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Napster was the first of its kind, providing music fans with easy and free access to albums and tracks and giving them a reason to avoid buying expensive CDs — the lifeblood of the music industry’s business. The ability to share files around the globe reduced the barriers to music discovery and allowed Napster users to find new artists and songs in ways never imagined. It was a truly disruptive service, and it scared the hell out of the music industry.

Instead of embracing the massive adoption of this new service, finding a solution to accommodate the changing landscape or harnessing Napster as a future platform, the music industry held onto its rigid CD-based business, prayed that file sharing would go away and eventually tore Napster down.

Today, you can draw several parallels between the music industry in the late ’90s and early 2000s and the TV industry today. Viewing habits are changing. Just like music in the early 2000s when young adults started turning away from physical media and opting for singles versus complete albums, viewers are “tuning in” very differently to movies and TV programming.

Today, if Netflix were part of a cable package, it would be one of the top viewed networks, according to a Facebook post from CEO Reed Hastings. Meanwhile, Nielsen recently reported that cable cutting is up by 150 percent since 2007, marking a significant shift in viewer behavior. Additionally, Aereo CEO Chet Kanojia is now assuming the role of Shawn Fanning by intimidating the cable companies with a disruptive service that lets viewers access broadcast programs at a much lower cost than cable packages.

But, instead of adapting to changing viewer behavior, the cable companies, Hollywood and broadcasters are holding onto old business models for dear life and calling the lawyers. Sound familiar?

Avoiding a Bad Sequel: Lessons for the TV Industry

Ignoring or fighting digital consumer behavior is a recipe for disaster — resulting in rejection faster than an unpalatable creation by a contestant on Hell’s Kitchen. It’s time for TV broadcasters, content creators and advertisers to innovate their businesses instead of maintaining existing models through threats and litigation.

First, they need to understand that their viewers are setting the rules and defining the life expectancy of their programming and services. They will decide your fate — not you. Consider the following:

• You Can’t Take Content Away: The outdated model based on controlling distribution is dying. If you force it underground — that is, “illegal streams and downloads” — you’ve lost the battle.
• Adapt or Die: The millennial generation is addicted to YouTube, on-demand and streaming services. They no longer tune in at a specific time and date, and are increasingly shying away from paying for premium cable bundles. With filmmakers and producers spending the time and resources to make great TV programing, like “Homeland,” “Girls” and “Mad Men,” delivery methods should be figured out to get these shows to viewers who won’t pay $150 per month in subscription fees.
• Open the Windows: The “distribution window” is used by Hollywood to define how long a VOD and streaming service can distribute movies and TV programming. The problem? If the window for season one of “Downton Abbey” is about to close from Netflix or your cable provider, and you haven’t watched any of the episodes, you better call in sick to work to get your fill of the Granthams and the Crawleys, or miss the entire season altogether.
• Stop Explaining Business Models: Movie and TV viewers don’t give a sh*t about business models. They just want to watch their favorite shows — whenever and wherever they choose. The music industry followed the same pattern in the early 2000s, explaining why the economics of music streaming and downloads would not support artists and the industry. Guess who won?
• Open Up to Developers: Don’t assume innovation will only come from within your organization. By tapping the developer community, you will be able to move faster and find new ways to use or distribute content, which could result in new monetization strategies. Some of the more forward-thinking media properties, including ESPN, are already doing this, allowing developers to hack ad strategies and sports data.
• Rethink Discovery: As video distribution evolves, there needs to be a corresponding evolution in how people discover new movies and TV programming. If viewers are paying hefty monthly subscriptions (which today support a lot of what they don’t watch), it is critical to provide paths to find what they really want to watch. The current TV guides embedded in our set-top boxes have to be completely rethought.
• Reinvent Measurement: We still depend on a small sample of viewers to rate the popularity of programs and we base all advertising decisions on this data. However, the technology to measure real time usage inside the TV exists today and has the potential to enable more precise measurement and better targeting of advertising.

The TV industry’s fate is as much in the hands of viewers as the next American Idol. Not only accepting, but also realizing that TV programs and movies are easily accessible via proliferating distribution channels such as Netflix and Aereo, the industry can turn the tables and find opportunities with additional platforms and options to reach viewers for their eyeballs and spending. Most importantly, cable, broadcasters and Hollywood have the opportunity to move forward and determine better and more efficient business models to thrive.

Forward-looking networks like HBO have slowly worked toward a compromise by offering specialized content that depends on the Pay-TV ecosystem. However, with cord-cutting slowly beginning to eat into cable subscriptions, the HBOs of the world need to take distribution models a step further and offer everything streaming with direct-to-consumer subscription models, or risk losing their next core audience. If TV viewers are willing to pay for subscription streaming services, then the industry needs to jump on that bandwagon.

