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Posts from the Business School Dropout Category

Your article about streaming is misleading, contains factual inaccuracies, and gives bad advice.

I just wrote an article for NewMusicBox about streaming (it has cat pictures and everything). My goal was to provide some practical advice about what to do, because this is a thing that’s happening, and arguing about how good or bad it is doesn’t change the fact that some of us run labels, our jobs are changing, and we need to know what to do.

I see that you take the opposite stance. When you’re trying to get people to do something, the burden of proof is on you. You have not made a good case. Let’s address some specifics from your article:

1) “With virtually no consultation, musicians and independent labels are being led down the path of the streaming music construct controlled largely by technology companies.”

No music company was forced to agree to anything. Let’s be clear about that. They do it because they think it is a good deal. There is a chance they have more information at their disposal than you do.

2) “Streaming royalties for these services remain mired in mystery. Nobody is privy to how royalties are calculated or assigned to different players in the streaming ecosystem.”

Spotify explain how it works on their website. You could have Googled that.

3) “In what other industry would suppliers offer their goods to distributors without being told precisely how much they’ll receive for their inventory?”

The CD industry. Deals with CD distributors often work on a percentage, with final pricing at least partially at the discretion of the distributor. This is what I meant when I said “There is a chance they have more information than you do”. I’d encourage readers to make up their own minds, but it looks to me like you have no idea what you’re talking about.

4) “It’s clear Apple’s hand was forced and it had to enter into the streaming world, just to maintain credibility and market momentum for its device ecosystem.”

The download market was worth $3.5bn last year (2014) and streaming was worth $2.2bn. Might I humbly suggest that an alternative explanation is that (a) Apple customers would like to use a streaming service and (b) Apple see this as a way to make a lot of money?

5) “‘Streaming makes it very difficult for cult bands who sell 1,000 copies of each release,’ the noted British guitarist and composer Matt Stevens told me. ‘If 1,000 people stream an album 10 times, we probably make a few pennies versus 1,000 download sales which create a model that will pay for modest recording expenses.'”

If everybody who might at some point in the future stream a song from your album is also willing to buy the whole album right now, then you are in a very unusual position indeed and you might be well-advised to avoid streaming services. Such an extreme example of inelastic pricing, though, is in my experience unusual.

6) “Musicians and independent labels jumped along for the ride when Spotify, Rhapsody, MOG, and the rest of the streaming companies essentially constructed services with payouts so low, the end result isn’t much different than piracy. That, however, doesn’t hold true for the core investors in these services, which include the old major label guard. For instance, Spotify’s key backers include Warner, Sony and Universal.”

You expect us to believe that these companies – that’s right – these ones – have conspired to depress the price of music? Ok. By “key backers” you mean “minority shareholders”.

7) “…as the services scale, the streaming royalties actually shrink. Only ad and subscription revenue grow for the services, not royalty payouts.”

This is misleading. I refer you to this graph, which you can find in context here:

Annual-Payout-2bn-total

If the per-stream royalty has fallen, it can only because subscribers are, on average, listening to more music. Would you rather they didn’t?

8) “The grand irony of all of this is that no streaming service is yet profitable.”

This is simply not true. I have worked on profitable streaming services. You just don’t know about them. If the big ones aren’t profitable, it’s because they are doing something called “investment” which I have explained before here.

9) “Because of the incredible complexities of licensing and the ponzi-inspired nature of these organizations, money is rolling in.”

Also because people like them and they pay a lot of money to use them. Most of the money gets paid to labels. What happens next is between them and the artists. Just like with all other music sales.

10) “In Spotify’s case, they are looking at a giant monetization event in the form of an IPO or acquisition. If either occurs, everyone — including the major label backers — will cash out, and all that will be left is a feeble shell that will eventually collapse.”

Or, possibly, to build a long-term sustainable business that generates a profit for its shareholders while satisfying its customers and paying a fair price to its suppliers. One of the two. Unless your doomsday scenario has no expiry date, there’s an easy way to find out which.

