Dynamic Pricing

Seth Godin must be one of the smartest people on the planet. His blog is always inspiring. This piece about dynamic pricing is about the book publishing industry but it's equally relevant to all sectors of the music industry. What are the good reasons we aren't doing things like this more? I don't know of any.

Dear Lord Mandelson...

In yesterday's edition of the weekly Record of the Day magazine is this open letter to Lord Mandelson from editor Nicola Slade. Paul Scaife, who's now more important than Stephen Fry (see here) very kindly gave me permission to paste it in full. For a copy of this magazine you can download it as a free sample from the front page of the RotD site or use this direct link.

Declaration – I used to work for Record of the Day and occasionally still do. It's a great team of people and a terrific music company.

Back to this letter, I think it's absolutely bang on. I'm not sure labels are ever going to unite to develop a necessary new business model to save themselves. Which is why I too believe the time has come for the government to intervene and impose compulsory collective licensing on the UK record industry and achieve something that's actually beneficial to music consumers.

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We feel compelled to write an open letter to you today to highlight the news that Virgin Media’s music service is going to be delayed for some time owing to a negotiation impasse with record labels.

In light of the recently proposed Digital Economy Bill, we believe it’s imperative for you and your advisors to keep abreast of such developments. Maybe you are aware of what has occurred, but we would like to add our voice to the chorus, so to speak.

Virgin Media and its joint venture partner Universal Music Group announced their intention to launch a subscription-based unlimited download and streaming package earlier this summer. We count ourselves among those who welcomed their plans, believing it to be a forward-thinking and potentially ground-breaking service which would greatly appeal to British music fans.

This week it has transpired that EMI, Sony, Warner Music and – as far as we can ascertain at the time of writing – Merlin (which represents the indie community), are holding back the launch as a result of a dispute over price-points relating to the unlimited download aspect of the service. We also hear unconfirmed reports that EMI is also seeking for the unlimited download offering to be capped – therefore negating the uniqueness of the original offering. The price point, we believe Virgin had set, was in the region of £15 per month, or as someone close to the company told us, "the price of two CDs".

Virgin had confirmed that it hoped to launch before Christmas, and while discussions remain ongoing, it is now in a position that it cannot provide a firm launch date for any time in the near future. It is also thought that Virgin might be forced to reassess its original plans in order to satisfy the needs of the labels.

For background purposes, Virgin Media in the latter part of last year was poised to launch a music ISP service, in association with one of the music industry’s most savvy technology companies, Playlouder. Those plans were disappointingly scrapped at the last minute after it transpired that certain record labels refused to license their content. We also believe that the music-based ISP service would have proved to be successful and would have provided another outlet to entice certain quarters away from P2P platforms.

This latest piece of Virgin Media news arrives at a time when ad-funded streaming services in the US are being overhauled. MySpace has acquired the much-beleaguered Imeem, while Apple stepped in and picked up Lala.com only this week. From the outside it is no surprise that the Apple/MySpace behemoths would choose to acquire those platforms – if only to utilise their ‘back-end’ technology. But what it does show is that these services were unable to survive as stand-alone propositions. It therefore does not bode well for similar services here in the UK. Although we believe Spotify and We7 to be resilient, we too recognise that it is an uphill struggle for them to draw in enough revenues to maintain their services going forward. There is therefore a desperate need to introduce into the UK market new legal services which are not funded by advertising, but which still provide an innovative and new offering for consumers – just as Virgin Media has been trying to do.

In light of the Digital Economy Bill – where might all this lead us? We understand your target is to reduce piracy by 70%, but how is that achievable when the record labels who have lobbied government so hard are simultaneously stifling the launch of innovative, new platforms?

This is unfortunately a rather sour note to end the year upon. It’s a regrettable and we believe, avoidable situation. Virgin ought to be commended for its vision. What a terrible shame, it is then that the same can’t be said of many of the UK’s labels? We urge you to question labels about their attitudes towards licensing new services and their failure to give innovative new business models a chance to even take root, let alone flourish.

Nicola Slade

Music as a service, not a product

This Guardian article by Don Tapscott, author of Wikinomics largely echoes the Sunday Times piece below. There is nothing here with which I disagree. Great piece, well worth reading.

