MediaFuturist

The Future of the Music Business - a new Ecosystem (the ultimate slideshow)

My final words on this:))) And be sure to read this 'evidence' via Hypebot, too

 

 

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The future of the music business: creating a new ecosystem (Futurist & Keynote Speaker Gerd Leonhard) from Gerd Leonhard

For my readers in Brazil and Portugal: Conteúdo 2.0: a ‘proteção’ está no modelo de negócio

Thanks to Paula Neves and Flavio Gut

Gerd Leonhard: Conteúdo 2.0: ‘proteção’ está no modelo de negócio (Content 2.0: protection is in the business model) e não na tecnologia (pensamentos sobre o futuro da venda de conteúdo).

Abastecido pelas agitações na indústria da música e, finalmente, com a transformação muito rápida dos livros para o formato digital, há bastante debate em torno do fato das pessoas compartilharem habitualmente isto é, redistribuírem conteúdo digital sem que os usuários paguem por isso. Como se pode monetizar o conteúdo se a cópia é gratuita? Essa pergunta é uma questão chave em todos os sentidos, seja com a música, com livros digitais, noticiários, editoração, TV ou filmes.

Há o medo, claro, de que a partir do momento que um item digital foi comprado por uma pessoa, ele pode ser facilmente encaminhado para qualquer um se estiver num formato aberto, assim reduzindo significantemente a possibilidade de que outra pessoa pague dinheiro real por ele também (claro que o mesmo também é verídico para conteúdo digital supostamente trancado ou protegido – só demora um pouco mais).  Não ter mais controle sobre a distribuição = não ter mais dinheiro. Certo?

Read more here

Check out my Kindle book 'The Future of Content'

 

Words of Wisdom from the World E-Reading Congress 2012 (good review of my talk and preso)

Roger Tagholm at Publishing Perspectives just published a nice review of the World eReading Congress in London, on Tuesday, where I had the pleasure of doing the opening keynote. The 6MB low-res PDF can be downloaded via this link:  Download Ereading congress london gerd Leonhard (note: this is quick version, better resolution soon on Slideshare).

Here are the best snippets from Roger's review (and the rest of it is a good overview, as well!)

By Roger Tagholm

"Access not ownership, relationships not transactions and concerns over who owns the channel to market – these were some of the themes of the second World E-Reading Congress which began in London on Monday. Once again, organizers Terrapin had assembled a powerful line-up of speakers who provided a one-stop take on what is happening in the digital space. From “haptic technology” (from the Greek Haptikos, “pertaining to the sense of touch”) to “lean back” readers, this was also the place to get a jargon update and phrase fix.

The View from a Futurist

Media Futurist Gerd Leonhard kicked things off. He believes the debate will soon be about access, not ownership and said that “for those over 30 it’s very hard to understand this switch. There will be some ownership, but it won’t grow. With music, iTunes sales are flat, but streaming is growing. It will happen with books. A Spotify for books will come.  If a student wants 300 books, he’ll buy a three-year subscription”. Small examples of that already exist, but Leonhard means on a mass scale, such as that being contemplated in Brazil “where the government is looking to buy 100 million devices for students so they don’t have to buy the physical books”.

He believes there is more to the future than walled gardens and that “humans need meaning, not just cool technology. In the end, meaning is money.  Apple has meaning, even though it is a totally walled garden — an oligopoly, a cult.” During the next three to five years he thinks we will see telemedia convergence. “The telecoms industry will realize that it will have to make deals with ISP operators to sell content — so that if you buy this SIM card, for example, you can get ten books.

“For the consumer, access to content will become much cheaper. We cannot force the consumer to pay the same for digital as physical. Technology owners reads more, so why penalize them? We need to innovate now to keep them.”

Sharing, he maintained, should be “non-negotiable. Sharing does not create economic damage.” Publishers must engage with their customers; attitudes to piracy must be rethought (“piracy happens when motivation meets opportunity”); and publishers must build value around content “because payment works if the context is right — if there is a reason, people will pay.”

Added note:  "Duncan Edwards, President and CEO of Hearst Magazines International, took an entirely different view on pricing. “We have discovered that, because of the ease of use, people are prepared to pay as much — or even more — for the digital versions of our magazines.”

Really?  Not sure that maybe that have just discovered their own desire to get as much as before, and found some willing fans - rest assured, this won't last.  Look at iTunes and the music industry:)  People will not continue to buy songs for €1 every time they are interested.  Unsustainable, imho:=)

Complete video and audio from my appearance on Roda Viva / TV Cultura (Brazil), April 2010

This is the complete, 75-minute video of my appearance on Brazil's most popular talk show on Public TV, called Roda Viva (on the TV Cultura channel). I was delighted to be invited to the show, and really enjoyed being 'grilled' by the super-smart journalists and Brazilian media experts in the studio. We could have talked forever! The show was originally broadcast on April 26 (on Brazilian TV as well as online, see the Twitter buzz here) but unfortunately the webcast did not work very well so this is the first time I have seen the video, myself, and thanks to Roda Viva / TV Cultura I am delighted to be able to share this recording with you, as well.

More information about the show is here. Duda Groisman made some great photos during the recording of this show, embedded below. Related activities on this trip include: my presentation for NBS Brazil "The Future of Communications and Business", and my presentation at Fundacao  Dom Cabral (one of Brazil's best business schools) on "The Open Network Economy". Please note: the video is half Portuguese (the questions) and half English (my replies)

Here is a 9-minute version via Youtube (their 10-minute limit really bugs me!) Audio:

Gerd Leonhard Roda Viva TVCultura Brazil

Gerd Leonhard Roda Viva No Intro

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Content 2.0: 'protection' is in the business model not the technology (thoughts on the future of selling content)

Fueled by the music industry's ongoing turmoils and, finally, books going digital at a very rapid pace, there is a lot of debate on how to deal with the fact that many people habitually share i.e. redistribute digital content without any of the upstream users making their own payment. How can you monetize content when the copy is free?

This question is a key issue across the board, whether it's in music, eBooks, news, publishing, TV or movies. The fear is, of course, that once a digital item has been purchased by one person it can be easily forwarded to anyone else if it is in an open format, thus seriously reducing the possibility that someone else will actually pay real $ for it, as well (of course, the same is true for supposedly locked or protected digital content as well - it just takes a bit longer). No more control over distribution = no more money. Right?

