WMG CEO Revelation

Here’s some welcome sounding news: Edgar Bronfman, head of Warner Music Group, tells a mobile conference that the music industry was wrong to forestall the burgeoning of online music.  The admission is somewhat surprising, considering Warner’s recent public strategy.  They have twice recently been in the news for refusing to license DRM free music: Amazon.com’s download store has no WMG catalog and Nokia also hasn’t been granted a license.

Also much of the blog comment chatter has been less than supportive.  While I would rather see actions more than words, I hope this means we are turning the corner on the bullheadedness regarding digital distribution.  If we have started this war against our customers, it’s time to change course and win them over.

In my role as armchair music CEO, the first task would be to declare an end to the RIAA litigation against file sharers.  If this is indeed an “inadvertent” war, Bronfman’s admission could serve as the cease-fire.  The public’s appetite for music is a good thing for our industry, and we just need to forge new alliances and relationships to monetize this hunger.  The lawsuits should be a last resort when good faith discussions are impossible, instead of the first negotiation tactic.  This alone would generate goodwill among forgiving music fans.

The road to recovering a healthy music business will be difficult, but I hope that today’s comments signal the dawning of our rebirth.  And I must commend Mr. Bronfman for showing his leadership and taking a difficult step of publicly admitting mistakes.  Integrity has been overshadowed in much of our culture, so it’s refreshing to see an industry leader show some spirit.

Back from the ashes…

So I’m feeling compelled to reopen this blog that I abandoned last year.  Another year has passed and the Music Industry looks like it’s in more dire shape than ever.  Unfortunately, exactly how I’ve expected it to work out.  It seems the calcified leaders of this business still haven’t gotten desperate enough to try something radical to reinvigorate revenue.  There’s money out there, but the industry seniors are too busy trying to force everyone to play in their once-cool sandbox.

The sandbox has given way to a whole new playground, and the time to fix this shit is now.  Let’s see how my blog can help me gather my version of how to make this music back into business.

Music Monopoly?

Over at the Digital Music blog, Grant Robertson has an interesting take on comments by UMG CEO Doug Morris defending Universal’s strategies in the digital music market. Grant compares the music industry back to the days when AT&T had a monopoly in telephone service. He concludes that the music industry is in the same predicament as when Ma Bell was divested.

I do quibble with the analogy about AT&T since that was a result of government intervention rather than a paradigm shift in technology, but Glen does raise an interesting argument. If the music companies face the same dynamic as AT&T, he concludes:

Lower costs to consumers, wider competition and a broadened, democratized playing field. That, not piracy, is the bigger threat to Universal and the future of major labels.

There are some key differences between Ma Bell and Big Music. As I already mentioned, the government intervention changed the landscape in telecom. But the music industry is not without competition. Even though the oligopoly does act as one in terms of pricing and access, each label is competing for sales, chart positions, and promotion. There is definite sibling rivalry among the labels.

However, I would agree that piracy itself is not the biggest threat the music industry faces. Technology has forced through a paradigm change in music distribution but the big problem is the music industry’s refusal to adapt. Like AT&T’s monopoly, the music oligopoly does act to limit change and this has created a stagnant market, much like Ma Bell’s.

Negotiating in Public

I question the wisdom of publicly stating that you want a piece of the iPod action.  As I expected was the case, UMG’s Doug Morris said yesterday, “The Zune (deal) was an amazingly interesting exercise, to end up with a piece of technology.”

Does such a pronouncement give you leverage over Apple when the iTunes Store re-negotiations are on tap for next year? There are short memories among these guys, I guess. After all, the last time music labels tried pushing Apple in public, media darling CEO Steve Jobs called them greedy and was generally lauded for it by the public. At least then, Jimmy Iovine of Interscope said that not enough people converted to the legal digital music market and Universal came off as the pragmatic part of the bunch.

Now we all know Microsoft needed UMG’s vast catalog in order to even begin competing against the iPod/iTunes juggernaut. It makes sense that they’d pay up Universal’s levy demand (this is hardly your normal royalty payment). Apple, however, has very little incentive to agree to a tax when they have sunk millions of R&D into their hugely successful iPod, developing a top notch experience in purchasing music via iTunes, and for successfully providing a new revenue stream to music industry coffers.

Considering Apple’s secretive nature in conducting business, this is probably a bad direction to go in. Remember, the RIAA and their massive lawsuit campaign destroyed any good will with the public. On the other hand, Apple has one of the strongest brands on earth. End result is the music industry looks like a bully (again).

The question becomes, does Universal’s catalog have enough importance to depress sales of the iPod? It’s doubtful considering that the bulk of music loaded onto iPods is not from the iTunes Store but from CD rips, P2P/IM, or offline sharing. This sounds like a case of cutting your nose to spite your face.

We would be better served tackling the concept of legitimizing our customers’ behavior with file sharing instead of focusing on how to keep them herded in our small fences.  While the demand for recorded music has never been higher, the industry leaders keep acting like their old rules still apply.

UMG and Microsoft’s Unholy Alliance

Microsoft is in the news today for making a deal with Universal Music Group to provide a slice on the sales of their forthcoming digital media player, the Zune. According to the NY Times, UMG will get more than a dollar per unit sold. UMG head, Doug Morris, comes off sounding like the CEO of AT&T, Ed Whitacre, who made lots of waves last year for disingenuously claiming that Internet companies get a free ride and owed monies to cable/phone companies for sending data through their networks.

This is just a ridiculous scheme on the face of industry claims of massive losses due to piracy. What’s a buck per Zune sold going to do to offset that? How does a consumer benefit whatsoever by this arrangement? This is a clear play against Apple, so that Doug Morris can use this deal to try pushing Steve Jobs around for more favorable pricing on iTunes when their deal comes up for review next year.

