Luddite and paranoid - why the big record labels failed at digital
Midem Interview This is the second of four interviews on the State of Digital Music from this week's Midem event in Cannes. We'll hear from AIM's Alison Wenham next, followed by a view from the songwriters and composers.
It's the conventional wisdom amongst some Reg readers that "the evil record labels" are dying, and deservedly so. But such a simplified view of the world overlooks the contribution of the independent sector – which operates very differently to the Big Four.
Independents have a different business model, and have embraced digital networks as an opportunity, not a threat.
In the past few years the indies have organised, and successfully fought mega-mergers in the European Courts; they licensed  the original Napster, and shunned DRM en masse. More recently, the indies have pioneered a one-stop stop for global digital licensing, Merlin, something beyond the organisational abilities of the RIAA.
So after hearing from IFPI chairman John Kennedy here this week, you'd expect a very different view of the music business from Martin Mills, chairman of British indie the Beggars Group  - and you'd be right.
Radiohead recently signed a deal with Beggars' label XL to release the In Rainbows CD. [history ]. Mills helped create IMPALA, the indies' European trade association, which successfully challenged the Sony BMG merger in 2006, and the proposed Time Warner-EMI merger in 2001. He was awarded an MBE in the New Year's Honours list.
If the industry made a single mistake or strategic error in the last ten years, what would it be?
Well, where do you start?
There are many, many of them. I think the major record companies have been obsessed with control, understandably, as almost any industry in their position would be, but to their ultimate detriment. They've been very defensive.
I think the whole "DRM as a policeman" policy was doomed to failure – the independent companies never supported it to any extent whatsoever. We have never believed in putting obstacles into what the consumer wants to do.
So I think that the industry determination to segment the market, and try and maintain a price per unit consumption model, has proved absolutely disastrous. Obviously suing Napster out of business, well, even EMI now agrees that was short-sighted. Clearly it was – the independents didn't think so. Those are the big things.
The big part of the industry has, frankly, been Luddite. The independents less so, because quite frankly we have the opportunity not to be. We license every day of every week, and we're not used to the level of control the majors have enjoyed, and want to continue enjoying.
What's the biggest consequence of the consolidation to a Big Four?
It's access to media and access to retail. Clearly, if you own the amount of the market that Universal do, you can twist people's arms for those few extra spaces that may go to independents or even to EMI.
If you had a magic wand now what it would be – a single agreement or piece of legislation that would benefit Beggars and the independents?
I'm not sure there's a single piece or agreement. We inhabit a mature industry that's grown on a multi-territorial basis. And, frankly ,if you were reinventing it today you'd reinvent it way differently. It would be global, not territorial. All of the ways music is licensed are bogged down in territorial interests. Eventually, they're going to disappear and it would be great if you could wave a magic wand and make it easier to license. We want to make it easier to get a license at a decent price.
Can't the independent sector go it alone with some kind of licensing deal, with the PlayLouder MSP model of legal P2P?
We already have something like that with eMusic. We find our relationship with them positive and productive, and we like it. Obviously we make less per unit, but we make more per consumer – and that's a trade-off you can live on. They're in a position where people go to them for a restricted musical offering, and they still succeed. And for me that's an encouraging example.
But we're 20 per cent of the market and we can't ignore what the market leaders are doing, and what Universal is doing ultimately determines what the market is. There's no point in denying it.
One of the reasons why at IMPALA we've been so exercised by Universal's dominance is that the market is in the control of one or two parties, and we don't think that's healthy. If the regulators regulated it as we think they should, then it could be avoided for the good of the consumer.
If I had to pick put one dominant theme from Register emails and comments, and it's not representative of everyone I'm sure, is that the value of sound recordings is going down, and the owners should give them away for nothing – and perform or sell T-shirts. Are you optimistic about being able to maintain that value?
I wouldn't say optimistic, but we're certainly working hard towards it. It's very difficult because everybody in the market is driving down the value. We're not just talking about file-sharing and CD burning, but I'm also talking about deals labels are doing with supermarkets and Sunday newspapers. All of which you can understand, but all of which makes it difficult to maintain value.
I think what we have to do is far more flexible about price. The industry has been very bizarre over the years – it's essentially a one price industry. We're looking at releasing some music more cheaply, some music more expensively, but just finding a price that fits the project. Creating special deluxe editions or reducing the cost on others, and selling them more cheaply.
John Kennedy [IFPI chief executive] says he thinks he's 80 per cent of the way there to licensing digital consumption through the network, and there's opportunity there. But he doesn't want to give everybody access to everything at once. Going that last 20 per cent [to a collective license] would destroy physical, he thinks. Do you agree?
Well, I don't want to destroy physical sales either. We find physical and digital are both viable markets that people enjoy using. But clearly, there's an opportunity for music on tap, and as a service, and it's something we should explore. I think we all want to see it come, but we don't want to see it destroy even the new versions of how people enjoy music.
