Another brilliant post by Umair Haque via the Harvard Business Review - he spells out a lot of stuff that keeps coming up in my presentations, as well; so here's a bit of a remix of this juicy post, my comments are [...]
"On one side is the old high ground of the industrial era capitalism; on the other, the new high(er) ground of next-generation capitalism. The yawning chasm in between them is the gap between the 20th century and the 21st" [I call this the EGOSystem vs the ECOsystem, see more here and here]
"Currency intervention, breaking Copenhagen, crackdowns , collusion, corruption, coercion, and censorship: China's ongoing bad behavior as global citizen is, when we connect the dots, the gigantic elephant in the world's boardroom. What's driving it? The quest for monopoly, monopsony, and control" [I wrote about something quite similar in my 2007/2008 blog-book "The End of Control", check out the free online chapters here, and a related presentation, here]
"That's yesterday's high ground, and China's focused like a laser beam on it. China's moves are the textbook stuff of b-school's blackest arts. Through larger distribution, fiercer litigation, greater exclusivity, cheaper and faster production, a bigger cash pile, advantage is gained. But the high ground has shifted. The new high ground is an ethical edge. It's
not about having more; it's about doing better. It's not about
protecting exports, pressuring buyers and suppliers, price
discriminating against the powerless, and programming consumers to buy,
buy, buy — it's about making people, communities, and society
authentically better off. It's not about caring less — but caring more.
It's not about ruthlessness. It's about mindfulness" [Couldn't have said it better, myself; here are just a few things I would add: in this new ecosystem that Umair is describing, we will need to develop web-native economic models and entirely new metrics for evaluating them, friction will indeed be fiction (to a very large degree) and the importance of control will be utterly eroded by the steadily increasing power of trust, engagement and transparency]
"The old high ground was built for 20th century economics: sell more
junk, earn more profit, "grow" — and then crash. An ethical edge
operates at a higher economic level. It is concerned with what we sell, how profits are earned, and which authentic, human benefits "grow." It's a concept built for the economics of an interdependent world" [A key term, imo: an interdependent world, i.e. not a broadcast world but a connected and networked world]
"An ethical edge just might be the ultimate cause of advantage.It's
how better distribution, production, marketing, and pricing — all just
proximate causes of advantage — ultimately happen. Jim Chanos's
investment thesis says: without an ethical edge, new value cannot be
created — old value can only be shuffled around (hi, Wall Street)....So here's the single question everyone should be asking. The old high
ground is the new low ground. Yesterday's mountain is today's valley.
Are you ascending to the new high ground?"
I just ran across this really amazing and very personal, moving video of Steve Jobs at Standford University: "...drawing from some of the most pivotal points in his life, Steve
Jobs, chief executive officer and co-founder of Apple Computer and of
Pixar Animation Studios, urged graduates to pursue their dreams and see
the opportunities in life's setbacks -- including death itself -- at
the university's 114th Commencement on June 12, 2005..."
Steve has some very important messages for us (summarized below); I think they offer some perfect reflection points as we move into 2010 (even though his talk is actually 5 years old!):
The only way to do great work is to love what you do. If you haven't found it yet, keep looking!
You are already naked. There is no reason not to follow your heart.
Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma.
Stay Hungry. Stay Foolish
A transcript is here, btw. Let's make this our motto for this new decade: Stay Hungry. Stay Foolish!
Merry Christmas and a happy 2010 to everyone in the Music Industry! Below is a short video I made specifically for all you music industry people reading my blog (plus 2 other videos I believe you may enjoy, as well - if you need more, please go to my GerdTube channel on Blip.tv).
In addition, here are my top 9 ideas for what I think needs to happen in 2010, to move this industry forward. I am using mostly links here because, well, I have said it all already way too often in the past 5 years;)
Stop pushing for more and more and...more legal or technical protection measures and lighten up on the constant quest for control: think (and act) compensation not control!
Access to music is going to replace ownership, very soon, so start thinking 'Selling 2.0' - if copies are abundant and can no longer be monetized in the same way as before, what else can you sell? This is crucial. You need to groom and build the New Generatives not push harder to pass laws to try and get the old times to magically return.
Friction truly is Fiction i.e. utterly wishful thinking, now, so you have a choice: get out of the way... or lend a hand (you have heard that song before). Reinvent your relationship with the artists and the 'people formerly known as consumers'. Stop hiding behind technological tricks and artificial hurdles: protection is in the business model not in the technology (need more? Check out my new book "Friction is Fiction").
Stop hanging on to that good old, comfortable EGOsystem paradigm - start building the new ECOsystem. The future is not in Google paying for all music online, or the ISPs paying for all music on their networks - it's in constantly moving, interconnected, fluid and tri-brid (that is hybrid+1) systems of 'I pay, you Pay, 3rd party pays'.
The new money is in connecting the cloud (where the music is) with the crowd (where the money is) - access comes first now, ownership is second. And this is good news!