Rewriting the Ending: To Be Continued

The nature of distributing media is evolving, and the music industry learned the hard way as it struggled to adapt to a new generation of music fans. More than 10 years after the music industry forced Napster to tear down its P2P platform, the same industry has embraced free, ad-supported services from Spotify, Rhapsody, Deezer and others. In fact, this year marked the first time that the music industry made a profit since 1999.

Instead of struggling against the Internet Age and the connected world, broadcasters, cable companies and Hollywood can capitalize on the audience’s need to enjoy what they have to offer — great TV programming. Content will always be king and the industry creates a tremendous amount of really compelling material. It just needs to keep the crime scenes to “Law & Order” and save the video star by taking a cue from music’s past.

As president of Gracenote, Stephen White has played a critical role in shaping the company into a digital entertainment leader. He spearheaded the development of Gracenote technologies for top entertainment platforms and brands, including Apple, Ford and Sony. Today, he oversees all company strategy and operations, and is responsible for growing Gracenote’s core business and vision.

Based on that clip, at least, this looks like a pretty straightforward retelling of the tale, made with the cooperation of co-founders Shawn Fanning and Sean Parker (recall that the two of them did a whole lot of press last spring before they launched Airtime).

But even if the movie turns out be a down-the-middle documentary, it’s probably still worth watching. In 2013, it may be hard to recall just how revolutionary Napster was, how badly it decimated the music industry, and how deeply its ethos has saturated the Web, even though the service/business itself is long gone.

Bonus points: Archival footage of Parker with frosted hair, new MOG/Project Daisy CEO Ian Rogers with long hair, and Metallica drummer Lars Ulrich explaining his lawsuit against Parker and company at a news conference. (Last month Ulrich and Parker announced that they had become business partners.)

Extra bonus point: The movie is directed by Alex Winter, better known to many of us as “the guy who was not Keanu Reeves in ‘Bill & Ted’s Excellent Adventure.’”

Lars just left my house in NYC. The litigation between us in 2000 is now a distant memory.

– Napster co-founder Sean Parker, talking about Metallica drummer Lars Ulrich, via a 4:03 am Twitter post. Metallica had sued the file-sharing service, but now Parker and the band are business partners: Yesterday Metallica announced that it is distributing its music on Spotify, where Parker is an investor.

Ten years ago this Sunday, the record labels thought they had turned the tide against piracy when the wildly popular Napster—a service that allowed anyone to find and download recordings online—declared bankruptcy.

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That will happen in the middle of 2014, says Barclays analyst Kannan Venkateshwar, when circulation growth at the paper will start offsetting the decline in the Times’ ad sales. Here’s what that looks like in chart form:

True, one reason that circ growth will lap ad losses is that the losses will be slowing after much steeper declines. Still, the best-case scenario for most old-line media businesses is that digital sales increase faster than physical sales drop, and that’s essentially what Venkateshwar says is happening here. A year after the Times introduced its pay wall, it now has 450,000 digital subscribers — a number that impresses lots of industry skeptics.

Earlier this spring, when the Times said it was making it harder to read the paper online without paying for it, by dropping its free article limit from 20 per month to 10 per month, I wondered if the Times had made the move out of necessity — because it needed to boost its digital sales — or optimism — because it was confident it could boost its sales with a taller pay wall.

But after some thought, and bouncing the idea off a few industry folks, I’ve come to the conclusion that it’s both. The Times would sure like to accelerate Venkateshwar’s timeline, and that’s probably not going to happen by fixing its ad problem. Meanwhile, the paper seems relatively confident that raising the pay wall equals marketing the pay wall. And the nice thing about the system the paper has built is that if it doesn’t work, it can fiddle with the controls some more.

Airtime is to be a live video platform built around meeting new people. The site is currently accepting signups via Facebook Connect.

Parker and Fanning had previously tried to work with and even buy Chatroulette — the anonymous webcam pairing site built by a Russian teenager that sparked a zeitgeisty desire for online serendipity in 2010, and then was overrun by naked dudes — but that deal fell apart.

One thing to watch for with Airtime is how the service negotiates between anonymity and real identity sharing. Here’s a hint from the site’s privacy policy:

Your name is not shared when you are paired with a stranger. However, your Airtime and Facebook friends will be able to directly call you and see when you are online. You may edit or delete your interest information on Airtime and modify your profile information to increase anonymity.