11) “It’s obvious virtually all the insiders of the streaming companies see this model as a short-term, unsustainable play.”

No it isn’t. You see that there? I made that case with the exact same amount of evidence as you produced in your argument to the contrary.

12) “My advice is for musicians and labels to opt out of the commercial streaming services…”

Why the hell would anybody follow your advice? It is founded on falsehoods and unsubstantiated accusations.

13) “…and seek out other options available to them, such as Bandcamp and PledgeMusic, which appear to remain relatively honorable territory.”

Is this an aesthetic argument? They seem like nice indie guys? Is this what you’ve got?

14) “The big question musicians and independent labels need to ask themselves is why allow these companies to determine the value of your music?”

To reach a big audience. That’s it. Do it, don’t do it, it’s up to you. It’s the same dilemma you’d have doing a deal with a supermarket chain or a big box retailer: your products reach more people, all music is priced the same and that price is lower. Cut all the crap about conspiracies, and this is a straightforward business decision about pricing.

15) “You can send people interested in what you do anywhere to access your music.”

True, but people who have never heard of you won’t go looking for something they don’t know about in a place they don’t go. There’s a balance to be struck here, and not all records are expensive to make.

16) “The inevitability is musicians and labels are eventually going to be on their own again as the streaming services begin to collapse one by one across the coming years.”

If this is going to happen anyway, what are you so worried about?

17) “It’s time to plan for that future by establishing your own model now, apart from these companies.”

Better advice would be to seriously consider what part, if any, these companies play in your strategy.

18) “Reclaim your independence and ensure your music benefits the people that really believe in it, not soulless streaming companies seeking to take you for everything you’ve got.”

By all means retain (or reclaim) your independence. It matters, and it’s my job to help people do this. Part of that means not making business decisions on the basis of the unsubstantiated ramblings of some blowhard with a blog and the rhetorical flair of a low-budget Glenn Beck. These soulless companies pay out 70% of their revenue to rightsholders, they’re playing a long game, they know what they’re doing and labels participate because they see it is a logicial step towards more sustainable revenues. If you don’t accept this then prove me wrong.

If major labels are screwing people (which would hardly come as a massive surprise), then investigate that. Talk to some artists, collect some evidence, make a case, show people which specific clauses in the contracts are causing the problems. Find somebody who found a way round this and share what they did. That would actually be a useful thing that resulted in tangible action. Produce some evidence or shut up, because right now you have nothing but clickbait bullshit and it is not helping anybody.

I’m often astonished at the extent to which people who run record companies can be bad at maths.

Yesterday I sat in a meeting where it was suggested that the success of a promotion might be measured be checking the sales of the records in it before, during and after the promotion. It’s not a totally barmy approach, but without comparing the sales of the records in the promotion with sales of some other records over the same period, any increase or decrease might be the result of normal sales patterns or overall fluctuations in the market.

Still, that’s not nearly as daft as this thing I found today. The headline is “Which music services are growing, which are shrinking” which would make for a pretty interesting article if it actually told you the answer to that question.*

It’s not easy to measure this unless you sell music on these all the services** so the author has instead used Google Trends to find out which services people are searching for. In the medical world, this is known as a surrogate outcome. The thing you want to measure is difficult to measure, so you measure something related instead. It can go wrong.

The trouble is that a related variable isn’t necessarily strongly correlated to the outcome you care about. If you’re gong to use a surrogate like this, it’s a good idea to check if it’s really easy to find examples of it not working at all well. The examples below are literally the first things I searched for.

Screen Shot 2013-09-11 at 13.51.21

According to Google Trends, Steve Jobs was never more in demand than the day he died, and is still not as unpopular as  when he was alive (that last bit might be true).