Question your assumptions: what do you still believe that is no longer really true...? (see the video below).
I have been very busy compiling my best essays, blog posts and other writings from the past 3 years, and have finally uploaded the most recent version to Lulu (my favorite print-on-demand book store). The new book is now called 'Friction is Fiction' and is available in 3 versions: 1) 158 pages, 6x9 inches / U.S. trade format, full-color, for $60.40, here (yes, it's quite pricey because of the cost of printing 4-color, on-demand) 2) the same dead-tree version, but in black & white only, for $19.98, here (much cheaper but a lot less cool;) 3) as a PDF, for a token price of $7.50, here.
I would be delighted if you would consider buying whatever works best for you - what better Christmas present could you possibly think of! Please note that this book will be updated every 3 months, to include my latest writings. If you want to share the book page please just send people to www.frictionisfiction.com - thanks.
As to giving away the free PDF, here is the deal: you can contact me anytime (via email, Facebook or Twitter) to request a free copy of the PDF if you just don't want to (or can't) spend the $7.50, and I will send you the download link. In return, what I ask from you is to pay me with attention, i.e. to write a review on Lulu, a blog-post, or a tweet about my book, with a link (all 3 is best;). Deal?
As to the title: I used to simply call this compilation 'The Best of Media Futurist' but while looking through all those posts - and spending a lot more time revising them - I found an important thread that goes through almost all of it and which therefore has become the new title: Friction is Fiction. So what does that mean? It means that if you are currently basing your success on maintaining or even constructing hurdles, difficulties or other bottlenecks somewhere in the system - i.e. if there is something that impedes the flow of information, or a transaction or purchase so that a higher price point or some other form of control over the can be obtained - then you are very likely to face diminishing revenues in the next few years. Building obstacles for users (fka consumers) used to work just fine but... no longer. Building walls is the fastest road to suicide in the digital economy.
The web has been utterly ruthless about finding these glaring points of friction, such as paying for eMail (remember that?), paying a ton of money for long-distance phone calls (remember those pre-skype days?), or consumers not having any access to travel booking systems, flight information or seating. These hurdles are being removed, one-by-one, and those 'people formerly known as consumers' are getting more powerful every single day. Banking on friction to increase your revenues has become like throwing matches into the river and asking it to stop - it's useless.
Friction was, of course, the main money-maker in the media, entertainment and content business, for a long time: certain CDs were only available in certain stores at certain times in certain countries, DVDs with those movies you really wanted were only available in certain countries and within certain 'windows', books had to be printed and shipped, and ring-tones could only be purchased from your operator. Basically, at every turn the consumer encountered have-to's and must's which essentially allowed a substantial level of control by the media and content companies - and thus, higher prices. In many cases, the more friction the higher the price you could ask for.
No longer. Read the book!
Related: my blog-book "The End of Control": download the first 6 chapters here. Also: My Music 2.0 book is available via Lulu, here
I spoke at Internet Hungary in Tihany today (here is the event page), as promised here is a low-res version of the PDF, the high-res slideshare version is below (you can download the pdf via Slideshare). Topics: defining 'broadband culture', why and how exactly attention is the new
currency, content 2.0 and the new pricing logic, the shift from mass
media to niche media (masses of niches), why conversation
beats monolog and why social media is - really - CRM, the shift from push to pull,
'free gets you to the place where you can ask to get paid' (Fred Wilson), how sharing
generates income, the future of content, education trends, the end of
control... and much more.
Basel, Switzerland, October 12 2009 Gerd Leonhard, Media Futurist
Open Letter to Lord Mandelson, First Secretary of State, Secretary of State for Business, Innovation & Skills (UK)
The Digital Music License (DML) – why and how a new public license for the legal consumption of music on the Internet would provide a solid alternative to the proposed '3 strikes' legislation
The proposed "3 Strikes" legislation is flawed in many more ways than I could hope to outline in this letter, and many of these issues have already been addressed in many other places. Therefore I shall provide only a quick summary of some of the key issues, and then move on to describe what a fruitful, realistic and decidedly more pragmatic alternative could look like.
Unauthorized use of music on the Internet is not a technical problem but a business issue. The reasons why the global ‘free’ sharing of music via the Internet (whether streamed or downloaded) is growing exponentially cannot be nullified by technological means. Rather, the digital music (r)evolution clearly poses a myriad of business and socio-cultural problems that require us to devise a new social contract that legalizes what people actually do, and then build new business models around it.
Anyone that has attempted to innovate within the music industry (including me) will attest to the fact that the largest hurdle for the monetization of music on the Internet during the past 15 years has been the astounding absence of new licensing schemes that actually fit the 'Internet Generation' i.e. the digital natives, and the new ways of consumption that connected consumers are rapidly adopting. Bottom line: the problem is not what consumers are doing - the problem is that the music industry has not blessed it with a license yet!
