SkyTunes coming next month, whether labels like it or not

Apple is reportedly pushing hard to re-launch their new and improved MobileMe service this April, but what hasn’t been mentioned is that they’re pressuring major record labels to have all of the music licenses in place for the long rumored locker service planned for launch at the same time.

Informed sources say that Apple has sealed its deal with Warner and has been using that agreement to leverage the other labels to get the deals done in time for the April launch. The locker service will reportedly have somewhere around a $20 annual price tag.

These same sources tell me that although Universal Music and EMI are more or less pushovers, Apple may actually get some pushback from Sony. Sony Corporate has declared sensou on Apple and could hold out just to mess with them. However, considering the backbone of the typical record label executive when it comes to tampering in any way with about 70% of their digital revenue, don’t expect any profiles in courage.

The reality is that, no matter what Jon Bon Jovi says, the record industry is Steve Jobs’ bitch. Jobs knows it and so does everyone else.

The industry could have avoided putting Apple in control of their business years ago if they had not been so obsessed with digital rights management and adopted the mp3 format.

I recall a conversation I had with the digital topper at one of the major labels 6 years ago. I was telling him that the only way that record labels could level the playing field and get control back of their business was to jump on the mp3 bandwagon. That’s what consumers wanted.

The exec replied, “I have nothing against mp3’s, but will I sell more product?”

I guess not.

© 2011, Wayne Rosso. All rights reserved.

Are major label record execs waking up in the morning finding horse heads in their beds? If not, then maybe there’s more going on than meets the eye.

A couple of weeks ago CNET’s Greg Sandoval broke a story about Apple’s intention to launch a subscription service and, in their negotiations with the major record labels, are attempting to thwart Spotify’s entrance into the US market. Evidently Apple feels that Spotify would hurt their effort to launch such a service and the labels, in complete and utter fear of losing their iTunes revenue while chafing under the Jobsian yoke, fall over themselves to accommodate their new master. Artists, who have long bemoaned their indentured servitude to record companies should enjoy this little turn of the worm, except they don’t profit from it one bit.

What the CNET story implies but does not come out and state is that Apple and the labels are more than likely involved in some serious antitrust activities. Apple is not new to this. They drew the attention of the US Department of Justice last May when they demanded that the labels stop helping Amazon promote its “Deal of the Day”. And that’s just one example.

But let’s not start feeling sorry for the poor little labels who are only being strong-armed against their will into not allowing Spotify to enter their—and iTunes–most valuable market. What I find interesting is that here we have in Spotify a new model that has proven successful in several European countries that has been licensed by the very content owners who are now attempting to hold them up in the US. Because of that very success Apple seems to have developed a pretty severe case of paranoia, especially since they now want to enter the streaming business. And oddly Apple doesn’t raise the same concerns about other US streaming subscription services Rdio or Mog, neither apparently having gained much traction in the market. Curious.

Furthermore, the very record labels who have been dragging their feet in licensing Spotify in the US own shares in Spotify. The whole situation gives new meaning to the term “conflict of interest”. According to Techcrunch, major labels own the following amount of Spotify stock: Sony BMG 5.8%
Universal Music 4.8%
Warner Music 3.8%
, and EMI 1.9%.

Apple surely has excellent legal advice and you can be certain that none of these conversations happened in the same room with all 4 major labels present. Besides, the labels run for the hills at the slightest hint of antitrust violations. That’s the one thing, besides Apple of course, that scares the hell out of them.

But where there’s smoke there’s fire. In speaking to antitrust experts in Washington, DC, the real question is “would blocking Spotify in the US have a significant impact on competition that could affect the consumer?” Depending on the facts, competitive issues could be raised in a situation like this. And it sure is an interesting situation.

One might say that Apple is the only guilty party here, trying to manipulate the labels into blocking Spotify’s model in the US. But actually the labels can be guilty of collusion by inaction—by just agreeing to do nothing. Though passive it is still collusion. That makes things even more curious, due to the nature of the business, if Apple could convince just one label to refrain from licensing Spotify they would still be guilty of collusion as it is accepted that a service needs licenses from all four labels in order to be viable in the market.

According to experts, the FTC and the DOJ split up these cases between themselves and its unclear as to how they decide who gets what investigation. But it’s high time that the US government takes this seriously and starts digging into the licensing practices of the major labels. Maybe this could eventually lead to a much needed compulsory licensing mandate, especially given the labels’ “screw the other guys before they can screw you” attitude.