Despite the plain fact that DRM has proven disastrous in digital music (and now is pretty much history), technical protection measures are still being investigated as a plausible method of securing payment, especially in the exploding eBook sector. This worries me greatly because technical protection measure are expensive, hinder or prevent mass-scale adoption, curtail or kill social sharing which defeats user-to-user marketing, often drastically limit fair use, and are by and large useless when trying to thwart the real pirates i.e. those that have malicious, criminal intentions of stealing content in order to sell it to others.

Not just content - Context! In my view, the thinking that the distribution of content must be controlled to achieve any kind of reasonable payment is fundamentally flawed because of this not-so-futuristic realization: in an open, digitally networked economy (note: I am talking about today, not tomorrow!) content publishers need to offer their goods in a way that no longer centers on distribution being the key factor. It should not (only) be the content that is sold (i.e. the mere 0s and 1s) but the context, the added values, the many others items around the content. Sell what can't be copied.

 The irrefutable trend is that the window of opportunity of 'selling copies' (i.e. iTunes, eMusic, Kindle etc) is rapidly closing, at least in most developed countries. The next, and very much already-present opportunity is in selling access and added-value services, and in providing content-related experiences.

Once we embrace that the users -the people formerly known as consumers- can't be reduced to just being 'buyers of copies' we can investigate how they would want to pay for everything else, as well. For example, when buying an eBook users shouldn't merely pay for the authorized distribution i.e. the legitimate copy of the words but they could also gain access to highly curated commentary, known peers and friends that may also read this book, ratings, explanations, slide-shows, images, links, videos, cross-references, direct connections with the author or the publisher and so on. Yes: connect with fans + reasons to buy (as Mike Masnick of Techdirt has succinctly summarized many times before).

In this model, as a legitimate user, I would also get valuable context when I pay. I would get engagement, conversation, relevance, personalization, meaning... i.e. really valuable benefits to me as a person, not just a dumb, anonymous recipient of free zeros and ones. I don't get these benefits just because I get a free copy via email, Rapidshare, BitTorrent or some drop-box on the Net, because it is stripped bare of everything that really matters to me. This is the key to the future of monetizing content, and it will take many different shapes and forms depending on the content, and the culture that surrounds it.

 For example, in music, it is very likely that streaming-on-demand (and the temporary buffering i.e. offline playing of those streams) will be 'free' i.e. bundled and packaged by 3rd parties, while the context and those many added values will not. If I want a high-definition version of my favorite opera or that Blue Note Jazz Club concert from last night I can buy a premium package that provides it. If I want to share my personal play-lists, ratings  and comments with my Facebook friends, and get access to their content, I can add the 'social network option' to my package. If the price is right, I'll buy (btw: this relates directly to why people buy virtual items - perception of value, and purchase after deep engagement - see my Farmville/Facebook example: they sell 800.000 virtual tractors per day;).

As to pricing and making 'buying' irresistible: imagine if a download of a song would cost only $ 0.10 - would anyone still bother to scour the web to find badly ripped, virus-laced tracks for free? Yes, I know, that price point sounds ridiculous if you used to sell CDs for 20 Euros a pop but the argument for much cheaper access to digital content that is offered in open (i.e. copy-able) formats is really quite simple: if you can get 95% of the users to buy at a much lower price, and make them so happy they will do the marketing for you (i.e. share links;), instead of getting 5% of the market to buy an expensive product that they can't really share with anyone (i.e. iTunes music or Kindle eBooks), then you should be doing just fine. This has been my chief argument for proposing the music flat rate during the past 10+ years, and I think it still holds water (in fact, it seems to be proving itself with the recent developments at Spotify, MOG etc).

And yes: selling at a much lower price but much higher volume only makes sense if the low-priced (or flat-rated), access-based offerings actually connect directly to a multitude of up-selling possibilities, such as multimedia versions of eBooks, high-definition versions of radio shows, albums or concerts, in-depth analysis and audio/video commentary for news etc.

In most content industries, I think the key is to offer a wipe-out, ueber-attractive way to get started at an irresistible price-point, and then convert most of those happy users to other offerings at a much higher price.

Pricing and value: getting the new formulas right. It all comes down to pricing and values - and many decision makers in the incumbent content industry will need to accept who will set those prices i.e. who will be in charge of value perceptions: not them, but the users. Hard stop. Reality check.

If you agree that the sharing of content cannot really be stopped, and that therefore the value of a mere digital copy of content will invariably decline, we must urgently re-think how we address the issue monetizing sharing, and what we can do to create and nurture those new values - the New Generatives - that will replenish those that used to be derived from being able to control distribution.

Added values, all the time. The metrics of the content industries need to shift from getting a copy to rewarding engagement. As an example, let's assume I have just purchased and downloaded a movie in an open file format, and I have a hunch that 50 of my close friends would also enjoy it. I post the movie on my iDisk shared files folder (anyone on .mac can do this) and send the link to everyone. Now, if the only value of the movie is in having received a 'copy without paying', then my friends have received the movie's entire value 'for free'. But if the value of this movie is also in the user / viewer being part of something much larger than mere 0s and 1s, i.e. a conversation or another environment of added values that are available to each individual viewer because they actually purchased access to the movie, then the mere sharing of the file is not going to be very attractive, for the upstream users will not have access to all these other values.

Imagine, then, if a legitimate movie buyer (or more likely, bundled-access-user) would also receive access to a select group of fellow users - and, crucially, representatives of the creators, producers or distributors - that would provide a myriad of additional values such as viewing exclusive, movie-related pictures, slideshows and short clips with the actors, locations or props used in the film, or getting special offers for related products such as books, games, merchandise or even HD versions of the same film, or unlocking new features within the very same file that are otherwise hidden (something that could easily be done within a mobile application, for example)... that is where it starts getting interesting. 

Combined with a no-brainer price point, having a constant flow of added values available to legitimate customers would turn file-sharing into a marketing vehicle, i.e. surely I could somehow watch the movie 'for free' but would be barred from all that other cool stuff that I would have access to if I only paid my $2, myself.

The crowd and the cloud: new monetization possibilities not based on Control. Content hosting is moving from my own computer and my hard-drives to the cloud - and indeed, this is very good news for content creators, publishers and rights-holders because if makes it easy to engage and up-sell to the new generatives. In addition, it is reasonable to expect that content files will get larger and larger over the next few years, since many devices are now capable to handle much better resolutions and many users are tiring of bad audio, video and image quality. The age of squashed-sounding MP3s is ending as high-end audio is becoming a reality even in the smallest devices. Assuming those 2 trends (people receiving bigger and better files as well as accessing those files in the cloud rather than storing it on any specific piece of hardware), the key question is what 'sharing' will look like in the near future and what can be done to monetize it rather than try to curtail it.

