I made a very short video on the same topic last week (90 secs) and a lot of people have pinged me to make a longer version - so here it is, in 2 parts (thanks to Youtube's really annoying 10 minute limit).
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I was delighted to be invited to make a contribution to the RSA Journal's July 2009 edition, the printed version of which was just send out I believe, and the online edition that just went up on their website.
The complete title of my piece is: "The price of freedom - reinventing the online economy: Gerd Leonhard explains why ‘free’ content can still pay in the long term" and I really enjoyed writing this for them.
Following my last presentation at the RSA, in April 2009, on 'The Future of Content and Creativity' I have had many good conversations about this topic. The audio track from this event is here, btw; and the video is embedded again, below. Enjoy. And RT;)
I definitely recommend that you check out the other great features in the Juy 09 RSA journal, as well, there's some great gems in there.
You can read the entire thing on the RSA page, so here is just an excerpt:
"Free information, free music, free content and free media have been
the promises of the internet (r)evolution since the humble beginnings
of the World Wide Web and the Netscape IPO on 9 August 1995. What
started out as the cumbersome sharing of simple text, grainy images and
seriously compressed MP3s via online bulletin boards has now spread out
to every single segment of the content industry – and even into
‘meatspace’ (real-life) services such as car rentals. Without a doubt,
‘free’ has become the default expectation of the young web-empowered
digital natives and now the older generations are jumping in, too.
On top of the already disruptive force of the good old computer-based Web1.0, we are witnessing a global shift to mobile internet – a WWW that is, finally, so easy to use that even my grandmother can do it. While five years ago, we needed a ‘real’ computer tethered to a bunch of wires to port ourselves to this other place called ‘online’ and partake in global content swapping, now we just need a simple smart phone and a basic data connection. With a single click of a button, we’re in business – or rather, in freeloading mode.
As users, we love ‘free’; as creators, many of us have come to hate the very thought. When access is de facto ownership, how can we still sell copies of our creations? Will we be stuck playing gigs while our music circles the globe on social networks, or blogging (now: tweeting) our heart out without even a hint of real money coming our way?
Daunting as it may seem, we can no longer stick with the pillars of Content1.0, such as the so-called fixed mechanical rate that US music publishers are currently getting ‘per copy’ of a song ($0.091). Nobody knows what really defines a copy any longer when the web’s equivalent of a copy (the on-demand play of that song on digital networks) may be occurring hundreds of millions of times per day. No advertiser, no ISP and not even Google has this kind of money to pay the composer (or rather, the publisher), at least not until the advertisers start bringing at least 30–50 per cent of their global US$1 trillion marketing and advertising budgets to the table.
Traditional
expectations and pre-internet licensing agreements are exactly what are
holding up YouTube’s deals with the music rights organisations such as
PRS and GEMA: this is what the rights organisations used to get paid
for the music that is being copied, and this is what they want to get
paid now. This impasse is causing significant friction in our media
industries worldwide. Yet, below the top-line issue of money, there
lurks an even more significant paradigm shift: the excruciating switch
from a centralised system of domination and control to a new ecosystem
based on open and collaborative models. This is the shift from
monopolies and cartels to interconnected platforms where partnership
and revenue sharing are standard procedures. In most countries,
copyright law gives creators complete and unfettered control to say yes
or no to the use of their work. Rights-holders have been able to rule
the ecosystem and, accordingly, ‘my way or the highway’ has been the
quintessential operating paradigm of most large content companies for
the past 50 years.
Enter the internet: now the highway has become the road of choice for 95 per cent of the population, the attitude of increasing the price by playing hard to get is rendered utterly fruitless. Like it or not, a refusal to give permission for our content to be legally used because we just don’t like the terms (or the entity asking for a licence) will just be treated as ‘damage’ on the digital networks, and the traffic will simply route around it. The internet and its millions of clever ‘prosumers’, inventors and armies of collaborators will find a way to use our creations, anyway. Yes, we can sue Napster, Kazaa or The PirateBay and we can whack ever more moles as we go along. We can pay hundreds of millions of dollars to our lawyers and industry lobbyists – but none of this will help us to monetise what we create. The solution is not a clever legal move, and it’s not a technical trick (witness the disastrous use and now total demise of Digital Rights Management in digital music). The solution is in the creation of new business models and the adoption of a new economic logic that works for everyone; a logic that is based on collaboration, on co-engagement and on, dare we mention it, mutual trust – an ecosystem not an egosystem. Once we accept this, we can start to discover the tremendous possibilities that a networked content economy can bring to us.
