In Conversation With Boinc’s Adam Kidron

Here is the video of my conversation yesterday with the CEO and founder of the forthcoming music service Boinc.  We discuss a number of things, including:

  • the state of digital music
  • Facebook’s potential impact on the space
  • reestablishing value in music
  • addressing the emerging market challenge

Adam also shares his vision for the music industry annd his concept of ‘creating an API around the entirity of music’.

Take a look and let me know your thoughts and comments.

‘Music As Free’ – What You Think

I’m going to do something I’ve never done before, I’m posting the highlights of the comments from a blog post.  The quality and the quantity of the comments was such that they deserve extra attention.  In fact the quantity is part of the reason I’m doing this summary: they added up to just under 8,000 words(!) so for those who don’t have the time to trawl through them all, this is for you.  For those who do have the time I heavily recommend reading them here

I’ll be writing up a follow up piece to my original post soon, addressing some of the recurring themes in the comments.

In the meantime, here are the comments.  I’ve tried to keep a balanced representation of opinion and they are largely chronological.  There are some real gems in there too.

———————————————————————————————————-

Your nostalgia for a golden past is wrong-headed because there was never a golden age in the first place, except for a small minority of superstars

———————————————————————————————————-

As an artist, it’s my choice whether to give my music away or try to force the common public to pay for it.

Do I deserve to be forced to? No.

———————————————————————————————————-

If everything is for free then how do artists make money. Why should art be free but not anything else?

———————————————————————————————————-

Music doesn’t have to be free to be fair to the consumer, it just needs to be sensible.

———————————————————————————————————-

A strange thing happened to me this morning. I had to get a new car battery and you know what? The guy from AAA wanted me to pay him for it!!! I said to him, “How are you gonna build any brand equity this way?!?! I finally caved in and paid the guy. Unbelievable!

———————————————————————————————————-

The profits labels experienced years ago were inflated….Those days are over…

———————————————————————————————————-

Record labels and artists are just as guilty as consumers for not being innovative and either going along with it blindly because the got a deal or because the same old prehistoric fat cats that have been exploiting artists for decades are still there and refuse to give up the excess they are used to.

———————————————————————————————————-

Not everyone fits the profile of an indie band. If every person on the planet wants to work for free, maybe the people in the music biz will join in. In the meantime, everyone needs to buy food, provide shelter, and take care of their families.

———————————————————————————————————-

It seems like the music business is disappointingly LAST to realise that giving something away for free isn’t the end of a relationship

———————————————————————————————————-

Composers and songwriters do not have “add-on services.” They do not have advertising revenue….not everyone fits the newcomer “indie band” model that can sell T-shirts and CDs at their next concert.

———————————————————————————————————-

$0.99 for a song is a ridiculously good deal for something you want, can keep forever and play on all your personal devices.

———————————————————————————————————-

Good tunes aside, everyone who wants my stuff for free should also want to pay – UPFRONT – for the cables, gear, time, talent, etc that went into the music they like.

———————————————————————————————————-

Q. EVERYBODY GETS PAID FOR WHAT THEY KNOW AND HOW THEY EXECUTE. WHY SHOULD MUSICIANS BE TREATED ANY DIFFERENTLY?

A. Because if people CAN pull it, they will.

———————————————————————————————————-

People are happy to pay McDonald’s, tobacco companies, and anyone else their hard-earned money to kill them slowly and break their bank, but to pay for something you enjoy, that does all of the things that art does for us, if you can steal it, why bother?

———————————————————————————————————-

Frankly, anyone should be happy to assign a reasonable value to the work of those responsible for creating the soundtrack of our lives. I know I do. The Music Business is indeed an incredibly tough one to survive. Thank goodness for those willing to stay the course.

———————————————————————————————————-

I believe piracy in general does the industry more good than bad and my livelihood will depend on this fact, since I’m getting in the music promotion business

———————————————————————————————————-

As far as giving away 200 digital copies online to sell 20 – that makes perfect sense to me – much more so than giving a plugger or publicist $2k!

———————————————————————————————————-

We are all learning. That’s why we’re blogging about this topic. But so far, I’ve only gleaned that you gotta be well established in order to devalue your main craft and make a living at it.

———————————————————————————————————-

I mean look, you believe free stuff is the way to go, too…
That’s cool if you pay my bills. When I can afford to be a philanthropist, I will.

