Five Long Term Music Industry Predictions (And How Disney Will Rule The World)

The new year is typically a time for predictions for the year. But at the midway point of the decade, rather than do some short term predictions I think this is a good time to take a look at the longer term outlook for the music industry. Here are five long term music industry predictions:

1 – Disney will become the world’s biggest music company

Consumers are buying less music and there are more ways to easily get free music than ever before, both of which make selling music harder than ever. Major labels have addressed this by doubling down on pop acts (Rihanna, Katy Perry, Rita Ora, Ariana Grande etc.) which have a more predictable route to market. Video (YouTube) and very young audiences (also YouTube) underpin the success of these artists. While the majors have been pivoting around this very specific slice of mainstream, Disney has quietly been building an entire entertainment empire for this generation of pop focused youth. Unlike the majors, Disney has TV shows and channels targeted at each key kids and youth age group and uses them to bring artists through. They start them out kids TV shows such as The Wizards of Waverly Place (Selena Gomez), Hannah Montana (Miley Cyrus) and Sonny With A Chance (Demi Lovato). Disney then very carefully matures these fledgling stars as their audiences age so that by the time they and their audiences are fully fledged teens, they are fully-fledged pop stars. At which point they have shaken off most of their bubble gum imagery and have conveniently acquired a little edge, a specific positioning and a personality. It is a highly effective process. Each of those three Disney stars are only in their early 20’s but already have multiple albums under their belt. Disney will not only continue to excel at this model, they will most likely become the biggest pop label on the planet. Which given where music sales are heading (pop accounted for 44% of the top 10 US album sales in 2014) could well mean Disney even overtakes Universal to become the biggest music company of all.

2 – The western pop music industry will increasingly resemble Bollywood

2014 was the first year film soundtracks accounted for 2 of the top 10 selling US albums (‘Frozen’ and ‘Guardians Of The Galaxy’), generating 4.4 million sales and 30% of the top 10 overall. And both albums were Disney. In India music plays a supporting role to film in revenue terms but is culturally centre stage, the beating heart of Bollywood film. The music and film require depend on each other for context and relevance. We are set for this model to become increasingly pervasive in western markets. Just as video underpins the success of pop stars, it creates an audience bond to music in film and TV, turning the music into the soundtrack of memorable, fun and moving moments. Triggering the same emotional chemistry music does in real life. With music sales still tumbling but movie sales holding up, expect movie soundtracks to become an ever bigger part of music sales, and for the dividing line between film star and pop star to blur entirely. Expect Disney to, again, be the key force.

3 – Live music will lose ground to other live entertainment

Live has been the music industry’s ‘get out of jail free’ card, holding up total revenues while sales revenue declined. The balance of power has shifted with sales revenue now just a third of the total revenue mix, down from 60% at the start of the century. But cracks are already appearing with price increases underpinning much of the live revenue growth in recent years and the big revenue polarised between ageing rockers and pop divas of the moment. There are only weak signs of a next generation of stadium filling rock bands. The big live venues are already looking for alternative ways of getting bums on seats, with TV show spin offs in particular proving successful. Venues and promoters love TV show tie-ups because they bring big TV cross promotion which helps ensure commercial success.   TV comedy shows are now doing 10 to 12 night sell outs in 10,000 capacity venues. You don’t see many artists doing that. Shows like Disney On Ice (yes, Disney again) fill out the biggest venues with ease. And it is not just the top end that is moving away from music. Comedians like the UK’s John Bishop play tours that happily play a small club one night and an arena the next. Expect the live market to shift more towards a broader range of entertainment, especially TV tie ins, squeezing out many music acts in the process.

4 – Old world copyright establishments will lose relevance 

The fragmented nature of global music rights, especially on the publishing side, has long been a thorn in the side of digital music.   The system of multiple national rights bodies and commercial rights owners administering different parts of music rights across the globe hinders the ability of the digital music industry to be truly global. A handful of rights bodies are pushing the innovation needle, others are not. The distinctions between recording, performance, mechanical etc. served well in the analogue era when there was a clear distinction between a sale and a performance. But in the streaming dominated landscape they are less useful. Additionally the entire range of audio visual elements that an artist comprises in the digital era can be prohibitively difficult to put into a single product. This is because the rights are usually held by so many different stakeholders, each with different priorities and appetites for risk. Expect music companies, artists and their managers to increasingly collect as many rights as possible into one place so they can create multimedia experiences without having to navigate a licensing minefield. In doing so, more and more monetization will happen outside of the traditional licensing frameworks. Whether that be because all of the revenue occurs in a single platform (e.g. YouTube) or because new licensing /collection bodies are used such as Audiam or Global Rights Management administer the rights. Creative Commons might play a bigger role but the real focus is going to be on being able to license more easily AND monetize more effectively.

