The Digital Lowdown

Interview with Voice of the Brand

Here's a recent phone interview that I did with Seth Adler from Voice of the Brand:

Listen to Interview

Hope you enjoy this.

Clouds, Streams, A La Carte: And The Winner Is…

About six years years ago, David Goldberg (then GM of Yahoo Music) made a pronouncement that a la carte downloads were dead.  Yahoo Music was the purveyor of a very ambitious music subscription service that has been gone for almost 4 years.   At the time (circa ~2006)  iTunes was advancing incredibly fast and proving itself to be the dominant online music retailer.   The term “cloud computing” was not a common phrase (note:  the first occurrence of “cloud computing” is arguably August 2006 by Eric Schmidt of Google).  Spotify was just a dream.  Rhapsody was going strong.  Napster had launched its legal subscription service to great hoopla but slow adoption. Though I seriously questioned David’s pronouncement back in 2006, I find myself re-examining it in light of all the “cloud” and subscription services now being offered.

As everyone knows, the general debate in the music business is “access vs. ownership.”  The major prediction is that users are not going to want to purchase music as long as they have unfettered and unrestricted access to it.  Such access can be in the form of the cloud that let’s you play your music from any connected device.  It can also be in the form of an “all you can eat” subscription service that hopefully has all the music that you want to hear.

First, what is “The Cloud.” This was formerly (and fondly) referred to as the celestial jukebox.  It refers to services that allow you to access all of your music from any device wherever you have Internet access (i.e., either thru wireless, wired or wi-fi).  Cloud services are offered by major music retailers such as Apple, Google, Amazon, etc.  They can also be offered by third party services such as the beleaguered MP3tunes.com.  In most cases, they will learn/upload your offline music catalog and then offer it back to you via an Internet connection. 

Aside from ubiquitous access to all of your music regardless of your device’s storage, a major advantage of the cloud approach is that most of these services include applying a uniform, upgrade in audio quality.  For example, if you ripped some tracks from a CD at a lower bit rate (to reduce the size of the file), most cloud services will match it to a higher quality version on their servers and play it back at the higher rate and better quality. 

Since a cloud service relies on having an offline music collection that you want to access anywhere or any time, it can be considered a derivative of the a la carte method of consumption.

Opposed to this are streaming and subscription services that try to get the largest catalog possible so that you can always find the music you want.  They need to strike deals with as many labels and distributors as possible in order to ensure that a listener always finds the music they want.  While most streaming services have done very well, there have been some very public gaps in coverage for freemium services such as Spotify.  It’s quite possible for an artist to be one service and not on another. 

I have to agree that both offer a tremendous value to the music consumer.  Personally, I enjoy checking out a new artist by visiting Rhapsody, Rdio or Spotify.  It is highly unlikely that any new artist will not be found on one of these services.  I can easily listen to entire albums or “best of” playlists while I am discovering new music (or, at least, new music to me).    Then, if I want to permanently add it to my collection, I can choose to buy it from these services or switch to dedicated a la carte service like iTunes, Amazon or eMusic.

On the other hand, as a music distributor, I often have a ton of unreleased music in my music collection.  With a cloud service, I can access all of this content (provided that it is not encoded as a wav or aiff file) when I am away from my computer.  This is incredibly useful for me.  It allows me to be completely spontaneous about my listening habits. 

So what is a music lover supposed to do?  The cloud or the stream. 

As I ponder this question, not only do I have the famous Clash song “Should I Stay...” stuck in my head, I wonder what the average music consumer does.  It is very easy on both coasts to forget about middle America where broadband is still nowhere close to 100%, where CDs are still being sold and where “subscription” or “clouds” are more associated with Sports Illustrated and weather reports.

Adding to my growing befuddlement are recent statistics showing that a la carte purchases are not dead.  Recently Digital Music News had a great chart culled from RIAA data. 

(source:  Digital Music News)

Adoption of subscription services are definitely rising albeit slowly.  A la carte sales continue to rise steadily even though subscription services could easily be presented as a much more bang for the buck.  As you might imply from this chart, streaming and subscription revenues have not caught up with the a la carte revenues.  Certainly, they have become a significant percentage of income for distributors such as BFM.  However, in comparison, a la carte revenues are still the predominant revenue stream by far.

One thing that I find troubling is that that even Internet juggernauts such as Sony, Yahoo and Microsoft have all had great difficulties launching and sustaining subscription services.  Microsoft’s Zune seems to be making progress lately.  But it may not be enough.