———————————————————————————————————-

I’m not in favor of free music, but when it comes to 30-second snippets and other promotional tools (even a CD if a band WANTS to give it away), I believe they ought to be very, very free.

———————————————————————————————————-

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

http://blogs.myspace.com/index.cfm?fuseaction=blog.view&friendId=62653487&blogId=485944356

Why UK Artists are Taking a Strong Stance on Music Piracy

Yesterday 100 UK based musicians got together in a behind-closed-doors meeting to thrash out their differences and agree on a position on file sharing.  This was done in the context of a deadline next week for submissions to the UK government on suggested provisions for tackling file sharing.  It also comes in the week that Lilly Allen closed down her ‘anti-file sharing’ blog after just three days because of the vitriol that came her way as a direct result of starting it.

After a reportedly heated debate the artists agreed on a statement to “alert music lovers to the threat that illegal downloading presents to our industry” and voted to support a plan to send two warning letters to file-sharers before restricting their broadband speeds that would “render sharing of media files impractical while leaving basic e-mail and web access functional”.  There is obviously a distance between this position and the record label position of termination of access on the third strike, but it still represents a massive change in artist opinion.  Compare and contrast with Travis’ Fran Healy stating that file sharing was ‘brilliant’ back in 2003, hot on the heels of Robbie Williams having said it was ‘great’ earlier in the same year.  (It’s worth noting that the Featured Artist Coalition of which Williams is a member was a part of this week’s meeting).

So what’s changed?  The decline in music sales can now be seen as a fundamental market realignment rather than the blip it looked like at the turn of the century and artists are beginning to get worried.  Many might not have seen much money from their labels once costs had been recouped but they recognize the marketing and talent development value that labels bring and that without them they wouldn’t be able to sell as many gig tickets or t-shirts.

It worth keeping a sense of perspective on this though.  Are we to believe that these 100 artists suddenly coalesced around this issue just as their paymaster record labels are nearing a pivotal stage of their lobbying efforts?  Probably not.  Also Radiohead’s Ed O’Brien said that the meeting got “quite emotional” and “a little heated at times” which suggests that there was strong diversity of opinion and that this statement is not a definitive representation of all artist opinion.

However, the fact remains that these 100 artists did attend and did bury their differences to deliver a powerful compromise statement at first time of asking.  This illustrates their collective recognition of the urgency and seriousness of the situation.  So even though artists and record labels will always have differences of opinions and agendas, they’re beginning to recognize that they have a lot of common ground. Together they can start to educate the marketplace that music cannot just be free.  Somebody somewhere has to pay else the investment in artists ultimately dries up.  It’s easy for a file sharer to say that music should be free and that labels and artists and labels are greedy, just in the same way it’s easy for a burglar to say that the owners of a nice house are greedy once he’s stolen from it.

A wholesale revision of music business models and practices is both necessary and is beginning to happen, but that is not an excuse to allow file sharing to go unchecked until that process has run its course.  Of course compelling and differentiated legal services are the best way to fight piracy, but there also needs to be a clear legal framework and, even more importantly, a shift in consumer mindset.  Most file sharers wouldn’t dream of stealing a CD from a music shop, but don’t hesitate to download tracks via BitTorrent.

If this shift towards artists being seen to take a stance against file sharing helps to start the requisite change in mindset then that will be a true achievement, more so than if they influence the legislative process.

Monkeying Around With Mobile Music (Updated)

Today the triumvirate of Universal Music, UK broadcaster Channel 4 and UK mobile operator Orange announced a Pay As You Go (PAYG) mobile music service called Monkey.  The service is aimed squarely at younger consumers, which matches the demographic of PAYG users and Channel 4’s audience.  The underlying principle of the service is that it has a low barrier to entry: it utilizes the voice network rather than data network and is thus available across all handsets and does not require any application download.  Instead consumers simply dial 247 to listen to playlists streamed at 64 kbps.  Most of the more sophisticated behaviour, such as playlist creation, music discovery etc., is expected to happen online, using a cloud based player, where tracks will be streamed at 128 kbps.  Playlists can also be shared using widgets for major social networks and via text.