5– Labels will become agencies

Finally we have agencies or what you might call labels, but I’m going to call them agencies, because that is what they need to become. The label model is already going under dramatic transformation with the advent of label services companies like Cooking Vinyl’s Essential and Kobalt’s AWAL, and of fan funding platforms like Pledge and Kick Starter. All of these are parts of the story of the 21st century label, where the relationship between label and artist is progressively transformed from contracted employee to that of an agency-client model.   Labels that follow this model will be the success stories. And these labels will also have to stop thinking within the old world constraints of what constitutes the work of a label versus a publisher versus a creative agency versus a dev company. In the multimedia digital era a 21st century labels needs to do all of this and be able to work in partnership with the creator to exploit all those rights by having them together under one roof.

Streaming is changing the music world right here, right now, and there is an understandable amount of focus on it. But it is just one part of a rapidly changing music industry. This decade has already wrought more fundamental change than any previous one and the rate of change is going to continue to accelerate for the next five years. All of the rules are being rewritten, all of the reference points redefined. This is nothing short of the birth of a new music industry. The blessing of a generation is to be born into interesting times, and these times are most certainly that.

Media, Technology and The Innovator Hegemony

We are at critical juncture in the evolution of digital content. Digital consumption of content, spurred by accelerating adoption of smartphones and tablets, is crashing towards the mainstream, while traditional revenues and business models continue to buckle under the strain. Legal and business disputes between Amazon and book publishers, and Google and independent record labels are small but crucial parts of this process. This period of disruptive flux is giving way to a new era of content distribution in which a few large technology companies are assuming the role of distributor, retailer, channel and playback device as one single package. The emerging new world order is defined by concentration of power, reduction of competition and the subservience of traditional media companies. The 2000’s witnessed the ascendancy of digital innovators, now we are arriving at a new chapter: the Innovator Hegemony, the era of the all powerful, unregulated technology superpower.

Free Is Now the Business Model of Choice

We are mid way through the shift from the distribution era of selling units of stuff, be they newspapers, CDs, packaged games, books or DVDs, to the consumption era where consumers increasingly value access over ownership. This shift manifest itself as a meltdown of the traditional media industries and associated retailing channels. Out of the ruins of these crumbling nation states Amazon, Apple and Google have started to construct sprawling digital content empires. Until relatively recently it looked like Apple was the only company that had learned how to make digital content works as a business, albeit as a loss leading one. But during the last year the market has inevitably buckled under the pressure of Amazon’s willingness to give away access to content as bait for free shipping and Google’s endless appetite for giving content away for consumer data.

Amazon and Google realized they were never going to win if they played the game by the Apple’s rules, which had been transplanted from the analogue age, namely charging for ownership of content. Instead they have opted for the digital zeitgeist: free, or at least feels like free. It is beginning to look like iTunes was a historical anomaly, an isolated outpost for distribution era practices in the digital realm. What Amazon and Google have done is pick up the baton Napster dropped in the early 2000’s and they have run with it.

The Innovator Hegemony

There is little reason media companies would want to cede so much power and pay the inexorable price of devaluing digital content to the price point of zero. They do so because they allowed their partners to get too powerful. This is the Innovator Hegemony. Apple, Google and Amazon all used content as a stepping stone towards achieving global scale, scale that once gained they used to swap the balance of power. Labels, publishers, authors and artists suddenly found themselves beholden to companies they had helped succeed and that success now used against them.