Free, feels-like-free and freemium
Much has been written on the persistent trend towards free content on the net. It is crucial that we distinguish between the different terms so that we can develop new revenue models around all of them. ‘Free’ means nobody gets paid in hard currency – content is given away in return for other considerations, such as a larger audience, viral marketing velocity or increased word of mouth (or mouse). I may be receiving payment in the form of attention, but that isn’t going to be very useful when it’s time to pay my rent or buy dinner for my kids. Free is... well, unpaid, in real-life terms.
‘Feels-like-free’, on the other hand, means that real money is being generated for the creators while their content is being consumed – but the user considers it free. The payment may be made (ie sponsored or facilitated) by a third party (such as Google’s recently launched free music offering in China, Top100.cn); it may be bundled (such as in Nokia’s innovative ‘Comes With Music’ offering, which bundles the music fee into the actual handsets) or the payment may be part of an existing social, technological or cultural infrastructure (such as cable TV or European broadcast licence fees) and therefore absorbed without much further thought. Feels-like-free could therefore be understood as a smart way to re-package what people will pay for, so that the pain of parting with their money is removed or somewhat lessened – everyone pays, somehow, but the consumption itself feels like a good deal...." Read on. PDF: Download RSA - The price of freedom Gerd Leonhard July 2009
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Alright then... you don't think "Music 2.0 in 90 seconds" is enough. You don't think 3 minutes really do it, either. You liked the PDF but you want the talk. I heard you. So here is the full 18 minutes of Music 2.0, in 2 parts, thanks to the ingenious Youtube limitations (but hey... it's HD now so why am I complaining?).
Here is a link to the MP4 file (410MB) if you want to watch on while biking in the woods;) Plus: remember that you can get it all for your iPods and iPhones by subscribing to my GerdTube.net / Blip TV iTunes feed (except for this one, though - for some reason the encoding just won't work for this file).
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This is probably a world record: In this short Flickr video, below, I am illustrating my basic Music 2.0 concepts in a snappy 90 seconds. Yes, I know that's way to fast to read much of it while it goes by, so here is the PDF, too: Music 2.0 in 90 seconds gerd leonhard singles (7MB PDF, creative commons licensed)
The entire Music 2.0 book can be downloaded (yes, for free), here, or you can order it from Amazon.com or even better, on-demand-printed by Lulu. You can read it on the iPhone, too, using the cool Instapaper app. And yes, you can download this snazzy video via Drop.io. Music is provided by SlicerXXL via TribeofNoise.com - thanks! Still need more? Check out my Music 2.0 slideshows on Slideshare.com.
And if you really need more than 90 secs - here is the 3-minute version
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I did an interview with the On iOn Communication people for a show on Balzac.TV(Barcelona) at last year's 'New Cultural Economy' event at Ars Electronica in Graz, Austria. Today, Balzav.tv published the interviews (which also included Creative Commons CEO and all-around thought leader Joi Ito, ARS CEO Gerfried Stocker, and Ronaldo Remos) online, and if you speak Spanish better than me I recommend that you check it out; the discussions in-between (with Gina Tost) are in Spanish, the Interviews are in English.
More details via From the OniOn blog:
"Hoy se estrena un nuevo capitulo
de Balzac TV, un trabajo realizado en cooperación entre los equipos de
ON i ON comunicación y de Balzac TV, y protagonizado por las
antagonistas “Gina copyleft” y “Gina copyright”. Con esta pieza queremos aportar una serie de reflexiones ajenas y
propias acerca de un problema actual que parece de difícil solución si
lo miramos sólo desde el lado del negocio: las limitaciones de la propiedad intelectual en la era digital.
¿Qué alternativas hay a la estricta interpretación del copyright,
Creative Commons funciona, y bajo qué condiciones, y hay modelos de
negocios viables basado en el copyleft?