Perhaps its fairer to compare Google Trends with a better-known indicator of company performance: share price. Here, Berkshire Hathaway’s search popularity has been in steady decline for the best part of a decade.

Screen Shot 2013-09-11 at 14.06.41

Don’t tell their shareholders that, though. According to the NYSE, business has never been better.

Screen Shot 2013-09-11 at 13.54.19

Meanwhile, at Yahoo, search interest hit a high plateau in 2010:

Screen Shot 2013-09-11 at 13.55.24

And the stock price is doing almost the exact opposite.

Screen Shot 2013-09-11 at 13.55.14

Pretty much the entire foundation of all scientific progress is to come up with an idea and then try to prove it wrong, because if you can’t prove it wrong, you might just be on to something. If the author had made even a cursory attempt to check how poorly search popularity was correlated with company performance, I think he might have offered a stronger disclaimer than:

“Of course, these search trends are not the same as having an actual measure of activity. Millions of people play music on Spotify or iTunes every day without performing a search. However, until we can get raw user numbers from every music service, this is probably about the closest we can get to understanding which services are growing and which are shrinking.”

When I wrote “almost everything you read about the state of the record industry is, at best, totally useless” this is just the sort of thing I was talking about.

Footnotes:

* Perhaps I should avoid reading articles with questions in the headlines. If they ever answer the question, it’s because the answer is “probably not”. This is often the way with rhetorical questions.***

** If you don’t sell music, why do you even care which ones are growing?

*** And did those feet, in ancient time, walk upon England’s mountains green?**** And was the holy Lamb of God, On Englands pleasant pastures seen?**** And did the Countenance Divine, Shine forth upon our clouded hills?**** And was Jerusalem builded here, Among these dark Satanic Mills?****

**** Probably not.

I’ve done a several interviews in the last few weeks where journalists have asked about the value of music, as if this is a major cause for concern.

I’ve never really worried about this, and here’s why:

We just got our water bill. Water is clearly valuable – we would die without it – but it isn’t always expensive. In the last six months, we used 66,000 litres of tap water, at a price of just over £162 (including standing charges).

Water is fairly readily available where I live. It falls out of the sky. Indeed, an average of 736,000 litres of water land on my house and garden each year.*

There’s also a stream at the end of the street which must carry far more than that, and I live walking distance from the sea. Let’s forget about these sources though: the hundreds of millions of people around the world struggling to survive without clean drinking water wouldn’t appreciate it if we confuse this with the stuff coming out the tap.**

Still. In the park at the end of the street, there’s a drinking fountain. There’s also a cafe where you can get a plastic cup of water, free of charge. If these are closed, the reservoir is at the top of the hill. With some inconvenience and fewer baths, I could get free water if I wanted.

The water supplied to my house costs about 0.1 pence per litre. It’s metered, although some people are still on the “all you can drink” subscription. Whichever tariff you’re on, you’re allowed to put the water in a mobile device or “bottle” and take it out with you.

The bottled water we buy from the supermarket is 8.5p a litre***. I’m fairly sure this is tap water, marked up to more than 80 times the price, but it still seems hilariously cheap when you can pay ten or twenty times this amount for a glass bottle of fancy water, still or sparkling.

The cafe in the park offers bottled water at £3 a litre. This is 3,000 times the price of tap water, and it’s offered right next to the big jug of free stuff. Still, business is good. People buy the bottles. If you’re willing to leave the Shire, you can pay a lot more.

What I find really interesting about all this is that most of the bottled water brands (or at least the companies that currently own them) entered the market when cheap, good-quality tap water was already available to almost**** everybody in the country, apparently unfazed by this massive pricing disparity.*****

I’m surprised, then, when people tell me streaming music is somehow unsustainable, will completely replace downloads or is devaluing music. I don’t have to pay anything to listen to the radio. People give me free CDs. I can listen to most things on Spotify when I’m at my computer. I still buy music, both as downloads and occasionally as physical products in almost every imaginable format. I buy them with the money I make from selling recordings, and while I fully expect to have to keep looking for new ways to do it, I have no plans to change career.