The answer is in the cloud: I think many people will soon stop sharing the actual media files (since they are getting larger and larger, and therefore more unwieldy) and will share only the links, the bookmarks, the metadata or the tags, if the result is the same, i.e. if the shared content is made fully available to the recipient, without further ado or unwieldy registration procedures, buy-now pitches etc. How could this work? 

 Imagine you have purchased an ebook for 10 Euros and you want to share it with your wife so that she can read it to you while you drive, or with your son because he really should know about this great book. With a good, old-fashioned printed, dead-tree book, this is certainly not an issue, so why should it be such a problem for the electronic version? Why not create and deploy many extra values around this book (such as video, audio, images, slideshows, dictionaries etc), make the file a lot larger, and then still allow a buyer to share the book via a simple link or bookmark that provides all recipients with the  basic, 'words-only' version of the book but withholds the added values until they purchase it for a very low and attractive price, themselves? Once those added values become a significant part of the user experience most users will not want to miss them - protection will be in the business model, not the software!

The perfect testing scenario may unfold soon, exemplified by Apple's new iPad. Extending the concept mentioned above, rather than blocking my wife from sharing an eBook it would be much more reasonable if I could still read the book, 'for free', but all else would not be available without a micro-transaction on my end, i.e. I would not have instant access to videos, links, ratings... i.e. that valuable context. This would clearly drive me to purchase a 'copy' myself - if indeed I like the book enough - sounds like a fair deal to me.

Engagement, interactivity, conversation and a constant stream of added values that can be produced at very low cost is what will give content owners 'protection' from rampant free-loading - not DRM,  region-coding or HADOPI laws.

Sharism and Money. When thinking about digital music (my original, futurist starting point), imagine an unlimited music service at a feels-like-free price, supported by advertising, brand sponsorships, ISPs / Telecoms and mobile operators. A service that allows me to stream or download the music, and enjoy it online or offline (pretty soon, a rather pointless distinction, anyway). A service that is basically cloud-based but that allows me to make temporary sub-clouds on my personal device so that I can always get to what I like the most, much like the gMail offline reader, mobile RSS readers, the Instapaper iPhone app etc. While I may be inclined to share some of the music files with my friends, I would be highly unlikely to publish the complete access details to my personal cloud via, say, Twitter - I would risk watering down my profile and messing up my entire personalization efforts.  Avoiding profile and account 'pollution' can be a major driver of payment adoption, I think.

Similarly, in books: let's assume, as a publisher, you'd allow people to log-in and get digital access to 10s of 1000s of books, at a low price (such as O'Reilly's Safari Books already does, for all those hardcore programmers and geeks around the world) - what would keep people from just sharing the log-in details and only pay for one account but have 2000 people getting everything for free?  The answer: once I am really involved with a platform I like, and use every day, I am not very likely to share the account details with everyone, because I don't want my profile to be polluted, and my own experience to be negatively effected. 

This is similar to having your family members use your eBay account for bidding on stuff they want to buy: not a good idea, since it will be your rating (which is the real currency of eBay) that will be negatively effected if your 15 year old son does not live up to the buyer's expectation on his last transaction. The same is true for Amazon: share your log-in details with your 12 year old daughter and you will make a mess out of your recommendations - she may love SuBo (Susan Boyle) but you don't want to keep seeing pitches for  stuff she may want, for the next 9 months.

The bottom line: content sharing isn't the real problem: high price points, outmoded toll-booth strategies, broken relationships and processes, low values, bad technology and service, and lack of conversation and engagement are. 
 
 


Here is my message to publishers and content owners: lower the prices to the point of unanimous excitement, use open standards that work for everyone, everywhere; bundle and package as attractively as you can (then: repeat). Remove all reasons that your users may have to avoid the toll-booth, and thereby side-step the conversion to 'paid'. The lower the hurdle for legitimate usage and paid engagement, the less you will have to worry about 'competing with free free'.

And do it now so you don't have to win people back from routing around you.

Image below via Somaya on Flickr (thanks!!)

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My presentation on "TeleMedia Futures" at BLPLaw in London

Here is the PDF from today's session in London. High-res and Slideshare version below - and stay tuned! 3.5 MB PDF: Telemedia Futures BLPLaw London Gerd Leonhard

TeleMedia Futures: the next 5 years in Media, Content and Telecom

View more documents from Gerd Leonhard.

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The Future of Digital Content and the coming Tele-Media Ecosystem (my presentation at Telco2.0 conference)

It was a pleasure and a privilege to be invited to the Telco2.0 Executive Brainstorm event in London, today, and to address a roomful of telecom  & media executives that were - as it says in the conference tagline - looking for a way to 'reduce the friction in the digital economy'. After having to listen to some rather bizarre and, sadly, rather 'retro' justifications about why those pesky Internet users and Digital Natives (i.e. our kids) really do need to be threatened with disconnection from the Net if they don't comply with the rules of yesterday's game, delivered with great pathos by the usual lobbyists from UKMusic and Universal Music Group executives (see the list of panelists below), I tried to get down to the bottom line of what the workable alternatives to their Control & Enforcement paradigms could be.

Funny thing is, that in the subsequent vote most people in the audience seemed to actually agree that disconnection and punishment are not going to change anything and are not a suitable path to new revenues... I always wonder why there seems to be strong consensus if people vote (or talk) individually, but if you hear them 'in public' everyone always delivers the good old party line of wanting more control and protection. Why is that? Whose bread we eat whose song we sing... is that it?

I will post a summary here, shortly. In the meantime, here is the slideshow (download the PDF via slideshare).  A

Enjoy and spread the word.

The Future of Tele-Media and Digital Content (Telco2.0 Conference)

View more documents from Gerd Leonhard.

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Book publishers: please learn from the mistakes of the music industry - my thoughts on what to do

I just received my new Kindle - the so-called International Edition - and as a result I have started to investigate the most recent electronic book developments. Apart from the Kindle (which I like but whose economic proposition is quite mad, frankly), I also own various Sony Readers and am a heavy Instapaper app user on the iPhone; I use it to read 100s of book-marked web-pages offline, saving 1000s of pages that I used to print.