The greatest concern about streaming and subscription services is that may cannibalize download sales without replacing the lost income.  To date, several prominent labels and distributors (BFM included) have analyzed the data.  All of the analyses indicate that this is not happening.  Subscription and streaming services are proving to be additional income to the still-growing permanent download market.

Spotify has been the only one to have moved the meter, in my opinion.  And still, it’s not a terribly significant portion of the overall music revenue.  It is questionable if business models like Spotify can be sustainable in the long term.

A recent eMusic / AIM study conducted in the UK produced some intriguing stats.  87% of those surveyed still preferred the ownership model versus the streaming model.  The reason being that there is still great doubt about the stability of streaming services and music consumers are worried that their virtual music library could suddenly vanish if the streaming company goes out of business.

So, can subscription services beat a la carte downloads or, even, The Cloud?  Who will prevail?

To me, the answer is simple…No and no one.  Different strokes for different folks and some of the folks may use both.  To think that the bulk of consumers will substantially go one way or another is highly unlikely.  If you look around, there are plenty of examples of polarized opposites.  A few come immediately to mind:  car leasing vs owning, free vs. pay TV, VOD vs. movie theaters, monthly subscriptions vs. annual fees, etc.

The music business may be headed for a predominantly digital world.  But that does not obviate the need for a wide variety of consumer options that can exist concurrently.  In my personal world, I love the combination of a la carte, subscription and cloud services.  Together they fit a need that, individually, would leave gaping holes. 

 

Pride of Discovery vs. Pride of Ownership

I am not sure why I felt inclined to rediscover one of my favorite bands, Styx.  Of course "Come Sail Away" is a perennial favorite of classic rock stations.  But I can't recall the last time that I intentionally listened to one of their albums.  Last night, I listen to "Grand Illusion" from start to end and loved every minute.  For those of you a bit younger than me, Styx was one of the most successful progressive rock bands of the late 70's and early 80's.  They had four, triple platinum albums in a row!!  Although I am sure that there are some other superstar artists that have had this accomplishment.  I am quite confident that it is a very elite club.     

Aside from the excellent music (all done without the aid of computers, sequencers or autotune!), I was reminded of when I purchased this album.  As with most of my other record buys, it was stimulated either by radio play or friend recommendations.  Occasionally, a record store clerk would suggest a new artist or release.  But, generally speaking, I already knew what I wanted when I entered the record store. 

As we all know, the overall music business has shrunk drastically.  Digital downloads have not replaced the decline of CD sales and subscription services have failed to be the savior everyone has predicted they would be.  Online radio and music discovery services like Spotify, Pandora, etc are ubiquitous now.  But their revenue streams are still not able to sustain the music industry.   I know that many music pundits, much smarter than me, have written volumes explaining the lack of music sales.  After listening to Styx and remembering my old buying habits, it suddenly became clearer to me what happened.

The one thing that has not changed since my youth is the "pride of discovery".  To discover a new band or some new music was as much a marker of coolness as it is today.  Back then, we shared our musical discoveries with cassette tapes or listening parties or just one-on-one.  Today, we share our discoveries with playlists, blogs, and other cool tools like the new "soundtrack your life".  Helping expose your friends (and, now, friends of friends of friends) to great music is real sense of accomplishment.  I'm not sure exactly why.  But it always feels great to know that someone else is enjoying music you helped them to discover. 

The biggest difference between then and now is not the "pride of discovery".  It's the "pride of ownership".  Back then, in order to share any music, you had to own it.  That is, you had to go down to the store and actually buy a physical product.  You could make a copy of a cassette loaned to you.  But after a few generations, these copies would be unlistenable.  So eventually, you bought the album.  It was only after making such a purchase that you could then fully enjoy the music as well as showing your friends how cool you are.

Today, there is no requirement to buy anything in order to show how wonderful your musical tastes are.  You can blog about new albums (as some of my staff do).  You can create and share playlists.  You can share Pandora stations.  You can send links to full length streams in Soundcloud.  You can repost music videos from Youtube.  The methods are many and practically endless.

The one common theme here is that none of these techniques require any purchases.  In other words, there is no longer any need for a "pride of ownership."  I think that the desire to find and share great music is no less than it was 30 years ago.  The only thing that has changed is that the requirement to buy music before you expose others to it has disappeared.  The entire music industry has been struggling for the past fifteen years to figure out how recapture the pride of ownership.  So far, it has not succeeded.  

I'd like to challenge my readership to share your buying habits and, possibly, that of your kids:

1)  What was the last album that you bought?

2)  What format was it (e.g., CD, digital, 8-track, etc.)?

3)  When did you buy it?

4)  Why did you buy it?

Please post your answers in the comments section and let's see what develops.