When Competition Legislation Protects Monopolistic Behaviour

But there is an issue of even greater significance at play: the inability of market regulation to appropriately counter the increasingly monopolistic behaviours of the big technology companies’ content moves. Anti-trust and competition legislation neuters media companies but leaves technology companies to operate with near impunity. Dating back to the analogue era when media companies were all powerful, anti-trust legislation was designed to prevent media companies colluding and entering into monopolistic behaviour. But now that technology companies own the platform control points that media companies depend upon in the digital realm, anti-trust and competition legislation has the unintended consequence of consolidating the power of the technology monopolies by stymying media companies.

The three big technology companies have a greater concentration of influence and market share in digital content than any single media company did in the analogue era. Amazon, Apple and Google have become a single, effective monopoly in each of their respective marketplaces. Thus anti-trust legislation currently has the unintended consequence of reinforcing market concentration.

Matters are not helped by the fact that media companies have become something of a busted flush at the legislative level, having over reached with copyright and anti-piracy lobbying efforts. The dramatic collapse of SOPA and the failure of Hadopi illustrate how media companies have lost legislators’ hearts and minds. After years of media industry ascendency the lobbying balance has swung towards the technology companies who are winning over key influencers such as the European Commissioner Neelie Kroes.

Platforms As Integrated Monopolies

Right now Amazon and Google are testing the boundaries, seeing what they can get away with before they are reined in. Amazon is unashamedly abusing its platform to hurt sales of book publishers such as Hachette and Bonnier, while Google is equally brazenly threatening to turn off monetization of music videos of labels that will not sign its overweening YouTube contract.  Interestingly both Amazon and Google appear to be testing just how forceful they can be with the independent ends of the media business spectrum.  These actions show us how vertically integrated platforms have a tendency to become internal de facto monopolies with effectively limitless internal power. Power that corrupts, and that ultimately turns the ideologies of these once idealistic disruptive start ups into police states where dissension is no more tolerated than it is in North Korea.

It is time for media companies and policy makers to decide whether they are brave enough to stand up to the Innovator Hegemony. Every content company still has the nuclear option of pulling content from the services but few will ever dare to do so – the German YouTube stand off a rare exception. And therein lies the problem, media companies already feel they cannot exist without the big technology partners and the tech companies know it. Without appropriate macro checks and balances the outcome will always be the timeless, asymmetrical roles of bully and bullied.

Media Companies: Your Nightmare Piracy Scenario has Arrived, And Its Called Popcorn Time

Two years ago I said that the nightmare piracy scenario for the media industries would be when the pirates gave up trying to fight enforcement and turned their attentions to build great user experiences.  Now with the arrival of Popcorn Time that scenario has come to pass.  However bad piracy might have been for media companies, it is just about to get a whole lot worse.  This is the new era of Experience-First Piracy.

Popcorn Time is an open source interface that sits on the top of pirated video content on torrents.  Instead of downloading the video Popcorn Time streams them to the end user, with titles selected from a neat Netflix-like interface.  In fact one might argue a ‘Netflix clone’ interface (see figure) but with new releases that Netflix does not even have.  On top of all this Popcorn Time is open source, with installer and project files all hosted on developer collaboration site GitHub, and with the app built on a series of APIs.  With multiple development forks already this is an entirely new beast in the piracy arena.  Forget whack-a-mole, this is potentially a drug-resistant, mutating contagion.

popcorn time

In fact Popcorn Time looks exactly like what I envisaged two years ago:

“What if a series of open source APIs were built on top of some of the more popular file sharing protocols so that developers can create highly interactive, massively social, rich media apps which transform the purely utilitarian practice of file sharing into something fun and engaging?  If you thought the paid content market was struggling now imagine how it would fare in the face of that sort of competition.”

Piracy for the Mainstream Consumer 

Until now, piracy was largely the domain of youngish tech savvy males (69% male, 50% under 35). Popcorn Time and the inevitable coming wave of new Experience-First piracy apps will give piracy truly mainstream appeal.  It looks and feels just like the real thing, only for free and with even better content.  What’s not to like?  Worse still – for media companies, not consumers – these sites might – even have a legal defense as they do not actually host any of the files.  The emphasis there is on the ‘might’ as it is an argument that ultimately the Pirate Bay was not able to defend in court.

