Since I have just started preparing for a potentially mind-boggling (ehem) keynote speech at the Flat Rate Music event in Iceland (Oct 17, 2007) I am getting pretty well tuned up on this, so, here is a bit of a FAQ on the flat rate and what I have come to call 'Music Like Water'.
I will publish more details as I proceed but please feel free to chime in with questions and comments that I can work into the next few posts on the topic – thanks.
First of all, these statistics below, gathered by eMarketer, clearly illustrate the current conundrum - albeit from a U.S. centric point of view so some of this may or may not apply to Europe in exactly the same way; please have mercy on me in this regard as I am still fishing for more intel on this.
Basically, what’s happening is that a much higher percentage of the total population is actually buying music today (32% of the U.S. population in 2006, versus 20% in 1980), BUT (and this is a very big but) the amount spend per capita has been almost halved – and that does not even account for inflation since $100 is obviously worth a lot less now than it was in 1980. In fact, what cost $100 in 1980 would cost $267.76 in 2006 so $198 back in 1980 would be $530 today - I guess one could safely summarize that if we adjust for inflation it has actually shrunk by 75%!Why is this happening? Well, for one thing, people can now buy individual songs (i.e. pick the cherries rather than buy the whole album), they can download music for free anywhere (nope... not me), they can swap music on IM, Skype and via blue tooth, and they have myriads of other options to get free music (Satellite Radio, Pandora etc) - plus the competition from other entertainment categories such as gaming is huge. The entertainment share of the consumers wallet is under serious siege, no matter how you look at it, and music has not kept the top spot here (to put it mildly).
In any case, this development reflects that as far as music is concerned more and more people seem to want higher value at ever lower prices, and that they are tired of having been forced into buying an entire album only to get the 1 or 2 ‘good’ songs that were on it. Digital music has buried the concept of a ‘must-have-the-album’, finally.
The downward price pressures and value perception shifts that go with this are rock-solid trends that we can only accept as reality, and ultimately we must now counter with a radically new model: let’s lower the price of on-demand ACCESS TO MUSIC (since that is what it’s all about - i.e. NOT COPIES), get 98% of the population to auto-pay a very low minimum, every month, suck them into the music vortex (so to speak) and then take them upstream to sell them other stuff. Not rocket science, really – see cable TV, cell phone services, software, games etc.
The bottom line, however, is this: we urgently need everyone to have ‘feels like free’ access to music; access that will generate solid, recurring and expandable revenues that are build into the ecosystem rather than remain an option that a user must select (and pay for) every single time he clicks on ‘get this song’. That model simply won’t scale - the Net Generation (those ADD-prone 12-27 year olds that have grown up as ‘digital natives’) just won’t buy the OLD MUSIC FORMAT anymore – that model is asking too much, too early, too rudely, too disconnectedly.
Sounds like a tax?
It kind of does, and that may be one way of looking at it, but I would much rather see this as a voluntary collective license (again, just like Radio!). Having said that, the thought of a universally and unanimously agreed-upon or ‘common-good’ payment may seem somewhat un-American, and therefore my hunch would be that Asia and Europe will be first to implement such a concept. After all, most Europeans already pay for a public TV and Radio license, and for levies for devices and recordable CDs. And most Europeans love their libraries, too.
But anyway, here is my simple appeal to the labels and publishers (and of course to the artists they represent, and their managers): License Music on the Internet just like you licensed Radio! *at better rates of course ☺
In fact, the Internet, and social networks in particular, are already like Radio, and the likes of Facebook will be as crucial to music promotion and marketing as Radio was 20 years ago.
And just like during the humble beginnings of radio, Internet sites and services are by and large not yet licensed for the use of music because no workable, realistic and practical license model exists. The rights holders and industry bodies have miserably failed to come up with a workable model. The result: Permission denied. End of Story.
As a consequence – just like Radio! – large percentages of Internet users are now basically forced to merrily engage in unlicensed behaviors of some kind or the other (such as streaming tracks on-demand on their blogs, ripping webcast streams... never mind p2p filesharing) - a fact that is increasingly attracting the criticisms of the European Commission who wants this paradox situation to be resolved asap. There is a market, there is demand, there is revenues – how come there is no license? Hello?
So, to begin with, what IS a flat rate for music?
Basically, it's the simple concept that quite literally everyone, in some way or the other, should be able to pay for basic access to music and that everyone’s open-access consumption of music should finally be sanctioned and legitimized - but in a way that does not feel like a major decision or impending credit card transaction every single time you do it. It is the idea of a build-in, universally accepted payment for a service that one cannot and wouldn’t want to live without, akin to water, electricity, and of course TV and Radio (certain people would probably want to add the Blackberry, SMS, and email here, too;).
Similar to how cell phones only started to take off when device prices came down and flat-fee (or prepaid) offerings came about, and to how cable TV took off only after it was offered at a very low price point, the idea is to get 95% of the population engaged in the payment-already-made consumption of music so that they can become satisfied, happy and engaged users, and then be converted to active market participants that are likely to buy something 'upstream'. Again, just like the cell phone or cable TV (or... EasyJet?), the mission is to get everyone into the system, at a very low price-point, and then crank up the business with all kinds of extra offerings. Engage not enrage!