Except for Apple.

© 2010 – 2011, Wayne Rosso. All rights reserved.

Lennon may have been reflecting on the demise of the Beatles, but it seems to also apply to the once enthusiastic promise of digital music services. The hope of pioneering the music industry’s most profound transformation that inspired entrepreneurs over 10 years ago has finally been snuffed out by the very people who would have profited the most—the music industry.

The table is now set. There will be no new players of significance to enter the business. Investors don’t want to entertain the remotest possibility of funding any startup that deals with music no matter how clever and innovative. As one major media venture firm told me a few months ago, they’re tired of writing checks for big advances to record labels. Not to mention the huge legal fees that startups have to spend in order to get licensed, a process that takes at least a year (for no apparent reason, I might add).

What’s most ironic is that the record labels have now put themselves in the position of having to depend on the bulk of their digital sales from companies that actually could care less about selling music: Apple, Amazon, and now Google. These behemoths have huge revenues, 99.9% of which are not related to digital music sales.

Remember when the industry was screaming “never again” when they finally figured out that Apple was making a fortune off of iPods? They would never let another hardware manufacturer get away without forking over a piece of their sales. Then Doug Morris brilliantly delivered on that promise. He got $1 for every Zune sold. Good work, Doug. You should be slicing pastrami at Nate n’ Al’s. The money you made from that deal would pay for your lunch.

One senior digital music executive told me “they’re (major labels) are despicable scum. They fly out to Cupertino and let Steve Jobs smack them around and then fly home and try to take every dime they can get out of startups in order to make them feel better about themselves.”

The fact that Google is now interested in getting serious about a music play has gotten every record company lawyer wet in the pants. They think that this is going to be a game changer. It won’t be. People forget that just because it’s Google doesn’t necessarily mean that it’s going to be a hit. They’ve had plenty of bombs. Remember Google Wave and Buzz?

The record labels are counting on Google rescuing them from Apple’s death grip. Not going to happen. Google may suck up some market share, but not at Apple’s expense. This has been the pattern with Amazon’s digital download store,

From what has been reported, Google is not pitching anything particularly innovative either. Basically an iTunes clone with a paid locker service. It’s looking like nothing that hasn’t been done better by others. Nobody’s going to pay Google $25 a year to store their music in a cloud. The labels are counting on half of that revenue. On top of that, some of the names that have been floated in the media as potential Google music heads are downright ludicrous.

What the industry has accomplished is exactly what they didn’t need. They killed competition. Brilliant. The dream is over.

© 2010, Wayne Rosso. All rights reserved.

"It would be in your best interest to accept our generous offer"

The guys at Torrentfreak do a terrific job of covering the torrent and p2p scene. I’m always amazed at the stories they break and the excellent writing. And if I understand it correctly, they do it in their spare time when not at their day jobs.

Last weekend they broke another story that I found particularly interesting. Torrentfreak’s Ernesto reported on DigiRights Solutions (DRS) a German company that published a powerpoint sales and marketing presentation to push its anti-piracy services.

After initially running through some pretty mundane stats about how much online piracy is costing copyright owners, the DRS presentation goes through their process of finding and pursuing users who illegally download songs and movies. They explain that after they find the alleged downloader, they send out an email demanding a payment of 450 euro ($650) per file. DRS keeps 80% of whatever they collect thus leaving 20%, or 90 euro ($130) per download, for copyright holders.

Then suddenly the presentation turns into a pitch comparing the profitability of legal and illegal downloads. Ernesto goes on to report :

“A legal online purchase of a song brings about €0.60 into the pockets of the copyright holders compared to the €90 per alleged file-sharer that pays up. So, the copyright holders get 150 times more from pursuing filesharers than from selling actual music, the company claims.

However, not everyone who receives a letter will pay up, but DRS says that an impressive 25% of all recipients do without asking questions. This figure is much higher than most people assumed previously.

DRS states that it’s realistic to track and pursue about 5,000 filesharers per month per title. Considering that 25% of those people pay the €90, then the copyright holders would have to make about 150,000 online sales. Which is equal to the number of sales that are required for a Gold record award in Germany.”

Needless to say, this is absolutely bizarre and outrageous. Rarely are such blatant attempts made to turn piracy into a profit center, especially when the labels do not have to share this type of revenue with the creators.