Looking at what some large book publishers are starting to say about their digital strategies I have been getting a bit worried about a potential repeat of what happened in the music industry, i.e. of trying to keep or even expand 'control over distribution' while attempting a fruitful switch to a digital distribution model. In other words, many publishers seem intent upon using the advent of digital distribution as a way of fixing the 'flaws' of physical media (such as the CD or the book which can easily be traded, shared or lend to someone else).  Well, the reality is that in this new digital ecosystem, attaining total control is an impossible mission - and this flawed world view, I think, is main reason behind the global demise of the recorded music industry.

So here, below, is a summary of what I think non-fiction book publishers could learn from the digital music disaster that has been playing out in front of our eyes (and ears) for the past 10 years. Please note that in my opinion, the distinction between fiction and non-fiction publishing is crucial, because we must take socio-cultural contexts, existing user-habits and consumers UI (user-interface) preferences into account.

For one thing, I think that readers of business books are much more likely to adopt eBooks because they are often reading several books at the same time, annotate and bookmark heavily, skip chapters or like to search inside a book - all of which is becoming quite easy to do with the new generation of eBook readers. And many of them like gadgets, too, so that's a good fit. However, people who read novels or other fiction are, in my view, less likely to quickly adopt eBooks on a large scale since the good old interface of printed books still represents a much better emotional i.e. 'touch-feel-smell' value to them.

Let me also point out that while I think book publishers can learn plenty from what happened in digital music, the two businesses are really quite different, and whatever we may discover from the music debacle cannot just be transferred to the eBooks space.

Taking this into account, here are my top 5 tips for book publishers:

1. Don't (just) sell the copy of the content - sell everything around it. In fact, consider making the mere 'copies of words' (i.e. the raw data, the file) a lot cheaper to obtain from authorized sources but also start creating and offering those added values that are only possible in this coming digital ecosystem. Start building - as Kevin Kelly says - those 'new generatives' that will, over time, probably make up 75% of your total revenues. What do I mean with that? Unique, non-copyable values such as context (e.g. being able to look up a definition of a word or phrase via Wikipedia, or find a precise topic from the book you are reading in other, related books), curation and packaging (e.g. being able to read 'the best' chapters of the top 25 business books in a single, new 'compilation', or having a book edited down to 20 pages or 3 hours of audio so that I can save time and read  / hear only the essential stuff), immediacy (e.g. getting the book delivered at the very moment that the last word has been written or edited), and social relevance (e.g. see what my peers are saying about this book, and what comments they may have shared). The exciting thing is that eBooks don't have to be linear any longer - now, they can be linked, amended and interwoven; and guess what: no-one but the author and the publisher can provide these kinds of values. Read my lips i.e. tweets:  Unique experiences by unique creators cannot be pirated. Imagine 10s of 1000s of people buying the basic eBook for a very low price but then 30% of them opting to pay an additional 'fan & follower' subscription fee to get all the updates, comments, links, videos and audio versions as well. My advise: look at the initial sale of 'the copy' only as the mere starting point rather than the only way to monetize, look beyond the mere copy. With eBooks, the copy is just the tip of the iceberg. 
2. Don't focus on protection: focus on engagement, on attraction, on enabling followers not pushing enforcement. Realize that the more you empower the user the more money (s)he will give you. Yes, that's the Google way. As trite as it may sound to some of you: in digital content, friction really is fiction: if you keep the price too high, if you don't offer a standardized and open platform, or if you impose burdensome technical restrictions then you simply will be pointing to, or shall we say, sending your customers to those countless illegitimate places where they can just download the free files without any of these hassles. You don't compete with free - you compete with better service, trust and added values!
3. Don't try to sell what's abundant - sell what is scarce. The 0s and 1s that make up a book's content are and will always be abundantly available to those savvy digital natives, and will be captured by those 'people formerly known as consumers', no matter what you may do to prevent it. No matter how much you hate the idea: copies of digital files are abundant, meaning... close to 'free' - and that's that. What can be sold - based on a powerful, legitimate, low-priced or bundled, ubiquitous, unrestricted and super-attractive access model - is the stuff that's actually scarce which includes my own time (a great example is how the 'Wired' guru and Longtail prophet Chris Anderson sells the edited audio version of his new book "Free" for $7.49 while the basic, long-form MP3 is free), powerful creation, extra services such as special audio and video versions, and so on.
4. Technical copy protection or so-called digital rights management measures (DRM/TPM) are guaranteed not to work unless they are 100% invisible and actually add value to the user experience - in which case they become more like CRM.  Most of the time, DRM is an insult to the legitimate buyers, and utterly useless in terms of actual protection simply because it is trying to solve a business problem with technological measures. It prevents (and insults) customer happiness and greatly deters future purchasing. It reduces sales and punishes those that actually do buy and pay real money for the content. Book publishers, repeat after me: DRM will cost you serious money to implement and it will do nothing to 'protect' your content. Remember: after a decade of stone-walling and criminalizing what consumers have always asked for, the big record labels have finally allowed most digital music retailers to remove the DRM and sell unprotected MP3s - and guess what: the retail of those MP3s has had zero impact on the issue of how many people 'file-share' music without permission. So, read my lips i.e. my RSS: the only protection you have is in the business model. Think bundles and flat-rates based on very personal, unlikely-to-share log-ins, the potential embedding of user-IDs and even some personal profile information into the purchase process as well as, possibly, into the file-metadata itself, and above all a powerful 'great price + service' policy that will make all those bad UI, lousy experience but free sharing sites obsolete. I also recommend to look at the concept of Social DRM.
5. There can only be one standard file format, and it needs to work on all devices. ePub looks good but DRM'ed ePub is a bad idea. As I said in my presentation at the eComm conference in Amsterdam, just yesterday: "the fastest way to economic suicide is to put walls around your content". Just like in digital music, where MP3 is what everyone has been using for the past 15 years, you need to go with an open, ubiquitous file format and not start a format war that will leave the consumers baffled and ill-served. The Kindle is nice, yes, but just like iTunes which is only now becoming DRM free it's a tightly walled garden that forces you to stay inside and enjoy yourself only within the existing confines. Now, for me, personally, if the pricing was drastically different maybe I wouldn't complain about the fact that I can't share these books, at all - maybe if I felt like I had some kind of real power as the consumer to influence how these economics works, maybe that would be OK. But the Kindle's paradigm is based on a 'take it or leave it' rule: expensive devices, delivery fees for each book that's purchased outside of the U.S., and eBook prices that are only slightly lower than the printed book...? This is certainly not going to get those digital natives excited about becoming a 'legal' user of eBooks.