Not really piracy, or theft

This piece in today's Guardian is fascinating and beautifully argued. Alexandros Stavrakas makes many great points. Do read the whole article. I especially like his articulation of the idea that the words piracy and theft are, at the very least, unhelpful in the context of people 'illegally' file-sharing (my quotation marks)...

"... people who participate in the exchange of immaterial works do not treat them as property. When they exchange music, books or movies, they are not merely transferring ownership from themselves to others; they simply do not recognise themselves as owners in the first place."

and this line about the costs being proposed for policing piracy...

"Could, for instance, the considerable resources that might be allocated to protecting, policing and, ultimately, sanctioning online file-sharing not be used for rendering it less financially damaging for the creative sector?"

is a healthy dose of common sense echoing the thoughts in the first posting below.

How we got here and another, slightly different, solution

Ian Brown, a very smart chap, wrote this piece in last Monday's Financial Times. You might need to register to view, but it's worth it. It has some great historical context on the current issues surrounding the record industry's problems due to filesharing.

He also sent this link to an essay from the Electronic Frontier Foundation which proposes a solution to the problem via Voluntary Collective Licensing. Very good article, and highly recommended.

It's a terrific idea, and I agree that a market driven solution is more healthy than a government imposed one. However, after ten years not doing so, I wonder will the record industry ever unite and deliver such an elegant solution to their problems?

A possible solution to file-sharing?

For the last seven weeks I've been working on an article with journalist Lisa Verrico which was published today in The Sunday Times.

Due to limited space we had to edit significantly so I'm posting the full piece below.

It was inspired by this brilliant Douglas Adams essay (highly recommended).

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Peter Mandelson probably wishes he'd never heard of peer-to-peer (p2p) file-sharing. When the business secretary was first charged with fixing the problem thought to be costing the British music industry tens of millions a year, he must have rubbed his hands with glee. Here was an opportunity to save the sexiest of the creative industries, attend cocktail parties with Lily Allen and lead the world in dispatching a modern-day menace. Find a solution and he would be hailed a hero.

Mandelson's confirmation last week that he will proceed with plans to cut off the internet connections of persistent illegal file-sharers may have been greeted with cheers by the CEOs of several record companies (Universal and EMI among them), but it won't have caused much concern among the people it proposes to punish.

As anyone with an iPod full of free music could tell you, cut off kids' internet connections and they'll just log on to their neighbours' wi-fi. Or go to an internet café. Or take their laptops to a free wi-fi zone. There is no doubt that p2p file-sharing is a menace not only to the music industry but to every creative industry everywhere. If it goes on, every creative industry will have to contract and several may die.

The reason Mandelson's proposal won't work is because there is a fatal flaw in what he is seeking to achieve. In its own words, his consultation document addressing p2p file-sharing is "aimed at changing the behaviour of the majority of file-sharers". Sorry, but that's not just shutting the stable door after the horse has bolted, it's deciding to close it a decade after the horse trotted off, took all his mates with him and found out living in a field is far nicer.

For the majority of today's teenagers, music has been freely available since they first learned how to log on. Current copyright law may claim that's not fair, but boo hoo! In the internet age, copyright law is starting to sound like a pouting child being denied a second slice of cake. It can stamp its feet as much as it likes, but the world isn't going to change just because it wishes it would.

Yes, record companies claiming that their business is being decimated by thieves – unfortunately, their own customers – have a point. But a decade of moaning, indecision and in-fighting has only made matters worse. Remember, it was the record industry that digitised music in the first place – back in the '80s, when they invented CDs (basically, digital files stored on disc). They were delighted not only to sell new music on CD at inflated prices, but flog fans albums they had previously purchased on cassette or vinyl in this fresh, shiny format. In terms of making money, the CD age was a platinum era for record companies, but instead of ploughing a percentage of their profits in to securing their own future, they spent more on flowers and first-class flights.

