In May 2007 I wrote a post entitled “A requiem for last.fm?” in which I expressed my anxiety (as a very happy customer of last.fm) at CBS‘s ability to f*ck things up:
As a customer, I just hope that in the medium term they are allowed to continue to innovate and especially that they are able to continue to treat their customers with respect. As partners. That may seem self-evident, but the track record of the music industry in this regard does not inspire much confidence. Indeed it is testimony to the compelling and real value of creative artists and their product, that the industry continues to function at all. If music truly was a ‘discretionary’ good, I suspect the industry would have collapsed on itself as customers disgusted by the convoluted and adversarial service they are asked to endure simply said ‘enough, I’ll take my money elsewhere…’ There is also the more universal (non-sector specific) issue of the inability of large organisations to avoid suffocating innovation.
So when I read things like this, well I wonder, sadly, if my fears are being fulfilled:
Last.fm didn’t hand user data over to the RIAA. According to our source, it was their parent company, CBS, that did it. That corresponds to what our original source said in conversations we had after our initial post and before CBS lawyers became involved. But we didn’t want to update until we had an independent source for that information, too.
Here’s what we believe happened: CBS requested user data from Last.fm, including user name and IP address. CBS wanted the data to comply with a RIAA request but told Last.fm the data was going to be used for “internal use only.” It was only after the data was sent to CBS that Last.fm discovered the real reason for the request. Last.fm staffers were outraged, say our sources, but the data had already been sent to the RIAA.
At best, CBS is living down to low expectations: once again large corporate antibodies do their best to kill off the virus of innovation.
It’s really sad because last.fm not only has a great product but one where – if CBS spent less time, energy and money on lawyers and corporate pencil pushers – and more on building and promoting the business – they would discover that there are real, paradigm shifting, monetizable business opportunities screaming out to be truly developed. But of course many, perhaps all of these would probably end up destroying the old businesses and ways of operating. Hard to get the turkeys to vote for that…
My last two significant music purchases, and the last live music event I went to were all driven by last.fm. The music purchases were buying (several) albums of a couple artists I had never before heard of which last.fm recommended to me on the basis of my listening history. No way I would have discovered them otherwise. No way. Not at my age anyway. And by the way both of these artists are reasonably obscure – ie have not been promoted up the ying yang by the traditional manufactured music business. So the profit margins are great. No wasted marketing spend. And the “Events recommended for you” functionality is quite frankly unbeatable – geographically and musically relevant. Blows any other events listing service out of the water. Awesome.
I’m a paying customer of last.fm but if packaged in the right way, I’d be happy to pay even more. And it’s not because I’m particularly generous. It’s because they provide a bloody good service and I think it gives value for money. And by the way I’m pretty unhappy about them having sent my listening data to the RIAA. I’m happy and chose to give this data to last.fm because I get value from it and I trust(ed) them. The RIAA? I can’t say anything nice so will leave it at that.
If Apple had bought last.fm it would be ruling the world right now. I wonder if this was ever an option that was on the table?
Mountainview, CA – Having sold almost 20 million shares in 2004 at $85, and then another 14 million shares at $295 in 2005 (not too mention various block sales over the years), and with shares now trading at over $700 this represents almost $19 billion of lost value. In addition, since the IPO there have been roughly $3.4 trillion of transactions in Google shares on the secondary markets. Obviously it is unacceptable that not a penny of this is returned to the founders and employees of Google. While acknowledging the benefits that the secondary share market offers to investors and companies alike, and admitting (belatedly) that ‘it does not make sense to criminalize Nasdaq’, to redress this shocking state of affairs, the founders’ agents have suggested that they would be willing to authorize it against agreeing to a levy on all transactions. Set at 1% for example this would amount to returning approximately $35 billion to the Google entrepreneurs and their backers. “And this is just one company! Think of all the other entrepreneurs and venture capitalists that have heretofore been exploited by the maverick and rapacious stock market operators,” said Jim Smith of the recently formed Re-sale Rights Committee of the Santa Clara County Chamber of Commerce.
OK, so I made the preceding article up. But, it makes sense right? After all it’s only fair. At least that’s the view of the (always-ahead-of-the-curve) entertainment industry as reported this week in Variety (thanks to Dom for the pointer):
“The secondary ticketing market offers benefits to music fans and the live music industry alike. It does not make sense to criminalize it,” said Resale Rights Society chairman-elect Marc Marot, manager of Yusuf Islam and Paul Oakenfold, and former chief executive of Island Records. “But there are real issues of consumer protection here, and it is unacceptable that not a penny of the estimated £200 million ($413 million) in transactions generated by the resale of concert tickets in the U.K. is returned to the investors in the live music industry. Where this trade is fair to consumers, we propose to authorize it by agreeing to a levy on all transactions.