Therefore, any attempt to solve these business issues with technological measures – such as the proposed 3-strikes legislation – would, with utter certainty, be very expensive, have serious social and political consequences and yet fail miserably to deliver tangible monetary results for the content industries or indeed the creators; just like Digital Rights Management (DRM) which was pushed very hard by the music industry for over a decade and has now finally been acknowledged as the snake-oil it really always was. The only outcome of the proposed 3 Strikes legislation would be to further criminalize every single consumer that is interested in music, every fan and every potential customer.
So, again, let me be pragmatic: this idea means no money for the creators, no new revenues for the industry (but even more rejection by the consumer), and still no satisfaction for the music consumers. In my view, the most pressing objective must be to solve the very real problem of how music (and then, other digital content) can indeed generate new revenues via the Internet - for the old revenue streams are the past, beyond a shadow of a doubt - just look at what is happening to newspapers and print publishing! Technology will not and cannot solve problems posed by seriously outmoded business practices.
The bottom line: controlling the flow of digital files is ‘Mission Impossible’. The challenging but nevertheless indisputable reality is that the very idea of reliably and consistently controlling the distribution of music files on the Internet is basically a technical impossibility as well as a social, political and cultural minefield. Today, the simple act of listening or streaming, watching or reading anything on a connected computer or a mobile Internet device is indeed the same as copying the content; one cannot be done without the other. The Internet is a giant copy machine, by definition, by design, and now… by culture. We may not like it, and we not appreciate it, but just like the railway was hated by the people that made horseshoes and horse carriages we have no choice but to shift what we do, adapt, and reinvent ourselves. As your own kids or any so-called digital native will tell you, access is now the same as a copy i.e. ownership - in technical terms and in terms of user behavior and mindset. Crucially, of course, not yet in terms of the existing laws and prevailing licensing practices. And therein lies the rub.
I would argue that we are in fact trying to build a new business on top of the decidedly pre-Internet principle of total and exclusive copyright – a stark dilemma that has proven to create endless friction but produce very few new revenues. The very idea of being able to control the flow of files in order to extract earlier or possibly higher payments from the users is fundamentally flawed, and we must therefore look for ways to monetize it rather than to prevent it.
The value of music is no longer (just) in the copied file. We urgently need to understand and accept that the value of music is no longer (just) in the mere copies of the digital files. Our attention needs to shift from the old - and dying - business of ‘selling the copy’ to selling everything else i.e. the many other values around that copy (some people call that 'service' ;) but starting with providing very low-cost or flat-rated and bundled access, and then creating many new revenue generators on-top of the bundled, legalized access to music. Once legal and unlimited music distribution is build-into Internet access - when Access is Content - a revitalized music industry can focus on talent, curation and marketing, i.e. the attention-getting and the conversion of that attention into actual income. And yes, there is serious commercial value in the music industry once we regulate distribution (I call this Music 2.0 - if you care to read my free book on this... here it is)
The DML: the alternative to the proposed '3 Strikes' legislation. 80 years ago, the answer to the challenge of a then-new and vastly popular technology called 'Radio' was to legalize it and provide new licensing schemes to remunerate the content creators. The same thing happened with CableTV and with the copy-machine, and the very same logic needs to be applied to music on the Internet. A public, collective, standardized and open license for music on the Internet needs to be either voluntarily created by the music industry, or mandated i.e. enforced by the government - and the sooner the better for everyone. The DML would - similar to the existing radio & broadcasting licenses that are already in effect around the world - make music available on public, standardized terms and conditions, and therefore allow any and all businesses that want to use music to do so without the utterly crippling uncertainties that exist in the current marketplace.
Revenue shares and flat rates - not fixed license fees per song. The objective of the DML is to create a new, vast, and constantly replenishing ‘pool of money’ for music, i.e. to grow the revenue potential along with the growing number of users, as well as via the many new kinds of usages that will be spawned by the DML.
In my opinion, the most crucial component of the DML is this: the license fee needs to be calculated on a revenue-sharing basis rather than on a per-unit i.e. per song fee, whether streamed or downloaded. The current practice of a fixed per-track fee (usually amounting to about 1 cent U.S. per song, for the use of the master recording) for a stream and around 70 cents (U.S.) for a download has proven to be economically detrimental and utterly unrealistic for the market participants (such as Omnifone, Spotify, Rhapsody, Napster, We7 and Yahoo). Why is this? Because of the still-very-nascent stage of the digital music ecosystem, the fact that large-scale advertising revenues for new forms of media are always 2-3-5 years behind, and given that a very large number of users - potentially all UK consumers - are likely to listen to quite a bit of music in this way.
In its formative stage, this new market does not and will not bear license fees that are fixed in this manner and that are totally unrelated to actual incoming revenue streams. Instead, the DML would need to be calculated on a flat-rate or percentage-of-revenue basis, possibly combined with a minimum 'floor' that could prevent unfair and unintended use of 'free' music as a loss-leader (if needed).