Three Ways to Hit Back at Experience-First Piracy

So what can media companies do to respond to Experience-First Piracy? Legal action will be the first port of call but ultimately it is a pain killer, not a cure.  The problem itself needs addressing with three key strategic focuses:

  • Windowing: Netflix can only dream of having the content Popcorn Time has, just as early licensed music services could only dream of having the catalogue Napster had in 1999/2000.  The movie studios need to learn that lesson fast, and treat Netflix and Amazon Prime etc. as tier 1 release window partners.  As soon as a release is ready for its first post-theatre window it should go straight onto the paid video services.  BlueRay and DVD are fading yesteryear technology, the media industries’ most engaged and valuable audiences are online and using online services.  It is time to treat them as first class customers, not second class ones.
  • User Experience: Before Experience-First Piracy, the retort to media companies was that all they needed to do in order to stay ahead of piracy was to create more compelling alternatives.  Now the ante has been well and truly upped.  There will never ever be the user experience gulf again.  That time has gone.  This means licensed services have to be continually pushing the user experience envelope, using their capital to hire the very best designers and developers.  Which means that content companies need to saddle them with as little up front rights acquisition debt as possible, freeing them up to spend big on development and design.
  • Pricing: The harsh reality of the internet economy is that when something is widely available for free you have to make your paid-for product even cheaper than it was intended to be.  For Netflix and Spotify et al, that means getting below $5 a month.  Ironically this happens at just the time that Amazon increases its pricing for Prime and Netflix is considering increasing its pricing in order to cover higher rights costs.  Media companies have a crucial decision to make: do they want to get more revenue per user out of a user base that will quickly lose share to Experience-First Piracy, or instead do they want to take a near-term revenue hit in order to shore up their digital service partners’ longer term future?

The fact that piracy has spent so long locked in a user experience quagmire is testament to the media industries’ counter measures: pirate sites were just too busy figuring out how to evade enforcement to focus on user experience.  But now that era has come to a shuddering halt.  It is difficult to over state the dramatic effect Experience-First Piracy will have on the paid content landscape unless media companies do everything within their powers to help the nascent licensed services respond in kind.  The smart companies realized long ago that content is not the product, experience is.  Unfortunately the pirate’s just figured this out too.

Why Full Albums Need to Go from YouTube Right Away

YouTube has long been the digital music anomaly: hugely successful, almost free of criticism but with a pitifully small pay-per-stream rate (below half that of Spotify, who does get criticism, and some).  YouTube is now on the verge of launching a subscription product and this will hopefully go some way of addressing the fact it has made the marketing journey the consumption destination.  But the music industry should keep its aspirations in check, not just about the potential impact of the service, but also – and perhaps most importantly – because of YouTube’s intent.

Google is a rights frenemy.  Rights frenemies strike a careful balance between maintaining good relations with rights holders on one side of their business but testing the limits on the other side. They pursue a do first, ask forgiveness later strategy.  Thus all the while Google is launching two music subscription services (Google Play Music All Access and the forthcoming YouTube offering) it is also lobbying for copyright reform and posting a link to for every successful copyright takedown.  In other words Google talks the talk but only reluctantly so and it does the absolute minimum of walking the walk.

Nowhere is this approach more apparent in YouTube and the presence of user uploaded ‘full albums’.   A coherent argument can be made that 383 million views of Miley Cyrus’s ‘Wrecking Ball’ Vevo video delivered clear benefits to the artist and her team (both though direct Vevo advertising and the vast exposure).  Full length albums ripped into YouTube by users have no such benefit.  In fact labels in the main do what they can to remove them using YouTube’s takedown process.  If Google was a rights ally rather than a rights frenemy it wouldn’t solely wait to be told to take stuff down, at least for the really obvious and high profile stuff, but it doesn’t.


Take a look at these top search results for Adele, U2, the Red Hot Chili Peppers and the Beatles (see figure 1).  The full album results are high lighted in red, many of which have hundreds of thousands of views each, in the case of Adele’s ‘21’ it is more than 1 million, and some have been live for more than a year.  In the case of the Beatles all of the top results are full albums.  I doubt that the Beatles spent the best part of a decade not licensing to iTunes in order to suddenly throw it all straight up on YouTube.