Airtime’s investors include Founders Fund, Accel Partners, Andreessen Horowitz, Google Ventures, SV Angel, Yuri Milner, Ashton Kutcher, will.i.am, Scott Braun and Michael Arrington.

And in 2012 — which also happens to be the 10th anniversary of the confab of tech and media titans — it’s already shaping up to be another fantastic event in terms of programming, with a lineup of onstage appearances that is sure to make some news.

There are many more very big names to come, but Walt Mossberg and I are pleased to introduce the first group of interviewees, which will give you a glimpse into the firepower we expect at D10 in late May. It is again being held in Rancho Palos Verdes, just south of Los Angeles.

The initial speakers we have confirmed so far include: New York City Mayor Michael Bloomberg; serial entrepreneur Sean Parker, who will appear with Spotify co-founder and CEO Daniel Ek; Zynga founder and CEO Mark Pincus; Federal Trade Commission Chairman Jon Leibowitz; LinkedIn Chairman and VC Reid Hoffman, who will appear with LinkedIn CEO Jeff Weiner; and Skype CEO Tony Bates.

It’s hard to imagine someone we have wanted to have onstage more than Michael Bloomberg, a man of many talents and interests. He’s known worldwide as the 108th Mayor of the City of New York. First elected in November 2001 (and again in 2005 and 2009), he is also one of the most compelling politicians in the U.S. today.

But Bloomberg is also a pioneer in terms of the business of digital news and information technology, having built a huge and groundbreaking media company and information service. Bloomberg (the company) has 310,000 subscribers to its financial news and information service, and more than 15,000 employees worldwide.

There will be a lot to talk about with him, from the upcoming presidential election to the state of our government to the future of innovation, news and technology.

Also sure to be voluble is Sean Parker, the legendary Silicon Valley entrepreneur who has been on the cutting edge of innumerable important digital trends of the recent decade. In 1999, Parker co-founded Napster, the controversial and industry-changing music service, at the age of 19.

He followed up with early contact information service Plaxo, and then shifted over to his critical involvement as founding president of Facebook in its early days as a start-up, an experience which was dramatized in the movie “The Social Network.” Parker continued to found and also invest in companies, from Causes to Spotify to his most recent, Airtime, a social video company that he is doing with his Napster co-founder Shawn Fanning.

Parker will be appearing onstage with Daniel Ek, another serial entrepreneur and technologist, who started his first company in 1997 at the age of 14. The Swedish native later co-founded online music phenom Spotify in 2006, with Martin Lorentzon.

The former CTO of Stardoll and founder of Advertigo leads a company that is changing the way music is delivered and consumed by fans, against a backdrop of intense change in the industry, succeeding even as a plethora of other services have stumbled.

Also a groundbreaker is Zynga CEO and founder Mark Pincus, yet another serial entrepreneur, whose latest effort in the online gaming arena has finally resulted in his biggest success. It recently went public, and now has a nearly $10 billion market cap.

Before founding Zynga in 2007, Pincus had already started three other companies: Push start-up Freeloader in 1995; automated tech-support company Support.com after that; and early social networking site Tribe.net in 2003.

(I met Pincus when he was at Freeloader in Washington, D.C., while writing a profile of him for the Washington Post, so I have enjoyed tracking his progress since then.)

Pincus is also an avid angel investor, with early stakes in Napster, Brightmail, Twitter and Facebook.

Reid Hoffman was another early investor in Facebook, along with many of Web 2.0’s most successful ventures. Well-known in Silicon Valley as an entrepreneur and VC, and recently dubbed the “start-up whisperer” by the New York Times (although I am not sure exactly what that means), he’s also chairman of LinkedIn, the business-networking service that also recently went public (at a $10 billion valuation, too).

He’ll appear with LinkedIn CEO Jeff Weiner, who started out life in Hollywood, but soon made his way to Silicon Valley as a top exec at Yahoo. After running its media division, Weiner spent a short time at venture firms before going operational again at LinkedIn.

What it takes to build and maintain momentum as tech companies move into more mature stages, as well as how the social networking space evolves, are among the many topics on tap for the pair.

The evolution of a start-up phenom — in this case, Internet telephony service Skype — will be among the topics covered by Tony Bates, who is now a president at Microsoft, which bought it last year.

As such, he is responsible, says the software giant in its description of his job, “for overseeing the company’s direction, strategy and overall mission to become a global communications service that will eventually reach billions of users.”

That’s a tall order for Bates, who came to Skype from a top job at Cisco. Bates has deep roots (or maybe, routing?) in the guts of the Internet, having done backbone-engineering strategy for Internet MCI. The U.K. native also holds nine patents.