A parte de la estupenda Gina Tost y sus alter egos, contamos con las aportaciones de Joi Ito (CEO Creative Commons), Gerfried Stocker (Director Artístico de Ars Electronica), Gerd Leonhard (Media Futurist) y Ronaldo Lemos (Creative Commons, Brazil). Os dejo con las Ginas peleonas…"
Balzac.tv: La belleza del copyleft
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The amazing power of online networking and collaboration, open platforms, creative commons licensing and crowd-sourcing (whew... that's a mouthful!) has manifested itself once again: for the past 9 months, the tenacious and dedicated Zvonimir Dusper (Dus) from Croatia (LinkedIn profile) has been hard at work translating my entire Music 2.0 book into Croatian language (see the English book site here, download the English version as a PDF here, buy the dead-tree version or U.S. letter size book PDF at Lulu, here, visit the Amazon.com book page [incl. reviews] here).
The book is now available as a free PDF download and in a print version via Zvonimir's Glazba2.0 site - check it out and please forward this post to anyone that may be interested in reading Music2.0 in Croatian (you can use the tools provided, below)
To receive the free PDF please use the email box on the left site of the Glazba2.0 site (see here >). Enjoy!
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Finally, here's the video of my speech at the RSA. The lighting did not work out so well so it's not the best quality, but still, I think you'll like it. Please visit my GerdTube.net site for more videos (this URL is just a door to my Blip.tv channel), or subscribe to my videos via iTunes (great for offline / iPod viewing). And... please retweet!!
This is a video of my speech I held at
the RSA as part of an event on April 8 2009, entitled "New Media
Futures: what next for content and creativity" Topics: 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?
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Just a quick reminder: Selling Music (or really, selling anything) is drastically changing - and yes, there'll be plenty of revenues. Stay tuned.
I did this in early 2008 but it's still very accurate. The video was shot by my friend and fellow blogger Jonathan Marks, in Amsterdam, and talks about how artists and musicians can use the Internet to their advantage. Hope you like it! You can find the same video on my Youtube channel, btw, here.
Gerd Leonard - Net Powered Musicians - VUrbia.com...Life in the Entertainment Age! from JesseJaeo Tolbert on Vimeo.
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I think 2009 will be a key year for the content industries, the creators, media companies, platforms, labels, publishers and other middle(wo)men.
In 2009, the value of content - starting with music and news - is being redefined for the Internet age. The gloves are off: the music rights societies want more money for each play, many journalists and writers are fearing a gloomy future as newspapers stop printing and shift to digital publishing around the world, and the book-authors guild is quarreling with Amazon about the Kindle2's robotic voice renditions of their works.
The bottom line is that the core logic and operating mantra that the 'Western' content industries have employed until now is becoming unstable and, economically speaking, increasingly unworkable. The Internet has severely disrupted the traditional value chains, and the promised land of advertising-supported free content has not yet materialized.
Let me outline these shifts and challenges a bit more:
A) Controlling the distribution of content - whether by technical or via legal means - is increasingly becoming an utter 'mission impossible' unless you want to adopt a seriously totalitarian Internet regime (as seems to be proposed in France last week I fear...)
B) Closed systems and walled gardens (yes, those of the telecoms and mobile operators, too) are leaking everywhere. Closed and centralized ecosystems are becoming very expensive and thus hard to maintain, e.g. Microsoft Windows versus the ever-mushrooming Google Web OS (soon to include voice communications), Android and Symbian mobile OS vs Windows Mobile, free streaming vs paid subscriptions such as Rhapsody, open API-based platforms such as Twitter and (now) the Guardian's Open Platform versus proprietary offerings such as iTunes or the WSJ, and so on and on.
C) On the Net, just about every mode of content consumption -aka listening, watching, reading- does in fact create copies, too, so the traditional legal distinction of 'free use/listen/watch but paid copy' is... well, toast, I would say. This creates significant legal uncertainty and pulls out the rug under the value logic of the traditional publishing industries.
I like to refer to this tectonic shift as 'The challenge of 21st Century Content Economics' (see a related swf movie here); riffing off a similar phrase I picked-up at Umair Haque's very inspiring blog.
First, here are some of the most common questions I keep getting about the Future of Content:
Here are some answers that I have been investigating (please bear with me for a few hours while I find the definitive solutions ;):
1) I think content can be both free or cheap, and very expensive. This sounds paradoxical, perhaps, but the reality is that in a system that is no longer based on selling units or copies (i.e. CDs, DVDs, books, single-track downloads, cable slots etc), the value of content is very likely to be constantly re-determined by a multitude of surrounding and incremental factors.