So what impact is this offering likely to have?  It’s clearly aimed at enticing young consumers away from file sharing and the positioning point is effectively ‘free music when you top up your phone’.  I think there is a risk of worst of both worlds here.  Firstly, I don’t buy into the argument that streaming reduces file sharing penetration.  It may cause file sharers to download less from P2P networks, but it’s unlikely to entice them away from them as they’ll still want music for their MP3 player, to burn onto CD for their friends etc.  Granted, Monkey steps closer to being a replacement in that it has a portability story (of sorts) and it has a sharing story (of sorts).  But it doesn’t provide true portability (what do you do when you’re underground for example) and it only offers partial catalogue.

The killer point though is that it uses voice minutes and the cost of calls is 20p per minute.  So it will cost about 70p to listen to a single and an entire 10 pound top up will give you about 1 album and no time left for talking.  So consumers are paying the same amount as an iTunes single download (even more for an album) but only getting a low quality analogue audio stream.  (And what happens when somebody wants to call them when they’re listening over the voice line?)

*Orange just called me to clarify their press release.  The press release reads:

  • “Monkey customers can access the service on their phones by dialling [sic] 247.”
    and
  • “Calls cost 20p per minute”

However, following my phone call from Orange it transpires that the per minute pricing applies to voice only and not music calls, even though this isn’t actually explained in the release.

Also another interesting detail emerges: the service is actually a limited mobile music service, not an unlimited mobile music subscription, hence the careful use of the term ‘access to music’ in the release.  Customers are only allowed to listen to 600 minutes of music per month on their phone (again not in the release), which translates into 14 albums.  If you take a 30 pounds top up, that then translates into 2 pounds ten per album listen, so if you listen to an album, say 3 times in a month, that’s 6.30 an album.  Which isn’t far off the cost of a standard album, but of course you don’t get to keep it after you’ve finished listening . The ‘3 listens’ cost drops to 4.20 for a 20 pound top up, 2.10 if you just take a 10 pound top up.  So still far from free, even though they’re being told it’s ‘free’ music,  which in turn reinforces conceptions that music is a free commodity (thus further undermining perceived values of music).

The additional fact that Universal will make some releases available here before anywhere else is a brave move and underlines the major’s persistently adventurous product innovation.  It will certainly be a key asset for demonstrating consumer value, but it will need careful positioning alongside premium products.  How, for example, would a high-end 15 pounds a month subscriber to Virgin’s unlimited MP3 subscription service (also in conjunction with UMG) feel if they realized they were getting new releases after the lower end Monkey customers were?

The other interesting sub text here is the underwhelming success of Comes With Music (Universal and Orange are both key UK partners for Nokia).   Is this picking up where CWM has failed to do so?  As I’ve stated here many times before, I am a firm believer in the CWM model and I believe it is the best tool that the music industry currently has for fighting piracy.  It is a genuinely compelling alternative to file sharing as it has a viable portability and ownership story.  Unfortunately it’s been hindered by channel issues, marketing problems and limited consumer awareness and understanding.

When I asked how Monkey would be positioned alongside CWM, UMG’s Rob Wells said Monkey was aimed more at younger, lower end consumers and Orange’s Pippa Dunn said that Monkey was for PAYG customers whilst CWM was for subscription customers.  Orange’s positioning is clean and elegant, but it’s a shame that CWM is effectively being marginalized as a high-end proposition.  That is not its sweet spot. Indeed the strong CWM association with the 5800 illustrates Nokia’s understanding that CWM is best positioned at younger, lower spending consumers and that it does not stand up as well when held up against higher end digital music offerings.  Also, from a broader music industry perspective CWM needs to be reaching younger consumers.  I hope Monkey doesn’t distract from that.

Sicilian Musings

I’m currently on holiday in Taormina in Sicily for a couple of weeks and though I come here every year (my wife is Sicilian) I never cease to be amazed by just how different the profile of technology adoption is here compared to northern Europe.  Just trying to get online over the last couple of weeks has been a case in point.

I had a few pressing work tasks which I needed to do during my stay so I ensured I was well stocked up with credit on my USB modem.  Unfortunately the Italian network of my UK mobile operator didn’t seem to have read the script about discounted international data roaming fees and I managed to burn through 35 pounds of credit in 2 and a half days (which included 3 extended ‘help’ line calls – I use the term ‘help’ in the loosest possible sense – and getting a relative to buy more credit in the UK).  The fact that the download speed made a 56k modem look like Fiber just added to the pain.  Unlike my friends and family in northern Italy, the majority in Sicily don’t have home Internet connections so I have to resort to Internet cafés, the majority of which share one sub standard connection between a couple of dozen computers.  However this year I needed to connect my laptop directly and my normal Internet café of choice wouldn’t let me plug in my laptop directly.  Finally, I found one with Wi-Fi (just arrived this year) and got online.