Lastly, given all the activity we expect will happen between government regulatory agencies and tech companies over the next few years, we felt it was key to bring in FTC Chairman Jon Leibowitz. He has been at the FTC as a commissioner since 2004, but was given the top job by President Barack Obama in 2009.

Among his priorities, according to his bio, is “promoting competition and innovation in the technology sector through law enforcement and policy initiatives; and protecting consumers’ privacy — especially while they are using the Internet.”

Uh-oh!

Leibowitz knows from regulation, having served as the Democratic chief counsel and staff director for the U.S. Senate Antitrust Subcommittee from 1997 to 2000, where he focused on competition policy and telecommunications matters, as well as a similar stint at the Senate Subcommittee on Terrorism and Technology before that.

There will be a lot more speakers to come, of course. But, so far, we think D10 is off and running fast.

A fixture in the music industry since the mid-1990s, Bronfman led WMG during a period of profound tumult, navigating a rough transition from CD to the digital download, and grappling with a generation of younger consumers who don’t always want pay for digital music.

Onstage at D: Dive Into Media this afternoon, Bronfman reflected on the evolution of the music industry, Apple, and the fate of EMI, which is currently being pursued by Universal Music.

“It strikes me as hubris that Universal will buy EMI,” Bronfman told Peter Kafka of AllThingsD. “What it will do is create a super-major that will have far too much power. … I think when Universal goes up over 40 percent market share, I don’t see how reasonable regulators can countenance. It will impact not just labels, but artists and cultural diversity. … Warner is going to fight this tooth and nail, and I hope others will join us.”

As with today’s Neil Young session, the perceived obsolescence of the recording industry was a topic of conversation and, as you might imagine, Bronfman feels labels remain a necessity.

“Commercial success still hasn’t come to an artist that isn’t signed to a record label, he said. “There are very few artists that can succeed without the help of a record label. The role of the record label is still required, it’s still necessary.”

And not just for musicians. Consumers need labels, as well.

“I really do think consumers are busy, and trying to sort through millions and millions of artists to find the ones that they might like just requires far too much work. That’s where the labels come in.”

A few other remarks worth noting …

On mobile:
Mobile is coming. It’s still not really there. It’s on the iPhone because Apple has a content strategy, but it’s not really there on other devices. … I think the mobile platform is a massive opportunity for music. … Think about it. The iPod made music mobile, but today, how many devices do you need to walk around with? You want it on just one. And inevitably that’s going to be the phone.

On Google Music:
Google Music is an oxymoron.

On unbundling:
Any time you can give consumers more of what they want, it’s a good thing. Unbundling the album is a good thing. In the case of music — because it is content that you can slice into songs — doing that is of huge benefit to consumers.

On Apple and iTunes:
Apple from day one believed in music and content. That was the good news. The bad news is that they decided all songs where created equal, and I fought Steve on that. Ultimately, Apple got the better part of that deal. Ultimately, I wish we’d gotten more pricing flexibility.

On Spotify:
We see Spotify as incrementally positive. It’s not slowing down music sales or downloads. We would all love to make more money from Spotify, but Spotify needs to make money, too. But artists should know that it is a real and growing revenue stream.

Much of what we saw at CES relates to things we’ll be seeing 24 months out. In my mind, it’s all good: we’ll be able to target better, we’ll be able to segment better. The ads will be delivered on screens that are sharper, look better, larger, which ultimately provides more effective communication. There’s one last element: in the role that we [media buyers] play, we have a responsibility to ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business, doesn’t destroy the content amortization business, isn’t disruptive simply for the sake of being disruptive.

If it does alter the supply-and-demand equation, it needs to do so positively, not negatively. When you have the share of the deal volume that we do, you can’t just be passive about it. You have to try and influence it. The technologies and devices that begin to get manifested at a trade show like this needs to be guided, so that it all works out in the best interests of our clients.

– Irwin Gotlieb, Global CEO, GroupM; originally appeared at TVExchanger

We have a responsibility to ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business.

A bold statement and, it seems, a common mindset for many incumbent business giants in their respective industries; a mistaken belief that they can somehow coax disrupting forces (be they new companies, or larger macro consumer trends) into conforming to their legacy business models and cost structures. As we have seen countless times, the actions of incumbents when faced with technology disruption often is to turn to litigation, legislation or other non-market strategies (i.e., anti-trust investigations, artificial price barriers) in an attempt to delay or block the challenging technology or companies. This perhaps works as a delaying tactic in the short term (Rio MP3 player case, Napster, book publishing agency pricing model with Amazon) but fails in the long term.

