Tuesday, 2 June 2009

Digital State of the Nation # 2: partnerships - when will it all go right?

[As promised, the second part of my assessment of the current digital space. This is a slightly longer version of what became an opinion piece in Music Week a couple of weeks ago. In the two weeks since, it’s been interesting to see the PRS change its license rates for streaming music and the commentary about Warner and other majors bleeding the horse for some ad-funded streaming services including iMeem. It was also interesting to read Hilary Rosen’s retrospective in Billboard - http://bit.ly/WTZoE Clearly things continue to move at a dazzling pace in the digital music business even if we’re no closer to figuring out which models will last it out. This piece is a call for a more strategic perspective on licensing and partnership, until we do].

Following recent developments in the relationships between music producers and their evolving digital partners, a fairly messy picture of the digital music landscape emerges. On the one hand, we have had the recent failures of new music start-ups including Muxtape, Mixwit and FabChannel – all of which have pointed the finger firmly at the record labels’ (and music publishers) collective lack of a flexible licensing policy. Seeqpod seems to be rapidly going the same way.

Perhaps most significantly given the overall direction of the business (towards music streaming) are recent grumblings by digital juggernauts like YouTube, iMeem, iLike and Last.fm that licensing costs are, erm, making life difficult. On the other hand, we have the buzz of Spotify and the tenacity of iTunes, continuing to make the best of its market leader position and loyal audience, if lately pushing it a little with price changes.

Such is the uncertainty of the digital music business however, that no one can say, hand-on-heart, which services will still be around in say, five years time. Spotify could be the new improved Last.fm with all the same commercial problems in the end. As for iTunes, it could either go the way of the streaming models or simply tough it out as the last man standing in downloads.

In each & every case the central issue is the same – that of the commercial value of music. In recent weeks I have had discussions with a number of young digital businesses all with a stake in music. Not one of them holds a belief anything other than music (at least, digital music) will be free within five years. I’m not going to argue with that notion here, as much as I’d like to - there isn’t enough room to do so.

My point here is to argue that the digital music business – suppliers and partners – have a choice in whether digital music is to be free in five years or not. Music doesn’t have to be free if the business cannot find a way to deliver it for free. I don’t care what Mike Masnick or Chris Andersen or whoever super-geek thinks about it. Are the movie or games businesses considering a free model? I don’t think they are. The music industry might not look too smart in five years if music’s free but digital films & games are commanding good prices.

It seems clear to my mind that an unambiguous licensing policy might help to start with. I don’t mean stubborn, or prohibitively expensive, just clear. For an innovative new music model that is non-threatening (one that for example passes my test of ‘natural friction’- not DRM or price friction, but repertoire based when set by users themselves – such as playlists, which don’t replace albums even when shared), licensing should be nice and flexible. It should represent good value, thereby incentivising innovation.

I hope the recent deals between ProjectPlaylist and at least two of the major labels fall under that category. Music providers can even support such services in other ways, through direct investment or content development, such as exclusives. It would mean label digital departments doing much more than deal-making and accepting cheques. It would mean Content Services and Account Management teams really working to support & sustain service partners in innovative ways. And both parties need to share and use collective consumer data better to iterate service development in line with users needs.

For a major ground-shifting service that potentially speeds up cannibalisation, licensing is much trickier and therefore by necessity of managing risk, more expensive. This challenges the service provider to find a workable model at the point of usage. If that model doesn’t exist or cannot be created, it can’t afford the license. Buying up content in advance distorts this picture longer term, adding to ambiguity in defining what is successful and leading to more market uncertainty.

If a clearer, more strategic licensing means a potentially smaller short-term digital business I think that is a fair trade-off for one of potential longer-term value. I don’t know if this is what the UK Government was driving at with its recent recommendation for a Licensing Agency – maybe it was, maybe it wasn’t quite sure itself. Maybe we'll see later this month when the full Digital Britain Report comes out.

It doesn’t take a government initiative, but it does mean music providers need some more collective clarity. With a clearer set of criteria for digital licensing, the music industry can meanwhile develop its other products and revenues more confidently, including improvements in physical product, merchandise et al.


Mark Mulligan said...

Does the Virgin MP3 service break the natural friction rule?

Keith Jopling said...

So far the press releases etc. are to opaque to tell. My guess is, there will be friction of some kind. File quality perhaps? Maybe there aren't brand new releases on there. It'll be something - will it be something consumers understand and tolerate. Virgin's track record doesn't bode well, and there may be problems getting other majors on board too. My intuition on this is that it isn't a game changer. If I'm wrong it will be interesting to see what the impact will be.