So the correct answer to that key question of 'what's the value of content' should probably be a solid: 'it depends'. As much as that may make the job of getting remuneration so much harder, I think it is also potentially quite liberating that we will no longer need to worry about controlling distribution so that we can sell more copies. Instead, as would be the case with the flat rate for digital music that I have been pushing for for the past 7 years, we could then shift our entire focus to getting and keeping Attention and Trust - 2 factors which now are the very foundation of any commercial success. In fact, I would argue that because of the de-emphasis on copies most content marketing and promotion tasks will get a lot easier (and much less costly) since we can now use the content as a marketing tool, itself.
Image by gleonhard via Flickr
2) So what are those future value-determining factors? Here are a few from a long list that I have been compiling:
3) For the very same reason that content can be simultaneously worth a lot or very little (i.e. because of its disembodiment and the shift from selling copies to providing access), it follows that many rightsholders and their agencies may no longer be able to get fixed fees per copy, or even per use of a piece of content. Simply because if they continue to do that they will make it impossible-by-design to comply with their rules and legally use their content in all but the most highly subsidized cases, because most of the time a fixed fee will not be obtained on the other end (i.e. the users), either.
Youtube simply cannot pay a fixed 1 cent per stream - even with Google's deep pocket behind it - because the Youtube users will not pay 1 cent (or even a fraction thereof, for that matter) per stream, and advertising revenues that would support these kinds of license fees are not within reach yet (because, just like content, the web's advertising and marketing logic needs to be reinvented first, as well !). This new business needs to be build together, from the ground up.
We are seeing this hairy issue creep up everywhere: GEMA (the German copyright organization) reportedly wants up to 12.9 cents per music video that is played on Youtube in Germany; the reason being - and this is my personal guess - that they probably treat each video-play as an on-demand performance which would be charged almost as much as an actual copy (i.e. a download). And of course, the reality is that those digital natives are in fact using Youtube as virtual jukebox - watching my 15-year old son hang out in his room I can certainly attest to that.
So GEMA's (and PRS') point is as correct as it is pointless: these on-demand plays are very much like a download, in terms of how the users are using the content. Access is replacing ownership.
But here is the tough part that cannot be avoided no matter what: it's not the users, or Youtube (or Last.fm or Pandora or Hulu or Miro or Boxee etc) that are at fault here, it's how traditional content industry entities such as GEMA and PRS define the value of music (and other content). For them, a piece of content still has its fixed and minimum value, and if you want it, you'll need to pay up according to those rules.
As I am investigating more alternatives I will keep you posted so... stay tuned!
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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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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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Read about the Presidents of the United States of America: Bands bypass iTunes by streaming music through iPhone apps - Ars Technica: "If you're a Presidents of the United States of America fan, you can now
listen to the band's entire discography for a mere $3, but not through
the iTunes Store. Fire up your iPhone and grab it from the App Store
instead; the band has bypassed the record label bureaucracy and
released everything on its own..."
This is clearly a very cool idea, and something I have been looking at for quite some time: in the dawning age of rapidly exploding mobile app stores, on 5+ platforms, and with something like 2 Billion always-on smart phone users, we can now start selling music as software packages, i.e. in any UI/UX, multimedia, online/offline format that fits the artists' specific users and locations. Bands and artists, their managers, agents or labels and even publishers can select any combination of audio, video, pictures, texts, news feeds, games, twitter updates and social media 'rivers' to update the bands fans at any time, anywhere in the world.
My hunch is that most artists will probably have basic free versions available, at first, followed by premium apps that offer considerably more value and will cost from a few extra dollars all the way up to even $50 per user - and most importantly, lots of up-selling will be fueled through these apps. Think live concerts webcasts and downloads, premium video footage, remote backstage access, preferred access at concerts, merchandising etc - once I am hooked on the band, using this app, I make the perfect case for pitching something else to me.
I have said this a few 1000 times in the past, but here it is again: Music as a service (i.e. get / buy / bundle access first, and only then buy products), and now, Music as mobile software packages may well be the next format after the CD.
Take it a step further and think of how advertisers, brands and other partners could (and will) sponsor or co-present these apps, and therefore align with artists that make a good match with their branding strategy (see Groove Armada & Bacardi, Sting & Jaguar), and pretty soon most mobile music apps will be free or as I like to say, Feels like Free, for the users. Of course, downloading i.e. the ability to keep music must be part of it, as well - especially in the developing countries where easily available wifi/wlan is not that far along quite yet. I would expect that this will be part of many premium mobile music apps very soon. Stay tuned - this is a major trend, for sure.
