A Problem Worse Than Piracy? The Ridiculous Structure Of Online Music Licensing Deals

from the can't-make-money-this-way dept

We've pointed out many, many times in the past that the absolute best (and perhaps only) way to really get people to move away from infringing is to offer better, cheaper, more convenient and feature-filled legitimate services. But those are pretty difficult to come by -- in part because of the insane demands by the legacy entertainment industry players. Why do you think it took over two years for Spotify to finally come to the US? Because the labels demands were crazy and unsustainable. Michael Robertson is now revealing some of those demands, but sums it up best in his first paragraph:

Imagine a new hot-dog selling venture. Let’s also say there’s only one supplier to purchase hot dogs from. Instead of simply charging a fixed price for hot dogs, that supplier demands the HIGHER of the following: $1 per hot dog sold OR $2 for every customer served OR 50 percent of all revenues for anything sold in the store. In addition, the supplier requires a two-year minimum order of 300 hot dogs per day, payable all in advance. If fewer hot dogs are sold, there is no refund. If more than 300 hot dogs are sold each day, payments to the supplier are generated by calculating $2 per customer or 50 percent of total revenues, so an additional payment is due to the supplier. After the first two years, the supplier can unilaterally adjust any of the pricing terms and the shop can never switch suppliers.

Doesn't seem like a particularly good business. When you hear of deals like that, it's kind of amazing that any of these businesses exist at all.

Filed Under: business, licensing, music, piracy
Companies: spotify

How Labels Pulling Out Of Spotify Are Doing Massive Harm To Themselves

from the are-they-that-clueless? dept

Just a couple months ago, we pointed out how labels dropping out of Spotify were totally missing the point. A few labels had argued that Spotify only pays a tiny amount per stream, and that was somehow cutting into sales revenue. However, two recent stories we wrote about highlight how this is becoming an even more braindead move than before. And yet, the trend continues. Just recently there were stories about over 200 labels being pulled off Spotify by distributor STHoldings, who gave the usual song and dance about not cannibalizing revenue.

Here's why that's dumb. First, as we saw in the recent study about piracy, taking content away from where people want it doesn't lead to increased sales. As the professors who did the report explained:

When NBC removed its content from the iTunes store for about nine months in 2007 and 2008, there was an 11.4 percent increase in piracy, but no increase in NBC’s DVD sales — a loss of close to $20 million, given 23,000 lost sales per day at an average price of $3. And when ABC added its content to Hulu in July 2009, piracy dropped by 30 percent. Likewise, when a major book publisher stopped selling new Kindle titles on Amazon in 2010, there was no increase in hardcover sales, and when the Kindle titles were finally made available, their sales were 50 percent lower than they otherwise would have been.

Making your content available on these platforms drives sales elsewhere. Keeping them off does the opposite. It actually hurts sales.

Add to that the release of the new platform for developers. That means that soon there will be a ton of ways to build additional revenue opportunities on top of Spotify. It'll be easy to buy concert tickets. Or merchandise. Or collectable items. Or pretty much anything you want... directly through the Spotify music player itself. But if the bands aren't there, then people will simply ignore or forget about those acts... and they'll find others via Spotify.

Filed Under: business models, labels, music, platforms
Companies: spotify

Spotify Finally Becomes A True Platform: Now Let's See Some Innovation

from the build-in-cwf+rtb dept

Nearly two years ago, Spotify first hinted at its desire to set itself up as a platform that others could build things on top of. And it's finally become a reality. This could actually be quite cool. Just a couple months ago, we were pointing out that just "putting radio on the internet" isn't that cool, but that we need killer apps for music. Spotify as a platform will hopefully make it easier for those killer apps to happen. The current crop of apps that they launched with are pretty ordinary, but I'm excited to think what comes next. Things I'd love to see: Turntable.fm (still the most addictive and coolest "social music" service out there) integrated directly into Spotify) as well as integration with things like TopSpin or Bandcamp. Right now there are options to do ticketsales, but what if you could build in ways to let people buy merch... or, better yet, connect with the artist directly via Spotify? And those are the obvious ones. The real killer app is probably going to take us all entirely by surprise. This is, by the way, yet another reason that short-sighted artists and labels are going to regret dropping out of Spotify. You have to be where the killer apps are or you're going to get left behind.