Initial DML's reserved for ISPs, telecoms and operators. Since there are many different kinds of businesses that would benefit from having legalized music available (e.g. telecoms, operators, search engines, social networks and communities, blogs, web portals, online magazines etc) but their business objectives and parameters are so vastly different, I would propose to initially make the DML only available to ISPs, mobile network operators and telecommunications providers. This would have several important advantages: 1) once ISPs and operators are able i.e. licensed to offer music bundles and flat rates, they will have every incentive and reason to monitor (i.e. count not control!) which songs are used on their network, 2) they have very large user bases which will provide for a critical scale of payments to be obtained immediately (thus significantly lessening the perceived threat of revenue loss in the physical music market), 3) they have strong potential for the integration of next-generation, user-friendly advertising integration 4) and they already have build-in billing and payment mechanisms.
A flat fee license per user, generated in a multitude of ways. When licensing ISPs, mobile operators and other telecommunications companies it will be crucial to offer flat-rate licenses rather than to pursue revenue shares which are not going to be an acceptable way of generating music revenues from this process, at least initially. Rather, I believe that a fixed, flat-rate license fee per user, per week or month, would be the most suitable way provided that suitable 3rd parties (see below) will also engage to contribute to the funding of each user’s license fee. We must not simply declare the license fee payments to be the ISP’s problem - because it isn't, and because the solution is in the creation of a new Ecosystem, a new business logic, and not in creating tax-like burdens for individual industries.
Economic experts have already done a lot of work on the flat rate model. Far from being an economist myself, I would add that a payment of 1 GBP (in the UK) or 1 Euro (in Germany, France etc) per week per user seems to be economically feasible; however the exact price point will of course need to be negotiated with all involved parties, and possibly be adapted on a yearly basis until the market is more fully developed and each party’s ultimate value position can be determined. In any case -and this is crucial - the DML must clearly be so utterly affordable that every single ISP, operator and telecommunications company would immediately apply for a license.
In terms of the actual use of the music and the subsequent accounting for remuneration purposes, I propose that it should not make a difference if a song is downloaded or streamed (i.e. played on-demand while online), and - similar to CableTV - it should not make a difference if a user would use music 24 hours a day, every single day, or just download 3 songs every now and then. All music usage would need be counted, anonymized and reported, and artists would get paid fully proportional to the actual use of music i.e. according to their popularity (see below for details).
A calculation example: a pool of 2.6 Billion GBP per year for music, in the UK. As an example, a DSL provider and mobile network operator with 20 Million UK users would need to generate funds to pay for a DML of GBP 80 Million per month, i.e. 960 Million GBP per year.
Assuming, for mere calculation purposes, an average of 50 Million eligible UK residents i.e. a large percentage of the entire UK population (~ 61 Million) generating 1 GBP per week, the revenues for the music industry would amount to a very substantial 50 Million GBP per week i.e. 2.6 Billion GBP per year, which represents almost twice the UK's recorded music revenues in 2008 (1.36 Billion GBP). Any argument of ‘cannibalization’ of existing revenue streams such as CDs or iTunes would pale against this figure. And yes, iTunes would do just fine with and on-top of the flat-rate: remember they don't sell music, they sell iPods and iPhones!
How to fund a DML of 1 GBP per week per user. The key question is, of course, how exactly the ISPs and telecoms would raise the money to pay for the quite significant cost of the DML, every week, per user. This is a crucial issue since,a gain, under no circumstances should the ISPs, operators or telecoms be made solely responsible for the financial solution of this problem; it is absolutely crucial to position the DML as a business solution that will unlock strong new revenue opportunities and will be more than cost-neutral in a fairly short time. In my view, the job of building the financial support mechanisms i.e. the ecosystem that the DML will require should be handled by a mutually respected, knowledgeable and neutral advisory board whose mission would be to 'collate' this new ecosystem and to get device makers, advertisers, premium-service providers and other interested parties aboard as quickly as possible.
Advertising is only one of the many ways to fund the DML. Of course, as in television and radio, advertising is one of the key factors that will subsidize the DML fees. The concept of advertising-supported content is not new but what will be drastically different, going forward, is the type of advertising that we will see on digital networks in the very near future. Concepts such as advertising becoming content, itself (such as in mobile phone applications) and social advertising will blossom once permission for the legal use of music is given, creating much higher advertising revenues than we are currently seeing online.
The global advertising spend currently amounts to roughly $ 670 Billion USD, per year. The UK advertising & marketing spend is forecast at approx 25 Billion GBP in 2010 (eMarketer), with - by 2012 - an estimated 25% i.e. 6.25 Billion GBP going to digital and mobile advertising. Yet, digital and mobile advertising would only be one piece of this new puzzle: handset makers could pay subsidies to get preferred i.e. 'presented by' access to users (basically a network-centric variation of the existing ‘Nokia comes with Music’ concept), social networks could contribute subsidies to legally integrate ISP-hosted music into their own networks via the DMLs that operators and ISPs would already have; search engines and portals could do the same. Imagine if Google could sit on-top of this new system of fully legalized, feels-like-free music - this is similar to how Google has already made legal music (streaming and downloading) 'feels like free' in China.
