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« The Adventures Of Co-writing | Main | How to Structure a Company to Succeed in the Current Music Industry »
Monday
Jul112011

Is the future of music in the clouds?

Every year there’s a rush in the music marketplace after one trend or another, and in the past year it’s been cloud services and the concept of ‘music as water’ subscription services.  While the notion of selling music subscription like cable TV may be appealing at first glance, it is proving hard to monetize on for both the companies that launch such services and the content owners who participate in them. There are several reasons why I have always been very skeptical about the future of all-you-can-eat subscription services and cloud service models:

First, consumers don’t consume music like they do TV programs. On TV you are likely to watch a show or a movie once. When you really like a song or an album, you want them with you for a long period of time and for repeated use – potentially for life. Indeed, look at the past decade of digital music sales: The mass market is buying and downloading music ala carte. Subscription services have found it very hard to climb into seven figure subscriber bases – sure, recurring revenues from 700,00+ subscribers are nice, but if after ten years you can’t move the needle much higher, then the market is telling you something.

Second, the complex offering model that subscription services offer makes them harder to sell: The consumer has to understand various DRM rules and deal with their implications. Additionally, the consumer has to deal with a lifetime commitment issues – after months of working their way thru a catalog of streams, if they decide to discontinue the subscription or switch services, they lose all their work, all their cached playlists and repositories. Also, the market still can’t offer consumers reliable connectivity on the go – even with pre-caching, it’s not a perfect picture. All these elements combined have rendered subscription services a niche that is best suited for tech-savvy taste makers (Pandora is different because it is more akin to Radio than to ownership-type consumption).

Enter cloud services… in a world where one can back up an entire hard drive – music, movies, e-mails, pictures, documents, programs – onto affordable backup/restore services such as Mozy, Apple, Google, Microsoft, etc., will there really be room for dedicated music-specific cloud services for additional money? Sure, there are some bells and whistles that Amazon, mSpot and others are adding to create unique value for the music user, but is that enough to drive a mass market adoption for such content-specific concepts? And will consumers pay for more than one account? Or just choose one major backup hub (Google, Microsoft, Apple), park their entire PC on it (including music), and be done?

The last frontier in this battle for a winning “all you can eat” music offering is the speed in which affordable storage space is increasing. Imagine a world in which you can purchase a 100TB storage chip for your smart phone (and PC) storage card slot.  Imagine a world where this card can either come pre-loaded with all the music you could care about, or you could load it up w/ critical catalogs, by genres, from many Bit Torrent sites for free. When this becomes reality in a handful of years, how appealing would it be for the consumer to pay for a music subscription service or a music-specific cloud storage service? If music in the clouds is free AND easy to grab in bulk, how can music cloud services be monetized on?

An affordable, large solid-state memory market may beat 4G+ networks to the punch in providing consumers an ideal way to access all the music they want on the go. This will re-focus consumer services on the new music “discovery” market (like Pandora) - this is the section of the market that will represent opportunity moving forward. In a market where access PLUS ownership becomes even easier, ubiquitous and affordable (or free), the industry should focus on building value around new releases – focus on the quality of new releases and the packaging that comes with them. This means an ongoing, strong a la carte business, avoiding the inclusion of hot new releases in cheap subscription and cloud services that devalue them. And indeed, this future spells trouble for those in the catalog business. The catalog business may not exist within a decade…

So, where does this leave the music industry? The progress made this week by content owners partnering with ISPs to prevent illegal downloads should be just the tip of the iceberg. The industry should now move to capture revenues from the “new distribution routes” of content – the disruptive companies that replaced the traditional physical mediums of distribution: Chip manufacturers and device manufacturers. If each device and storage system was taxed to compensate for the abuse it helps create - taxed in similar fashion to how content owners for years have been compensated from the sales of blank media such as cassette tapes and CD-Rs - then a strong multi-billion revenue stream should emerge, compensating right owners for the loss of control over pre-existing catalog sales. It would only take a handful of dollars from each $299 smart phone sold or any other computer. It would make little impact on the electronics industry – but would save the music industry.

Shachar Oren is the founder and CEO of Neurotic Media a B2B digital distribution firm supporting private-label and open API services for merchants, carriers, consumer brands, and record companies. Neurotic Media celebrates it’s 10th year anniversary this year. Shachar has been active in the digital music space since 1998, so he always has an opinion to share about what’s going on, just ask (smile).