It really shouldn’t be this difficult just to get online in the 2009.  Which got me thinking about the implications of these sort of technology hurdles on European digital content strategies. Taormina is no decrepit backwater, it’s a sophisticated and prosperous town, but the Internet just doesn’t feature that highly in most people’s priorities here.  Life functions perfectly well without it.  And sure, the Italians love their mobiles, but most of the people I know here use their phones to talk and text, not to download digital content.

So how do you reach would-be digital content buyers here?  You might argue that they don’t need to, that they’re still buying CDs and DVDs.  I’m afraid that not many people I know here buy much music anymore.  There are a couple of hardcore aficionados who I normally rely on for tips for new sounds, but even one of those (who’s actually an ex-minor Italian pop star) has stopped buying CDs.  Where’s he getting his music from?  He’s one of the few who has broadband at home and he got it mainly to download music and video from file sharing networks.  So file sharing plays the familiar role of the killer app for driving broadband adoption.

None of this is new of course, Europe is a diverse region of technology adoption, but what my experiences here have reminded me of is that headline figures about technology adoption hide the fact that sub regional adoption trends vary massively.  It’s all well and good saying that Italian broadband penetration is x%, but what is more important to understand is how adoption varies between Milan and towns in the south.  It’s simply not realistic to expect consumers in so many areas of Europe to be ready yet for paying for digital content.  They are however, easy and quick converts to file sharing.  We could debate the pros and cons of that equation, but it’s a fact.  Better to spend the time deploying compelling free and ad supported services which are genuine immediate alternatives to illegal downloading.

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.

Why Would Anyone Buy the Pirate Bay?

A small Swedish company Global Gaming Factory today announced the acquisition of the Pirate Bay.  The acquisition poses far more questions than it does answers.

The acquisition was for $7.7 million, which the founders described as “great bit underneath its value”.  Which is kind of interesting considering that they argued strongly in court that the Pirate Bay was not a cash cow.  Of course the fee neatly covers the fines $3.6 million handed out in the trial with over $4 million on top.  And it comes hot on the heels of the ‘bias’ claim against the judge being thrown out and the bid for a retrial being refused.  It isn’t clear whether GGF have acquired the liabilities of the Pirate Bay.  (When Roxio bought the assets of Napster it pointedly left the liabilities with Bertelsmann who then went on to face settlement fees with major record labels.)

GGF claim that they intend to launch “new business models that allow compensation to the content providers and copyright owners.”  This appears to involve some sort of supra-distribution model and GGF are at pains to stress they intend to compensate copyright owners.  Of course it is one thing to argue this and another to do it.  Normally in such situations there is a massive gulf between content owners’ valuation of their own content and that of software companies seeking to build business around it.  Also why buy a site that is diametrically opposed to copyright if you want to build a service which upholds copyright?

The history of file sharing networks and sites ‘going legit’ isn’t exactly a vibrant one:

  • Napster sold its brand and mailing list to Roxio.  As a file sharing network it peaked at over 20 million users, as a subscription service it has less than 5% of that.  And really the new business has nothing to do with the old one, nor its user base.
  • Grokster closed down in 2005 following legal action, stating that it would be back ‘soon’ with a legal alternative.  We’re still waiting.
  • iMesh re-launched, again after legal action, as a licensed service, with modest success.
  • Kazaa owners Sharman Networks settled with the music industry $100 million including provisions for launching a legal music service, which we still haven’t seen any sight of.

The trend is clear, and in many ways it is important that the message is clear that you do not get to the content licensing table by building an audience with unlicensed content.  (Though to be fair imeem did push the boundaries).

So why have GGF bought Pirate Bay?  All that Pirate Bay is is a list of locations of files.  It’s not a network, it doesn’t have content per se.  But it does have an audience. If they at some stage want to launch a licensed music service they have a number of problems:

  • I can’t see them getting licenses from the majors for a file sharing service (Play Louder have been admirably fighting this battle with little success for years)
  • If they do get licenses for some other form of music service they’re unlikely to be able to monetize that successfully with advertising given the current malaise that ad supported content finds itself in.  Not to mention the fact that Pirate Bay users are not the most attractive audience for many advertisers.
  • If they intend to charge they’ll have a minimal conversion ratio: Pirate Bay users are there for finding free content, plain and simple.