Filed Under: api, apps, innovation, music, platform
Companies: spotify

How Not To Make Music Social: The Way Spotify And Facebook Did It

from the massively-lame dept

Last week there was a lot of talk about Facebook's new setup, which would allow for tighter integration and sharing of everything that people do, with music being a key example. Whether or not that's a good idea, I have no idea. To be honest, I think that it could make sense long term -- but the way that it's been implemented seems like a disaster to me, as I discovered when I logged into Spotify today. Apparently, Spotify is pissing off a ton of people by requiring a Facebook login to use the service now. I have less of an issue with that than I do with the fact that Spotify popped up a box telling me I had to connect to Facebook, but not making it at all clear what that meant. It notes that Spotify can share the details of what I'm listening to with others, but does not explain what that means. Will it share everything I play with everyone automatically? Will it give me the option of what to share? Will it give me the option of who I'm sharing it with? That's not clear at all. Even worse, nowhere is there any explanation of how or where I can find out more. Instead, Spotify just opens as normal.

It turns out that Spotify just starts sharing everything you play on Facebook, without even making it clear to the user that it's doing that. I couldn't find that info on my own profile. It was only after I asked a question and a Facebook friend told me what I was listening to that I knew the info was being shared. Even worse, how to turn it off is not clear at all either. Thankfully Lifehacker explains how to stop spamming everyone with what you're playing on Spotify. You can do so by unchecking the following box, which makes no sense at all: If you can't see it, it says: "Get personal recommendations by sending music you play to Facebook's Open Graph." But, what does "personal recommendations" have to do with anything? Why can't Spotify just be upfront and honest and say, "spam all your friends on Facebook with what you're playing"? Again, I recognize that some people want to do this, and I have no problem with people choosing to do it. My problem is with the way that Facebook and Spotify implemented this, where it's not even remotely clear what you're doing. Given Facebook's similar problems in the past (hello, Beacon) you would think that the company would recognize the importance of being clear and totally upfront about what info is being shared with whom and how to control it. Instead, it seems like the exact opposite.

Again, I'd have no problem sharing some of what I listen to if I have control over it. But, really, are any of my friends really going to want to know when I play the "lullaby playlist" I put together for my son? There are some friends with whom I have no problem sharing what I'm listening to, but plenty of others where it's just not something I'd share with them at all. And perhaps there are hidden controls buried in the preferences somewhere, but it's not at all clear, which leads me to now totally distrust Spotify and Facebook. Facebook I was already on the fence about, but I liked Spotify (and pay for a subscription). If these companies can't even get the basics right concerning how I can share my info, I'm going to have to look elsewhere. It's amazing how quickly a company can destroy a ton of goodwill.

Filed Under: clarity, music, privacy, social
Companies: facebook, spotify

Labels Dropping Out Of Spotify Are Totally Missing The Point

from the it-ain't-about-direct-revenue dept

We recently reposted a blog post by the indie band Uniform Motion discussing how much money they make from various music platforms. A bunch of other blogs reported on it too and it created some misguided controversy. First, however, in our post, we included the band's Bandcamp streaming widget and are going to do so again here, because it's fun and the music is good. So click play as you read the rest of the post: The controversy started because some people focused almost exclusively on the amount that the band said it made from Spotify streams. Following that, three indie record labels pulled all their tracks from Spotify, with quotes such as "there does not appear to be an upside."

Spotify tried to stem the criticism by noting that users don't pay per stream, and that it's just selling access, and thus "it does not make sense to look at revenues from Spotify from a per stream or other music unit-based point of view," and later that Spotify is generating significant revenue for labels. To be honest, this response is a bit tone deaf. Even if Spotify isn't a per-unit business, it's always going to be how musicians view the service. Of course, the bigger point, made by Jay Frank, is that if indie bands don't make much money, it's not Spotify's fault -- it's the fact that not many people listen to their music.

