catalogue available in China as part of the deal: until now, the online market in China has been completely un-monetized by the music business" 

This strikes me as a very interesting way of putting this: Lachie / WMG: isn't the entire Internet music-sharing economy (i.e. P2P, stream-sharing, drive-sharing etc) un-monetized, as well? And why is that? If WMG can do this in China because their is no previous unit-sales income worth mentioning, why not do it for the Internet, period? Why not license Google - and Facebook et al - and the ISPs in much the same way? Or will you just do this in places where nobody paid anything to begin with?

Techdirt has a very fitting comment, on this (see the link below):  "The fact that the labels are moving forward with this plan in China, given its reputation as the wild west of copyright infringement, undermine their contention that they can solve the supposed piracy problem with legal or technological means elsewhere. Furthermore, it exposes the reality that what's staring them in the face is a tremendous opportunity, not a problem" 

Not much to add here, except for my usual Lessig-esque mantra "Compensation not Control". Google + Telecoms - will you do that for / with us, please? This year?

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Compensation Not Control Music 2.0 Gerd Leonhard Midem Net 2009

View more presentations from Gerd Leonhard.

21st century telecom & content ecology: new video with narrated slideshow

Just recorded this a few days ago: the content & telecom economies are converging - watch why this is important.

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Mobile Content Futures: my presentation at Mobile Monday Amsterdam (March 30)

Download Mobile Content Future Gerd Leonhard Momo Amsterdam Public 15 MB PDF

Great event in Amsterdam today - Mobile Monday rocks! Event details here. Twitter back-channel here.  New: the Video is here!

Some predictions: the next 18 months
• Twitter will reach 50 Million + Users  • Facebook will become the default social utility - and the biggest global Content Broadcaster  • Google will double it’s Advertising revenues  • The RIAA and the IFPI will run out of cash  • Telecoms will get flat-rate content licenses  • Skype will re-emerge as content player

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Mobile Content Futures: Gerd Leonhard at Mobile Monday Amsterdam March 30 2009

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Announcing a new video show with fellow Futurist Glen Hiemstra: WhereIsItGoing (WiiG)

 I just started this exciting new Video Show with my friend and fellow Futurist Glen Hiemstra (Futurist.com), in Seattle, Washington.  We will be recording a new episode every week, on a current topic. The shows will be between 5 and 10 minutes long, and we will try to get to the bottom lines as quickly as possible, giving each topic a quick futuristic angle (whatever that means;)

Glen and me have collaborated many times before, including the Futuretalk podcast & video series, and DVD (feel free to download the whole thing via Mininova, if you're interested). We also do think-tanks together - feel free to ping us if you're interested.

We are currently using Skype video recording and it works ok, but there is apparently no way to get better backgrounds integrated into the actual recording, quite yet - so if you have any better idea, please let us know.  We are both Mac users, so we tried iChat which was cool - clouds and orbits in the background - but we could not get the audio to sync reasonably well with the video once we started recording (using Screenflow or Screentoaster) - not so good! 

Visit the WhereIsItGoing website for more details or subscribe to the iTunes video-podcast feed here on Blip.tv (great for offline use).  Hope you like it!

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The Future of ICT / TIME: my presentation at the NSN Transformation Forum in Cologne

 I had the great pleasure to speak at Nokia Siemens Networks' Transformation Forum in Cologne yesterday (March 26, 2009). I really enjoyed the event and had lots of great conversations; and some Koelsch, too!  Rolf Hansen, CEO of SIMYO, was there as well, and delivered a very interesting presentation on 10 imperatives of success, which miraculously synced very nicely with own speech.

As promised, here is the PDF (creative commons-non-commercial + attribution licensed, as usual): NSN Innovation Forum 2009 Cologne Gerd Leonhard Futurist PDF 16MB

My topics included:

• The consequences of what I call 'Broadband Culture'
• Why and how digital content, UGC and Social Media are the biggest growth factors for the ICT industries, going forward
• Why telecoms and ICT companies need to get involved with Content, and move up the foodchain
• Why content flat-rates, starting with music, are the way forward, and need to be regulated
• The copy economy vs the access / usage / sharing economy
The Future of ICT / TIME: Futurist Gerd Leonhard in Cologne (NSN)
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Marc Andreessen: "Not allowing your content to be used is entirely the wrong strategy" Me: IP Gridlock must end

Image via CrunchBase

Cross-posted from MidemNet blog (March 14)

I just finished watching a great Charlie Rose interview with the amazing Marc Andreessen (Founder of Netscape, now Founder of white-label social network platform Ning, among many other things). Marc is one the brightest people in this turf, and I definitely recommend that you check out what he has to say about the Future of Newspapers, and the Content / Technology space in general (Charlie Rose show link).