There are also endless ripped live DVDs and recorded TV broadcasts of live concerts (see figure 2). It’s pretty hard to see why somebody would want to buy a live DVD of a U2 show when they can get the entire show in 1080p HD on YouTube.  And of course because it is a continual 2 hours and 22 minutes of video the viewing experience will be virtually ad free, save for a 30 second pre-roll and the odd pop up which can easily be clicked off.  The only winner here in business terms is YouTube.

Not all the blame can be laid at Google’s feet though: these examples were found immediately, with no effort, so it is inconceivable that someone somewhere in each of the respective labels doesn’t also know about this.  Thus someone has taken the decision in some of these instances to take the benefit of the ‘exposure’ in return for cannibalizing sales of the exact same music the exposure is supposed to drive sales of.  It is this conflicted view of YouTube (i.e. ‘we couldn’t sell as much music without it even though we lose sales because of it) that needs to be fixed.  Google can hardly be blamed for having a schizophrenic approach to the music industry if the industry does exactly the same back.

But relationship issues notwithstanding, full albums need to disappear from YouTube right now. They need to do so if for no other reason than to level the playing field for those music services that pay back at higher rates to rights owners and that actually try to get consumers to pay for music.  Labels and Google, bang your respective heads together!

‘Plug In, Tune Out’ with David Byrne, Mark Mulligan, Dave Haslam

I’m excited to announce that next week I will be with Talking Head David Byrne and pioneering DJ Dave Haslam, discussing Byrne’s new book ‘How Music Works’ and many of the issues covered in it, including how digital consumption patterns are fundamentally changing both how music is listened to and how it is made.

It is going to be a great event and a fantastic opportunity to hear David Byrne talk about his views on making and performing music, the evolution of the music business and changes in music culture.  And if you haven’t read ‘How Music Works’ yet I recommend you go out and get yourself a copy, it’s a great read.

The full details of the event and ticketing can be found here, and a synopsis of the event is copied below.

Plug In, Tune Out; Does Music Matter Less In the Current Era?

Join Dave Haslam for a special event featuring David Byrne and Mark Mulligan discussing Byrne’s new book, ‘How Music Works’, in which the Talking Heads co-founder explores the joy and the business of making music, and analyses how profoundly music is shaped by its time and place.

Byrne and Mulligan will discuss the changes in the consumption and production of music in the digital age.

Doors 6.30pm. Event starts 7.30pm prompt (running time approx 90 mins).

Venue: Royal Northern College of Music, Manchester, UK

Waterstones will be providing a bookstall. Pre-signed books of ‘How Music Works’ will be available for sale at the event (there will not be a public book signing).

On Sale from Friday 5 October 2012 at 11am (maximum purchase of 4 tickets per customer).

Bruce Willis and the ‘When Owning Doesn’t Actually Mean Owning’ Conundrum

Bruce Willis is reported to be considering legal action against Apple to enable him to bequeath his sizable iTunes music collection to his children.  Whether there is basis in the story or not it shines an unforgiving light not so much on Apple’s terms and conditions but the role of copyright in consumer music products as a whole.

Analogue Era Copyright Restrictions Rarely Left the Realms of Small Print

The issue at stake is that iTunes terms and conditions prevent the original purchaser from giving the purchased music to someone else. But this is not something unique to iTunes, it applies to virtually every single piece of music product that you have ever bought (assuming you have bought some at some time or another).  And not just to downloads, but also to CDs, vinyl, cassette, MiniDisc and just about any other physical format you care to throw into the mix.  With each and every one of those music product formats that you have purchased, all that you actually own is the physical packaging and media, and a license to play the music inside it.  You do not own the music.  And the licenses come with pretty specific restrictions, often including the number of people that are in the room when you are playing it, though the exact number of people who are allowed to listen to music in your living room is defined by national statute.  The restrictions also cover copying, lending and selling.  Of course (personal) copying, lending, listening at parties, gifting and buying used albums have all been integral parts of the music experience for decades.   People simply enjoyed the music how they wanted to regardless of the restrictions, many of which they simply were not aware of.

Take a look at the small print on the back of a CD album – if you still have any – and you’ll see a copyright notice.  The exact wording will vary according to the label and the country of origin or sale, but the same underlying principle applies across all of them: you don’t actually own the music on the album, instead you have bought a license to play that music.  In the physical era people rarely bumped into these restrictions, but in the digital age labels and other rights owners have the ability to enforce them through technology.