After an initial set-up period, it would be crucial that an ISP or operator that makes use of the DML would be able to fully recover the DML costs through a multitude of new revenue streams, such as next-generation advertising, the sale of mobile applications based on the unlimited availability of music (such as social music and play list applications), subsidies by CE companies i.e. handset and device makers, data-mining and cross-selling (with careful consideration to consumers’ data protection and privacy, of course) and various forms of up-selling of other product and services (including music-related premiums) such as the games industry has been offering for the past decade, already, or even by re-packaging some of the license costs to their users.
The DML is NOT a tax. Any indication that the DML essentially amounts to a tax or is yet another compulsory payment scheme levied onto the consumer (such as the existing TV & Radio licenses) or a particular industry needs to be avoided, at least in the UK market where such a proposal would probably be politically unwise. The DML is simply a new license that is made available to businesses that want to use digital music, with the funding being generated from the market participants, themselves.
Monitoring of usage and fair payment to content owners. Every song that is performed i.e. streamed or downloaded on the Internet would need to be tracked and accounted for, using already available software solutions such as Gracenote or Shazam. This data would need to be made anonymous using a mathematical formula that would protect each user’s private data while still providing actuarial tracking of which song has been used how many times, on any given day, week or month.
Each artist and rights-holder would then receive a monthly payment that is proportional to the actuarial use of their music during each tracking period, e.g. if a given artist’s music was used 1.3% of the time (e.g. in any given month), he or she or their representatives (record labels and publishers) would receive 1.3% of the total pool of money collected. All participating creators (e.g. writers, lyricists, composers, producers etc) would get their proportional payment from the same pool. I am advocating a 50-50 split between the composer and the performer (i.e. recording and publishing), at this time. Overlaps with existing rights schemes (such as public performance on the Internet, and so-called web-casting and Internet-radio) would need to be investigated and addressed, as well.
Existing examples: similar models to the proposed DML are already in place, or are being investigated in:
Please note: this short letter cannot possibly answer every question that may arise if this proposal is further investigated or realized. Rather, I intend to make the case for why the DML would solve the pressing problem of legalizing and at the same time monetizing the many new ways that consumers use music on the Internet. Please keep in mind that most of the suggestions outlined above are still quite basic; prior to making any precise recommendations in regards to possible implementations a lot more research and input from all involved parties is required. Also, while my suggestions should be applied to digital music only, at this time, I do foresee similar developments within other digital content sectors such as motion pictures, TV and books - albeit within a wider timeframe (i.e. 3-5 years).
Don Tapscott (whose voice eerily reminds me of Marshall McLuhan) is one of my favorite writers and thinkers. As part of the really cool 'Penny for your Thoughts'(PFYT) series, the FreedomLab people have just published a great video with Don's comments on what's really happening in this economic crisis - the headline is "Re-Industrialize the Planet". A quick summary:
The web is creating a global infrastructure for collaboration (which leads to disruption and confusion)
As a result, all of our institutions have come to the end of their life-cycle
The current recession is a crucial punctuation point in human history - the point where we said that we need to reset, the point where the industrial economy has finally run out of gas
This paradigm shift is creating a crisis of leadership
The Digital Natives are inheriting this situation - and they think very differently
This interesting video was created by the cool Amsterdam-based crew of FreedomLab and is part of the "Penny for your Thoughts" series which has a great selection of key people and influencers contributing their thoughts on many current issues. I am tickled to be part of this (this video will be added on their page soon - so you are indeed getting it on my blog first!)
This video juxtaposes some sound bytes from an interview with me with some cool graphics, ticker-text animations using my spoken words, and various illustrations. Topics: well, as you may have expected, this is mostly about media and the future of content: distribution is no longer the core business for media companies. Why open licensing platforms are so important. The move from selling copies to selling access - how will that be monetized? How will content be curated, recommended and then... monetized by the Creators?
Apart from my Youtube channel (click below to go there), you can find many more videos at my Blip.TV channel (includes downloads to iTunes for offline viewing). My entire Futuretalks DVD with my collaborator Glen Hiemstra can be downloaded here (yes... for free)
Am traveling in Thailand right now, and I am starting to think he's totally right : "Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world." - Albert Einstein
Via MidemNet blogIf you are in the content business, you may also be wondering: going forward, what exactly is the value of my 'content', when and where? The most likely answer is 'it depends'. No wonder the debate on what kind of content should be /could be /must be / ought not to be free, or bundled, or subsidized by 3rd parties, or paid for with advertising, is raging on the web. And this is happening not just within the music business, but also within the news, print and publishing, books, films and TV industries.