With apologies to Information is Beautiful.

infographic

Footnotes

* You can figure this out yourself: multiply the length of your property by the width (in meters) and multiply this by the annual rainfall in mm. Then check the order of magnitude about six times because it seems like A LOT of water. I live in one of the least-rainy parts of the UK.

** With a big tank and a filter we could be self-sufficient, but this over-simplifies the clean water problem. To live off the grid, we’d also have to disconnect the sewer. That’s where things get problematic, especially if any of the neighbours were planning to use the water from the stream at the end of the street.

*** Including delivery.

**** The near ubiquitous availability of bottled water makes us less inclined to install drinking fountains in public places, which may not be a good thing.

***** My local water company announced a profit of £79.9m last year, up 147.7% on 2011. The global bottled water industry is doing fine.

227547892_2b2f2b9a2b_b

There’s an article on Digital Music News from yesterday entitled “Happy F%*@ing Birthday, iTunes…” and, as it illustrates so many of the reasons I avoid reading anything on Digital Music News, I thought I’d take a look at it here on my blog.

It opens with a personal attack on Steve Jobs who, if he hadn’t been dead for fifteen months, would surely have been humbled into changing his ways by the brilliant rhetorical device of calling him an asshole on the Internet*. It then launches into what seems to be the central assertion of the piece: that iTunes is “one of the greatest piracy-enabling vehicles the music industry has ever witnessed”.

This surprised me. The occasion for this piece is the 10th anniversary of the iTunes store, which sells music. I worked on the iTunes Store for more than half of the last ten years, and it never seemed like enabling piracy was a high priority for my department. If you’re going to make a claim like this then, naturally, you’re going to have some evidence for it, but we’ll come back to that, because there’s more.

The line “its legacy is a complicated one” dangles the possibility that we might get some meaningful analysis here.

One easy way to make headway through all this complexity would be to look at the winners and losers. The iTunes store made some people very rich, while others did less well. Whole companies sprang up to support the digital supply chain, while some businesses began a steady decline. In some instances the cause-and-effect relationship is quite obvious. One might even choose to divide the music business into “artists”, “audience”, and “people who take their money” and examine what ten years of the iTunes store has done for each of these.

Instead, we get a restatement of the famously positive things about iTunes, along with one other criticism: “the rise of iTunes also meant a fall in control for content owners.  Jobs demanded 99-cents a track, for every track, for years, and refused to entertain bundling tomfoolery like album-only downloads.”

The music business has its fair share of bad deals, but nobody is forced to sign them at gunpoint. To suggest that anybody is compelled to hand over control of their artistic output to a massive corporation (label or retailer), or that they are driven by anything but greed to accept a huge advance in return for their music is to fundamentally misconceive the way the world works.**

After this brief detour into moral outrage on behalf of the poor, defenceless label execs, we’re back to the piracy thing:

“…only a certain percentage of people were actually purchasing paid downloads.  Indeed, the IFPI routinely estimated that 19 out of 20 MP3s were pirated, ie, not purchased from the iTunes Store.  Yet, all of those downloads — free, paid, whatever — were feeding an iPod frenzy, with only limited restrictions on either side of the iTunes+iPod equation.  The source of the content didn’t matter; the consumer experience was everything.”

So there you have it. The iTunes store (which never sold MP3s***) is a bad thing because a different division of the same company sold hardware to people who may have also stolen music****. I sometimes wonder how we sleep at night. But wait. There’s more:

“Because if the iPod could comfortably hold 20,000 songs, the next question was where fans were getting these 20,000 songs.  CD-ripping, sure, but also ol’ favorites like Limewire and BitTorrent.  On the most basic level, no one was paying $20,000 for a digital collection.”