In the interview (see my short, slightly time-warped but still crucial excerpt below), Marc talks about the urgent need for all content to be blessed with an ok-to-use-license on social networks and social media. I totally agree with Marc on his key message: nothing can be achieved by removing your content, or by making the legitimate use of content so incredibly expensive and complicated that few companies can actually afford it.  Recent examples abound: WMG and Youtube, Youtube & the PRS, Amazon's Kindle2 versus the Authors Guild, Pandora's difficulties outside of the U.S., CBS and Boxee, my very own Sonific.com ... and the list goes on. When content is removed from sites that deliver audiences of 200 Million+, then it's the creators and the users that lose, flat-out - no buts and ifs. Why do you think Facebook (which is starting to drive traffic in exceedingly huge numbers) does not have a music or video service? You guessed it: there is no reasonable deal to be had with the representatives of the music, film, and TV companies.

In my opinion, we currently have a severe IP-Gridlock situation: content creators, owners and their representatives (and these are very often more of a problem than the actual creators, in my experience) are still basing their monetizing strategies on scarcity, on the right to refuse the deal, and on 50-year old copyright laws, regulations and traditions. These laws - as crucial as they were back then - afford the rights-owner the exclusive right to say yes or no to pretty much any kind of new Internet-based use of their music, films or TV shows, and therefore a common misconception is that - as it has been for the past 50+ years - more control actually equals more income. And it kind-of did - back in those days when refusal could sometimes be a very effective way of enforcing a higher payment.

Well, this was then, and the future is... already here. Adhering to this strategy of refusal and monetary revenge ('now that you're a big company we'll take all we can get', see Youtube vs PRS) is a huge mistake and will beyond a shadow of doubt devalue your content very quickly, in the next 2-5 years (depending on your specific domain).

In music, this pivot point has already been reached: if your content is not available (i.e. findable and listenable) on Last.fm, Youtube, Myspace, Spotify, Facebook, QQ and so on, it quite simply won't exist for the 1.5 Billion Internet users and the soon-to-be-online 3.5 Billion mobile phone users. That means you are losing out on reaching a huge audience, and on doing so in the most cost-effective ways. It means that new routes to monetizing - those so-called new generatives- cannot be tried and co-invented. It means that innovative and honest entrepreneurs are stifled and silenced while your content is still being dished up in other places, for free, anyway, and without your permission. It means that all the mad mole-whacking won't get you paid - it's just the lawyers that make a good living this way. It means that a new ecosystem cannot emerge because you are still insisting on doing business like it was done 20 years ago: with large advances, completely under your exclusive control, your way... or the highway.

So here is a wake-up call if you're still thinking that blocking the use of your content will get you more money: it simply won't work. Period. You can't fax a cat. Really.

As to the music business (recorded and publishing), this much is obvious: either the industry will start to dial back on Economic Egoism and their obsession with Total Control, or 4 Billion Internet users will simply route around them like a river routes around a rock. To make matters worse, governments will certainly step in to force an end to a clearly dysfunctional system that criminalizes 100s of millions of people while returning zero new revenues to the creators.

What will work is COLLABORATION, Trust and Mutual Respect in defining the new ways of how $$$$ can be generated for content creators - and there are plenty, once we question our  outdated assumptions.

Lastly, kudos to some companies and organizations that seem to be heading in a more positive direction:

• the new Featured Artists Coalition refused to be part of any scheme that penalizes Internet users
• the UK Guardian has launched an open API that makes all of its content available for 3rd parties

Need more food for thought? Watch my video from MidemNet 2009 "Compensation not Control" (pdf, too).
And: TALK BACK!

 Discover Simple, Private Sharing at Drop.io

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THIS is the Future of Content: Attention Revenues first, copies second!

Clearly a major shift. It will be a huge task to build this new ecosystem. Deep and sincere collaboration is required. Domination is toast. Control is - like email, soon - for yesterday's emperors. Google and the Telcos need to dive into Content 2.0. Openness becomes a default requirement, not just a 'nice to have'. Friction is Fiction. Really. It's hard work. Yes.

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All my short blog posts will now move to Twitter. If you get my blog feed be sure to subscribe to my Twitter RSS feed, too

Image by photopia / HiMY SYeD via Flickr

I used to blog short stuff all the time - usually a link to a great story or resource somewhere else, and maybe add a few comments. That was then, and this is now: this kind of activity has now almost completely moved to my Twitter account (main) (others: Futurefeed &  DailyWisdoms), because it makes a lot more sense there. Blog posts will be a bit less but more substantial and more carefully crafted - as they should be, imho.