Reader Comments (11)

If each device and storage system was taxed to compensate for the abuse it helps create - taxed in similar fashion to how content owners for years have been compensated from the sales of blank media such as cassette tapes and CD-R

That's very unlikely to happen.

Can't you, like, just figure out a way to nurture great music and sell it?

July 9 | Unregistered Commenterscottandrew

Another crazy bit of writing from an uninformed person.

1. Music is not a mass-market purchased product.
Arguing that subscription services are unsuccessful because most people don't like music enough to pay $120 a year for it is ridiculous. Most people just don't care enough about music to want to use any music-specific product OR pay for it. Do your research. The average annual per-capita expenditure on music in the USA is about $35 and declining (and that average does not come from a normal/bell-curve distribution). Subscriptions cost a lot more than that.

2. "Storage getting larger and cheaper" is hardly news.
A basic understanding of music copyright would tell you "pre-loading" lots of music on storage is completely impractical from a financial perspective. Actual experience in the music business would show you the contractual challenges inherent in attempting to do so.

3. Music is already on the internet and is free
...and yet both MP3 stores and subscription services continue to survive. They may not be wildly successful, but no part of the music business is at the moment. This speaks more to the current lack of cultural importance of music than any particular failing of the services.

Most disappointing is the last segment of your piece.

"Chip companies and device companies" did not "replace traditional physical mediums of distribution". The INTERNET did, along with formats like MP3, WMA, and AAC. And even then, CDs continue to sell. As does vinyl.

Even assuming you were correct, insisting on a levy similar to what is called for in the 1992 AHRA is absurd.

You claim it is to "compensate for the abuse it helps create". So if my car stereo can play back MP3s (which I've dutifully purchased or ripped from my own CDs) it should somehow be more expensive and the manufacturer of the decoder chip should pay a fee to Big Music?

My smartphone can store music data and play it back. So you say every company that contributed to that functionality should pony up to Big Music. Never mind that I'm listening to music I bought, or that I made myself.

But my phone can do other things, too. What about all the videos I'm "stealing"? And the ebooks? And the games? Shouldn't those companies be compensated, too? That "few dollars" you're asking for gets big very quickly, and it offensively and arrogantly assumes that every single device user is both interested in music and stealing it.

The industry already tried to go this route in the Diamond Multimedia case in the late 1990s. They lost.

The AHRA "worked" because it was devoted to audio-specific technologies. Despite your assertion, it did not provide payments for cassette tapes - quite the opposite. It said "analog copying is basically OK in exchange for revenues on digital technologies specifically designed for audio".

The net result is that all of those technologies - audio-only CD recorders and CD-Rs and DAT, primarily - DIED. Nobody used them. They were more expensive and offered zero user benefit.

All that said, there's actually a company silly enough to try this - they're called "Beyond Oblivion", and their plan is to add a $50 cost to each new device you purchase. In exchange for this $50 "tax", you're supposedly allowed to download whatever you want.

If you want an example of what you dismissively call "devaluing" music, don't point the figure at $120 per year subscription services designed for the music fan. Take a look at a company that wants to charge $50 for all the music you can download or steal and KEEP forever.

P.S. Using the wrong "it's" in your biography text undermines your credibility.

July 9 | Unregistered CommenterMr. Cranky

To the person that think music is free GROW UP

While your at it pay no attention to the increase sales of music at retail, all time HIGHS of viewership for Country Music Awards, Grammy's or AMERICAN IDOL

As for the Cloud music companies PAY the INDIES the same compensation as the Majors

July 11 | Unregistered CommenterMr Happy

I agree with you that cloud music storage is not that exciting. But I can tell you that I absolutely love Napster, for which I pay $96 a year (so that's actually $8/month). I am first and foremost a music fan who loves to hear old stuff I know and new stuff I read about or hear on the radio. I don't identify with "tech savvy tastemaker". I don't really influence others -- this is for myself. And I can tell you, that if faced with financial calamity, I would get rid of cable tv before I would give up Napster. The truth is that most people don't buy much music -- my relatives only listen to the radio (FM, no less) and maybe own 10 CDs total. That's all they need. I think the biggest difference, apart from file sharing, is that when a music novice decided to buy something in the past, they had to buy the whole CD. Now they only need to fork out 99 cents or so for the song they like. That's 1/10th or less the revenue the music industry used to get. I do think every little thing helps, so a service like Pandora is really good, bringing in revenue that once didn't used to exist (FM doesn't pay performance royalty fees). It caters to people who really don't buy music, so that is why it is so important for the future.

