Pundits and cynics

Pundits cheer for the leader. They applaud mighty Microsoft, Nokia or MySpace and their world beating sales, revenues or numbers of users. Cynics shoot down the leader, pointing out flaws in the pundits’ latest darling. I don’t do much of the former but you have to bear in mind nobody really knows who’s right, until it happens.

Steven Levy has an article in Wired about what I’ll call The Spottybook Theory. There are two main proposals here: streaming will have massive scale and that scale will make money. So I did a rough comparison of the features.

comparison of access to broadcasting, streaming and ownership comparison of access to broadcasting, streaming and ownership

These examples are shorthand for general categories: radio, records, upload sites and streaming services.

Streaming has been tried for a decade and few services have survived. Even less have made any money. None have made a profit overall. If the pundits are to be believed, somehow Spotify has cracked the magic formula but it needs to get at least as big as radio. That’s their real competition, not iTunes. If you want reliable, universal access to a wide range of music there’s no alternative to ownership. At least, not yet.

Back to the future

In the 1930s there were million selling records but every act had a career on the road, in films or on the radio, sometimes all three. That’s where artists got their breaks. Music radio wasn’t yet the sidekick of the record industry, radio wanted the acts live on air whenever possible.

There were big record labels and distribution but no Major labels. The 600-pound gorillas of the music industry were managers and agents. Bidding wars involved managers building stables of artists and venues trying to attract the best acts. The stars were able to name their price for record deals and there were no long exclusive contracts. (Film studios pioneered that kind of business before it spread to records.)

Starting out was hard work and newcomers had to be good. Of course, there was always the establishment. You needed to get a gig with an existing name or work your way up through one of the entertainment empires before your manager could get you into the best venues, films or radio. But the whole industry was built the right way round, it depended on getting punters through the door. If there was a better act, a better venue or a better film in town you would have to up your game.

It seems to me this is where we’re headed again, right now. The Major labels have lost their grip on media, distribution and retail—the Internet provides all three, for everyone. Already we have a new generation of managers and independent acts. The Majors can no longer afford bidding wars and don’t control the front page of the iTunes store. Recording is once again a secondary outlet for acts who have built a reputation on the road and online.

This time round audio may not regain the traction it once had. Any band would rather have a cut in one of the Twilight films or an advert on TV than have a top ten single. The Internet is a multi-media experience. Live work is a multi-media experience. Audio is often a background for jogging, driving or web surfing. But now music has escaped the radio-friendly chart format we may even see serious listening return to the mainstream. Music discovery blogs and sites like Pandora and Pitchfork provide useful filters. Choice is no longer limited by the top 40—word of mouth is multiplied by the web.

Amplified records and radio, and cinema sound and colour, were the new entertainment technologies of the 1930s but it took decades for the incestuous grip of the Majors, MTV and radio to take hold. Technology is a wonderful thing but Web 2.0 isn’t going to throw up a new music business overnight. If you want to understand the “new music business” take a look at the way things worked back then. Let the TV talent show winners have their Christmas single. All that is just a sideshow now.

Will 25% of the world buy music?

Something Marc Geiger said on This Week In Music last week rang a bell—he forecast two billion paying subscriber accounts for some kind of music streaming at some time in the future (you’ll find it around 38:00 on the webcast).

If it had been Daniel Ek (Spotify) I wouldn’t think twice but everything else Marc Geiger said made a lot of sense. He seems to come at the music business from a similar angle to me—it’s all about artists and fans. To be fair neither Geiger nor Ian Rogers suggested this was happening next week, and they did say this kind of scale might come from new music service front-ends like Turntable.fm rather than simple playlist radio.

Now, we know the music industry has failed to do anything like that scale and they’ve been trying (sort of) for over a decade. Paying subscriber accounts are still single figure millions and as far as I know none of these businesses have ever made a profit. But that’s not what Geiger was talking about—he said once the music was available some kind of consumer layer would transform the whole game.