And that actually gets to the bigger point, and shows why it's short-sighted (bordering on braindead) for labels to drop out of Spotify, claiming the payments aren't high enough. We noted in our original post that depending solely on direct payments for music is simply a bad (or, at least, incomplete) business model for musicians. But, making it more difficult for anyone to hear you doesn't help you get any money either. As Frank notes in his piece:

The issue is that you then encounter the one thing worse than getting paid peanuts and that’s obscurity. People want to be entertained by music, not have to hunt things down. It has to be easy, which is why Spotify has gained so much traction. If you manage to get an average music fan’s attention on your band (out of the THREE THOUSAND others that released something that week) for 2 seconds and they look on Spotify and it’s not there, do you know what they do? They move on to another song. And you’ve lost your chance of gaining a fan. And the royalty. The number of people who would then spend time searching for alternative listening methods is miniscule.

So taking yourself out of Spotify means you get no royalties, which seems worse than little royalties, and you make it harder for fans to find you, learn about you... and decide to support you in other ways. So, how does it benefit artists to not be in Spotify? I don't get it... Complain about Spotify's royalty rates all you want, but you can still leverage the platform to make money in other ways (direct to fan, shows, merch, etc.). And then laugh as Spotify gets none of that revenue, despite helping you build your fanbase.

In fact, some competing indie labels have already noted that Spotify has helped other parts of their business. The label Earache recently noted that Spotify appears to have increased their iTunes revenue:

While none of us have a crystal ball to see exactly which way the future of this business is going to turn, we have been actively embracing all possible legal outlets for our artists and their music. We have given away free album downloads by both Gama Bomb and Wormrot and like to think we keep an open mind on the latest ways people “consume” their music.

I do not believe for one minute the record industry is dying but evolving (as it always has) and it is up to us as record labels to find, develop and build careers for our artists utilizing our accumulative years of experience.

I think it is no coincidence that when Spotify launched here in the USA, we also had our best ever month of sales on iTunes. Spotify is just one of the many new ways that fans can find and listen to new music by our recording artists and should be seen as that and nothing more.”

Exactly. That's a record label who understands the bigger point. Those leaving Spotify in protest aren't doing themselves or their artists any favors.

Filed Under: access, music, obscurity
Companies: spotify

Getting Past Just 'Putting Radio On The Internet' - Killer Apps Come Next

from the time-to-step-up dept

Musician (Gang of Four) and marketing guru, Dave Allen, recently put up one of his insightful blog posts, questioning where the real disruption in online music is these days, and complaining that all of the services we see out there today are basically just "creating radio on the internet." And they're all almost identical.

The modern version of that is the wholesale commoditizing of music catalogs by the labels who create licensing deals with the streaming music services. Those actions in turn further homogenize the streaming music service systems as the services only have access to the same catalogs – there is no differentiation. Artists get pennies, or less than a penny, when someone streams their song, and the listener gets advertising in the stream unless they pay to escape the ads.

Music streaming on the web is not a Big Idea, it’s simply a lack of intellectual vision and thinking. Worse, it has advanced the “passive listening” experience. It’s just terrestrial radio dumped on to the web in other words – including advertising....

[....]

The bottom line is that there is no differentiation at the end of the day between Mog, Rdio, Spotify, Rhapsody, and all the others too numerous to mention, if they all have the same music catologs – widgets and tactics don’t count.

I agree that we haven't yet seen all that much that's really innovative in music, but I'm not as worried about it as Dave. As I noted about the SF MusicTech conference (where Dave moderated a panel on exactly this subject), it really felt like we'd finally gotten past the doom and gloom and started looking at the real opportunities in the music business today. I think that much of the lack of innovation is because pretty much anyone who has really tried to innovate has been shot down by lawsuits. Seriously. The second you do something marginally innovative that starts getting attention, a major label comes up with an excuse to sue, mainly to regain some amount of control. So these clone music services are, in part, a reaction to all of that. The reason they all look the same is because they now know what it takes to fall into line and not get sued.