As to storage, you may be right on external hard drives, but not the Apple products I love. I have a 64 GB iPod touch, and that thing wasn't cheap. I doubt that'll change in the near future.

July 11 | Unregistered Commenterbeachmom

Mr. Cranky, You are definitely cranky.

However, I agree that this article does not point to a primary problem with the music industry but I am not angry at it. It is a good "thinking out loud piece".

Something, I would like to add, however, is that this article focuses on music being sold to an audience because they like the music. This isn't really what is happening and all of the current trends in the industry prove this. People LISTEN to music (not buy) to enhance an experience. If musicians would focus on selling the experience in different ways, they could begin to find a way to make a profit.

More "thinking out loud" I guess.

Tom Siegel

July 13 | Unregistered CommenterTom Siegel

The future of music is a solution that just works. It won't require taxation of consumer goods to pay for itself; the instilling of fear in those who like consuming music (on the part of outmoded corporate behemoths). Indeed, that is the only way we can be encouraged to patronize the artist outside of a performance venue.

July 13 | Unregistered CommenterJulian

"If each device and storage system was taxed to compensate for the abuse it helps create"

Wait a minute guys. Why does listening and sharing music have to be abuse? Since when does letting my friend know about a new artist by letting them hear them first, classify as abuse. I thought that was free promotion. What if they become a huge fan, never buy the music, but go to 5 shows and buy all the t-shirts? Still abuse? Sounds like more promotion to me.

The truth is, subscription sucks. Also, there is another way, that can allow the music to remain free. Why does NO ONE talk about this option. It must be unthinkable as described by Clay Shirky when talking about the newspaper industry's similar woes - http://www.shirky.com/weblog/2009/03/newspapers-and-thinking-the-unthinkable/

This other option, has to be advertising. Remember, that thing that makes all the Youtube videos in the world free, along with Pandora and until recently, basic cable. The only thing is, advertising sucks. However again, is this always the case, and, does it have to be? I think that if advertising is done right, it can have tremendous effects in not only the music industry, but similar industries like software where people are constantly attempting to remix and redistribute, without being paid, but simply for recognition. Soundcloud anyone?

Think about it, if advertising were the key to monetizing music, when someone makes a remix and releases it, it's not something to be attacked by the artist, should be something to instead promote, or even incentivize. If the person putting out the remix has their own ad space to sell, and they give the original artist a cut of that ad revenue, then the original artist gets paid if it does well, and so does the person remixing, rightfully so..remixes can be a lot of work..

So, my thoughts on what will be acceptable in the music industry in the near future - FREE MUSIC, for EVERYONE, and monetized by a not so annoying, not so disruptive, not so hopelessly sad ad model. Don't underestimate the ingenuity of ad men. I think they'll turn out to pleasantly surprise us. All I'm saying is, don't count it out.

July 17 | Unregistered CommenterDante Cullari

@Dante

What I don't like with your argumentation is that you assume "free music" is the best strategy for artists (because it is free promotion) and in the same sentence you force them to chose this strategy. Why force them? If it is the best strategy in the sense that it would result in the best outcome, then a fair market competition would lead to the survival of such strategy.

In other words, let all those strategies ("free music" vs. "pay per consumption" vs. "crowd funding" vs. "etc. pp.") compete with each other in a FAIR MARKET ENVIRONMENT. At the end, the superior strategy will win. And if this will be the "free music"-strategy, most artists will chose it VOLUNTARILY. With piracy, artists are forced to pursue the "free music" strategy and that is not a fair competition.

So what free music supporters do is: they force artists to do something and argue it is for their own good. Please let the artists decide themselves what is best for them.

What hurts me most in the "free music" discussion is that companies like rapidshare or piratebay make millions while the content creators receive nothing. There is no such thing as a free lunch. Even worse are the comments I read on piratebay, when people say: free culture, fair use, freedom to the people etc. not knowing that some shady guys making millions with the work of artists and even them uploading the stuff...

July 18 | Unregistered CommenterPhilipp

@Philipp

I absolutely agree with you. Of course you don't force artists to uptake a free model. And I believe that there should actually be 1 platform(just to make it easy) where artists can experiment with each option in a "fair market environment" as you put it. That's absolutely true, and this is actually what I'm planning on creating with Beat-Play.