So should Bruce Willis really prove to be tilting at iTunes’ windmills, it will be decades of global copyright convention and practice that he will in fact be facing, and any potential judge will be made keenly aware of this.  Which raises the stakes in quantum leap proportions and builds a case for the industry to come up with common sense business solutions before the entire music copyright edifice is challenged.

It is Time for a Business Solution to the Copyright Problem

Copyright is the critical tool for monetizing content and ensuring creators and originators are fairly compensated.  But copyright is at its best when it serves those purposes without placing impractical and unreasonable restrictions on consumers.  Paying music fans are becoming an increasingly self-selective group.  In the analogue era most music fans were also recorded music buyers.  In the digital age music fans often opt out from music purchasing entirely.  Thus when analogue-era copyright legacies affect digital music buyers, it is the valuable, opted-in part of the population that is being penalized, not the freeloading opted-out portion.  A situation which of course has already happened once before online, with rights owners’ earlier insistence on all downloads being shackled with DRM.


The indies, and then EMI and iTunes finally broke the DRM hoodoo and one would hope that a similar outcome could be achieved here.  Changing the underlying copyright frameworks and agreements is not going to happen either soon or quickly, but just as DRM was solved with business decisions, so could the issue of transferring ownership of purchased music.  Rights owners and digital music retailers could create a framework agreement to permit certain behaviours within specific parameters or could simply agree to turn a blind eye in certain scenarios.

It would be copyright suicide to suggest that a music customer could ‘give’ their music to anyone they so choose, because a single digital copy can always be legion.  But a ‘fair use’ approach which supports a number of scenarios, such as Willis’ desire to bequeath to his children, would be an eminently workable solution.

Copyright should protect rights but not at the expense of penalizing legitimate customers over those who don’t bother to pay at all.

Blocking the Pirate Bay: A Tale of VPNs, Proxy Servers and Carrots

Today the UK’s High Court ruled that UK ISPs must block access to the Pirate Bay on their networks.  The idea isn’t a new one, Wippit’s CEO Paul Myers first touted the idea of UK ISPs voluntarily blocking access to P2P sites nearly a decade ago.  In some ways it is intriguing that it has taken so long for media industries to come round to the idea of enforcement via domain blocking rather than going straight after file sharers themselves.  The Sopa / Pipa legislation had many faults but it was markedly more forward looking with its focus on blocking domains than the old school French Hadopi bill which opts instead for the ‘punish your own customers’ approach.

Of course domain blocking itself is beset with challenges and moral dilemmas, but of the tools available to media companies domain blocking can make a pretty compelling case for being the best blend of effectiveness and consume friendliness.  After all, the aim of any piracy enforcement is not just to stop the activity but also to persuade illegal downloaders to become paying customers.  It is much easier to try to convert a file sharer who is getting frustrated not being able to find free unlicensed downloads than it is one who you have just taken to court and sued for damages.

There are however two key technical challenges surrounding domain blocking:

  • VPNs: Virtual Private Network (VPN) applications can enable a user to tunnel out of their ISPs’ network, bypassing domain filtering systems such as BT’s Cleanfeed system which will be used to implement the Pirate Bay ban. Although VPNs have well established legitimate business uses, a number of VPN providers, such as BT Guard, are positioning themselves explicitly as tools to evade piracy enforcement. VPN providers may become the next front in the war on piracy, with media companies likely to start subpoenaing their user activity logs.  Some providers have already started putting anonymity systems in place, such as not tracking IP addresses and deleting logs after 7 days.  Proxy servers – which can be used to circumvent domain filters – are another option, often used in conjunction with VPNs.
  • New domains: the most challenging aspect of domain filtering is keeping track of all the new domains.  Earlier this month in Belgium the Antwerp Court of Appeal imposed a Pirate Bay domain block on two Belgian ISPs, a band which covered 11 associated domains.  Within days the Pirate Bay had registered a new domain though that was swiftly added to the ruling and Belgian users now get this message if they try to access any of the Pirate Bay domains.  The Belgian example illustrates how easy it is for new domains to come into play.  Effective domain filtering is an iterative and continual process that can only work well with willing cooperation from ISPs.  Going to the High Court to secure a new ruling every time there is a new domain is simply not viable.