“The online ticketing exchanges have consistently claimed that they wish to work with artists and the live music industry. This society presents them with that opportunity.”
I won’t go into it again in detail (see here and here) but it strikes me that instead of vainly trying to preserve an outdated business model by desperately looking to slap taxes and rents on anything that moves, artists and their agents should be looking to embrace the long proven and manifest advantages of robust, liquid and transparent markets to reduce their risks and refine their pricing. Every syndicate manager knows that having good secondary prices makes their job 100 times easier and – while certainly not the only factor – forms the foundation of the primary market pricing algorithm. And as the traditional securities markets become ever more sophisticated in their use of automation for primary distribution, perhaps the resulting marginalized and surplus syndicate managers should consider plying their skills in the market for live event tickets. The right way to help artists garner the true market value of their talents is to well, let the market work!
And lest anyone in the securities industry feel too smug about how much more enlightened they have always been, remember how Stanley Ross was enemy number one for many in the square mile when he pioneered gray markets 30 odd years ago, and as little as 5 years ago (still today in the US & in Equity markets) electronic bookbuilding platforms were not exactly met with a warm embrace…to use one of Pip Coburn’s favorite quotes on change (Machiavelli):
“… nothing is more difficult than to introduce a new order. Because the innovator has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well under the new…”
Just over a year ago, I wrote a post panning the proposed business model of announced-in-a-blaze-of-hype SpiralFrog:
Obviously I could be completely wrong, but I don’t think this will fly, ‘cool name’ or not (I think even this goes in the ‘trying just a bit too hard category’.) Everything about it smacks of a bunch of middle aged executives and their backers getting together and – looking through their 20th century prism – completely missing the point of what made things like myspace, youtube and even iTunes successful. I can just see the initial pitch: think the Orange film funding parody ads… If they had sent out their press release on April 1st, there is a 50/50 chance that people would have thought it was a spoof. How long until someone does a YouTube video in the Orange genre above parodying them?
Quite frankly, I had forgotten about them but I saw a headline on my netvibes today that announced they were finally launching. Apparently it hasn’t exactly been smooth sailing over the last 12 months. CNET reported in January:
Few at the digital music company were exactly sure who was in charge following the December 26 firing of SpiralFrog CEO Robin Kent, said former employees. Kent’s ouster created a chasm in the company’s leadership, the former employees said, and soon after, 5 of SpiralFrog’s 10 board directors and 5 company managers exited.
Just four months before, SpiralFrog was a media darling. The company promised it would launch a Web site that provided free music by the end of 2006, covering the cost of those tunes through advertising sales. Media pundits loved the idea. The New York Times dubbed the company an iTunes challenger, despite the fact that the site hadn’t even launched yet. The Guardian, a London newspaper, said Apple “took a knock” with SpiralFrog’s emergence.
Now, former executives and industry insiders describe a company reeling from a management shakeup, a missed launch date and a lukewarm reception by the major music labels to a business that supports free tunes by selling advertisements.
“The situation at SpiralFrog will certainly give ammunition to those who really never believed in the idea of ad-supported music,” said Gartner analyst Mike McGuire.
Well I guess we’ll all finally get to find out, but I’d still be betting against their investors getting any money back on this frog. I guess you could say, I don’t think it’ll be turning into a Prince. Spiral or otherwise.
Which US presidential candidate will be the first to stake out a common-sense, commercially intelligent, free-markets-based position on intellectual property rights and privacy in the campaign for 2008?
Which Fortune 100 CEO(s) will be the first to endorse these policies and get on the right side of their customers?
And how long will the great American Joe and Jill Public sit back and let the narrow and short-sighted lobbyists, jurists and legislators entrench an (artificial) 19th century paradigm on the 21st century knowledge-based economy?
Well I don’t know the answers to these three questions but if I had to take a guess I would say:
1) Obama ? Bloomberg ?
2) Jeff Immelt? Thing is, the answer should be all of them: how many business school case studies and courses does it take to drive home the fundamental tenet of business which is treat your customers with respect??? And once, just once I’d like to see a leading US CEO come out in favour of truly free and competitive markets (not the gummed up, carved up, oligopolies that too often pass for markets these days…) Why Jeff? Well he seems like a strong leader and one that genuinely has a long term view, and as head of GE can get away with saying and doing what he thinks is right. It would be nice if he had a talk to the folks who work for him at NBC…
(3) I hope my optimism on this front isn’t just naivete…but I suspect most people are very close to the tipping point and will get increasingly angry and vocal in the fight against stupidity.