However what I am saying is that research, experiments, and case studies have been done already. Did you know that (according to the IFPI) out of the $167 billion dollars (down 30%) that the major music industry is worth(consisting of just over 4,000 artists), music monetized with advertising from radio, tv and magazines accounts for 24% of that - about $40 billion dollars. Retail is only 16% and has continued to fall. Subscription services aren't even on this map, much like publishing and performance royalties only account for 3.75% combined.

Pandora has a subscription service and that hasn't helped the artists at all, but their free model may have helped hurt artists since fans now have a viable legal alternative to paying for their favorite music, despite losing some control. This hurts because Pandora owns the rights to the advertising, and not the artists. The biggest item on that income list is actually portable and non-portable music playback devices with 29% of the market, and the artists don't really have access to this income stream. Live performance is about 13% and then music instrument sales at about 10% if you were wondering. Music video games are on there too at about 3%. This can be found on the IFPI's website.

The free ad-supported model has already proved to be better in this environment, at least for the 4,000 major record label artists. Why would it not work even better for the millions of talented independent artists out there.

Here is the experiment - take some water in a stream and put a wall in the middle (a pay wall) and see who pays to get the water to the other side. Oh yea, this water is contaminated, but I'll get to that in a sec. Then, put some holes in the wall to see how the pay-if-you-want model works, and see how many people pay. Then, take the wall completely away, and see how many more people will then be exposed because of it. Even if the water is contaminated, at least if it's free to wade through people can filter it themselves. If there's a pay wall, people won't even do that.

I'm not for forcing people to do anything. Force is NEVER a right solution. I am saying though, that free is the only thing that is really going to show results for independent artists who have not yet developed a significant following, and wish to. This doesn't mean they can't or shouldn't earn money from their music being free.

The real problem though, before we talk about monetization, is the promotion, or better yet, the filtration of music. The real reason so many indie artists have to give their music away for free right now is that there are so many other artists out there - 8 million on Myspace in 2006. Not all of that music is good either. The bad stuff deters people from checking out the good stuff, along with a laborious system of wading through all of it.

Before that stream of music even reaches the pay wall, or lack of wall, or whatever your choice is as an artist, it must be filtered. No offense to artists who are just starting out, or artists that are highly seasoned, but your music must be put through filters before you can even think about monetizing. So far, there are no perfect filters, because how do you create a filter for something, or someone, as complex as the human brain, which changes all the time. The solution is you don't - you can't MAKE a filter - try to create a complex series of algorithms and bla bla bla. That is literally impossible since our brains are constantly changing and everyone is different. The algorithm would never be complete.

What you can do, is allow people to filter the music themselves in a more efficient way, using social recommendation, or social filtering. If I'm following my friend because I trust his taste in music, and he likes a song, it automatically gets sent to my radio. If I like it, and I save it to a playlist, or "like it," it automatically gets sent to everyone following me. If I don't like the music, it stops there. The music will keep spreading as long as people are liking it. It's an automated word of mouth - just speeding up the natural process. This is a truly fair and effective form of filtration. This solution is possible now.

Once the music stream has been filtered, then it becomes possible for these talented independent artists to really aggregate a strong following, and then, once people have tasted the freshly filtered music, the artist is in a good position to start to experiment with some other monetization options. Also, there's no law against monetizing free with ads and offering a pay-if-you-want option as well. And, theres also always the packaging of merchandise and music together, like cds/vinyls and shirts together. I love when artists do this. I go looking for the shirt and end up getting a vinyl too, and then when it arrives there's a free cd inside! Love it.

It turns out, once the music is properly filtered, and artists can actually gain a significant following on a world-wide basis, due to online based promotion/filtering, it will open those successful artists up to a wide array of other monetization possibilities, of which they should have complete freedom to choose among for themselves, or even create new options!

After an artist successfully passes through these filters, there will be a higher demand for their live performances. There will be a higher demand for their commercial licenses, or samples. There will be a higher demand for their merchandise. There will be a higher demand for their ad space. Add in the amazing ability of online software to pretty much create anything you can imagine, and you can see how one show in person could turn into 8 shows across the world simultaneously, all generating some form of revenue. The possibilites are literally endless.