The aim of domain blocking, as with all piracy enforcement measures, is not to turn off the tap entirely but instead to make it so inconvenient for mass market consumers that the activity will become unappealing.  So the technical challenges need not be fatal flaws in domain filtering strategy if the net result irritating inconvenience for most users.

The Pirate Bay has had the unusual effect of creating a centralization of activity for decentralized file sharing.  As networks went decentralized to evade enforcement, the Pirate Bay pulled the Torrent diaspora together to create a nice big juicy target for media companies.  Removing the Pirate Bay from the UK web will have a significant impact on file sharing, at least in the short term.  There are only a handful of other public sites that index torrent files and have a working tracker, though there is a longer list of sites that have indices but not trackers.  If the music industry acts quickly and puts something new and compelling in place to capture the demand of frustrated Pirate Bay users then there is a strong chance that a host of new digital music customers can be won.  But that means a new generation of product.  The 99 cent download and 9.99 subscription have proven patently uninteresting to the majority of digital music consumers (by which I mean people who listen to music digitally and / or access it digitally).

The alternative is the risk of some of those users simply falling out of the music consumption arena (as appears to have happened in the US) with the rest soon being catered for by a host of new unlicensed alternatives filling the demand vacuum.

A carrot and stick approach is always going to be an evolving strategy.  But when the stick changes, so must the carrot.

Why the ‘Music As Free’ Argument Just Doesn’t Hold Water

Regular readers of this blog will know that I take a pretty hard line on the idea that music can ‘just be free’ and that I take a fair share of flak for my position  (see my previous post here for background).

Numerous sites, forums and discussion boards pride themselves on their ‘everything should be free stance’ and argue that only money grabbing cynical artists would ever take the side of record labels in the piracy debate.  This is patently not the case.  Last week’s statement on tackling piracy from a 100 UK artists illustrates that artists care about this.  They understand that if people stop buying their music and download it for free that they simply won’t be able to be professional musicians anymore.  I for one used to be a struggling recording artist, many years ago.  I never made enough money from music sales to give up the day job, but I would have loved to be able to.  Not so that I could be rich, but so that I could spend more time doing the thing I loved: making music.

It is easy to argue that if consumers want music for free that the industry will simply have to adapt and develop free business models. But we don’t like our favourite artists because they or their record labels are good business people.  If the music industry proves inflexible enough to adapt to a free model and many professional artists go back to their day jobs who has won?  If the music business (in whatever guise it may evolve – i.e. it doesn’t have to be record labels at the centre of it) locks into a race to the bottom, ultimately less money will filter back to the artists.  That means that fewer artists will get contracts, and artists will have shorter careers.  Many more aspiring artists than today will never make it out of their MySpace page or their day jobs.

One of the counter arguments used by commentators is that having a MySpace page is an ends in itself these days.  No, it is a means to an end, and the VAST majority of artists see it that way.  If an aspiring artist doesn’t get signed to a label / publisher / agent they’ll remain one of those many tens of thousands of artists struggling to stand out from the crowded pack on MySpace.

The majority of artists just want to play their music to their fans and to be able to make a living out of doing so.  Most artists with record deals won’t and don’t make much money out of it, but they get to do what they love, and we get to enjoy their music.  But that model breaks down if people stop paying for music, whether that be buying CDs, downloads, gig tickets, ring tones etc.  And yes, of course, ‘feels like free’ models can pick up the slack, but they won’t do the job on their own, and they certainly won’t do enough whilst illegal free services continue to dominate.

But rather than try to persuade you with my words alone, please take the time to read this blog post from an artist that just felt the impact of file sharing (note this was recently reprinted in the UK’s Guardian by UK Music).  This is the pain of a real life artist and reveals the fallacy of the music ‘must be free’ argument

PRS and YouTube Settle Their Differences

Finally, the PRS and YouTube have agreed a deal that ensures music videos will be back up on the site in the UK until 2012, following their licensing spat. (See my previous post for more details).  The only real surprise is that this took so long to happen.  It was patently in the interest of both parties to get the videos back up.