I think pretty much the entire content business is quickly heading towards a total business-model reset.
Since I do a bit of reading as well as some assorted writing on this topic (which I recently tagged the '21st Century Content Ecology') I thought that I would share some of the best writings I have seen on those issues that surround the Free Content debate. So here they are:
Update: a good comment by TelecomTV (Ian Scales) - I especially love their addendum to Spotify's logo: "Not Licensed to Kill" - great summary.
Before I get into the meat of this post, let me say this, for the record: I really like Spotify, the official new darlingamong the many on-demand streaming and interactive music services that try to go to the legitimate route and make deals with the rights-holders, ie. the record labels and the music publishers.
I like the Founders, I like some of their investors, I like what they are saying and how they do things. I even like their logo. We have met several times in the past - and something tells me Daniel et al may been reading my books and this blog, as well... all good this far.
So please note: this is not at all an attempt to rain on Spotify's well-deserved parade or discourage their investors. I am writing this post because I want Spotify to live, grow and prosper, not because I want it to crash. My comments, below, are simply meant to serve as a not-so-gentle reminder for a simple fact that we should keep in mind: while Spotify may look (or rather, sound) pretty, right now, no matter how hard they try and how much money they will raise, they cannot possibly succeed within the current music industry ecosystem, and they - by themselves - cannot possibly change that ecosystem single-handedly.
The primary reason for this is that there is no public (i.e. compulsory) license that is available for these kinds of services; therefore Spotify (and anyone else that streams music on-demand) has zero leverage whatsoever in the rights negotiations - and therefore, the entire pricing and overall economic model - with the record companies and publishers. In other words, they simply have to pay whatever it takes. And they are, indeed. Without a public license in place, this kind of situation is pretty much a suicide mission.
In my humble opinion, the chances of Spotify surviving beyond next 24 months, in the current music industry framework (call it '1.4' maybe - since we are still a long way from the Music 2.0 models that I and many of my readers and 'followers' have been discussing for the last, ouch... decade) are similar to... well, the likelihood of having a cold day in hell.
If Spotify - as a possible embodiment of those Music 2.0 concepts - is to live than the entire SYSTEM must be changed - no less, no more. If you like Spotify than this, below, is what you must ask for.
Spotify (and most other legal music ventures like it) won't survive unless:
A public, open, fully standardized, compulsory,multi-territorial and collective digital music licenseis agreed upon and instituted by law or by collective, voluntary action, SOON. Voluntary action seems highly unlikely at this point given the seriously monopolistic structure of the music industry, and the stellar 'my way or the highway'- track record of most industry bodies.
Just like the existing Radio and TV / Broadcasting licenses, such a Digital Music License will need to be a license that conclusively and pan-territorially (i.e. pan-EU, pan-Asia, US, and then, worldwide) regulates the basic commercial terms for the use of the master recordings and the underlying compositions for anyone that may want to offer or provide music online, regardless of whether it's streaming or downloading - because this decidedly 'Web 1.0' distinction is simply wishful thinking, going forward - access means copy, today. ISPs, search engines, social networks, telecoms, operators and Internet portals need to be able to avail themselves of a standard, ready-to-go license, just like anyone that starts a terrestrial radio station can use an existing license to calculate their music costs, today.
Anyone that has had the misfortune of wanting to 'do the right thing' and license music for any 'new media' i.e. online venture will agree with me on this: the current music rights licensing situation is nothing short of ridiculous, and to many outsiders the process feels like a cut & paste rendition of various "Twilight Zone" episodes. The ineffective and convoluted way that digital music rights are still being dealt with today is a disgrace that keeps causing continuous train-wrecks for anyone that wants to enter the business (and cares to do it legally), and the continuing inability of the industry's 'leaders' to solve these issues flies in the face of the massively increased consumer demand for digital music in all shapes and forms, across the globe.
I know... you may be ask: ok, yes that's not good, but if we were to license more efficiently...where's the new money? Here is my response, and I've said it many times: the problem is not that the 'people formerly known as consumers' don't want to pay for music - they just don't want to pay in those ways that the industry is currently asking them to. This is not a problem of total copyright disregard by the consumers - it's just a tollbooth-strategy question: provide real value and get real value - that is the only future there is! Maybe.. do what Google does?
But so far, all the music industry lobbying groups (e.g. the RIAA, the BPI, and the IFPI) and their brilliant lawyers have done is to ask Billions of people to change rather than consider changing, themselves, so that maybe they can actually start serving those people. Why is anyone still paying attention to these people?
Begging for mercy: Spotify's unenviable routine.