Evidently DRS is currently successfully operating in the UK and Germany at the moment, but are clearly looking toward other territories. The fact that the UK government, or any government in fact, would allow such legalized extortion is beyond the pale. I understand that European governments are moving quickly to quash illegal downloading and that’s fine. But to allow and condone the organized extortion of its citizens by a private for profit company heralds new lows in the war against piracy.

This brings to mind the famous confrontation between Joseph Welch and Senator Joe McCarthy at the Army-McCarthy Senate Hearings in 1954 when Welch effectively put an end to McCarthy’s reign of terror when he said “Have you no sense of decency, sir, at long last? Have you left no sense of decency?”

© 2009 – 2010, Wayne Rosso. All rights reserved.

Hey Guys, Don't Take Their Check!

Yes, I’m back. Apologies for the long hiatus, but I was busy with some knucklehead who had the world convinced that he was going to buy the Pirate Bay. Oy vey. What a story.

I’ll get into all of the details in the coming months. It’s one of the weirdest chapters of my extremely unconventional life.

But in the meantime, check out my column in The Music Void about the latest legal woes of my hero, the Baghdad Bob of digital music, the one, the only Allen Klepshitz of Qtrax. Read about it here.

© 2009 – 2010, Wayne Rosso. All rights reserved.

Now that we have finally found the perfect business model for Twitter, counter revolution, along comes the NPD Group with one of those annoying reports that it just loves to churn out. This time NPD says that Twitter users buy 77% more digital downloaders  than non users. There’s a bunch of other stats, but this is the one that will get every major record label awash in hormones, panting and frothing, rushing to shove every piece of shit down the Twitter pipeline.

Once record labels discovered that MySpace was full of music lovers, they completely drowned the service with every amount of crap imaginable, turning it into a total mess. They had a&r people scouring the service, looking for the next big thing. I’m not sure that strategy has been successful, but as a whole MySpace has become completely diluted. Look for history to repeat itself.

If you weren’t sick of Twitter to begin with, you sure will be soon.

© 2009 – 2010, Wayne Rosso. All rights reserved.

But the interesting ray of light was buried in the story.

“We’re not going to have $14 billion in iTunes and Amazon sales no matter what we do,” says NPD Group VP/senior industry analyst of entertainment Russ Crupnick. “There’s still tens of millions of people who haven’t tried the digital music model. Half of them have digital music players. Some of them use. We’re not making the case for them to buy as many CDs as they used to and not making the case for them to buy anything from digital. Variable pricing is irrelevant.”

This is where other new digital business models could come into play, such as Nokia’s Comes With Music model and the kind of collective licensing being pioneered by Choruss, both of which would bundle the cost of music into other services or products. Both rely less on a revenue-per-unit model and more on revenue-per-user. Or “pricing the consumer versus pricing the content,” as one label digital executive puts it. “We think the real story around price as it relates to the audience for digital music is with respect to the new business models that are user-based as opposed to wholesale price-based.”

I sure would like to know who the unidentified label exec is who spoke out of school, because it finally points to a hint of intelligence. Could it be that labels are finally catching on to the concept of monetizing traffic? Are they finally moving away from the unit sales mind set of the past?  Rumor is that the labels are restructuring their deal with imeem to reflect a per user rate instead of a per stream royalty rate. I hope for imeem’s sake that its true. But what’s to keep major label greed from being unrealistic in their pricing in a “per user” model? Nothing. If labels are finally moving in this direction, they deserve credit. Better late than never. After all they’ve already led to the loss of tens of millions of dollars that investors sank into a multitude of music services that failed due to the labels’ outrageous demands and shifting strategies, making it nearly impossible for a start up to get legitimate funding. And based on history they have always manage to get greedy and fuck things up. Nobody ever loses a job for saying “no”. If label execs don’t start saying “yes” they’re going to lose their jobs anyway because there won’t be any music companies around to work for.

© 2009, Wayne Rosso. All rights reserved.

A friend in London was telling me a crazy story. Everyone knows that EMI has been cutting staff like they were lepers over the last couple of years. During this “reorganization” period they apparently had decided to fire most of the digital media people with the intention of outsourcing it instead.

They’ve apparently now done a complete about face and are actually trying to rehire many of the same people they fired over the last year with the intention of bringing the digital media stuff back inside.

I don’t know about you, but my head is spinning so much that I think I’m going to throw up.

© 2009, Wayne Rosso. All rights reserved.

But something that I am definitely clear about is my assessment of the Virgin Media/Universal Music service and its potential. At first blush, one would be inclined to celebrate this as a great innovation and a huge step into the future. The media was all frothy about it. After all, the media usually likes to go out there and scratch the surface. But when I started to drill down a bit, I found some nagging, even troubling, details.

