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March 12, 2007

Digital music in a mobile connected world

I used to live in Beverly Hills. One of my favorite breakfast places was Newsroom café, but I stopped going because it got too irritating to listen to all the WADs (Writer/Actor/Directors) talking conspicuously loudly with their MAWs (Model/Actress/Whatevers) about their script/part/project which they just wrote/developed/were offered.

Silicon valley has its own version of this coffee house hell. The Sharon Heights Starbucks on Sand Hill Road should install ceiling-mounted cones of silence that can descend to encapsulate the hyperactive entrepreneurs fervishly refining their pitches before their meetings with the venture capitalists up the road. They gesticulate with their triple grande lattes and point meaningfully with their scones at their computer screens while explaining their particularly pertinent points of genius. Conviction and caffeine combine to raise voices above the ordinary din, and I know well the look in their eyes – a constant slightly desperate need for validation.

Next to me are two young guys crowding a small table with their open laptops, exchanging sentence fragments about the presentation they are working on simultaneously, apparently in a mad dash to add one last bit of brilliance before their next meeting. They are definitely out of college, but only recently so. One guy has a venti quadruple cinnamon dolce latte and a lemon poppyseed muffin. I watched him order it. (This is an amateur move [that much coffee raises your core temperature (which makes you sweat during your presentation [which is exacerbated by the sudden massive calorie load (the muffin alone is 560 calories and 30 grams of fat, [the exact same as a Big Mac, btw (but worse because and you run the risk of having to do your pitch with poppyseeds stuck in your teeth.)])])])

These guys have a social networking site for music sharing (of course) that enables people to upload their music, create playlists and share them with not only their friends but anyone. They are particularly proud of their MySpace widget, which they call their silver bullet. They have mistaken my multiple glances in their direction to mean “wow, that sounds unique and interesting, I think I will covertly listen to these brilliant young men,” whereas what I really mean is, “hey, you obnoxious assholes, keep it below a scream because the kids at Stanford are trying to study, and by the way, you just described the last seven years of business plans in the digital music space from Napster to iMeem, and MySpace just blocked all widgets.”

Have you tried iMeem btw? I love it in the same way I loved Napster when it first launched.

Anyway, digital music seems to be enjoying a bit of a resurgence to the limelight, and I have been thinking a lot about digital media lately, what with the recent spate of lawsuits around the MP3 format.

Microsoft has to pay $1.52 BILLION to Alcatel-Lucent for patent infringement.

And now Apple, Samsung and Sandisk are being sued for patent infringement, too.

I think we can expect to see more lawsuits, too.

A few weeks ago at 3GSM, Warner Music Group’s Edgar Bronfman Jr. lamented the current state of mobile music downloads, saying “…it’s expensive, it’s complicated and it’s slow. It's amazing that we've generated as much revenue as we have given how cumbersome the experience can be."

I think he is 100% correct.

But what can he do about it?

Clearly the music industry is a big business, and so I guess it is worth defending, growing, disintermediating, disrupting, consolidating and all of the other verbs that myriad businesses are trying to do. I have been thinking about Edgar’s comments and, specifically, how the music industry can make money in the mobile space when the internet is basically a machine that distributes their content for free.

Of course, the real issue everybody brings up is that the music industry itself sells the bulk of its content on CDs, which is an unprotected digital format. If people are willing to pay for that, then why tax consumers of other versions of it with onerous DRM mechanisms?