As a consequence of these stone-age business practices that prevail in the music industry, Spotify has to essentially jump off the cliff every time they license a new song, and beg to do things legally 24/7/365, i.e. beg for licenses, from each label and each publisher or rights society, in each country, every couple of months, and for every tiny change they make in their business model. For unlike Youtube/Google, Spotify has ZERO real leverage - while the international music conglomerates and legal rights-holders (reminder: not the artists!) have TOTAL CONTROL - if the deal is not to their liking they can just refuse a license thereby rendering Spotify either instantly illegal (i.e. unlicensed) or have their users evaporate quicker than you can spell 'dead'. There is simply no way that anyone can negotiate a win-win deal in a situation like this - especially when your potential deal partners have such a long history of using pre-Internet laws a weapon to kill competition and innovation.
This legal vacuum has led to a bizarre situation where the major record labels (as well as many large independents and / or their industry associations) can basically ask for anything - they simply have the exclusive rights for these recordings, so it's their way or the highway. The same goes for the publishers, and as long as refusal to license is a sustainable option this won't change (remember when the phone companies did not have to share access to their networks with other providers...?)
And you can bet we are not just talking money here - we are talking about having to give equity to the (large?) labels, for the mere pleasure of being legal, and for being mercifully allowed to reinvent how music is being monetized. This has not changed since the days of my own streaming music widget company, Sonific - you can read all about what happened to us, here. I have been there, done that, and this industry is STILL at the same place: the music licensing system is simply dysfunctional and the markets will NOT self-regulate. Vivan Reding and the EU Commission: are you listening?
There will be no real solution for this problem until the monopolies that currently serve as the foundation of the music rights society system in most countries (not in the U.S. btw!) are done away with; until pan-European or global licensing can be achieved via a one-stop, digital, fluid and transparent service platform. And just to preempt the obvious responses on this: when I say that the monopolies need to go I am not at all saying that these societies need to go. Absolutely not. However, if you base your very existence on the practice of merely extracting value rather than adding value I don't see how you could possible expect to have a role to play in a digitally networked future, either. So, while the concept of licensing collectives are and will remain crucial, they cannot be very useful in the digital economy unless they are constantly adding value and become 100% open and transparent. Monopolies just don't fit in this concept - or do they?
Back to Spotify: because they are enormously successful and popular right now, and because of all the other players in this turf that have paved the way and are still in the running (Last.fm, iMeem etc), and because of all the other players that tried and gave up (Yahoo Music, Musicload, MSN Music) or are about to give up (Napster, Rhapsody, MSFT), we need to make this issue a public, political, cultural and wider business issue.
We need music to be licensed for the Internet just like we license it for radio, today: with a public, open, collective and standardized license that does away with the monopolies of permission that have held us back for a decade, already.
I guess really this is POLITICS now - even the European Commission has already stated that "The failed music industry business model is causing online piracy" - so if you like Spotify it's time for action (hey - there's another post - but here is a preview of my 2 cents)
Finally, let me borrow some authority here: "Change will not come if we wait for some other person or some other time. We are the ones we've been waiting for. We are the change that we seek" (President Barack Obama)
In the past 5 years I came up with - or more to the point - collected, co-created, PFE'd and remixed quite a few memes and phrases that end up surfacing in my work all the time, and therefore must have some sort of value, I reckon. So, below, I am sharing some of my favorite memes - obviously they are all related and interconnected. Feel free to comment and fill-in the blanks.
For my 2009/2010 think-tanks I will soon offer keynotes speeches, sessions and presentations based on these topics, as well - please check out my speaking topics list for more details.
Most of these memes will be discussed in depth in my next book, "Broadband Culture" (ETA...? who knows - it's still very much work-in-progress, so stay tuned)
Gerd's Favorite Memes (July 2009)
The End of Control. This was the main riff in my 2007/2008 blog-book and basically describes the fact that no matter which business you are in, having total control is no longer the single most important factor that impacts financial or material success. Yes, more control equalled more money for a long time - but now, in the inter-connected digital economy, the concept sounds like wishful thinking. In fact, it seems much more likely that in the future, the more control we desire and push for the less successful we will be! If this inspires you, by all means, feel free to download all End of Control chapters here, or google for more stories on this juicy meme.
Paying with Attention. This is my much-simplified way of expressing a key trend that I have been observing in many industries, worldwide. Yes, of course we have always kind-of paid with attention in order to receive free stuff i.e. mostly content (e.g. free-to-air TV, broadcast-radio). 'Buying Attention' has always been the basic premise of advertising, marketing and PR - already a Trillion $ USD business - BUT the future will bring drastic changes in regards to how all of this will actually work. For starters: advertising as interruption is finished, and advertising as engagement, conversation and yes, advertising as content (and vice-versa), is where things are going - and quickly. This is a seriously tough challenge to everyone working in the advertising and marketing industries; but since a lot more content & media companies are now looking to get paid via, from or through that huge fire-house of ad-money that will stem from next-generation and mobile marketing, maybe this will work out much quicker than we are currently anticipating?