All the talk now is about going after the network operators. But I can't see the carrot for the networks - only a stick. What is it?
The carrot has to be how they can participate in the value chain of music. Unfortunately it's always very difficult going from something that's free to an industry to something that has a cost to the industry. That's not going to be easy.
Technology evangelists for the companies that use copyright material, are very subtle in their rhetoric; much of the "Web 2.0" evangelism is that people should work for free, or very little, for the good of the internet.
OK if you follow that logic, if musicians aren't going to get paid, then they have to work for nothing; and obviously no one can't live on nothing; so the music has to be funded in some other way. The only way I can think of is some kind of sponsorship and branding, which would be an updating of the Florentine patronage model. But if you do that, then you put artists in the position where they're financially dependent on patrons, and whereas that may have worked 400 years ago, it isn't desirable now.
The patrons are going to be largely commercial so brands that see an advantage to a certain kind of artist, and that is putting art far to close to commerce. That would mean marginal music wouldn't exist, you'd only have music that had a commercial upside for sponsors. That's a world none of us really want to see.
We shouldn't make it impossible to earn a living from music. The fact is in Britain you can't earn a living from live music. You can if you're a covers band in America – there's an opportunity to go out and play a couple of nights a week in a bar in America. You can't do that in the UK, not a chance.
Any band playing in a venue up to and in some cases including Brixton Academy are being subsidized by the record company. So bands that play Shepherds Bush Empire, or The Garage or The Forum aren't making money.
Frankly that's one of the cancers at the root of the industry – the cost of playing live and the revenues from playing live don't add up. It's not viable on its own. As a result you can't make money from playing live - so you have to make money from the commercial replication of your recordings.
The London music venues are sewn up with one promoter.
And partly it's to do with the cost of property in the UK, with salaries, staff, with security - you've got to have all of these things, and in an unsubsidized arena it costs a lot of money to put on a show.
I find the debate around the secondary ticket market that MPs looked at recently quite fascinating. It works pretty well, even with the distortion created by the agencies getting big allocations first. But if tickets are undervalued shouldn't venues charge more?
Maybe. Perhaps you could invent a flexible pricing model based on the way EasyJet fill their seats. That would be quite interesting. That's not my business though.
Tommy Silverman said recently that home CD burners are the biggest challenge, more than P2P, which gets all the attention - because you now see blockbuster first weekend sales that fall off really dramatically in the second weekend.
It's always happened and it will never go away. But it's better quality now and cheaper, and more of a direct substitution than P2P.
Anything that allows someone to consume music they'd otherwise be paying for makes it more difficult to make it enough money out of recorded music to carry on recording. I think P2P does have a discovery element to it, and it you may discover something on P2P that makes you buy a product. CD burning is much more domestic piracy, and is much more somebody avoiding paying for something.
Personally I think the levy system on blank media that's in many parts of Europe is a very, very blunt instrument, and the industry derives only small revenues from it. Personally I'd like to see a much more sophisticated instrument. I think the principle holds good that anybody who makes money from the free use of the music should really be licensed by the owners of the music.
I see lots of ideas for physical containers for music we'd actually want. Volume was a great example with its book/magazine, and the good independents do beautiful booklets and packaging But you have more freedom – and the majors don't have that wiggle room if their the CD division of Time Warner, say, with a book division next door.
The big guys have very firm internal rules about what they spend on packaging - and very draconian remedies if the packaging costs more, and the remedy involves the artist paying most or all of the overhead!
Anyone who releases or licenses music through a major knows how stringent their guidelines for packaging are. Independents don't do that. Independents invariably look at what's going to be good for the project, or what the artist wants. But it makes the packaging the independents make much more attractive.
And your hopes for 2008?
I would like to see copyright modernized in 2008, with people enabled to do what they want to do, and those who profit from it allowing the practice [third parties] to be monetized. I'd like to see barriers taken away from the enjoyment of music.
If you abolish copyright you abolish the ability to monetize multiple copies of music. I don't see why you'd want to throw that away. The copyright industry is a huge part of the UK's national wealth – why should we want to throw that away?
So you want to de-criminalize sharing with compensation?
Yes, but where the government is heading on copyright on private copying is completely crazy. They're trying to define a really, really, really narrow use which is "authorized" - they'll never do that. The headlines in the papers day after all said "Private Copies Will Be Legal" . They didn't say "Just this little bit of it". I think they're mad.
You wouldn't make private copies legal without assurance of some revenue back?
I would like to make it much more legal than they want, it to be, but I would establish revenue streams coming from it.
Do you share BPI concerns you'll eventually be able to drive a bus through the private copying concession?
[The government] is affecting the legal sanctity of copyright. What we're dealing with is copyright in a commercial world. To me in a commercial world, you have to enable private copying. You've just got to work out some way of getting paid for it.®