The bottom line: don't worry so much about preventing sharing or copying. Offer more, cheaper, better and more connected services, get significantly more users at a much lower prices and re-invent your business model.

Related: Lending...2.0?

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Open letter to Lord Mandelson: here is how to solve the Internet Music Problem - Legalize It!

Basel, Switzerland, October 12 2009  Gerd Leonhard, Media Futurist

Open Letter to Lord Mandelson, First Secretary of State, Secretary of State for Business, Innovation & Skills (UK)

The Digital Music License (DML) – why and how a new public license for the legal consumption of music on the Internet would provide a solid alternative to the proposed '3 strikes' legislation

Update: Greek Translation here

Dear Lord Mandelson,

The proposed "3 Strikes" legislation is flawed in many more ways than I could hope to outline in this letter, and many of these issues have already been addressed in many other places. Therefore I shall provide only a quick summary of some of the key issues, and then move on to describe what a fruitful, realistic and decidedly more pragmatic alternative could look like.

Unauthorized use of music on the Internet is not a technical problem but a business issue. The reasons why the global ‘free’ sharing of music via the Internet (whether streamed or downloaded) is growing exponentially cannot be nullified by technological means. Rather, the digital music (r)evolution clearly poses a myriad of business and socio-cultural problems that require us to devise a new social contract that legalizes what people actually do, and then build new business models around it.

Anyone that has attempted to innovate within the music industry (including me) will attest to the fact that the largest hurdle for the monetization of music on the Internet during the past 15 years has been the astounding absence of new licensing schemes that actually fit the 'Internet Generation' i.e. the digital natives, and the new ways of consumption that connected consumers are rapidly adopting. Bottom line: the problem is not what consumers are doing - the problem is that the music industry has not blessed it with a license yet!

Therefore, any attempt to solve these business issues with technological measures – such as the proposed 3-strikes legislation – would, with utter certainty, be very expensive, have serious social and political consequences and yet fail miserably to deliver tangible monetary results for the content industries or indeed the creators; just like Digital Rights Management (DRM) which was pushed very hard by the music industry for over a decade and has now finally been acknowledged as the snake-oil it really always was. The only outcome of the proposed 3 Strikes legislation would be to further criminalize every single consumer that is interested in music, every fan and every potential customer.

So, again, let me be pragmatic: this idea means no money for the creators, no new revenues for the industry (but even more rejection by the consumer), and still no satisfaction for the music consumers. In my view, the most pressing objective must be to solve the very real problem of how music (and then, other digital content) can indeed generate new revenues via the Internet - for the old revenue streams are the past, beyond a shadow of a doubt - just look at what is happening to newspapers and print publishing! Technology will not and cannot solve problems posed by seriously outmoded business practices. 

 The bottom line: controlling the flow of digital files is ‘Mission Impossible’. The challenging but nevertheless indisputable reality is that the very idea of reliably and consistently controlling the distribution of music files on the Internet is basically a technical impossibility as well as a social, political and cultural minefield. Today, the simple act of listening or streaming, watching or reading anything on a connected computer or a mobile Internet device is indeed the same as copying the content; one cannot be done without the other. The Internet is a giant copy machine, by definition, by design, and now… by culture. We may not like it, and we not appreciate it, but just like the railway was hated by the people that made horseshoes and horse carriages we have no choice but to shift what we do, adapt, and reinvent ourselves. As your own kids or any so-called digital native will tell you, access is now the same as a copy i.e. ownership - in technical terms and in terms of user behavior and mindset. Crucially, of course, not yet in terms of the existing laws and prevailing licensing practices. And therein lies the rub.

I would argue that we are in fact trying to build a new business on top of the decidedly pre-Internet principle of total and exclusive copyright – a stark dilemma that has proven to create endless friction but produce very few new revenues. The very idea of being able to control the flow of files in order to extract earlier or possibly higher payments from the users is fundamentally flawed, and we must therefore look for ways to monetize it rather than to prevent it.

The value of music is no longer (just) in the copied file. We urgently need to understand and accept that the value of music is no longer (just) in the mere copies of the digital files. Our attention needs to shift from the old - and dying - business of ‘selling the copy’ to selling everything else i.e. the many other values around that copy (some people call that 'service' ;) but starting with providing very low-cost or flat-rated and bundled access, and then creating many new revenue generators on-top of the bundled, legalized access to music. Once legal and unlimited music distribution is build-into Internet access - when Access is Content - a revitalized music industry can focus on talent, curation and marketing, i.e. the attention-getting and the conversion of that attention into actual income. And yes, there is serious commercial value in the music industry once we regulate distribution (I call this Music 2.0 - if you care to read my free book on this... here it is)

The DML: the alternative to the proposed '3 Strikes' legislation. 80 years ago, the answer to the challenge of a then-new and vastly popular technology called 'Radio' was to legalize it and provide new licensing schemes to remunerate the content creators. The same thing happened with CableTV and with the copy-machine, and the very same logic needs to be applied to music on the Internet. A public, collective, standardized and open license for music on the Internet needs to be either voluntarily created by the music industry, or mandated i.e. enforced by the government - and the sooner the better for everyone. The DML would - similar to the existing radio & broadcasting licenses that are already in effect around the world - make music available on public, standardized terms and conditions, and therefore allow any and all businesses that want to use music to do so without the utterly crippling uncertainties that exist in the current marketplace.  

Revenue shares and flat rates - not fixed license fees per song. The objective of the DML is to create a new, vast, and constantly replenishing ‘pool of money’ for music, i.e. to grow the revenue potential along with the growing number of users, as well as via the many new kinds of usages that will be spawned by the DML.

In my opinion, the most crucial component of the DML is this: the license fee needs to be calculated on a revenue-sharing basis rather than on a per-unit i.e. per song fee, whether streamed or downloaded. The current practice of a fixed per-track fee (usually amounting to about 1 cent U.S. per song, for the use of the master recording) for a stream and around 70 cents (U.S.) for a download has proven to be economically detrimental and utterly unrealistic for the market participants (such as Omnifone, Spotify, Rhapsody, Napster, We7 and Yahoo). Why is this? Because of the still-very-nascent stage of the digital music ecosystem, the fact that large-scale advertising revenues for new forms of media are always 2-3-5 years behind, and given that a very large number of users - potentially all UK consumers - are likely to listen to quite a bit of music in this way.