So what am I talking about? Dumb DRM and dumb business models. (Via Bill St. Arnaud) Mark Gibbs at NetworkWorld asks us to “Forget Big Brother” and “Watch out for Big Entertainment”:
Last week I discussed the doublethink and newspeak of “the Campaign to Protect America,” an initiative launched by the Coalition Against Counterfeiting and Piracy as well as the shameful strong-arm bullying tactics of the Recording Industry Association of America.
My big concern about this coalition is that it isn’t just about Big Entertainment trying to stop “piracy”, it also includes the National Association of Manufacturers and Big Pharma on the pretext of addressing the problems of counterfeiting.
As I suggested at the end of last week’s rant, the CACP ploy could be very bad news for us all because its goal will be to extend the law into all sorts of areas where we really don’t want it and I threatened that this week I’d look at what it might be able to do.
Here’s the worst case scenario: Consumer PCs would, by law, be directly monitored by ISPs to ensure compliance, and the legal consequences for any attempt to circumvent mointoring would make the punishment for murder look like a slap on the wrist.
He goes on to tell us of how the friendly folks at NBC are thinking about things:
Remember Rick Cotton, NBC/Universal general counsel, who I mentioned last week? A couple of weeks ago he actually suggested that ISPs spend more of their time spying on users and then added that the law be changed to remove the Safe Harbor provisions that protect ISPs when their customers have pirated materials! According to several sources, Cotton would like to see ISPs forced to use “readily available means to prevent the use of their broadband capacity to transfer pirated content.”
Wow.
Clearly regular readers will know that I am not some woolly dreamer who doesn’t believe in making money or getting paid for ‘brain-based’ services. On the contrary my livelihood depends on being paid for ‘brain-created’ value. But I also realize that business models and ecosystems evolve and so what worked or more importantly still – what was appropriate – 20 years ago is unlikely to work today, and will almost certainly not work a decade from now. It seems to me self evident that the underlying ‘asset’ in the entertainment industry – talent in the jargon – remains as valuable, probably moreso than it ever was. I have no hesitation in believing that talented entertainers will continue to thrive financially and otherwise in the future including (and most likely) operating in an entirely different business paradigm to that which existed in the second half of the 20th century. I’m not an expert, but even I can see a few possible outcomes and business models that might work extremely well for the artists and their customers (the audience…) – think ‘because of’ rather than ‘with’ (to steal a great line out of Doc & JP‘s books…) I mean even the Economist has figured it out:
The shift away from recorded music is due in part to the recognition that touring and merchandise are more lucrative. But it may also be a consequence of internet piracy, as free downloads give music fans more money to spend on other things. Jwana Godinho, the director of Música no Coração, a concert promoter in Lisbon, thinks many music lovers have a “mental budget” that they are prepared to spend on music, and have switched their spending from CDs to tickets and merchandise.
The logical conclusion is for artists to give away their music as a promotional tool. Some are doing just that. This week Prince announced that his new album, “Planet Earth”, will be given away in Britain for free with the Mail on Sunday, a national newspaper, on July 15th. (For years Prince has made far more money from live performances than from album sales; he was the industry’s top earner in 2004.) Outraged British music retailers were quick to condemn the idea. As far as the record industry is concerned, it is madness. But for the music industry, it could well be the shape of things to come.
Which reminds me of this fantastic quote (the epitome of leadership in crisis don’t you think?) picked up via pmarca:
UK’s Entertainment Retailers Association co-chairman Paul Quirk, who apparently doubles as a mafia boss, defending a doomed distribution network (retail CD stores) from a doomed medium (Prince’s new CD) being bundled with another doomed medium (the Sunday print edition of the UK newspaper The Mail):
“It would be an insult to all those record stores who have supported Prince throughout his career. It would be yet another example of the damaging covermount culture which is destroying any perception of value around recorded music. The Artist Formerly Known as Prince should know that with behaviour like this he will soon be the Artist Formerly Available in Record Stores. And I say that to all the other artists who may be tempted to dally with the Mail on Sunday.”
The problem is not how the artists make a living. The problem is how do the intermediaries that have been successful in this industry over the last 50 years continue to make a living. They are the ones having an awfully hard time seeing how they can continue to be successful with the same business model (and a truckload of extra lawyers) over the next 50 years. Only problem is…they are looking for something that will NEVER HAPPEN. Ummm…let me see, how can I put it… IT’S OVER! FINITO. HASTA LA VISTA. Hmmm…probably not clear enough but…
They can’t make money from their old business paradigm going forward. It won’t work. I’m not suggesting they should be doing cartwheels or that they shouldn’t be worried, or scared or even a bit angry…even denial is a normal emotional response to loss. Yes it sucks (for them.) However…no amount of denial or anger or – yes ultimately even lawyers – is going to put this genie back in the bottle, and so rather than beating up paying customers you would have to think that there is an unbelievable opportunity for some of the smartest people and firms in this business to get a jump on all the others and become part of inventing the next business paradigm for music and visual arts. Remember my contention is that the existing business model is bankrupt, not that no useful, customer-friendly and profitable business model (needing of course lots of talented people to make it work) exists. An important distinction, at least in my book.