But I don't think that's a problem for the next wave of innovation in the space. Yes, many of these services effectively replicate radio on the internet today. But when you look through history, that often is the first wave of history when dealing with new media. You take the old media and move it to the new platform. It takes a generation or two before people start to recognize that the new media has special or different characteristics that really let you do something unique and new. Then it takes a little while before people start figuring out what that is. It's why I'm excited about things like Turntable.fm. Whether or not it's really the next generation offering that becomes a success story, it is a sign that people are finally starting to branch out and try things that are unique and different and really only possible on the medium of the internet.

In fact, while I'm a fan of Spotify and Pandora, since playing with Turntable.fm, I always feel sort of disappointed that I can't merge the three. Spotify has a huge collection, and I'd love to be able to move my playlists directly into Turntable.fm, or use Pandora's matching engine to find similar songs to what I'm playing or what others are playing within Turntable.

So I think we're just entering the very beginning phase of real innovation in the music service market space. The companies here today may or may not survive. Or maybe they'll drive the changes and come up with the next great innovations themselves. But it's still early in the game.

Filed Under: dave allen, disruption, internet, radio
Companies: mog, rdio, rhapsody, spotify

Record Label Says That Pulling Music From Spotify 'Protects Artists'

from the no,-it-doesn't... dept

We've definitely seen plenty of confusion from record labels over the value of Spotify and similar services. But, a heavy metal/hardcore label, Century Media (which runs a variety of smaller labels: InsideOutMusic, Superballmusic, Ain't no Grave Records, Hollywood Waste and People Like You) has claimed that it's pulling all its music from Spotify to "protect artists." It's a funny way to "protect" artists by punishing fans who want to hear them. They complain that "physical sales are dropping drastically in all countries where Spotify is active." Their assumption appears to be that correlation is causation, and merely removing their works from Spotify will now shoot sales back up. But that's not how things work. If anything, it seems likely that this move will accelerate their problems with physical sales. Not only will people not want to buy CDs, they won't even know about the musicians on this label. They'll just listen to someone else instead. The way you protect artists is by helping them to better connect with fans, not making it even more difficult. If I were a band on a Century Label, I'd be pretty pissed off that the label has unilaterally decided to piss off a bunch of my fans and stop many potential fans from discovering my music.

Filed Under: music, record label
Companies: century media, spotify

That Didn't Take Long: Spotify Sued For Patent Infringement Just Weeks After Entering US Market

from the welcome-to-america! dept

Hello Spotify. Welcome to America, where if you do anything even remotely innovative, you get sued for patent infringement. Indeed, just a couple weeks after entering the US market (finally), Spotify is being sued by PacketVideo for patent infringement. I knew the name PacketVideo sounded familiar... and then I remembered. A decade ago it was considered one of the hottest startups on the planet for trying to figure out ways to do streaming video on mobile phones (something I noted at the time I thought was not at all compelling -- which I'll admit I was totally wrong on, but that was before the invention of large screened smartphones that we have today). Of course, PacketVideo failed to live up to the early lofty expectations, and last we heard of it, the company was being acquired by DoCoMo for what appears to be a lot less money than it raised over the years.

Now, you might claim that perhaps PacketVideo has a legitimate patent claim here. After all, the company has been around for well over a decade and was an early pioneer in streaming efforts. But... the details suggest not so much. The actual patent in question, 5,636,276, is for a "Device for the distribution of music information in digital form." Sound broad? Of course, as the patent attorneys in the audience will tell you, it's not the title of the patent that matters, but the claims. So go read through the claims and try not to gag. What's described is the very generic idea of streaming music. Here's the key claim:

a central memory device which is connected to a communications network and has a databank of digitized music information and, a terminal which is connected to the central memory device via the communications network, the central memory device being equipped with a retrieval module and the said modules having the capability to interact via the communications network in order to order and transmit selectively chosen music information, wherein the selectively chosen music information is organized with a defined format for transmission in a digital music information object, the format including a core and a number of additional layers, the core including at least one object identification code, object structure information, a consumer code and an encryption table and the one or more additional layers including the actual music information, wherein the central memory device has an encryption module for encryption of the music information object before transmission using the encryption table, and wherein the terminal has a decryption module for decryption of the music information object before its reproduction using the encryption table, an interpretation module for interpretation and reproduction conditioning of the music information object as well as an authorization device having identification information for identification of the terminal and of the consumer which is retrievable by the interpretation module and by the decryption module for authorization checking.