But blaming the record industry for its lack of foresight is no more help now than asking kids not to file-share. What Mandelson – and most adults – can't grasp is that file-sharing is now the norm. Of course it is, because distributing digital data is what the internet was invented to do and it does its job impeccably. Telling teenagers not to share music online is like telling adults who have had access to electricity all their lives that, from tomorrow on, it can only be used for certain appliances. So a toaster, say, is okay, but kettles are out. And if you want a bath, you'll have to boil pots of water over a stove.

The question is not how to stop file-sharing, but how to make money from the explosion of interest in music that has resulted from file-sharing. Several sectors of the music industry – live, licensing and merchandise – are doing very nicely thanks to the fact that more of us now listen to more music than ever before. But it is the record companies that urgently require revenue to begin flowing back in to their coffers for the music industry as we know it to survive. Because, like them or loathe them, it is the record companies who spend money developing new artists. Lily Allen may be misguided (her widely-reported blogs focused the debate on cutting off connections), but she was right when she said the future will be dominated by X Factor contestants and heritage acts if record companies continue to lose out from file-sharing.

The solution has its roots in the electricity analogy. A decade after the worldwide web caught on and five years after broadband connections became commonplace in homes, the internet is no longer considered alien or exciting. We treat accessing the net as we do turning on the TV. And most households pay for the privilege of internet access with a monthly fee to an internet service provider (ISP). So using the internet isn't actually free, but because the bill is paid as any other 'boring' utility, it feels free when we use it.

Why then not pay for downloading music as we do for using electricity – not every time we download a song, but for the total amount of music we download in a month, whether from an iTunes-type store or any p2p network. If a service existed that could track not just how much data each household downloads, but exactly what that data is – Dizzee Rascal's new album, say, or an old Rolling Stones song – then a charge could be levied through the ISPs, the money collected in a central 'pot' and then shared out fairly among copyright owners according to how many copies of a song or album have been downloaded.

Move the point of purchase up the value chain – so record companies no longer directly charge their customers for music, but instead charge the ISPs – and the perception will be that recorded music is free, which is how most kids already regard it.

Make file-sharing legal and record companies would receive all their due revenue because file-sharing data would be tracked and charged for too. As a consequence, bad quality recordings would disappear because why would anyone want a possibly dodgy copy of a song when they could access a pristine version from a lovely-looking, easy-to-navigate site where you don't have to pay.

The good news is that such tracking technology already exists. For almost a decade, an American, online research company called BigChampagne has been monitoring music (as well as movies and TV shows) shared on p2p sites. Even better news – for consumers – is that downloading as much music as you could listen to in a month needn't cost much more than you already pay your ISP.

File-sharing is already so rife overall internet usage is unlikely to increase. Yes, ISPs will try to charge customers more since they would be taking the hit for reimbursing record companies, but it's a competitive market out there. Whichever ISPs don't increase their monthly fee can expect a flood of new customers. Parents worried that their children will rack up enormous monthly bills can opt for a pricing system which caps how much data can be downloaded. Think of it like choosing a monthly mobile phone tariff for your teen – you decide in advance how much you intend to spend.

Will ISPs be pleased? Clearly not, which is why the government must legislate, to 'tax' them. So far the industry has failed to deliver a commercially viable alternative. Why? Because it is impossible to compete with 'free'. Compulsory collective licensing is the only option – if you want to be an ISP you have to pay for a licence, the proceeds of which go straight to copyright owners. Record companies must also be required to license all their music at a pre-determined and fair price to all ISPs. It's not far removed from the legislation that has long required radio stations to pay royalties for every song aired.

Moreover, ISPs claim that if they are made to police their own customers, it will cost millions per year. A BT spokesman put the annual cost to all ISPs at £365 million. That may be a guess, but since the British record industry claims to be losing £200 million a year from piracy, the proposal is plainly preposterous. Rather than pay for pointless policing, let the money keep the record industry afloat.

If this model can work for music, it can be made to work for other creative industries. But it is the record industry that is set to sink first and needs help now.

Will some households face significantly bigger ISP bills? Only if they decide to download thousands of songs and movies a month. Those not concerned about bills can access as much entertainment as they like.

If we want new quality content to keep coming, the rest of us will have to opt for what we can afford to pay, just as we did before the internet age.

Hello World

yikes!