There's never been a better time to be independent. This new environment where this social filtering/promotion of music can occur is right around the corner, and this must be the first step. I'm not saying we should be forced to take it, but I am saying let's try it! Although I will note that it's best for unknown artists to give their music away for free at first, if just to run it through the filters a good first time, in order accumulate a wider fan base from the start, and then use that position to further experiment. And if you don't make it through the filters as much as you wanted, you keep trying. That means the world is telling you something, or maybe you've just reached the niche that would were really looking/waiting for.

This new open platform for artist promotion, fan filtration(which is desperately needed) and finally, a sound and yes, fair platform for artist monetization is coming! This is what I am working on personally, and we launch in a couple weeks..not with everything I've just described, but we will get there, and within the next year or two for certain. The speed of progress all depends on investment, which we have little of right now, but are about to approach initially some investors in the next few weeks, so hopefully we can speed up the process. We have a big team working on this stuff, most of us artists too.

I am also sure that there are other start ups and companies working on the same sorts of things. At least I very much hope there are. We as a community of independent artists, all really in the same boat, need to stick together now more than ever. We need to band together (no pun intended) to support the kind of platform that we know is right for us right now, and yes, this may mean giving away some more free music, like we're already doing, but this time at least, the momentum we gain from it will be going towards something that will sustain our futures as musicians for a long time to come. This is the goal, and come on guys..we're artists..we'll get there if we set our minds to it. It's about time..

July 19 | Registered CommenterDante Cullari

Dante, nice post. You addressed some interesting aspects, I totally agree with. I also checked your project that incorporates some very good ideas.

I think, you implicitly also made the important distinction between "free" and piracy. If an artist decides to give away his music for free, it is something completely different than if his or her music is pirated. Unfortunately, people still often defend piracy with the "free is good for artists"-argument, neglecting that free is not the same as piracy.

Also, I'm totally with you regarding the urgent need of filtering mechanisms for music due to market overload. However, I see one problem: Traditionally, the first-step-filtering was carried out by A&Rs. This job was a paid job, among other things also because it is not necessarily pure pleasure listening through thousands of tracks of volatile quality and evaluate/ filter them. The point I want to make is that proper filtering of new music needs incentives.

I am not convinced that we can outsource this first filter to social networks or communities without incentives. Would you be willing listening to let's say 2 hours of music that eventually includes awfully produced tracks, and evaluate and filter them just for fun? Consumers want to have pre-filtered music that corresponds to their taste. Who is going to do that?

It could work on the second stage where you like and dislike pre-filtered music. But I don't think it can work on the first stage.

July 20 | Registered CommenterMusic_Waves

What's REALLY killing much of the music industry?

For starters, just like any other industry that distributes digital content, profits will always be undermined by those who steal. The traditional answer to fixing the problem of diminishing profits is to add DRM, which can make the content unusable or corrupt it, and to increase the purchase price so paying customers can indirectly foot the bill for the thieves. In turn, more paying customers are turned off by the content distributors and join the ranks of the thieves.

In addition, for a musician to get any air time on the radio, the musician must pay for the privilege of letting the music station pay their music. A person can go to the grocery story and pay for food, yet that same person gets music for free while the person who produced the music pays. How backwards is that?

Add to this the trend in subscription services. The listener pays a monthly fee, which gets divided up between the artists they listen to. No problems there... Now take a look at the artist's end. Two types of services exist. The first type requires that you pay the US Copywrite office (in the US, in other countries, similar steps must be taken with their own country's government) for the copywrite to your own work, pay fees to allow licensing, and pay a legal service to draw up the paperwork proving that you are licensed to distribute your own work AND that the subscription service will be licensed to play your music. The second type allows anyone to upload music, whether or not they are the artist. In addition, the artist must pay fees to allow 'x' number of plays to their subscribers, i.e. the artist pays $100 to allow paying and free listeners a collective 1,000 plays of the artist's uploaded tracks.

The only way for the artist to truly get around getting charged insane amounts for the dream of maybe one day getting signed by a major label (never mind that the major labels sucker the artist out of even more money once the artist has been signed) is to distribute the music directly through their own website* or to pay for a permit to personal sell it on the street.

The author's suggestions would only serve 2 purposes. Creating bigger profits for the suits that do nothing but find ways to fleece listeners and musicians alike and causing the artists themselves to become poorer and poorer for their devotion to their muses. Personally, I prefer allowing free downloads of my DRM-free work. I may not make any money, but I'm not paying out the nose, either.

*Thank goodness for free website hosting or hosting for a small monthly fee (if you want your own domain), and thank goodness for Creative Commons.

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