This is just innuendo, and it’s misplaced. I must have been off sick from work the day they called us all into Town Hall and said “So you guys, don’t worry about trying to get people to buy more music. It turns out we’d rather they stole it.” because I  don’t remember that happening. Still, I won’t ask you to take my word for it. Instead, let’s consider for a moment just how foolish this whole “iTunes only exists to sell iPods” argument really is.

The iTunes store looks like it will sell about $5bn worth of music alone this year. That’s a Fortune 500 company, all by itself, and around 4% of Apple’s turnover. Even a 5% profit margin yields a quarter of a billion dollars. I count 129 Fortune 500 companies that didn’t make that much profit last year. When you consider that iTunes had massive growth to finance out of its slim margins, articles about its break-even origins seem rather daft.

But I digress. Digital Music News still has one absurd paragraph left:

“Fast-forward to the present, and Apple is still getting away with mass murder.  Because iCloud and iTunes Match not only ports entire, multi-thousand collections in the sky, it’s also giving every pirated collection a pardon.  And $24.95 a year is all it takes to absolve your sins.”

This is a bit vague but it sounds serious. If you didn’t know better, you could be forgiven for thinking iCloud and iTunes Match made it easy to share your music, and that using iTunes Match would protect your from prosecution for music piracy.

Neither of these things are true. Access restrictions make it difficult to share music with others using iCloud, and iTunes Match will not protect you from prosecution for piracy*****. I don’t know where this rumour came from, but it’s widespread and very much mistaken: it’s the act of piracy that is illegal, not the possession of pirated music. It might not feel this way to users, but that’s an issue that could have been addressed in a bit of intelligent analysis.

I struggle to understand what the point of this whole article was. An enterprise as wildly successful as iTunes would surely have left some people worse off, but after reading this, I’m no wiser as to who those people might be.

If there’s a decision we might make differently after reading it, I can’t imagine what that could be either. If it was intended to inform, then it fails by containing almost no information – mostly just a bunch of bloviating. Indeed since it is, in places, misleading, you could end up knowing less after reading it.

I don’t read much news at all******, but I certainly don’t read Digital Music News any more. It joins the Daily Mail and Norman Lebrecht on the list of sources who seem, consistently, to place page-views above accuracy, creating content for the benefit of advertisers or personal vanity rather than for the benefit of the reader.

There’s space for both daily industry news and sensible analysis in the digital music space. If this is what you’re looking for, though, you’d do well to look somewhere else.*******

Footnotes

* This is the only thing in the whole article to get a citation, to another Digital Music News article about how Steve Jobs was an asshole.

** It’s reasonable to ask who wins and loses under such a deal, but to behave as if they didn’t have a choice is to absolve one party to the deal of responsibility for the outcome. The artists made their choice when they signed away their albums to a label, and the labels made their choice when they signed the deal with iTunes and accepted the billions of dollars they were paid in return. If you want to control how your music gets sold, you can sell it yourself. If you want to control how your catalog is priced, you can start your own shop. Occasionally markets need regulating to prevent monopolies from exploiting people, and it’s reasonable to point out when this needs to happen. Everything else is whining.

*** At least 100% of MP3s were not purchased from the iTunes store. If anybody had bothered to cite a source for this “estimate” we might get a clearer idea of what was being talked about. The closest I can find is this, where the estimate is based upon total downloads, without reference to (1) what percentage of these downloads are substitutes for a purchase or (2) how many, if any, of the illegal downloads are made by iTunes users.

**** The iPod could be filled up with stolen music, in much the same way that a suitcase can be filled with stolen money. We don’t condemn people for making suitcases. This would be dangerously close to the “guns don’t kill people, Americans do” argument, except that killing people (or transporting stolen music) was never the intended function of the iPod, and Apple made common-sense attempts to make piracy difficult. Unlike almost all other popular MP3 players, the iPod made it genuinely difficult for you to copy music off it onto a friend’s computer. It’s closely integrated with the best legal download store ever created and even came with a sticker on the screen that said “don’t steal music”. That’s not to say that no pirated music ended up on them, but I’d be interested to read what other reasonable steps Apple could have done to prevent this without completely hobbling the product.

