Music Like Water

Music Like Water

The inevitable music ecosystem and a great investment opportunity.

Written By

Gerd Leonhard



As evidenced by the May 11 announcement of Yahoo’s new music service, it looks like we are indeed heading into a “music-like-water” future (a future that is somewhat pre-outlined in my book The Future of Music). Apart from the huge growth of the “legal” music services such as Yahoo, Napster, Rhapsody, PassAlong, and iTunes, there are more people in more places around the globe tuning into music with more enthusiasm and sheer determination than ever before, and they are using a myriad of their own particular ways and means to get what they want. But it seems that to a large degree the “traditional” record industry is simply no longer invited to the party—consumer empowerment has finally reached the music business, and many consumers have now taken charge of their own entertainment. This represents a huge, “2nd wave”-opportunity for investors, documented by the most recent deals with SnoCap, AudioFeast, Mercora, and Savage Beast.

Music fans (or, in Silicon Valley speak, “Users”) tune into online radio, buy satellite radio receivers, record terrestrial radio broadcasts onto their PCs, rip CDs checked out from libraries, swap tapes, vinyl records, and CDs via the Internet, trade files on Instant Messenger, exchange entire hard-drives of music, fire-wire playlists to each other, trade loaded iPods, buy or create their own ringtones, transcode music streams provided by online radio stations, distribute or trade files on a multitude of P2P networks, topsites, and darknets, edit samples and loops with free audio software tools, buy games and videos that feature their favourite music, tune into music shows on television and record them with their TiVo, and stream music to their cell phones—among other things! And all of this is just the tip of the iceberg—we could probably continue this list for the next couple of pages, but one thing is for sure: Music is BIG again.

The trouble for the record industry is that these are mostly non-traditional ways of using and getting music that the industry can’t control nearly as well as CD sales, therefore the entire system is starting to crumble. It was a system based on total and relentless control, obscenely high margins, and an amount of customer passivity and user sacrifice that is unparalleled in any other industry, but the cat, or rather, the music, is quite literally out of the bag.

The only sensible thing left to do is to monetize the existing behaviour of the user/consumer/music fan—and there are many ways to do that once we have accepted the fact that we have indeed morphed into a customer-driven, bottom-up world that renders many widely accepted “analogue” paradigms and traditions instantly useless.

Now, once we go down this inevitable path, we will quickly realize that actually metering the use of music, as if we were still in the days of Colonel Parker and Elvis Presley, is simply becoming a mission impossible. Notwithstanding the distinct possibility of precisely tracking what is actually used, and distributing exact royalties accordingly, there is no way we can continue to ask for fixed fees on a per-track basis, when it’s no longer even clear what a copy, a download, a performance, or a mechanical actually is. On digital networks, just about any performance creates copies, somewhere along the way, and every copy is being publicly performed somewhere (witness the latest discussions about “time-shifting” and “renting” music).

The argument reverberates in the latest definition of “music purchasing” on the Napster-To-Go (U.S.) download service: the user can download as many tracks as desired, as long as the subscription is valid and the tracks are not used outside of the Napster application and the computer it is installed on. Already conclusively tilting towards the music-like-water model, these “downloads” (or shall we say “rental-loads”?) are not considered purchases—at least not until I want to burn a CD of them, and therefore own them free and clear. Clearly, we have already reached and crossed that border between performance and copy, between access and ownership, and pushed it further out to a more economically feasible and much more palatable place.

But the bottom line remains: the only way to monetize people’s actual behaviour and underlying desires on digital networks is to give them a simple, no-brainer blanket deal, an all-in offer or a flat-fee bundle, an insurance policy if you will. But make it EASY! Call it what you want, but the conclusion is that this will be a subscription model not a pay-per-download model because only that model allows the user to experiment with new music and thereby discover new artists: one payment allows me to listen to whatever I want, but in addition I have many opportunities to spend my cash on other music-related things (witness all the stuff you can now buy at Amazon.com—no longer just books!). Music-like-water is where we are going, and up-selling to additional services from there is the name of the game.

There’s plenty of precedent here: we make automatic, habitual, seemingly “thoughtless” yet fully accepted payments for water, gas, and electricity. In addition, we pay for cable television, Internet access, and wireless services; and here in Europe, we are paying a flat yearly fee for the use of any device (radios, TVs) that can receive public broadcast feeds. And most of us pay quite happily for our utilities and subscriptions! But imagine if you were asked for your ID and password every time you flushed the toilet at a public bathroom, or if the TV set measured and billed the number of hours that you spend in front of it, and charged you more if ten people watched the hockey game rather than just you alone. Economically speaking, 99 percent of us already make these kinds of payments, all the time, and the pool of cash that’s being generated is vast.

