“Why can’t we understand that free music is not an option?” – IFPI

In January 2008, the president of the International Federation of the Phonographic Industry addressed digital music piracy with this statement:

“If people can be made to understand that free is not an option, we could get a dramatic improvement,” John Kennedy said. “That, for me, would be the beginning of a recovery.” http://www.iht.com/articles/2008/01/24/technology/music.php

IFPI website with “anti-free music” headlines

But to a generation who grew up on Napster, this falls on deaf ears.   Free is not only an option, it is the reality, it’s happening all around us and it is fantastic.  Not only that, but our instincts that “free” works are supported more and more by people like Chris Anderson who points out that free media industries like newspapers have been using a “free” advertising cross-subsidy model for ages.  So how are we supposed to react when big industries say things like free wont work?  We ask why?  Our music is still here for free now, are you saying free will make it go away?  If so, why should we believe you?  You’re saying free music is some kind of bubble that will eventually pop and our music will dry up, but as far as we can see you’re just whining because your sales are down 10% and you haven’t done anything about it to change with the times.  On our end, we’re seeing as much music as ever with more ways to get at it.

Now this is going to be a weird connection that will take a minute to bring around, but I’m going to go with it…  This reminds me of the disconnect I hear when Henry Paulson tells banks “don’t horde your bailout money, spend it.”  Isn’t this a classic Nash Equilibrium problem? – each bank wants to bolster their own security and knows that they put themselves at risk if they lend.  By making a blanket statement asking them all to spend at once you’re just asking them all to lower their guns – but what if the other bank doesn’t lower their’s, they say – and so no one responds, or when one tries to respond it might end pretty badly.  (most any quentin tarantino will illustrate this point nicely graphically).   Even if you think you know what is good for the market you can’t just say “do it” to all parties stuck in a stagnant equilibrium.  You have to create forces that will predictably sway individual decisions till they waterfall towards a net result of momentum that will overcome the equilibrium valley that they are stuck in.  But the bailout money doesn’t necessarily supply momentum (think of energy) to start banks lending again.  It supplies “confidence” which is more like potential energy.  By “bolstering confidence” you could just end up raising all of their potentials at once to get out of their lending freezes, but leave them like roller coaster cars at the top of their tracks still just waiting for the other one to start rolling down the hill.  In princial boosting confidence works in a market, but if the players are tied too closely together – like men with guns pointed at each other, you can’t just uniformly give them all that increase in the potential to lend; you still might not change their equilibrium position – you just raise the stakes.  Even if you give them the power to get out of their stagnant state, if they will benefit more by using that leverage to insulate themselves from a falling market, that is what they will choose to do until someone else makes the first move.  And the steady state stagnancy will remain, there will be a net average increase of “don’t lend” decisions.
Now, what the hell did that have to do with the music industry?  I’ll tell you at the end of the post if it doesn’t accidentally dawn on you sooner.

To understand why the music industry wont embrace free music, you have to ask what motivation they have to change.  Sales fell 10% last year but it’s still a $17.6 billion industry where over half of the cost goes to marketing and promoting, only 10% goes towards royalties for musicians, and big deals are made such as a 30% cut of CD sales on itunes going to Apple.  http://www.wired.com/entertainment/music/magazine/16-01/ff_byrne?currentPage=all#s

From David Bryne's Wired Article: see link above

Even more important than keeping sales up year to year, record companies are desperate to maintain this market model that gives them tight control of huge amounts of money.  For example, they are happy to pay Apple big money when it insures them reliable sales for years to come.  Controlling the content and the deployment channels of content gives them the leverage to keep musicians dependent on the label, lock them into contracts, and use those musician’s influence to bring in new musicians who have the potential to become the next hit.  The real money comes from the big hits, and it is crucial to own rights of musicians who have the potential to become big.  The big music industry is not in the business of selling the average musician’s tracks.  They are in the business of making relatively tiny gambles on upcoming musicians, who will each have small chances of making that gold mine enormous return.   They are in the business of mining for gold and platinum record deals.  Far more important than losing 10% of profits, big music labels are desperate to maintain this control that allows them to capitalize on such lucrative gambles.

As I mentioned in my last post the big music industry knows that they can make more money giving away music for free – and they are just starting to admit it.  So why have they done everything they can to stave off this inevitable change?  Because even if it will at first make them more money, it will take away their control and open up the market to dangerously creative and flexible business models that will eventually put them out of business if they don’t try to keep up.  This isn’t new – the same thing happened to the music industry when radio forever changed record sales in the early 20th century.  The companies that wouldnt adapt struggled for a short time and died.  The ones that survived took over the radio air waves.

What I want to make is a social network platform that gives artists the power to promote themselves and partner with advertisers that share a mutual target audience.  Why does this scare the crap out of big record labels?  Because artists will no longer be totally dependent upon them.  Competition will kill off the stranglehold contracts that are tolerated today.  Sure some of their services will maintain plenty of market share, but they will lose control of the big-money they make from small-gambles on upcoming artists who jump into contracts because they can’t afford to build themselves up gradually on their own.  Of course we already see this happening in small steps.  But why hasn’t the music world embraced this sooner and faster?

While the big music industry continues to expand their grip on content rights, they do what they can to keep attention away from that dirty little secret that the Internet has increasingly enabled musicians to own and promote their own content.   So it has taken a long time to even get past the idea that “a track costs a dollar”  – very few companies have tried to create something new.  I want to create that killer app.  I want to make that social network promotional tool that is so attractive that musicians will flock to it and money will follow.  It will be so popular because it will be open source and give the musicians power over everything and for the same reason, the money that follows will be put into the hands of the musicians.  It is ridiculous that myspace is still the standard for musicians to connect with their fans.  I want to make something real that gives you the entire history of music and takes advantage of how ridiculously influential musicians are as role models and how passionate fans are to learn everything they can about the musicians and their music.

Going back to the bank bailout.  If all at once, all of the banks started lending to each other, they know they would all benefit.  They could pull the economy back up.  But any given bank still holds the leveraging power to horde resources so, there is too much pressure for each bank to decide not to start lending in the first place.  Instead they decide to use the money as a buffer to help protect themselves from the rest of the market.  Likewise the music industry players know that they could all benefit if all at once they updated their market models so that they brought advertising to music like never before.  AND if they did it all at once, other competition wouldn’t have much time to enter the arena.  But they also know that if they didnt do it all at once it would just needlessly open a Pandora’s box of competition.  (the real Pandora’s box of music industry competition – the one where you get access to everything – not the pretend one that makes you listen on their terms – but i still love you Pandora).  Until now, the record companies decided they would rather not take the risk when they could instead keep the whole industry playing by their old rules.

But now that things are changing faster towards universal free access to music online, they are feeling the pressure and they know they have to change.  So, to brace for the change they are making a land grab for music content rights.  This is what 360 contracts are about.  They are trying to rope in as many artists as they can and take control of all their rights for everything including concert tickets and merchandise.  If a new system doesnt step in now, all of the major labels could make this policy change together and hold back the whole music world from seeing an exciting new era for that many more years.