First of all, let’s do the math. According to Virgin Media, the 10-15 GBP per month will give you unlimited streaming and mp3 downloads from Universal’s catalog. Fine. But how much will the service be when the other 3 majors are signed on? They’ll certainly want the same amount of dough that Universal is getting. So this will effectively bring the price up to 25-40 GBP a month. That’s a significant price barrier. Many say that 10 GBP is too much. But let’s move on.

So let’s assume that you’ll have a service that is minimally 25 GBP per month, a tough sell by any means. What’s the value? How many itunes does the average user purchase every month? I would suggest certainly not more than 10-15, or the equivalent of 1 CD a month. So what’s to keep someone from subscribing to the service for a month, filling out their entire library with let’s say 3000 tracks, then dropping the subscription and and just purchasing the hit singles they want a la carte on itunes? Nothing. The truth is that the average consumer would actually be overpaying!

This service will only be valuable to extremely heavy music consumers. And when it comes to that type of customer, Spotify represents a much better value at 10 Euros a month (less than 8.5 GBP). In fact,  it is a better value for  casual consumers as well. Spotify offers what no record label sponsored service can: a lush user experience. The labels still don’t get it. It’s not just about their content. Users want a rich experience. It’s all about search and discovery. Spotify has that experience. The labels have consistently failed to deliver on that level. Look to the upcoming Vevo project and you’ll see. Who gives a shit about it. Vevo is just a music video channel on YouTube. So what? Doesn’t really show a lot of creativity on the part of Universal and Sony.  The Virgin Media/UMG service just smells way too corporate. And it will be. Third party services have to be extremely creative in order to compete and the arrogance of major labels makes them think that all they need to do is offer their content. Build it and they will come. Not necessarily. And I’m willing to bet that they’re incapable of building a compelling user experience with an organic, grass roots, music lover’s feel.

Virgin Busts Downloader

Now the troubling part. As part of the trade off, Virgin Media has agreed to use packet sniffing technology to police downloading. Now I ask you, do you want to give up your privacy in order to download all the overpriced music you want? It just doesn’t square. Another thing I’m not sure about is how would Virgin know if you’re illegally downloading something? Can they tell the difference between downloading a bit torrent of a Maria Callas recording that’s in the public domain and one that’s not? If any of you out there can bring some clarity to this, please do so in the comments section. I know that if I were a Virgin Media customer, I’d be on the phone to BT right now to switch my service. It’s a very slippery slope and if Virgin thinks that sucking up to UMG will get them anywhere they’re nuts. I’m sure that they’re also trying to brown-nose the government as well, but you don’t see the other UK ISP’s rushing to duplicate the model. If they did, that could then lead to every ISP snooping on their users and acting as a private police force for record labels. It just doesn’t sit well. The great Peter Kafka made an interesting comment in his ATD post today regarding  the US  music industry saying  ” [individual user] lawsuits are supposed to be relics of the past, replaced by a new strategy whereby music labels convince Internet service providers to help them police piracy. But while the industry floated the concept six months ago, it has yet to get a single cable company or telco to sign on. And even if they do, there’s not a whole lot of incentive for the likes of Comcast (CMCSA) or AT&T (T) to really crack down on music pirates, who don’t take up much bandwidth and don’t steal anything the pipe guys care about”.

And what about competition? Now that an ISP is doing direct deals with the majors, how does this effect the Spotify’s, iTunes, and Passionato’s of the world? Could Virgin make life difficult for these services? What would the EU say about that? I guarantee that the French and Spanish would bitch like crazy. And I don’t see that going over well in the US either. Consumer groups in the US like Public Interest would go ballistic.

What’s interesting is that the market has changed and this model will work, that is if it was 2004. Now, I don’t think so much. The industry, as usual, missed the window of opportunity and is again way behind the curve. The fact it that downloads matter less and less these days with the advent of inventive new streaming models, especially Spotify’s mobile app. In my opinion, the service will get a lukewarm reception at best. There will be an initial surge of interest and then it will die down substantially. Virgin will have done its best to actually lose customers, sending them into the arms of non-meddling competitors. They’ll learn that looking backward will have cost them more than they could ever make from some crappy major label sponsored subscription service. The only ones who win are the record companies. Don’t forget the major label mantra….”Heads, I win. Tails, you lose”.

© 2009, Wayne Rosso. All rights reserved.