So, if you are already subscribing to this blog's RSS feed but have not been sucked into the Twitter universe quite yet - and don't really want to (yes, I know you people are still out there!) - please be sure to also subscribe to my Twitter RSS feed, as well as my Friendfeed RSS, that way you can be sure you keep getting all the goodies, regardless of what you use. Both of those RSS feeds can still be read even if you are not logged-in to either of them. Hope that helps?

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Funny video on Twitter (via Current.tv)

Have a laugh - and dive into Twitter;)

Some Internet companies are becoming more like Public Utilities and integral parts of our Social Infrastructure

I have observed a recent trend that I want to share and get your feedback on: some Internet companies and platforms such as Google / Youtube, Facebook, Nokia, Slideshare and Twitter are becoming so important to many of us that we would be severely challenged if they went away or materially changed their services. This makes them both very powerful but also very vulnerable - for if we chose to no longer trust them, they would quickly face their demise. Some examples:

• Google already provides the digital toolbox and 'cloud computing' infrastructure for a 100s of Millions of people: free email, domain services, calendars, docs, widgets, blogging, videos, voice (soon!) - and of course: search and advertising services. Youtube has become the de-facto next-generation TV for a lot of people, already. My slightly futuristic view is that pretty soon Youtub

  

  e and the many other video sites (and of course the 100s yet unlicensed video download services) may start replacing Cable TV as the prime source of entertainment for a lot of digital natives. A fast net connection + AppleTv + Boxee + Miro ...pretty soon, that should do it!
• Facebook provides a key social platform that, for many users, has already substituted email or phone calls,

  

  and is well on the way of becoming a cyberspace 'home' for many of us, a digital meeting place and key part of our social lives. My prediction is that Facebook will become as important as Google - and they will reinvent advertising in the process, just like Google did.
• Nokia is heading in the same direction: Comes with Music is looking to provide a seamless, all-inclusive music experience

  

  that is build-in or shall we say hard-wired into our mobile lifes, Nokia's OVI is gearing up to compete as the preferred destination for sharing things, and their handsets i.e. mobile computers are well on the way of becoming remote controls for our lives.
• Flickr, Slideshare and Twitter - to a lesser degree, for now, compared to Google and Facebook - have become crucially important to Millions of people

  

  already (I can attest to that) because they are great platforms to share stuff; and shar

  

  ing seems to be what gets a lot of people excited - not a surprise but certainly an important realization.

A bit like the good old BBC, these companies may soon face a double duty and somewhat of a conundrum: 100s of Million of people have grown accustomed to using them, and their services have become so crucial that they have become not only valuable businesses but also public utilities that we are increasingly depending on. My feeling is that once a company has reached this position, its value is much higher than the actual revenues could ever warrant, since it's no longer just about monetary value but also the social capital they have accrued, and the corresponding TRUST that we put into them.  So this is, as a result, the most important mission for those companies that make it to this point: Earn and keep my trust, every single day, with everything you do. And then, I will keep paying attention to you, give you my data to use, send my friends to you. Don't mess with the terms of use without asking me (>Facebook), ask for permission to use my clickstreams and cookies (see Google's approach to behavioral targeting), and don't ask me for $ too early (see Twitter's yet to be defined revenue strategy).

The Future of Radio Broadcasting is Curation

Radio will no longer be about the 'free' delivery of music and audio - everyone else will have that, too (and at least in technical terms, a lot of it will be much better). Once music on the Internet is collectively licensed (i.e. within 1-3 years, depending on which territory we are talking about), on-demand streaming and downloading will simply be included in your Internet access - and Radio Broadcasters will need to add value by being the best possible curators, period. Watch this video on Facebook if you want more details.

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SonntagsZeitung Switzerland interviews with Gerd Leonhard; "Music Flat-Rates are the Future"

SonntagsZeitung | Artikel Detailseite : In German language.   «Den Musik-Flatrates gehört die Zukunft»

Medienfuturist Gerd Leonhard plädiert für einen Neustart im Musikgeschäft

Von David Bauer und Barnaby Skinner: "Das Web hat die Musikbranche auf den Kopf gestellt. Sie sehen Parallelen zum Radio vor 100 Jahren. Welche? Das Radio war in den ersten zwanzig Jahren auch illegal. Die Rechteinhaber wehrten sich dagegen, dass ihre Musik kostenlos verbreitet wird. Fakt war aber: Alle haben hingehört. Mit staatlichem Druck wurden schliesslich Lizenzen eingeführt, die Künstler proportional entlöhnten, wenn ihre Musik im Radio gespielt wurde. Die exakt gleiche Situation haben wir heute im Internet - nur fehlen geeignete Lizenzen.