In its formative stage, this new market does not and will not bear license fees that are fixed in this manner and that are totally unrelated to actual incoming revenue streams. Instead, the DML would need to be calculated on a flat-rate or percentage-of-revenue basis, possibly combined with a minimum 'floor' that could prevent unfair and unintended use of 'free' music as a loss-leader (if needed).

Initial DML's reserved for ISPs, telecoms and operators. Since there are many different kinds of businesses that would benefit from having legalized music available (e.g. telecoms, operators, search engines, social networks and communities, blogs, web portals, online magazines etc) but their business objectives and parameters are so vastly different, I would propose to initially make the DML only available to ISPs, mobile network operators and telecommunications providers. This would have several important advantages: 1) once ISPs and operators are able i.e. licensed to offer music bundles and flat rates, they will have every incentive and reason to monitor (i.e. count not control!) which songs are used on their network, 2) they have very large user bases which will provide for a critical scale of payments to be obtained immediately (thus significantly lessening the perceived threat of revenue loss in the physical music market), 3) they have strong potential for the integration of next-generation, user-friendly advertising integration 4) and they already have build-in billing and payment mechanisms.

A flat fee license per user, generated in a multitude of ways. When licensing ISPs, mobile operators and other telecommunications companies it will be crucial to offer flat-rate licenses rather than to pursue revenue shares which are not going to be an acceptable way of generating music revenues from this process, at least initially. Rather, I believe that a fixed, flat-rate license fee per user, per week or month, would be the most suitable way provided that suitable 3rd parties (see below) will also engage to contribute to the funding of each user’s license fee. We must not simply declare the license fee payments to be the ISP’s problem - because it isn't, and because the solution is in the creation of a new Ecosystem, a new business logic, and not in creating tax-like burdens for individual industries.

Economic experts have already done a lot of work on the flat rate model. Far from being an economist myself, I would add that a payment of 1 GBP (in the UK) or 1 Euro (in Germany, France etc) per week per user seems to be economically feasible; however the exact price point will of course need to be negotiated with all involved parties, and possibly be adapted on a yearly basis until the market is more fully developed and each party’s ultimate value position can be determined. In any case -and this is crucial - the DML must clearly be so utterly affordable that every single ISP, operator and telecommunications company would immediately apply for a license.

In terms of the actual use of the music and the subsequent accounting for remuneration purposes, I propose that it should not make a difference if a song is downloaded or streamed (i.e. played on-demand while online), and - similar to CableTV - it should not make a difference if a user would use music 24 hours a day, every single day, or just download 3 songs every now and then. All music usage would need be counted, anonymized and reported, and artists would get paid fully proportional to the actual use of music i.e. according to their popularity (see below for details).

A calculation example: a pool of 2.6 Billion GBP per year for music, in the UK. As an example, a DSL provider and mobile network operator with 20 Million UK users would need to generate funds to pay for a DML of GBP 80 Million per month, i.e. 960 Million GBP per year.

Assuming, for mere calculation purposes, an average of 50 Million eligible UK residents i.e. a large percentage of the entire UK population (~ 61 Million) generating 1 GBP per week, the revenues for the music industry would amount to a very substantial 50 Million GBP per week i.e. 2.6 Billion GBP per year, which represents almost twice the UK's recorded music revenues in 2008 (1.36 Billion GBP). Any argument of ‘cannibalization’ of existing revenue streams such as CDs or iTunes would pale against this figure. And yes, iTunes would do just fine with and on-top of the flat-rate: remember they don't sell music, they sell iPods and iPhones!

How to fund a DML of 1 GBP per week per user. The key question is, of course, how exactly the ISPs and telecoms would raise the money to pay for the quite significant cost of the DML, every week, per user. This is a crucial issue since,a gain, under no circumstances should the ISPs, operators or telecoms be made solely responsible for the financial solution of this problem; it is absolutely crucial to position the DML as a business solution that will unlock strong new revenue opportunities and will be more than cost-neutral in a fairly short time.  In my view, the job of building the financial support mechanisms i.e. the ecosystem that the DML will require should be handled by a mutually respected, knowledgeable and neutral advisory board whose mission would be to 'collate' this new ecosystem and to get device makers, advertisers, premium-service providers and other interested parties aboard as quickly as possible. 

Advertising is only one of the many ways to fund the DML. Of course, as in television and radio, advertising is one of the key factors that will subsidize the DML fees. The concept of advertising-supported content is not new but what will be drastically different, going forward, is the type of advertising that we will see on digital networks in the very near future. Concepts such as advertising becoming content, itself (such as in mobile phone applications) and social advertising will blossom once permission for the legal use of music is given, creating much higher advertising revenues than we are currently seeing online.

The global advertising spend currently amounts to roughly $ 670 Billion USD, per year. The UK advertising & marketing spend is forecast at approx 25 Billion GBP in 2010 (eMarketer), with - by 2012 - an estimated 25% i.e. 6.25 Billion GBP going to digital and mobile advertising. Yet, digital and mobile advertising would only be one piece of this new puzzle: handset makers could pay subsidies to get preferred i.e. 'presented by' access to users (basically a network-centric variation of the existing ‘Nokia comes with Music’ concept), social networks could contribute subsidies to legally integrate ISP-hosted music into their own networks via the DMLs that operators and ISPs would already have; search engines and portals could do the same. Imagine if Google could sit on-top of this new system of fully legalized, feels-like-free music - this is similar to how Google has already made legal music (streaming and downloading) 'feels like free' in China.

After an initial set-up period, it would be crucial that an ISP or operator that makes use of the DML would be able to fully recover the DML costs through a multitude of new revenue streams, such as next-generation advertising, the sale of mobile applications based on the unlimited availability of music (such as social music and play list applications), subsidies by CE companies i.e. handset and device makers, data-mining and cross-selling (with careful consideration to consumers’ data protection and privacy, of course) and various forms of up-selling of other product and services (including music-related premiums) such as the games industry has been offering for the past decade, already, or even by re-packaging some of the license costs to their users.

The DML is NOT a tax.  Any indication that the DML essentially amounts to a tax or is yet another compulsory payment scheme levied onto the consumer (such as the existing TV & Radio licenses) or a particular industry needs to be avoided, at least in the UK market where such a proposal would probably be politically unwise. The DML is simply a new license that is made available to businesses that want to use digital music, with the funding being generated from the market participants, themselves.  