***** It’s in the terms and conditions. “You hereby agree to use iTunes Match only for lawfully acquired content. Any use for illegitimate content infringes the rights of others and may subject you to civil and criminal penalties, including possible monetary damages, for copyright infringement.”

****** This article in the Guardian covers many of the reasons why I tend to avoid news coverage. I found the article when a friend shared it on Twitter – one several people I know who read it, evidently thought it worth sharing, and then went back to reading and sharing a steady stream of pseudo-news every day.

******* Not here though. Adrian Covert? You’re next.

Some people are worried about the shape of the music industry. Every other day, one of my clients will send me some scary bit of analysis from a newspaper or music industry blog, projecting the end for CDs, labels, streaming, downloads, classical music or for the entire human race.

I’m not worried about this.

You see, my second child was born in November. It’s certainly true that my growing family provides valuable perspective on what’s really important, and I barely have time to sleep, let alone read daft speculative analysis, but there’s another reason these projections don’t scare me.

When baby no. 2 was born, he weighed nine pounds and was 50cm tall.

When he was six weeks old, he weighed twelve pounds and was 62cm tall.

He’s a fairly big boy. I wondered how big he’d get.

Not to scale

Now, there are lots of babies, and a lot of them get weighed and measured so there are lots statistics available on how fast they grow. I could use these to find out how big he’s likely to get, but you know what? Those statistics were gathered by looking at other children, and not mine. My child is unique, and if I want to know what he’ll do, I should look at what he’s done.

I think you’ll agree that it makes total sense to ignore all these statistics because they cover situations that are merely very similar and not exactly the same as the one in which I’m interested. This approach has the added advantage that I don’t need to check or even understand anybody else’s data. This is good because I’m lazy and not very good at statistics or research.

Instead, I opted for a bit of basic arithmetic.

If he puts on three pounds (and twelve centimetres in height) every two months, he’ll be 80 feet tall and weigh just under 613lbs by the time he’s my age.

That seemed pretty big, so I figured I should probably check my working. After all, perhaps his growth is slowing down.

If his growth was indeed linear, he should have weighed 10.5lbs at one month old. If it were more, his growth rate would be slowing. Alarmingly, though, the real figure was less than that. Based on these three observations, I concluded that his growth is exponential.

So if instead his body weight increases by one third every two months and his height increases by 24%, he’ll get even larger. Much, much larger.

By his first birthday, he’ll be about as tall as I am, and will weigh 50lbs. At fifteen months old he’ll be the tallest person who ever lived. He’ll weigh the same as me by the time he’s 19 months old, and by then he’ll be more than twice as tall.

He’ll be heaviest person on record by the time he’s three.

When he starts school, he’s likely to be the only boy in the reception class who weighs more than twelve metric tons, but he won’t be the fat kid. At 839ft tall, he’ll be positively lanky.

Growing boys eat a lot, but I do genuinely worry what we’re going to feed this one. At fourteen and a half, he’ll weigh more than the world’s current population. Then again, at 41,000 miles tall, his arms should be just about long enough to give the planet a bear hug. If he wants to eat something, anything, anywhere, he can get it for himself.

At sixteen, he’ll have to be careful he doesn’t bump his head on the moon.

By the time he’s my age, he will have consumed the entire mass of the Earth, and unless his own gravity has rendered him completely spherical, he’ll be roaming the solar system, looking for planets to snack on.

So what I’m saying is don’t worry too much about the alarming analysis that all so frequently fills the news. It might be based on simplistic mathematical modelling that ignores the vast majority of serious research on the subject.

Even if it isn’t, and the music industry really is doomed, why worry? You’ll have been crushed by a giant toddler long before it becomes a problem.

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