How to destroy the music business
This will only take a second
Analysis Put yourself in these hypothetical shoes for a moment. My goal is to make as much money as possible by doing as little work as possible. I have no creative talent except for generating and recycling marketing buzzwords. I have no technical knowledge or ability - but I can get my head around a Twitter feed. It doesn't sound promising, but you'll want in, I promise.
Now let's imagine a business that can achieve our goals.
The natural place to start this business is on the internet - where one can harness the labour of millions of people and pay them sod all for their work. Under the smokescreen of "collective intelligence" or harnessing "the wisdom of the crowd", we can keep our supply costs at zero. And if we can keep reminding these rubes that "power lies at the edge of the network" or "in the Long Tail", they'll produce lots of stuff for us for nothing, without complaining.
That's the supply side sorted out. However, we need to attract an audience.
We know that the traditional vices - gambling and porn - will drive substantial traffic to our service. But gambling has regulatory issues - and porn takes us away from the mainstream. That leaves music - the stuff of life, and proven crowd-puller. So let's make music the main feature of our service.
There's a couple of problems however. One is that simply throwing up millions of crowdsourced user-generated MP3s isn't going to draw much of an audience, as the (undoubted) gems are too hard to find. Copyrighted material is what people want, and while economic activity persists around music, there are thousands of talent-spotters slightly better than our algorithms dedicated to finding it: the promoters, DJs, talent scouts, A&Rs, and so on. We can give our music finding technology a fancy name, but it's still rubbish, and no match for a human talent scout.
The second problem is that owners of musical rights are frustratingly reluctant to surrender their assets for a smile, a promise and two magic beans - which is about all we have to offer. What music service companies like ours need is somebody in the music business stupid enough to hand over their master rights assets for next to nothing. Thirdly, and this follows on from the second point, asset-owners have civil law on their side. So unless we negotiate individually with many different licensing entities, the threat of litigation or seizure hangs over us. What we need is a Get Out of Jail Free card - something that allows us to pursue our goal of creating as much money as possible, while adding as little value to the human condition as we can muster. But now I think I've heard the cure for all these problems. Peter Jenner again proposed it at a MusicTank seminar this week - and it fits our needs perfectly.
It's an "Access to Music Charge", and it's our Holy Grail. Under an AMC the rights holders couldn't refuse us - and everyone is opted in at once. So this lifts the mortal threat of being sued for using someone else's assets without their permission, and doesn't oblige us to do anything innovative. The clincher: the cost of this, Jenner helpfully explains, will be so low we can consider it as a one-off shake down.
So an Access to Music Charge is great for talentless non-entreprenuers like us - but why is it bad for anyone with an economic interest in music? Well, this scenario should explain it.
As Jenner sees it, an AMC will simply lift the threat of litigation from music services companies like ours that offer file sharing, and creates a new pot of money that goes to creators. (We'll start by offering you a fiver, Pete). What should happen - he explained to the MusicTank audience - is that enterpreneurs and innovators will then create value added services that people will voluntarily pay for, over and above the AMC. For example, people will pay for services that offer FLAC file format versions of songs to share.
However, there's no need for us to spend a penny on such a service. Because under Jenner's AMC, every Oink is now legal, and they'll be offering FLAC versions for us. (It's hard to find a piece of music on the Torrents that isn't already available in lossless format.) So there's no reason for anyone to invest in creating a SuperFLAC P2P premium service, because people are already getting it for free. And because people are getting it to for free they won't, out of the goodness of the hearts, suddenly start paying for one.
Meanwhile, we're home and dry. Remember the question posed at the start of the piece - how can a completely talentless but cynical entrepreneur flourish? The answer is - they need an AMC. Pete, I suspect, hasn't met as many "internet entrepreneurs" as you or I have.
Incentives and blankets
At MusicTank Paul Sanders explained the difference between a pay-for, voluntary, opt-in P2P service such as his own (PlayLouder MSP) and a free for all low-cost blanket regime, such as Jenner's AMC. The civilised home of the future will have a music service, said Sanders, one that's managed and aware that four people with four tastes all live under the same roof. LimeWire today doesn't give you that. "I can't imagine people opting-out, if the service is good."
It's about getting incentives aligned. If you think PlayLouder is rubbish, you'll be able to take your money elsewhere. Once you're voluntarily paying, you have the right to switch. And because real money is changing hands, that means capital will flow to PlayLouder and its competitors. There were huge problems to be solved in marketing , billing management, but so long as there were happy, paying customers, money would go to solving them.
A lot more was needed, he thought. The entire supply side of the music business needed reform, says Sanders, because the suits don't understand customers. It should think of itself as a factory supplying wholesalers - selling the goods to a wholesale market at the factory gate.
"A good enabler sets a price everyone can afford, then stands back and lets everyone else get on with the selling."
None of this would happen with an AMC:
"You need more than just some kind of waiver that says the BPI won't come after you."
Blanket licenses are a brilliantly seductive answer to music licensing, especially if you're naturally inclined to get the state involved and solve everything for you. The seduction is its simplicity - especially if you have an engineering mindset, where simple is elegant is best. I've been seduced myself. But there are real disadvantages as there are to any solution - and these become apparent after a moment's thought. The drawbacks, as I've illustrated, could be fatal for economic activity around music. It's dogmatic to wish these away.
That isn't to say Jenner won a lot of support for his diagnosis [ see Big labels are f*cked, and DRM is dead - Peter Jenner from 2006] of the music business. It's his prognosis that has zero support. He's unwilling to see how his AMC creates a huge disincentive for anyone to get involved in business around music.
Jenner said talk of incentives "reminded him of the City" and concluded that you can't trust markets. This is a bit juvenile coming from a graduate of the London School of Economics. Jenner is rightfully skeptical of economists fads, and probably right to be wary of Game Theory-based analysis too (the last big fad in economics before the current one, Behavioural Economics).
But I'm sure he understands disincentives - and these were illustrated by Beggars' Simon Wheeler, explaining his dilemma today. The indies have embraced the new technologies, and want to license. There's a problem, however:
"A lot of the business models we've seen aren't business models. They haven't made any money." That's our hypothetical business rumbled then. If he cut the no-hope internet companies some slack: "Our artists would go 'I think I might as well work with a company that might make us some money'."
With the AMC, the music business throws away the last bargaining chip the it has left, setting its exit price as low as it can. The only incentive it creates is for the hypothetical entrepreneur I introduced at the start: talentless, cynical and exploitative. For him, happy days are here again! ®