Monitoring of usage and fair payment to content owners. Every song that is performed i.e. streamed or downloaded on the Internet would need to be tracked and accounted for, using already available software solutions such as Gracenote or Shazam. This data would need to be made anonymous using a mathematical formula that would protect each user’s private data while still providing actuarial tracking of which song has been used how many times, on any given day, week or month.

Each artist and rights-holder would then receive a monthly payment that is proportional to the actuarial use of their music during each tracking period, e.g. if a given artist’s music was used 1.3% of the time (e.g. in any given month), he or she or their representatives (record labels and publishers) would receive 1.3% of the total pool of money collected. All participating creators (e.g. writers, lyricists, composers, producers etc) would get their proportional payment from the same pool. I am advocating a 50-50 split between the composer and the performer (i.e. recording and publishing), at this time. Overlaps with existing rights schemes (such as public performance on the Internet, and so-called web-casting and Internet-radio) would need to be investigated and addressed, as well.

 Existing examples: similar models to the proposed DML are already in place, or are being investigated in:

1) China, where Google is providing free and fully legal streams and downloads of music via their Top100.cn property, in return for a share of advertising revenues (and in full collaboration with all major labels) 2) Denmark, where the ISP and mobile network operator TDC has already made music ‘free’ to all of their subscribers, in return for paying a flat fee per year to the music rights organizations 3) The U.S.,  where Warner Music Group, via Jim Griffin and the his Choruss project, is rolling out a flat rate music license for universities and colleges 4) Korea, where SK Telecom’s MelOn service has been providing flat rate music access to most the population (11 Million subscribers at ~$ 5 USD per month) for a few years, already 5) Canada, where the Canadian songwriters are lobbying the government for  a new flat for digital music 6) The Isle of Man Music Flat Rate project, headed by Ron Berry.

I look forward to discussing this with you.

Best regards

Gerd Leonhard

Please note: this short letter cannot possibly answer every question that may arise if this proposal is further investigated or realized. Rather, I intend to make the case for why the DML would solve the pressing problem of legalizing and at the same time monetizing the many new ways that consumers use music on the Internet.  Please keep in mind that most of the suggestions outlined above are still quite basic; prior to making any precise recommendations in regards to possible implementations a lot more research and input from all involved parties is required.  Also, while my suggestions should be applied to digital music only, at this time, I do foresee similar developments within other digital content sectors such as motion pictures, TV and books - albeit within a wider timeframe (i.e. 3-5 years).

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UK government: disconnect those that share, return to Total Control asap?

Bizarrely, the UK government, led by Lord Mandelson, the UK Business Secretary, seems to have done a 180-shift in the past 2 weeks by once again proposing to disconnect alleged file-sharers from the Internet. In other words: if the content industry can't get people to buy music or films, or other so-called content, by offering relevant, fair and affordable new ways to do so, maybe the government can help to force people back into buying the old-fashioned way, i.e. by the unit / copy?  Rather than actually change the industry's business model, let's just change the consumers' habits - problem solved!

If you want to be puzzled, just read the UK government's announcement (PDF via Arstechnica). The Net is buzzing with news on this topic; see below. The FT has a good recent update called 'Claws & Effect' here; wherein I read (with little surprise): "Senior music industry figures, such as Lucian Grainge, head of Universal Music International, have been influential in mobilising Westminster to act". Lobbyists succeed again?

The bottom line can be summarized like this: "Let's just see if we can still force people to consume music in the way that suits us better". Never mind that the very similar French Sarkozy-'Bruni' proposal was just recently deemed illegal by the French Constitutional Law as well as by the European commission - maybe some good lobbyists can revert that, as well?

Here are a few quotes I have collected on this topic:

Those who like this idea

"John Kennedy, chief executive of IFPI, the organisation representing the recording industry worldwide, says: “It is not enshrined in any law anywhere that one has the right to steal music, films and books. There is a crisis in the economy, and as well as respecting rights we have to think about the economy and jobs” (FT) Related read: John Kennedy at RSA

“We welcome the government’s recognition that this problem needs to be addressed urgently, so today is a step forward that should help the legal digital market to grow for consumers,” the BPI, the music industry trade body, said. “The solution to the piracy problem must be effective, proportionate and dissuasive” (FT)

Those who don't like this idea

"Charles Dunstone, chief executive of Carphone Warehouse, one of the UK’s biggest providers, says: “We are going to fight [being forced to disconnect customers] as hard as we can. Our fundamental duty is to protect the rights of our subscribers” (FT)

"A Virgin Media spokesperson said: “We share the government’s commitment to addressing the piracy problem and recognise that new laws have an important role to play in this. But persuasion not coercion is the key to changing consumer behaviour as a heavy-handed, punitive regime will simply alienate mainstream consumers. The government should be ensuring a balance of action against repeat infringers and the rapid development of new legitimate services that provide a compelling alternative to illegal file-sharing" (FT)

"Internet provider TalkTalk said it would "strongly resist" government attempts to oblige Internet service providers to act as Internet police. TalkTalk said disconnecting alleged offenders "will be futile given that it is relatively easy for determined filesharers to mask their identity or their activity to avoid detection" (HuffPo)

One of my favorite quotes, via Labour MP Tom Watson:  “Challenged by the revolutionary distribution mechanism that is the internet, big publishers with their expensive marketing and PR operations and big physical distribution networks, are seeing their power and profits diminish. Faced with the choice of accepting this and innovating, or attempting, King Canute-style, to stay the tide of change, they’re choosing the latter option, and looking to Parliament for help with some legislative sand bags” (FT)

Some important facts and other related snippets (quotes from various sources):

• Proposed EU telecommunications legislation includes a clause stating that internet access is a fundamental human right (FT)
• In Ireland, internet companies UPC and BT Ireland have refused to comply with music companies’ requests to cut off suspected pirates (FT)
• The Sunday Times claims that Lord Mandelson, the business secretary, has been persuaded that pirates should be deprived of internet access altogether after dining with “Hollywood mogul” David Geffen *via FT (no surprise here, either;)
• Petition (38degrees)
• OpenRightsGroup Statement
• UK Pirate Party comment.