And this is the bell that rang. In 2006 I hung-out on an invitation-only music industry forum where they discussed mobile music among other things (as Ian Rogers mentioned this debate was common at that time). I thought there was no way to merge the user interface of a cellphone and an iPod, I just couldn’t see it. One of the members of that forum who always made a lot of sense and clearly knew a thing or two told me to wait a year and it would all be clear. He must have seen an early iPhone and as we now know he was right.

So, here we are again—or are we? A music industry bloke who makes enormous sense just drops into the conversation “two billion paying music subscribers” like your best friend might say he’s built a spaceship. WTF?

He may be right but there is a mountain to climb. Any time this decade two billion accounts would be around a quarter of the world population and one of my touchstones for music take-up is that only 40% of the UK population ever paid for music. I’m not talking about Internet piracy, this was always the rule of thumb for CD buyers. So his two billion now looks like at least half of all music buyers.

Then there’s another fly in the ointment. On average those CD buyers never spent anything like £120 a year, the current going rate for a mobile Spotify account. The average consumer spend on recorded music in 2002/3 (a record year as I say elsewhere and often) was around £50. Which means Marc Geiger’s music subscribers would spend all their money on the sons of Spotify and buy no additional recorded music at all.

In fact the ointment is full of flies: would people use just one service? would these services have all the music they want (they don’t right now)? would subscribers be happy to pay forever and keep nothing? how about those pirate economies (Russia, China, …) where the average spend on recorded music is zero? And so on…

Sadly I think that’s a mountain (of fly infested ointment perhaps) we will never get over. Geiger hopes these new web services will earn the music industry ten times what it ever earned before—which translates to our UK record buyers spending £500 a year instead of £50. Not in my lifetime. But I do remember saying something similar about the iPhone.

It’s an interesting idea. If the sons of Spotify really did that much business I’d look much more favourably on music subscriptions and I’ve been wondering how that kind of future might work. I just can’t see it though.

Edit: This is an interesting perspective from Ian Rogers at DMFW just the previous week I think. It seems there are not yet 2 billion web users so Marc Geiger’s forecast is even further ahead of its time than I thought.

Spottybook

So, Facebook Music is now a week old and my scepticism is about the same. Spotify has added over a million accounts, so for them at least it was a worthwhile exercise. A small fraction of the Facebook population care about music but people still can’t help dreaming about those 800 million Facebook accounts. There are less than 20 million streaming accounts and less than 10 million paying subscribers worldwide.

There was a very good discussion on This Week In Music*—it’s about 45 minutes. Somewhat buzzword bingo (curation, filters, gatekeepers, engagement, content resolution, music discovery, …) but well worth a look.

They seem fairly clear that “music discovery is now legally free” but let’s not forget, UMG said very recently they are seeking to switch from ownership to access, i.e. from iTunes to Spotify and Co. Although why they want to cut their own throat I have no idea. The crazy thing about Major labels is they now find themselves trying to re-establish music branding. Record labels used to be brands and people used to buy Island, Immediate, Charisma and others on the strength of their catalogue and roster.

These days it’s only indies and some Major imprints (urban or R&B mostly) that are contemporary music brands. (Of course, there are many jazz, folk and classical labels who still stand for something too.) The Majors own hundreds of imprints that have lost their meaning over the years, labels that could still be trusted filters to represent something customers and fans can recognise. Instead they seem happy to stand behind Internet names like Spotify and shovel a mountain of undifferentiated music into the world.

Spotify is now making credible headway towards their Year One target of 50 million USA accounts but it remains to be seen whether they’ll keep the momentum of the past week. If this was just a sideshow I’d be quite happy—what worries me is it seems to be the Big Music strategy: to swap chart radio for streaming at the cost of music sales, when iTunes and many others have shown that sales of singles can be grown substantially online.

Music sales earn a lot more than Spotify or YouTube and people do still prefer to buy. I can’t see streaming supporting the record industry, Facebook or otherwise. Talking of which, the much vaunted Timeline turns out to be a feed your Friend’s apps can post to, and some adverts. I was hoping Facebook might show your account activity in order. Oh well.

*(Incidentally, TWIM is one of my favourite music biz news sources alongside CMU, Music Ally, Digital Music News and Buzzsonic.)