Diese fehlen, weil sich die Musiklabels quer stellen. Die ganze Musikwirtschaft ist von Monopolen und Kartellen geprägt, von den Rechteinhabern und Verwertern bis zu den Studios. Man blockiert, weil man glaubt, ein Vielfaches verdienen zu können. Aber wer im Internet alles kontrollieren will, ist auf dem Holzweg. Das Musikökosystem ist wie eine alte, marode Ehe. Wir brauchen einen Neustart, ein Pflästerchen reicht nicht...."

Funky Google translation to English here

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Imagine an iPhone Netbook 2x the size - adios Kindle and Sony Reader. Publishers: get ready!

Thinking about the current Netbook craze I have a strong hunch that Apple may well jump in and roll out a new iPhone-inspired Netbook - let's call it the Apple iNet - that could be roughly 2-2.5 as large as an iPhone. A TOUCH-SCREEN device like this could easily become a major challenge to digital reading devices such as the Kindle (which I can't try here in Europe) and the Sony Reader (which I have but don't like a lot). I have found myself wanting an iPhone / iPod like device like this 100s of times already, especially while traveling.

If Apple does this - and I would certainly like that , let's just imagine:

• We could finally, really read offline web-pages, PDFs, slideshows, white-papers, non-fiction books etc on a nice, full-color touch screen, using next-gen versions of existing apps such as Instapaper ****, Soonr, Stanza, Bookshelf, EReader (in fact, this may be why the new Kindle app for the iPhone is crucial for Amazon!)
• We could review our RSS feeds much easier, including images and videos, using apps like Byline (my favorite) and Newsstand, or the Google Reader offline app (once they offer it)
• We could cache i.e. record video and audio streams and play them on our 'Apple iNet' device - and actually have a really nice viewing experience
• We could use the iNet device to do some simple image and video editing - but most likely this would be done 'in the cloud' not using local software

  Image via Wikipedia

A smart, Apple-style device like this (which may have similar elements to OLPC's XO2 but would not compete in the low price markets, naturally) would give a huge boost to the mobile content ecosystem - and it would also usher in an era of rampant and wide-spread electronic book sharing that would make music file sharing look like child's play.

Publishers: you may want to get ready for this sometime soon. My 2 cents: radically lower the prices for ebooks, start looking at bundles, subscriptions and flat rates, figure out how to monetize sharing with new advertising-supported models, gear up to provide added values all the time (value is around the content!!), start planning for those New Generatives - you've got another 12 months if you're lucky. Go!!

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Join us for an exciting evening at the Royal Society for the Arts in London (April 8): "New Media Futures"

If you happen to be in London on April 8, 2009 (6pm), please join me and my fellow speakers for a talk and presentation at the Royal Society of the Arts. The evening is entitled:  New Media Futures - what next for content and creativity? and promises to be quite entertaining;) Thanks to the RSA, this event is free of charge and seating is limited so be sure to register early. A few more details about this event:

"The internet is radically disrupting most of the traditional content distribution and selling models, starting with music and games, followed by TV, film, books and print publishing. Once everyone is always-on, mobile and hyper-connected, and everything is available everywhere, how will content be created, distributed, marketed, consumed, and paid for? Who will do what, for whom, and how will the traditional players such as broadcasters, record labels, publishers and distributors adapt? If new players, starting with telecoms, device makers, advertisers and brands, indeed move into the content business, what will be their challenges and opportunities. 

Given the challenging financial climate, how do we reconcile the need to reward enterprise and secure sustainable revenue streams, with the expectations and demands of the “freeconomics” generation? What kind of legal, regulatory and cultural framework do we need to ensure that this new eco-system of creators, consumers and intermediaries generates more benefits for all involved?  A panel of media visionaries convene at the RSA to predict the innovations in technology, business models and user behavior that will shape the media landscape in the coming decade.

Speakers: Gerd Leonhard, media futurist, author and blogger; Richard Titus, Controller of Future Media, Audio, Music & Mobile, BBC; David A. Smith, chief executive of Global Futures and Foresight (GFF). Chair: Ralph Simon, CEO, The Mobilium Advisory Group and Chairman Emeritus & Founder, Mobile Entertainment Forum - Americas.

Related stuff:
Plugg 2009 Video "Future of Media"
Authors@Google Talk March 2009

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Luxury Futures (the future of the luxury markets) - today's presentation in London

This event in London was a real different turf than my usual work, and I enjoyed it very much - very interesting crowd, and a lot of iconic brands with huge potential. I will dive into the crowd a bit more later today. If you attended (and even if you did not;), as promised, here is the PDF with most of my presentation (plus a few extra goodies). While you are here, be sure to stop by Slideshare to check out my 30+ other pdfs, and take a look at my videos. Enjoy!  Luxury Futures Gerd Leonhard London March 17 2009 Public PDF 15MB

 

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The Future of the Luxury Market Gerd Leonhard @ Luxury Interactive London March 17 2009

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