So what other revenue models are left?  There are a number of possibilities:

  • GGF’s CEO is doing this as a philanthropic act because he believes in the cause.  Though he asserts that he sees this as a viable business proposition.
  • Pirate Bay has other (cash?) assets that were not revealed in the court case.  The experience of Sharman Networks shows us that owners of file sharing properties tend to have incredibly opaque and convoluted business structure to obscure accountability and ownership.  I have no evidence that this is the case with Pirate Bay, instead I’m simply making the case that this has happened before elsewhere.
  • The last, and probably the most likely, option is that GGF will launch an adware business, building a client that tracks users’ behaviour and serves up ads based on context and behaviour, typically superimposed on publishers’ inventory.  This pretty much the Kazaa model.  The fact GGF have additionally bought a peer-to-peer technology company Peerilism points to this also, as does their current internet café ad business model.  The big issue here is around whether the application will run on other networks or a proprietary one.  If it is the former they simply won’t be able to meet content owners’ requirements and if it is the latter, do they really intend to block out all non-licensed content.

Returning to where I started, this acquisition leaves a lot more questions than it does answers.  The only thing that is clear is that the Pirate Bay owners, despite claiming to be modern day Robin Hoods have now become multi-millionaires, making them more like the rich Sheriff of Nottingham than the swashbuckling archer.

Three Strikes: Two Strikes Out and Counting…

Today the French Constitutional Court threw out the controversial Hadopi bill, better known as the ‘Three Strikes’ bill due to the provisions for terminating Internet accounts of repeat file sharers.  The bill already fell at the first hurdle of the Parliamentary vote, requiring a redraft and revote.  Now with this development you could say it’s Two Strikes Out and counting for the Three Strikes bill.

This isn’t the end of the road by any means.  In fact there’s every chance it will end up implemented….some time.  And there’s the rub.  By the time this bill has cleared the successive challenges of domestic legislature, domestic courts, European legislature, European courts etc. the very nature of online piracy is likely to have morphed to such a degree that the Hadopi provisions could be left looking hopelessly outdated and insufficient.  This is in microcosm the history of file sharing: every time the industry finally catches up with file sharing via courts and legislation the problem has moved on.  This was exactly the process with Napster and Kazaa.

The danger with relying upon legislation and the courts to drive your business ends is that you lose control and become subject to others’ priorities and agendas, which are not always complementary to your own.  The bottom line is that it is always preferable to solve business problems with business solutions.  It is in the interests of music companies and ISPs alike to reach commercial solutions to their common-interest problems.

At last week’s Music Week conference the then Culture Secretary Andy Burnham (who is now tackling NHS waiting lists as Health Secretary) advised the labels not to rely up government to do their work, but to find common ground with the ISPs and push ahead with solutions.  His exact words were:

Don’t wait for the heavy hand of legislation, just do it.

The experience of the much maligned Hadopi bill to date is evidence that legislation alone cannot be relied upon to solve the problem.  It simply isn’t agile enough.  I will say that there remains a strong case for revising legislation to better protect intellectual property in the digital age.  So the legislative process is important, but it should be the foundation and the framework for commercial solutions, not instead of them.

Making Online Music Pay – Round Up

Firstly let me apologize for not having posted for a while on here, and thanks to the messages and emails from those prompting me to get posting again.  I’ve been snowed under with project work but normal service will now resume!

Today I ran a series of panels (well, a succession of thinly disguised vendor presentations) at Music Week’s Making Online Music Pay conference in London.  Here are my highlights of the day.

First up was Andy Burnham, the UK Secretary for Culture, Media and Sport.  I have to say I was really impressed by him, he came across as a genuine guy with a real interest in and understanding of the media business.  His speech was a master class in how to land a series of killer punches by nuanced implication.  He was keenly aware that the audience was hoping for some pointers on what the final Digital Britain report is going to look like.  He said he wasn’t going to be able to do so, but went on to give some pretty solid indications, largely by ruling out what wouldn’t be there.