And why I was so sad to see last.fm absorbed into the maw of CBS (even if I can totally understand why the founders and investors might have taken this particular nickel…) and why I can only hope it turns into a sort of reverse take-over in the end. (I’m thinking of a music industry version of O’Connor into SBC into UBS…)
Markets. Talent. Intermediaries. Broking. Distribution. Customers. Disruption driven by technological and cultural change can happen in any industry where these elements exist.
I certainly hope not but as I commented on Eric’s blog, I must admit to being disappointed and somewhat anxious upon hearing that they have sold themselves to CBS. This anxiety comes both as a customer and as an admirer and believer in the paradigm-changing potential of their platform. Ironically, after having used last.fm over the last year or so, last week I purchased a 12 month premium subscription, primarily to have access to “my radio station” (to listen click the big red button on the right sidebar.) And although it has proved to be a bit rough around the edges, I began to see that if they got their links to buy music and tickets (to events) right (api with iTunes store please?) it would become the natural way for me to purchase live and recorded entertainment – the revenues stream was starting to look potentially very real. Now let me say straight off that I have no visibility or view on the valuation, but it seems intuitive that it is likely to look generous based on current financials, and in absolute terms it is hard to argue with last.fm’s founders and backers taking the money; or put another way, I admit it is easy for me (with no financial exposure) to sit here and second guess their choice. However, if the motivation was financial security, locking in the win so-to-speak, I would posit that in today’s world there are a myriad of innovative financial options generally available to provide liquidity for owners beyond the traditional digital choice of IPO or trade sale…
However, putting financial considerations to the side and coming back to my two sources of anxiety…
As a customer, I just hope that in the medium term they are allowed to continue to innovate and especially that they are able to continue to treat their customers with respect. As partners. That may seem self-evident, but the track record of the music industry in this regard does not inspire much confidence. Indeed it is testimony to the compelling and real value of creative artists and their product, that the industry continues to function at all. If music truly was a ‘discretionary’ good, I suspect the industry would have collapsed on itself as customers disgusted by the convoluted and adversarial service they are asked to endure simply said ‘enough, I’ll take my money elsewhere…’ There is also the more universal (non-sector specific) issue of the inability of large organisations to avoid suffocating innovation.
That said, if last.fm can at least avoid going backwards, I’ll continue to be a happy customer ‘as is’, at least until something (much) better comes along. More disappointing from I guess what could only be described as a philosophical point of view, is the risk that the potential I thought was embedded in their approach to really change the way the music (and possibly other forms of art and entertainment) business worked. (Which also is the reason I think this post is germane to The Park Paradigm just in case you thought I was wandering ‘off script’ yet again!) The line of thinking I want to pursue probably originated with a series of discussions a couple years ago with Malcolm, who helpfully articulated some of this on his blog:
As I have mentioned before I think the future of the industry as well as obviously being digital in nature is in the collaborative and personal spaces around such as last.fm and myspace. I think this particular future inexorably leads to new artists being initially funded by members of the collaborative communities who will, for their funding, be returned a share in future profit streams. This particular vision of the future is clearly not in the best interests of EMI: distribution will be handled by these spaces and the online music stores (distribution becomes essentially free as does the cost of production of each unit) and PR is also free as it is handled by the members of these communities and will be handled in their own interests. (PP note: viewed from this perspective, a cynic would say the CBS deal is defensive in nature: buy them before they can hurt you. A cynic. Not me.)
Clearly I have markets on the brain – for better or worse – but the potential I saw in last.fm was to use it’s brilliant organizing and community building software to ultimately allow the fans – the consumers of music – to become owners as well. And I’m not talking about CDs or MP3s, I’m talking about equity in the artists themselves. Creating a more efficient market in which to deploy capital (production, promotion, creation…distribution (digital)) backing artists, capital that in the current paradigm is effectively only available via a small-ish cabal of music companies. Think of it in terms analogous to replacing turn of the (20th) century JP Morgan (big universal banks with an oligopoly on capital allocation) with the turn of the (21st) century securities markets and you might see what I’m driving at. Too late tonight to go into detail, hopefully the point is somewhat clear.
In any event congratulations to the last.fm team on creating a fantastic product and here’s to hoping I’m sadly mistaken on their future prospects in their new home.
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