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Chris 'LongTail & Free' Anderson has dished up another great op-ed in the WSJ. Note: this link keeps having problems... maybe try this one, instead, or this. Below are some of the best snippets - and my comments.
Chris writes: "Gratis can be a good business. How? Pretty simple: The minority of customers who pay subsidize the majority who do not. Sometimes that's two different sets of customers, as in the traditional media model: A few advertisers pay for content so lots of consumers can get it cheap or free..."
Back in late 2008, I wrote something very closely related to what Chris is saying, here: "To me, the bottom line is that most of what used to work just fine in a disconnected world of 'totally segregated consumers and producers' will simply not work in the future". In other words, the traditional media model will not work in Online Media, going forward - the mechanics are entirely different. And this is where Free or Freemium plays a crucial role - and it's a huge mission to figure out how this ecosystem will generate rivers of cash, not just data. And it will involve Collaboration between content companies and creators, telecoms, social networks, search engines and device makers.
Chris goes on: "With physical stuff, samples must be doled out sparingly -- there are real costs to be paid. With bits, the free versions are too cheap to meter and can be spread far and wide. That's why so many people businesses (expensive!) are turning into software businesses (cheap!), which is why your cranky tax accountant has morphed into free TurboTax online, your stockbroker is now a trading Web site and your travel agent is more likely a glorified search engine..."
Yes, indeed: this is why I think that the content business - starting with music - is turning into a software business, too - witness the explosion of app stores for mobile devices, and how much $$ people are paying for iPhone apps. Now imagine that content (starting with music) will be bundled into such apps, and people will perceive it as BUYING SOFTWARE or buying a cool app for their phone but in fact the content is included (yet paid for i.e. packaged). I think that if permitted by the rights-holders Pandora could easily sell a mobile device application that could include video, audio, feeds and images - I am dead certain people will pay for that. I will have a separate post on this sometime later this week.
Chris then hits the nail on the head: "Expect the shift toward open source software (which is free) and Web-based productivity tools such as Google Docs (also free) to accelerate".
Totally. Then, Chris warns (and I agree - that's why I am also hard at work on next-generation advertising models): "The standard business model for Web companies that don't actually have a business model is advertising...Two problems have emerged with that model: the price of online ads and click-through rates. Facebook is an amazingly popular service, but it also an amazingly ineffective advertising platform..."
And I also like his conclusion (and this is the first time that I see it spelled out like this, from Chris): "Does this mean that Free will retreat in a down economy? Probably not... "Free" has as much power over the consumer psyche as ever. But it does mean that Free is not enough. It also has to be matched with Paid. Just as King Gillette's free razors only made business sense paired with expensive blades, so will today's Web entrepreneurs have to not just invent products that people love, but also those that they will pay for. Not all of the people or even most of them -- free is still great marketing and bits are still too cheap to meter -- but enough to pay the bills. Free may be the best price, but it can't be the only one"
I call this challenge the '21st century content economics' challenge (yes... borrowed from Umair Hague's brilliant post on this topic), and it's the main topic for my work this year. If we can figure out how to generate many new revenue streams based on Feels Like Free access to content, then we can start modeling the business plans for the next 5 years. More soon! But what do you think? Comment below.
Finally, here is the video and audio version of my presentation at MidemNet 2009, in Cannes France. I put a ton of work into this presentation and, well, honestly... I think it's one of the best I have ever done on this topic. Hope you enjoy it - and please comment, below, and / or spread the word! Thanks to the Midem organization for providing the DVD with this video.
The topics: why the
music industry needs to license the Internet just like it has licensed
Radio (i.e. with a collective license), why criminalizing the users
& fans will not work - and why those efforts should be re-directed to the creation of a new 'Music 2.0' ecosystem that actually produces growing revenues,
where those new revenues will come from, and how the music flat rate -
aka music like water - would work. See my previous blog post for more details and the PDF of this presentation. The MidemNet blog is here. My free book, Music 2.0, is here, btw;)
Youtube versions here. MP3 file download: Compensation not Control Futurist Gerd Leonhard MP3
Audio via Soundcloud, below