 

Is the Cloud Good or Bad?

Two days ago my mother texted me (yes, texting is not reserved for just kids).  She just read a New York Times article about iTunes' new cloud service. Her question was whether the cloud would hurt my business.  I have received this question from many other people including my business partner, employees, and label partners. There has been an amazing amount of chatter on the various blogs and user groups.  In fact, I don't recall another subject in the past couple of years that has stimulated so much discussion.  I dont want to argue the merits of any of their business models (e.g., iTunes' music match). That is too much speculation.  But after a week of reading all of the entries that I can, I feel it is time for me to cast my opinion on the general impact of these new services into the blogosphere.

First, let me share a very nice summary of the big three cloud services from Appolocious:  Click Here

So, now my answer to the Ultimate Question (and it is not going to be "42") of whether the cloud is good or bad for us?

Probably not.

This may sound like an obfuscation.  But it's a serious answer.  I really don't think that any of the cloud services will make much of a difference to the income of most labels.  All of the cloud services are not much more than a glorified hosting service for music that you either already have or purchase from the respective service. They are not going to replace any of the existing subscription or music recommendation services because cloud services don't supply a comparable product.

It is plausible that the cloud services may stimulate purchases of a la carte music because each of the services makes it so easy to put those purchases in your respective cloud accounts.  But their effect will be hard to predict.

It's quite possible that the big winner might be the music publishers. That is so because their share of the cloud revenue is higher than their share of downloads (12% vs. 9%).

In the end, I think that most of the talk aboutnthe cloud is hype.  It will likely be a cool way of accessing your music and seems to be a nice step in the direction of music industry's Holy Grail of a celestial jukebox.  But, I'm sorry to come to the following nebulous conclusion that I really don't think that the cloud services will greatly change the buying habits of the typical music user one way or the other. It makes for fun reading, though.

Who Moved My Cheese?

I've been talking with a lot of professional musicians and artists lately.  A common theme is the increased difficulties in making a living thru one's music.  We live in a time of economic stress, disruptive technology and changing valuations of music.  It combines to make today one of the most challenging times during for artists of all levels.

Most people don't realize that It really wasn't until the time of Beethoven that the idea of an independent, musician took hold.  Before that, most composers and musicians were "on staff" by royalty, aristocrats, or other patrons.  In essence, they had a steady day gig.  

Today, it's unreasonable to expect to make a living merely by selling music.  The game has changed.  This is both a good and a bad thing.  Even though it appears that music as a product is becoming devalued, there are many other ways to generate income.  

Digital Music News ran a great article on the many ways to make money with your music:  32 Ways Artists Can Make Money

So what does this have to do with cheese?  Well, one of the best selling business books of all time is "Who Moved My Cheese?"  It's all about the necessity of adapting to changes in revenue sources.  It's a must read for every musician, artist, and label owner. It's a thin book that you can easily read in one session.  

 Who Moved My Cheese?

So, if someone has moved your cheese, get up and move with it.  The alternative is that you will go hungry.

Great Article about Mastering Music

I've often been at a loss of words to adequately describe the mastering process to the uninitiated.  More specifically, it's hard for many to understand why some mastering engineers charge $100's per hour and others do not.  After all, it's only a compressor and some EQ, right?

I found an article in the latest Music Connection (www.musicconnection.com).  Their recent issue was dedicated to all things "mastering".  Aside from a great resource of mastering studios (of which, there are many!), there was a wonderfully succinct description of what mastering is all about.  It was so good, that I thought I'd share it with everyone.

You can view their current issue as a digital magazine here  digital edition.  Just go to page 52 for the article.  Or you can click on the below image.

 

How's Biz?

Today, my friend and attorney, sent me a recent blog entry from Seth Godin (a fellow typepad blogger): Is Everything Perfect?  It's a great blog entry about positive thinking.  It reminded me of a habit I used to have and somehow stopped.

When I was forced into entrepreneurship in 2001 and I didn't have much business, people would always ask me "how's biz?"  My response was the intentionally vague answer: "Unbelievable!"  Almost without fail, the person would interpret this as a positive statement.  I can't even recall one time that someone asked me to clarify if this meant "unbelievably bad" or "unbelievably good".  Sometimes, they might say, "Really?" to which I would reply, "Absolutely!"  That would certainly be the end of the query and the inquirer would leave with a very positive view of my business.

I never felt deceitful with this strategy.  I was relying on one simple rule:

     People want to work with successful people.