Feels Like Free and Freemium. This is a crucial meme; and the discussion fueled by the release of Chris Anderson's new book "Free" (which is a must-read, btw) is certainly adding to the buzz. If more and more things-that-used-to-be-paid-for become free because of disruptive technologies that Millions if not Billions of people are starting to adopt, what will happen to those tried-and-true business models that still underpin all of those companies that are serving these sectors today? Is Freemium (note that this term is definitely not my creation) and Feels-Like-Free / FLF (kinda sorta fueled by my writing... and I own the URL;)
Friction is Fiction. This tagline pretty much says it all: if the success of your business is based on making a steady amount of $$ out of friction that the 'people formerly known as consumers' must endure only because there is no other way to get what you offer, then, yes, you are in deep trouble (with very few exceptions). This goes for the music industry, the news / print / publishing business, telecoms, marketing and advertising agencies and for the Radio / TV / Broadcasting giants: as soon as someone, sometime, somewhere finds a way to reduce or completely remove that friction, your old model is history. Better see to it yourself...?! Yes, btw, I do own that URL, as well;). A related podcast is here if you need it.
The People formerly known as Consumers. This one comes easy to most of us - and yet it describes an often harsh reality at the same time. Clearly, consumers have already become users, pro-sumers, content co-creators, followers, influencers... but now their power is growing every single day. It's the USERS, and to be more precise, the KIDS, that are in charge now. This 'economy of participation and engagement' is quite a different cup of tea - media, marketing and 'selling' anything is changing drastically because of this.
Data is the new Oil - and linked data is even better oil ;) I originally ran across this nugget here and was further inspired via a subsequent conversation with a Twitter follower, via Friendfeed. What do I mean with this? Well, basically, I see a solid trend towards a continuous increase of the monetary value of the data that all of us are generating every time we connect, i.e. click on a link, share a video, post a message, embed a photo, send an SMS, rate a product or simply go from one page to another. Everyone wants this data, in it's purest, most unfiltered and 100% privacy-ignorant form, if possible, because it tells a story about who we are, what we like... and what we may purchase or otherwise pay attention to. Call it the click-stream, the digital bread-crumbs or the cyber-exhaust - the more we interact online, the more we share, the more we communicate via the Net, the higher the value of this data - it is indeed the glue for transactions, which in turn is the glue of, well, pretty much all business... you get the drift.
Finding and being found. An old hat, really, but given the recent explosion in accessing the Net via smart mobile devices, this is taking on a whole new meaning. Soon, if your business can't be found very easily on Google (or Nokia?) Maps and on 1000s of location-aware mobile phone applications, it will pretty much mean that you don't really exist - you are virtually a secret.
The real-time web. A very recent and radical (if not unanticipated) development powered by the likes of Twitter, Facebook, Friendfeed, and maybe MSFT's new Bing.com? In any case, this seems to one of Google's main new challenges...
ECOystem not Egoystem. Umair Haque from Havas Media Lab is my biggest influence for this meme, and he deserves the real credit for egging me on with this meme. A quick summary: we are in the midst of a tremendous shift in the very fabric of our society, away from the 'good' old paradigm of extreme capitalism and economic egoism, and towards the idea of a new, interconnected, collaborative, interdependent Ecosystem that allows or rather forces us to generate new revenues and new benefits, together, rather than pursue only our own agenda.
The 21st Century Content Ecology. This is a term I like to use when thinking about a new logic that underpins all content and media business models going forward: web-native, inter-connected, ubiquitous and friction less, i.e. liquid. To define these new economics is a major job, indeed - thankfully there are many very smart people working on this;)
Open is King: Open software, open mobile platforms, music without DRM, open codecs, open collaboration platforms, open APIs - open is faster and better, more competitive, more suitable for a digital society. But it's certainly not an easy switch to make - we are soooooo used to wanting control.
Lubricating the digital economy is the biggest opportunity for a lot of players in the Telecom / ICT / TIME / Media / Technology space, in my view. With an ever increasing amount of our data, our content, our contacts, our resources and our work online, we will need faster connections at lower costs, easier and cheaper payment methods, more personalizable and customizable offerings, better bundle and flat-rate deals... and on and on and on. If you can lubricate what we want you've got a winning model!
Very soon, a majority of people around the world will no longer connect to the Internet via desktop computers tethered to cables, or notebooks 'tethered' to WLAN boxes. Instead they will use their mobile devices (fka 'phones'). These experiences will be personalized, custom-made, location-aware, timely, interdependent, social, contextual and most importantly, 100% under the users' control.
In many developing countries, the first browsing experiences will be via mobile applications or mobile browsers. This is a huge shift for marketers, brands, content owners and ecommerce companies. Check out my recent presentations on Mobile Marketing and Mobile Content (both were held @ CommunicAsia 2009)
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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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. ![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=7d8e6328-1d47-418b-bd32-757aa729f7ee)