Music is not a luxury offer for an exclusive group of buyers - we must stop pushing expensive one-off deals (i.e. CDs and a la carte downloads) to a very exclusive group of buyers (e.g. 45-year olds that want to ‘do the right thing’, are not online a lot and have more money than time – and that like stylish devices) and launch offers that can bring everyone aboard at a very low entry point and with an irrefutable value proposition. A value proposition that can feel like free yet in the aggregate generate large amounts of cash.
Do the math: get 90% of the population (i.e. everyone that is connected in some way or the other, be it on the TV, the computer, or the cell phone) engaged at 1 Euro / week, and you instantly have a very sizable pool of money that would rival or even surpass the still existing revenue streams derived from CDs and downloads. And that would just be the beginning!
Without wanting to get too granular here, this is how I am envisioning the Music Flat Rate structure:
• For unrestricted streaming use: a revenue share (and / or a share of expenses, such as in the case of non-revenue earning entities) in the neighborhood of 10%; for both the use of the master and the compositions, exact split tbd. This would not include downloads (fka digital phonographic delivery) however it would need to cover any and all types of 'listening' uses including full length tracks, on-demand, and interactive and unrestricted uses, plus it would include all platforms including Mobile (remember - there is no such thing as 'the mobile web' - so why should this be any different?)
• For downloads (fka ‘copies’), a flat rate per registered user on a given site / ISP / platform / network; I'd propose 1 Euro / 1 $ / 1 GBP per user per week, with the exact fee to be adjusted in each country, of course. This would give every user unfettered access to ‘use’ i.e. download unprotected (!) music files on / via any network of their choice (e.g. ISPs, telcos, operators, search engines, portals, social networks). The catalog would need to be very substantial but quite a bit of it could also be subject to premium charges (such as live concerts etc). It is not unthinkable to have some sort of ceiling here (say, 500 downloads) but that probably wouldn’t really do anything for anyone, so…why bother.
Most importantly, do keep in mind that most users will not actually pay the flat rate charges, themselves. Rather, their service providers will wrap the payment into other payments (similar to how XM satellite radio is bundled ‘for free’ into new cars, or how 911 / emergency calling access charges are bundled into all U.S. phone bills), and they will find many new ways to subsidize this via advertising, sponsorships or upstream-selling programs. Why would they do that? Because now they can build a business around this, and count on the content being part of it, for sure (again... like radio!).
How would the artists and creators of music get paid?
Any and all use of music on the networks can be monitored and tracked, i.e. any user that streams or downloads music will create a data-trail that is used to determine which music by which artist was used in a given month / week / day / hour) and in which territory. Leaving aside the complex and possibly daunting privacy and data security issues (which I believe can and will be solved) this means that an artist’s income will be totally proportional to the level of attention he or she is actually getting on the networks, e.g. if your music amounts to 3.1% of all streaming and 2.5% of all downloads in any given month in any given territory, you would receive the exact pro-rate amount of the available pool of money in that month, as well. Of course, both rights (master and composition) would need to be covered and paid for, so the total payment would be split up in a yet-to-be-determined ratio - my proposal would be a 50-50 split but this will obviously be subject to the authors agreeing with the performers (or rather, their representatives) – that’s probably another arbitration panel heading our way.
The total aggregate of all user payments, i.e. the ‘pool of money’ as my fellow flat rate evangelist and disruptor Jim Griffin likes to say, could be collected by an appointed agency; for now, by territory, but sooner or later on a per-continent or even global basis. This is a potential job for the existing societies but I personally don’t see this happening for them since the commission for doing this IT job will probably be no more than 2% of the revenue or something in that ballpark.
As an example, if a German ISP wanted to provide ‘free’ music to all of their users they would pay, or rather, generate 1 Euro per week via advertising, bundling or simply by using their marketing budgets, and pay that money into the German pool of all providers that are licensed under the flat rate. Note that this pool would probably increase over time, as well, since more services would take advantage of the Flat Rate as it becomes apparent how they can generate new revenues with or on top of it. Also, a interesting side effect could be that any single given user may well end up having several access points such as their ISP, their wireless operator, and their favorite social network, all of which would be likely to pay the 1 Euro for the very same user, thereby increasing the total size of the pool, over time.
Would the Flat Rate completely kill CD sales and other physical products?
Definitely not. Keep in mind that buying CDs is already de-facto voluntary since anyone that has a computer and a Net connection can already search for and instantly find a myriad of ways of getting those digital copies for free. Of course, the music industry can no longer afford to, literally, bank on those voluntary actions and – to be mean - random acts of kindness, and is becoming painfully obvious in almost all territories that the percentage of people that continue do this will rapidly decline over the next few years.
The advent of the Music Flat Rate will without a doubt create a very powerful environment that will spurn the discovery of new music which may in some cases result in foregone CD sales but in many more cases actually revive them – provided of course that CDs (or whatever comes after them) can deliver real value and come down in price. Better sound quality, nice artwork, bonus material and a very competitive price should do the trick here.
www.mediafuturist.com
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