Getting your first client or gig is always a chicken and egg scenario.  The bottom line is the if you appear to be desirable to one client, then the next client is going to assume that you have some value or merit.  (Perhaps that is why some guys wear a wedding ring to make other women believe that at least one woman found something redeeming enough to marry them.)  That's why new businesses often do freebies at first just to build a bit of a track record.  Success breeds success.  Everyone knows that.

I have been blessed with the ability to actually say that biz is good and that it's growing.  But I'm still going to go back to "Unbelievable!"  It sounds more exciting and optimistic even to me.  Give it a try and let me know what happens.  

The Beatles Decide to Ditch iTunes

Maybe...maybe not.  ALmost two years ago, I wrote a blog about the impact of The Beatles catalog going online. Every six months for the past several years, there have been rumors about when you can download "Let It Be" (by the Beatles, of course).  I have to admit that at that time, I still had a few LPs that I had not replaced with a CD. So I might have been enticed to purchase some Beatles tracks.

9/9/09, the release of the Beatles version Rock Band, and the re-mastered CDs, was a strong contender for seeing The Beatles go on iTunes.  It came and went.  No iTunes.

Now I am wondering if Apple Corps missed the window of opportunity.  

Most people can easily rip a CD into their computer.  It used to be a complicated task to do this.  Many people bought a track from iTunes that they already had on a CD just to avoid ripping it. 

Today, it couldn't be easier.  All the song information is filled in automatically and the music files are nicely organized on your computer.

Further, if Beatles fans didn't already have every album on CD in 2003, the re-released masters will surely fill in any gaps.

Apple Corps may be correct in withholding their tracks from the digital services.  How much more money do they really need to make?  Yet, The Beatles are seen as the Golden Grail and most everyone expects that they will make digital sales skyrocket.  

I think that it will be an exciting moment when you can buy The Beatles online.  But I don't think it will change anyone's life, including Ringo Starr, Paul McCartney, yours or mine.

(If anyone noticed, I made it thru this whole blog without saying "Money can't buy you love" more than once.)

What is the Value of Music?

As I sit down to write this current column, I am reminded of one that I wrote about 9 months ago called "Does Music Have Value?"  That entry discussed the intrinsic value of music as a retail product versus a marketing tool.  Today, I want to address a different aspect of "value" by precisely rephrasing the question as "what is the value of music?"  

We all have seen the ubiquitous television commercials for MasterCard (i.e., "priceless" is the tag line). Obviously, this does not apply when it comes to spending one's hard earned money on various forms of entertainment.  More often, consumers are being forced to evaluate where they get the most value for their entertainment dollars.  This got me to thinking of an EROI - "Entertainment Return On Investment".  There are many different ways to buy entertainment.  For brevity's sake, let's limit it to a few of the most common:  movies, CDs, DVDs, live music, music downloads.  

What is the EROI of each of these items?  As a mere form of experimentation, let's define EROI as a ratio of experiential hours divided by the cost in dollars.

Movies (EROI = 0.13):  Take the two hours of an average movie experience (including trailers) and divide by $15 (one ticket and one small popcorn).  

CD (EROI = 1.33):  Assume that one listens to a CD 20x (about 1 hr per CD) over many years and divide it by the average cost of $15 per CD

DVD (EROI = 0.75):  Assume a three hour DVD (with features) watched 5x and divided by $20 per DVD

Live Music (EROI = 0.04):  Assume a 3 hour show divided by a $50 ticket

Music Downloads (EROI = 2.00):  Assume a 4 minute track played 30x and divided by $1.00

Obviously, many of my assumptions are purely arbitrary.  Yet, still they are very plausible. I could argue that some of the assumptions are actually conservative.  After all, I still have the very first CD that I purchased (along with the first LP, btw).  It still sounds great.  

Many consumers will gripe about the costs of CDs.  It is a common complaint that CDs have always been priced too high and many fans will further object to the treatment of artists by their label.  I would argue that CDs represent one of the best entertainment value that one could have.  It is remarkable to me that the same people who might complain about paying $15 for a CD would often see more than one movie per month and wind up paying $5 (or more) for a bag of popcorn that is worth 25 cents (or less).  

I am not suggesting that there is no room to discount music.   There are many business models that endeavor to make music feel highly discounted or, even, free.  These new revenue structures are very important for the growth and development of the music business.   However, I believe that it is very important for people to recognize the immense value that recorded music has and not to immediately discount it as an overpriced commodity. 

Video Blog with Gerd Leonhard

My good friend, Gerd Leonhard, is one of the official bloggers of MidemNet.  In the midst of a crazy busy Midem this year, I did a one-minute video interview for his blog.  Weary-eyed, I managed to sound somewhat cogent.  Here it is:

Video Interview at Midem