He built up a case for broadband access being comparable to water and electricity as a basic necessity of modern day existence and cited his ideological belief that access to information was key to enabling the right of equality of opportunity.  So it was no surprise that he then explained he didn’t believe that the graduated response or ‘Three Strikes Approach’ would work, that it was “too abrupt” and that “you don’t go straight to a solution that cuts people off.”

But just as the head of the ISP association guy started to visibly lift and the shoulders of the label execs sag, he delivered this:

“One option we are considering is giving Ofcom (the telecoms regulator) reserve powers to compel ISPs to apply technical measures to limit and restrict activity [of file sharers]”,

So in short, ‘Three Strikes You’re Out’ is, well, out, and ‘Speed Bumps’ are in.

As with any good compromise both sides will doubtlessly be dissatisfied with the solution, but my first instinct is that this is a workable, realistic, solution that should deliver results.  Assuming of course (and this is crucial) that these measures are backed up with compelling legal services for the ISPs.  The BPI’s Geoff Taylor suggested that ISPs may be able to get compensated for converting file sharers to legal services.  This is innovative thinking that shows understanding of the need for their to be meat in the game for the ISPs (who when it comes down to it are facing a similar race to the bottom as the labels are).  Here’s a left field thought (well, wild hypothesizing): Spotify’s long term future road map incorporates MP3s and the viability of the business model is defined by becoming part of subsidized ISP bundles.  Just a thought….

Back to the real world and Andy Burnham.  He made an apparently harmless well meaning comment that the debate needs to be “internationalized” and that “we need to find the right balance and then internationalize that”.  Which is all well and good, but when coupled with his comments about graduated responses effectively dismisses the recently pass French ‘Three Strikes’ legislation as bunkum.  What we might be seeing here is the start of a political digital face-off between France and the UK.  France used its Presidency of the EU to drive the debate on defining European policy on ‘creative content’ in the digital arena.  It looks like the UK government might be planning to use the “Digital Britain” report as a blueprint for a “Digital Europe”….and perhaps beyond.

Geoff Taylor also asked Andy Burnham whether the government was still committed to reducing music file sharing by 70-80% within 3 years, now that we’re 1 year into that commitment.  The response was that the government would absolutely “not retreat”.  Something pretty drastic is going to have to happen in the next 24 months to deliver those results.  More realistically the government will change and targets with it.

The following panel took the discussion a bit farther though back within the more familiar realms of debate that have characterized the MOU-related process.  The Music Publishers Association’s Stephen Navin was nothing short of hilarious (though insightful also).  He delivered my favourite quote of the day (in the context of device manufacturers and digital content:

“The fine wines of Bordeaux are not just content for the glass manufacturers.”

He also highlighted the different state of affairs for the music publishing business compared to that of the record labels, expressing his continual surprise at

“spending 95% of our time making 5% of our business pay.  The business of making music available is still a buoyant world.”

In my first panel we had representatives of many of the current bright hopes of digital music (Spotify, Last.FM, We7, 7Digital).  Though each of the ad supported guys tried to paint a bright picture for the rude health of ad supported, they each in fact highlighted its failings, albeit unwillingly and by implication rather than directly.  For example Last.FM talked about the hundreds of markets which had now become subscription markets i.e. the ad supported business just didn’t work in those territories.  When I pressed on this issue Last.FM’s Miles Lewis cited the example of Poland, which had accounted for about 10% of their streams but where the “online ad market was worth about three pence” and the affiliate market even less.  When I asked whether this was a short term necessity or long term strategic shift he said that it was likely to be the latter unless the online ad market suddenly exploded.  Similarly Spotify’s Paul Brown emphasized the importance of their premium models succeeding and spoke about the mobile offering which will likely include 30 minute stream caching.  (Which by the way I’ll be interested to see if they can convince rights holders that this should be considered as stream rather than a download.)

Joining the dots, the consensus from those right in the mix is that the dynamics of ad supported digital music still need further revision if this second wave of ad supported services isn’t to go the same way of Spiral Frog.

I had a few people come up to me and question why I hadn’t given my panelists a harder time with more probing questions.  They had a point.  On reflection perhaps I’m feeling empathy for them in these difficult times? Either way, that’s no excuse.  I’ll be back to my old probing ways at the next conference. Thanks for putting me back on course!

Oh, and Apple hardly got a mention….even though they account for 75%+ of online digital revenues….times are a changing.