Now here's the thing. When this patent was filed in 1995, this was not a unique idea. You could have asked any semi-competent engineer how would you build a digital music streaming service, and you would have received a similar general explanation. The problem was never in understanding the various pieces you need to put together. The difficulty at the time was getting enough bandwidth to do this reasonably... and getting any sort of licensing in an era before most label execs even knew what the internet was.

Oh, and let's get to the important part: PacketVideo had nothing to do with this patent. The company just bought it a few years back. There's nothing in this patent that was some amazing breakthrough or key innovation. Spotify is an amazing product, not because of this patent, but because of how it actually executed and built a working product.

Once again, we see patents being used as a tool to shakedown companies who were actually innovative in how they executed, with a ridiculously broad patent that contributed zippo to the actual state of the art.

Filed Under: music, patents, streaming
Companies: packetvideo, spotify

Can Innovation Through Business 'Solve' Issues That Legal Repression Can't?

from the making-music-worth-paying-for dept

If you follow music industry news, you probably didn't miss Spotify's launch in the US last week. Prior to this launch, a Swedish music executive was interviewed about what to expect when Spotify launches in the US. One part of the interview stood out in particular:

[Spotify] has eradicated music piracy almost on its own. Sweden was the home of Pirate Bay. They even had their own political party and made the prime minister in national television declare "Off (sic) course the youth shall be able to download music for free".

Three years later, The Pirate Bay is not mentioned by anyone anymore. Spotify is, on the other hand, mentioned by almost everyone - including the old Pirate bay fans.

This did not happen because some new radical law or brutal police force were implemented. Neither because a confused prime minister changed his mind again and embraced the music industry. It all happened simply because the users found a new legal service that they actually thought was much better than the old Piracy one.

What is interesting here is that innovation through business helped reduce 'unauthorized consumption' of music, while many a record label exec prefers to invest in legal changes that have not really made all that much impact so far. Personally, I think the recording industry missed a huge opportunity 10 to 15 years ago. Instead of using the legal system to fight Napster and the wave of peer-to-peer filesharing that followed, innovation through business would probably have been more worthwhile (and a lot less costly). Besides that, legal changes on the scale some of the folks in the recording industry envision would create a market that's even more broken than it already is, preventing other business (like Spotify) from driving innovation and competing in their industry, and would be threatening to civil rights (the rights to free speech and privacy in particular). Enforcing the interests of one group or industry by sacrificing innovation and civil rights surely must be one of the most undesirable things we as a society face today.

Even though Spotify displays a good model for success, it does have its drawbacks. One rights organization highlights an important issue with Spotify: the inability to port data.

Because streaming customers do not own their music, they cannot take it with them. Should they decide to try another service (or if a service goes under), users should be able to easily export titles of songs in playlists they created or a list of favorite music, etc. Users should also be able to choose independent add-ons that make the service more valuable, such as alternative means of organizing their music "collections." Without this kind of functionality, users are going to be disappointed, and we are unlikely to see the real competition that helps drive innovation.

The content industry is a volatile industry. Only two years ago MySpace bought imeem (the first platform in the US licensed by all 4 major labels) and shut it down the same day, replacing all playlists with ads. For this reason owning copies of music, whether through legal downloads or unauthorized alternatives, will stay attractive. As a matter of fact, according to the music exec mentioned above, digital sales in Sweden were up 17% last year compared to a mere 3% growth in the US.

We're only just entering the digital age. Blocking innovation with legislation and lawsuits is a shortsighted approach, especially with innovation proving to solve issues that legal changes can't. If the recording industry doesn't live up to their responsibility to innovate and service their fans, others will.

That's how business works.

Filed Under: business models, innovation
Companies: spotify