But here’s the problem: there’s a tonnage of music being traded illicitly each and every day. The size of this black market is larger than anything the iTunes store has thus far generated. Portable music players should have been seen as a cash cow instead of branded as pirates’ tools. Embracing the new dynamic of music acquisition would result in far greater penetration of music. If every usage of music was licensed reasonably, from YouTube lip sync videos to eMule downloads, we could herald a whole new age of music and revenue.

But the industry has a ways to go before protectionist stupidity is at an end (like DRM insistence, customer lawsuits, or deals like this Zune one). I know there’s a lot of naysayers out there, but I’d suggest a brief refresher in the econ 101 concepts on elasticity.

Bankrupt Music Scene

The Kings of A&R has a post lamenting the rut they’re finding in the music scene. They claim there’s no originality left and then launch into a rant stating, “You really can’t blame anyone but the bands.”

I’d have to disagree on that point. Yes, there is a lot of unoriginal musicians out there that are just hacks of the groups that came before them. But it’s the label mentality that has created this moribund scene through their decades of following and capitalizing on trends. Let’s face the fact that major labels are run by Wall Street and therefore reflect the risk aversion and short term thinking that drives quarterly earnings. Signing the brightest talent, developing it over the course of several record cycles, and pushing niches is not what the labels are equipped for these days.

Pushing the next great thing on the backs of the old best selling thing has a lot to do with the mediocrity of music. You won’t get much attention from a major label by pushing the limits or breaking out of the mold. Hence the artists who have the best chances at being signed play it safe; the rest end up on MySpace.

Perhaps the collapse of the CD and emergence of the Internet will allow us to pursue more innovative artists that may be successful niche players. Because it’s clear that pursuing the mass market, lowest common denominator music is really what’s out of fashion these days…

The Backroom Dealings in Google-YouTube

I came across some interesting anonymous information the other day that seems like a plausiblealbeit very speculative discussion on how the music labels worked with Google and YouTube to hammer out the particulars in Google’s purchase of the video sharing site. Fortunately Mark Cuban reposted the comment on his blog so you can judge for yourself.

A couple interesting tidbits that I found fascinating: the first is that each major label company essentially got a stake in YouTube which was subsequently bought out by Google to the tune of $50 million per label. Further, according to the source, this scheme allows the label to pocket the money rather than pay out much of the money back to artists via the licensing deal that would traditionally apply. If true, hypocrisy would be a good word to describe this backroom deal versus the RIAA’s public stance of protecting the artists.

The other fascinating part of this commentary comes into play with Google’s future interest in YouTube. The media companies each received the $50M payout and in return they will give 6 months for Google to develop tools to identify and track media uploaded to YouTube; this strategy essentially means copyright infringement, the honey pot of YouTube’s popularity, thrives while other media sharing sites are reeled in by the labels (see Universal’s lawsuit against Grouper and Bolt).

The above recount is an interesting analysis and the conspiracy theorist side of me is disturbed that such tawdry tactics would be employed for the protection of a few large corporations at the expense of artists and fans alike. However, I’m cynical by nature and would question where the facts end and the speculation begins. Especially when we’re talking about an anonymous source who hasn’t been independently verified like an investigative journalist would have done…

Universal Announces Digital Download Pricecuts

…Of course, this is welcome news for download fans. But as I was reading through this announcement, I noticed that the pricing does not include new albums and you could easily attribute the price cuts to be more in-line with US customers due to fluctuations in currency exchange rates.  Before the announcement, an eligible digital album download cost in the range of $12.70 in euros or $15.15 in pounds.

Therefore, the new pricing isn’t exactly much more than normalizing various markets…

The CD Isn’t Dead, It’s In Purgatory

Interesting bit of news on the major label front over the past few days. The first is the declaration from EMI’s chief that the CD is dead. Indeed, the days of this physical format are numbered but a significant part of the market is still partonizing the physical format.

Two key reasons are (1) end-user ripped files are unencumbered (ie- not restricted by DRM) and (2) currently legitimate online stores lack the fidelity of their CD counterparts. Of course there are a myriad of other explanations (tangible discs are great for gifts, fans want to support their favorite musicians, or even simply as a backup to a files library); however, despite Alain Levy’s declaration, the music industry is focused on the CD business rather than fully embracing the file business they find themselves in. Unfortunately for customers, the file business is considered a nuisance (since most files are illicitly traded on unauthorized networks) or gravy (therefore protectionist for CD sales) so inferior files remain the de facto standard on authorized digital music stores.

Until the industry realizes that the business isn’t about the format (phonorecord, cassette, CD, or file) but about an incredible powerful yet intangible product we call music, we’ll remain in sales purgatory.

A Mission Statement of Sorts

So in terms of a first post, I wanted to provide a short narrative for why I started this blog, what I hope to accomplish, and lay out some of the obvious biases you will encounter if you read this. Firstly, I should state that I am a member of the music business, employed by an independent label (a major label does have ownership interest without managerial control) as a sysadmin. Since I’m not in the more traditional label role (press, marketing, or production) I bring a different voice to the table; with the proliferation of music content on the Internet, I believe that my perspective is a needed one for an industry that is in flux due to technology. That is my primary interest in blogging on this space…

I am a huge fan of music and I’m bullish in my belief that the future of music is bright; however years have been lost to the fruitless, circle-the-wagons tactics of suing music traders and technologists. But change is slowly appearing in the industry stance and I think we will get there, even if it requires some rough transitioning.

At any rate, let’s see where this all goes…

[UPDATE 1/30/09] I have changed the focus of this blog.  You can read more about it in my post A New Focus.