I’ve been asked a few times today who will be most happy with the deal. Given that both sides took very public, very strident positions in the debate, they were never going to make public details of a settlement.  By definition such an agreement would leave egg on the face of one or both parties.  But I would argue that YouTube needed this settling sooner rather than later.  In the age of Hulu and iPlayer, YouTube is no longer the same dynamic force of online video that it once was.  2 minute clips were the centre of the early days of online video, but full length TV shows are now the sweet spot.  YouTube is going through an identity crisis, where its core differentiated asset that it has left is music (and skateboarding dogs).   So music is more important to YouTube now than at any stage before.

And this makes YouTube highly important to the music industry.  Online music video consumption is now a core element of the digital music experience, and as an ends in itself rather than just as a discovery mechanism.  Which is what makes it ironic that the PRS could prevent the record labels utilizing the resource for a period of time.  Many people I have spoken to who are at companies that are outside the music industry are amazed that there can be such dysfunction on what should effectively be the same part of the equation.

The fact that YouTube got a single fee agreement rather than a fee per stream settlement is important.  This assigns YouTube a similar position as the BBC has in the UK.  In effect this is YouTube’s blanket license.  The downsides of this are:

  • No opportunity for the PRS to participate in any significant upturn in Youtube music activity over the mid term.  Though the settlement will include calculations around future growth, any bet on future activity is a gamble.  The flip side of this of course is that PRS secures guaranteed revenue and (depending on the payment schedule) bank deposit interest revenue.
  • The polarization of the streaming market.  Other on demand music providers will be wondering what it takes for them to get a blanket license rather than pay per stream.  Currently the likes of Spotify have the pain of every stream beinig cost to the bottom line.  The bigger their audience gets and the more they listen, the higher their costs.  YouTube is now partially immune to that dynamic (record label fees still need to be considered of course).  So does this set a precedent that if you’re big enough you get preferential treatment? And if so, what does that do to the dynamics of a competitive marketplace?

Future Business Models for the Pirate Bay and Historical Revenues

Yesterday evening I spoke with Hans Pandeya, CEO of Global Gaming Factory, the company that bought Pirate Bay.  I asked him a few specific questions about his plans for the Pirate Bay.

The plans revolve around building a new  peer-to-peer network from scratch, with a new application that uses smart peering technology to ensure bandwidth usage is as local as possible.   The intention is then to sell this localized peer based distribution capacity to ISPs (though I’m not quite sure why ISPs would buy back this bandwidth when it is theirs in the first place).

Mr Pandeya stressed his commitment to supporting rights holders’ interests and incentivizing users to download legal content.  The direct implication of incentivizing users of course is that they’ll get to chose from unlicensed content also, which suggests that the commitment to rights holders will fall far short of what they’ll need.

Besides likely rights holders problems, the other challenge will be to convince Pirate Bay users to download a new application to run on a new  and unproven network that at outset will have minimal content.

He also explained that he expects to generate strong ad revenues from the Pirate Bay website.  Yet the site, which he positions as a ‘search engine’ is a massive series of links to torrents which have been established in the Swedish court to contain extensive unlicensed content.  So either he removes these and loses his traffic, or he retains them and puts himself on a collision course with the rights owners.  Basically it looks like the Pirate Bay site could just be continuing as is with stronger and more robust financial backing.

My Pandeya was very bullish about the ad revenue potential of the site (though he insisted the peering business would be the main revenue source).  Based upon his calculations of Pirate Bay impressions and page views he expects the site to generate €40 million a month.   (FWIW those numbers feel high to me, but I’m not an online ad expert).  When I asked him what he though the Pirate Bay was currently earning he said he didn’t know because it had been ‘illegal’.  I found it hard to believe he will not have done the due diligence.  Indeed, to have such a strong sense of the inventory and audience of the site suggests he has in fact delved deeply.  So I pressed further, and eventually he said he thought that the Pirate Bay “probably” generated about €3 million a month in ad revenue, but that he “couldn’t know because it was illegal”.

Even if we say that Pirate Bay was earning a third of that, it still gives the site an annual income of €12 million, which doesn’t sit very well with the founders’ claims that it was not a strong revenue generator.  Indeed if you consider the upper end of Mr Pandeya’s estimates the Pirate Bay was a €66 million business.  Not shabby at all for a bunch of Robin Hoods, and far above the $1.2 million estimated in the trial.