So, consider this: a much lower monthly payment, say $3, something akin to a “content fee” imposed on hardware/devices or services/transactions, and we would finally have a feels-like-free pass to do what many of us seem to already be doing, albeit with official blessings: enjoy our music where we want, when we want, and how we want, without having to worry about the MP3 police hunting us down. Of course, that $3 may end up being €3 in Europe, 3 GBP in the UK or, more importantly, the equivalent buying-power amount in other territories such as India, China, or Brazil.

If we don’t go down this road, how could we possibly expect the music industry to be successful in the future, when at this very moment the customers have to practically kill themselves to give the industry their cash, on the exceedingly narrow terms that are being enforced today?

Once we can subscribe to music just like we subscribe to water, the music business will explode and we will enter a new ecosystem that will make the previous music industry look like NYC taxicabs from the 30th floor of the BMG building. DRM will morph into CRM, copy control will become usage-control (file-tracking and monitoring), record labels will morph into 360-degree music companies, radio will down-(load)-cast, devices will truly plug-and-play, and yes, cell phones+music may kill the iPod.

There’s only one thing: we must stop asking the consumers to fill up their bath tubs with Evian or to use Pellegrino to boil pasta—they have already discovered the tap water! So let’s just give them tap water, via cheap flat-fee deals, and the Pellegrino, as well. This does not equal a flat-out, wholesale devaluation of music; quite the contrary—ubiquity is a very powerful thing and will create a nice pool of money for all involved parties, a pool which will only be the starting point for a much-increased monetization of music.

Why? Because here’s another thing that will happen when the water/music flows freely: the up-selling opportunities will be huge, diverse, and multi-channel—and this is where the ROI for investors is. We will have all of the user data we could ever dream of having: opt-in profiles and lots of user feedback, usage patterns, program preferences, personal profiles, locations and access modes. Apart from the obvious concerns over data security and privacy (now there’s another huge business opportunity!), this data will allow the content providers/rights holders to zero in on one person at a time, and offer relevant and timely upgrades to him/her, and maybe even to place very unobtrusive and friendly product messages. Imagine listening to your digital radio station while you’re driving, and seeing a message on the display informing you of an upcoming show of your favourite artist that just happens to be in a location that you will be travelling to. Simply push a button on the display, or send an SMS from your mobile phone, and within 10 seconds you have purchased a ticket for the show. Then, when you get to the show, you take up the venue management’s offer to zap the entire evening’s concert onto your memory stick on the way out, for less $ than the cab ride back to the hotel. And on from there…

Once music is unleashed and the dinosaurial fight for the simple privilege of having access to it is over for good, distribution ceases to be a barrier to entry: all music, all artists, and all writers will be in those pipelines. Then we will face the real digital economy challenge: getting anyone to pay attention to our music and surviving in this world of “digital Darwinism”, since the old marketing mantra of Exposure + Discovery = Sales (Income) will be even more pronounced in a music-like-water world. Ultimately, of course, people will consume, or shall we just say use, more media (music). All of the world’s music (and its creators) will then be competing for attention in this new ecosystem, and everyone will want a piece of your precious listening time. That will be the real challenge and the real opportunity going forward: getting exposure and being discovered—the rest is already built into the pipeline.

In other words:

“The future is already here—it’s just unevenly distributed.”
—William Gibson

***
This essay is published under “Creative Commons” licensing provisions. Non-commercial re-distribution permitted only with reference to writer and source.

name

Gerd Leonhard is the Founder and CEO of ThinkAndLink, a Basel (Switzerland) and San Francisco -based strategic advisory firm that works with innovative companies in the converging sectors of entertainment and technology. Gerd is also a widely-published and internationally-acclaimed digital media expert and Futurist, speaker and author. His recently published book The Future of Music, co-written with Dave Kusek and published by Berklee Press, is quickly becoming a ‘must read’ for music and entertainment business professionals around the globe. During the dotcom ‘fat years’, Gerd served as Founder and CEO of LicenseMusic.com in San Francisco, and pioneered the use of technology in B2B media commerce. As a guitarist and composer, Gerd won the Quincy Jones Award (1986), and is a graduate of Boston’s Berklee College of Music. Gerd also served as Co-Founder and Executive Producer of the pan-European talent event EuroPopDays, worked as Expert Adviser On The Cultural Industries to the European Commission in Brussels, is acting Chairman and Executive Producer of www.popkommawards.com, and consults many start-ups and fast-growth companies in the music and technology sectors, both in Europe as well as in the U.S.