I think I would start where the industry is most effed up, which is only in the technology – technology, btw, that was not vetted nor intentionally employed by the music industry. Here’s a brief history of the music industry:

- Wandering minstrels played their lutes to villagers for a few shillings
- Patrons of the arts sponsored composers and musicians
- Constanze Weber continues to commercialize her late husband’s (Mozart) work through commissioned concerts
- Tin Pan Alley consolidates printed music and monetizes it, though not necessarily to the benefit of artists
- Copyright laws evolve to protect and compensate artists
- The Phonograph changes music distribution and leads to the birth of and domination by the record industry
- Radio happens
- The record industry learns that applying new technology to replace their catalog of music periodically is a good way to make a lot of money, so we get casettes and 8-tracks and they lead to such conveniences as the Sony Walkman in 1979
- 1981: MTV happens
- 1982: CDs happen

Those last two points in history were crucial to getting us to where we are today in the music industry. Until 1981, the record industry didn’t understand that it should have been the music industry. The record industry viewed MTV much as it did radio – as a marketing channel to sell records. So, the record industry GAVE MTV it’s content for free and MTV went on to build a multibillion dollar business on the back of the record industry. Lesson learned: There is a lot more to music than records. Fine.

But then they did something that was, in retrospect, incredibly unfortunate. As technology evolved, as it had before, they took advantage of it and reprinted their entire catalog in an unsecured digital format called the Compact Disc. And it was great for several years.

- Then the internet happened.
- Then CD ripping happened.
- Then Napster happened.

It was like a perfect storm that absolutely could not be predicted. And thus a business model defined as “physical distribution of physical goods that consumers pay for at retail” changed completely into “digital distribution of content over the internet decoupled from its original form that consumers do not pay for.”

I find it ironic that:
- The record industry is itself responsible for unwittingly cutting its own value in half
- The largest patent infringement verdict in history is over a technology that only destroyed market value for the industry that created its importance
- Said technology did create value for consumer electronics manufacturers, which created an industry around providing portability to users of their music in MP3 format
- The consumer electronics manufacturer that saw the greatest benefit is suggesting somewhat convincingly that the music industry shouldn’t even try to protect its content

Technology changes things. We are essentially back to a form of electronic wandering minstel. Tower Records is gone, but Hot Topic and Starbucks are major purchase influencers for consumers. Independent labels can now survive on bands that might only sell 50,000 units whereas 10 years ago, anything less than 250,000 would be a failure. Bright Eyes gave away most of his early work electronically, became hugely popular, and later released a couple of albums in the top 10. Cool. Let’s enable that.

So back to Edgar Bronfman and the guys at Starbucks. I think the guys at Starbucks are right to put music in a social context. I personally think that putting anything in a social context is a good idea, given that recommendations from people we know are the most influential form of discovery. I know Edgar Bronfman is right, but the reason seems pretty simple to me: Any carrier has to organize their content and application offerings into a hierarchical pyramid that resembles an iceberg in that a small percentage of it is visible above the water and the vast majority is down deep below the surface. This is a reality of the devices we use to provision content. So what about putting it into a social context instead? In the mobile space, that would mean associating the PIM with meta data other than name, phone number and email address. Think about it: Every song you buy, every ringtone you download, every 411 search you execute, every “favorite place” you save you can choose to selectively publish to some or all of your friends through your device’s PIM, and so can they. So when I scroll to Edgar Bronfman in my phone’s PIM (and, weirdly, Edgar Bronfman actually is in my PIM, which makes a totally different statement about the value of the PIM, but I’ll think about that and make a separate post about it) I can see what he is listening to lately and maybe what his favorite restaurants are in New York, and I can click once to get to a view of it that is actionable to me. Remember that this is the mobile space, where data and billing are not distantly related, they are directly linked. It is one thing to see what Edgar is listening to, but through a monolithic platform that can make and maintain these relationships between people and content, Edgar Bronfman turns into a storefront to me. WIth just a click, I can buy that song off of Edgar's playlist. Pretty cool, and it solves a bunch of problems on the mobile media distribution value chain.

What I just described is exactly what our ANTHEM platform does. It may be difficult to visualize from one paragraph, but once you hold a device in your hand powered by our platform, you’ll immediately get it. Send me an email to see for yourself. Derrick will be at iHollywood tomorrow, and we’ll be at CTIA of course, plus many other events coming up.

Posted by Shawn Conahan at March 12, 2007 02:17 PM

Comments

Posted by: David Timmons at March 13, 2007 01:47 PM