 I have been saying this since 1999: the solution to illegal filesharing is to legalize the way that people share content online, to create new, public, compulsory licenses for content, starting with music (yes, just like the Radio / Broadcasting license), to create fair and flexible licensing standards, and to reduce control in favor of compensation.

The UK's trend towards increased criminalization is just plain old wrong, technologically absurd and utter fantasy, culturally 500% retro, and socially unjustifiable. Techdirt's Mike Masnick sums it up nicely: "You may kick people off the internet, but does anyone honestly think that will actually get people to buy again?"

Here are some of my many contributions on this topic:

• Compensation not Control: Video, PDF on slideshare
• Music Like Water (essays)
  
• My comment on Paul McGuinness's version of the Internet (Midem 2008)

Once I am back from Japan I will comment further. In the meantime... please comment or retweet using the tools below.

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AMBC Music Conference: Kevin Burmeister and the new Altnet / Kazaa - back to the stone ages of digital content? Deep packet inspection? DRM? R u Serious?

Welcome to Content 0.0? I am in beautiful Sydney Australia for a keynote speech at AMBC, the Austral-Asian Music Business Conference; for a keynote on Music 2.0 and the Digital Music License tomorrow (August 21, 2009). AMBC is a great event and I am very happy to be here, but for the past 30 minutes we were subjected to one of the most bizarre, desperate and - sorry to be so frank - ...mad schemes of how to turn digital content into money on the Internet - and of all people, by one of the original Kazaa guys, Skype investor, and CEO of Altnet and Brilliant Entertainment, Kevin Bermeister. I have recorded some of his speech on my iPhone voice-memo recorder, and may make it available later, but here is, in a nutshell, what Kevin and his company, Altnet, seem to propose (and be sure to read their recent press release on the relaunch of Kazaa):

1. Put a Cisco 'Copyrouter' into the network of each ISP, everywhere
2. Have the Copyrouter (ouch... that word alone gives me the chills) look at all traffic that is based on or runs on certain P2P protocols, and define what's being shared via the unique hashtags that each file represents. Deep packet inspection... go!!!
3. Block all traffic with hashtags that have been flagged as 'unauthorized' (i.e.... all?), and replace them with files that are DRM'ed (yes... really) and that can be downloaded only if you allow a charge to be levied by your ISP.

I won't even attempt to delineate what I think is wrong with concept because there are so many issues that they would fill this blog for the next 30 days. But the mere fact that this kind of scheme is being presented in a keynote at a leading music industry conference is, frankly, making me feel quite hopeless on the future of digital music. But maybe I am wrong...  you tell me (comment box below)

Anyway, first, Kevin seems to want all our traffic to be deep-packet inspected (i.e. monitored) so that a automatic determination of it being lawful or not-lawful can be made. That, in itself, is a bizarre and utterly unfeasible concept has already been rejected by the European Commission and almost all governments around the world (except for France), because it only points in one direction, and that is towards CHINA's version of the Internet. Police-states, Censorship and severe lack of freedom of expression and speech. Are you serious, Kevin? Is this what you want so that the major labels and studios can keep or shall I see regain total control over distribution of content rather than to license it to everyone, and share in revenues (as is, strangely enough, happening with Google and the record labels in China!)? I hope not.

Second, Kevin seems to want to have the illegal files (again.... that means all files, really) be automatically replaced with copy-protected files (did you think those were retired, too...?) that must be purchased by the user, via the ISP. 

In other words, let's just  re-insert Total Control back into the system, and force every Internet single user to a) pay whatever the price is (without having any say on that) b) use ONLY approved devices that can play back the DRM'ed content. If that's future of digital content... count me out (along with 98% of the online population I would say). Put that Content under the rock again!

This scheme is too painful even to just contemplate; I mean it's so far out that it hurts... so, over to you guys, for comments, please.

My final thought: this reminds me a lot of the recent Onion video ('Google Opt-out Village') that makes fun of how you can regain 100% of your privacy on Google. Watch it and make the connection;). More on this, soon. Update: Read GigaOm's take.

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ISPs and Music: compensation not control (comments on new content economics)

In preparation for my presentation on how ISPs and the Music Industry can work together (see today's Midemnet blog post), I have recorded a short podcast on the topic, below. The MP3 (4MB) is here:  Gerd Leonhard 21st Century Music Economics

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Pirates Prisons Project: watch these videos, have a good laugh, and then... think again)

Go to PiratesPrisons.com

Fora TV: The Future of Music: Digital Rights & Wrongs (video)

This is a great video from a May 2007 panel at the Commonwealth Club in San Francisco. Even though it's over a year old, there are some great moments and nuggets of wisdom captured in this video (and not just from me;).   Details: Commonwealth Club of California San Francisco, CA May 7th, 2007  The Future of music: "Digital Rights or Wrongs?" is the theme of this program examining what music rights and creative license will mean in the world of new technologies. What will music rights and creative license mean in the world of new technologies? From the music industry and claims of rampant piracy to online sharing and fierce advocates of fair-use, how will we access and enjoy music? Representatives from all sides wrestle with the future of music and digital rights for creators, consumers and

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A must-read by Larry Lessig: "A Defense of Piracy"

via the WSJ. I will comment in more details later but... READ THIS.  Excerpt:

"Deregulate "the copy": Copyright law is triggered every time there is a copy. In the digital age, where every use of a creative work produces a "copy," that makes as much sense as regulating breathing. The law should also give up its obsession with "the copy," and focus instead on uses -- like public distributions of copyrighted work -- that connect directly to the economic incentive copyright law was intended to foster.

Simplify: If copyright regulation were limited to large film studios and record companies, its complexity and inefficiency would be unfortunate, though not terribly significant. But when copyright law purports to regulate everyone with a computer, there is a special obligation to make sure this regulation is clear. It is not clear now. Tax-code complexity regulating income is bad enough; tax-code complexity regulating speech is a First Amendment nightmare.

Restore efficiency: Copyright is the most inefficient property system known to man. Now that technology makes it trivial, we should return to the system of our framers requiring at least that domestic copyright owners maintain their copyright after an automatic, 14-year initial term. It should be clear who owns what, and if it isn't, the owners should bear the burden of making it clear.

Decriminalize Gen-X: The war on peer-to-peer file-sharing is a failure. After a decade of fighting, the law has neither slowed file sharing, nor compensated artists. We should sue not kids, but for peace, and build upon a host of proposals that would assure that artists get paid for their work, without trying to stop "sharing."

Larry rocks - and that's that!