Mr. Gotlieb’s apparent belief that he and other advertising agency leaders can “ensure that technology develops in a manner that doesn’t shake up the supply-and-demand equation of our business” is futile in the long run, but perhaps more pernicious is the implicit arrogance of thinking the market force of the Web can be channeled into their bank accounts by sheer force of will. Of the many problems with this way of thinking, paramount is the ability to rationalize away making the hard choices and decisive actions to ensure the GroupMs of the world play a vital role in the new economy as they have done in the legacy one. (Cue Scotty from Star Trek… “You cannot change the laws of physics.”) For GroupM and other incumbents, it’s difficult to fathom, given how entrenched and advantaged they are, that they could drop the ball. But many will, as history has so often shown in times of market transformation.

Technology forces that bring greater efficiency and transparency to markets simply don’t care about privilege, access and rolodexes. They disrupt predecessor markets because of structural problems like price opacity and false scarcity that no longer “work” in the new market. Look at Google: its entire approach to advertising is to remove the middleman — just as, increasingly, the media-buying side of traditional agencies is reliant on the inefficient middleman, marketing up the cost of media to provide their services. Google is now selling $40B of media every year, the majority of it without a middleman (or at least with a different sort of middleman, and in any case, getting far lower margins than in traditional media bought by agencies.)

We watched as the music industry delayed its demise by suing Rio, Napster and literally hundreds of others, delaying the adoption of new business models not based on scarcity. We listen to Jeff Bewkes decry Netflix as the Albanian Army, as he feverishly works to reduce its influence with his content. We observe the movie industry fight with everything it has to protect the windowing strategy and defend limited access to content instead of moving toward open and immediate paid access to their movies. (Fantastic post on this from Rich Greenfield here, “Innovate Don’t Legislate” — registration required.)

And, as a microcosm of this larger conversation, we watched, over a very short period of time in the SOPA/PIPA debate, as the Web demonstrated the disruptive advantages of network effects and scale, as over a period of weeks, legislation that appeared all but ratified was shuttered, up to and including an implied Presidential veto.

Heady stuff. Granted, if we extend the metaphor and use SOPA/PIPA as a microscope, there are extremes on both sides, and it will be messy and require compromise if the big media incumbents and new technology disruptors are to learn how to co-exist. For big media companies and the service businesses that cater to them, this means recognizing the practical realities of changed business models — probably for the most part that their cost of production needs to drop dramatically and they need fundamentally to re-think distribution and customer relationship management to remain profitable and relevant.

On the tech side, it means recognizing that progress requires some level of institutional engagement and political compromise — because like it or not, this is the way our system of government works and how laws get written. This won’t be easy or natural, as it’s anathema to the culture of how new media tech and the start-ups that encompass it conceptualize and operate in our worlds. Facing reality and then demonstrating a bit more collaboration and compromise, however, would go a long way and be better for the customers who, like our democracy, these industries ultimately serve. Because it’s the customers who are in the driver’s seat, and increasingly they know it.

Perhaps it’s pollyanna-ish, but I bet on technology. Big media has the most to lose, because after decades of the game being rigged in its favor, the tables are turning. Of course it’s difficult and painful for media incumbents to embrace digital markets, considering these markets ultimately are smaller and have less attractive economics. That’s presumably why big media executives are so well compensated — if it were easy, anyone could do it. The alternative, however, is to be disrupted by new entrants that don’t have any allegiance to aging business models, and couldn’t care less how out of whack someone else’s cost structure is.

Coming back to Mr. Gotlieb’s view, I offer these thoughts. First, incumbents won’t be able to meaningfully guide the technology juggernaut of more efficient advertising mechanisms, so it’s perhaps better for them to focus their energies and advantages toward thoughtful reinvention. New technologies are bringing actual measurable performance and more efficient means of buying to a large share of advertisers. The challenge for incumbents is to adapt their enterprises to embrace this chaos and profit from it. The good news is, it’s doable. However, to think they can bluster their way out of this disruption is a fool’s errand.

David Pakman has been an internet digital media entrepreneur since 1997. He co-founded the Apple Music Group in 1995, worked at N2K (one of the first online music companies), co-founded MyPlay (pioneer of digital music locker), and was COO/CEO of eMusic for five years. Pakman is now a Partner at Venrock in NYC, investing in early stage internet and digital media companies.

When the dust finally settles between the artists, labels, and distribution companies, everyone will finally realize fans are more valuable than recorded music. As traditional monetization models for recorded music sales slowly fade away, new monetization methods centered on the fan will emerge.

How do we know music will become free? The stats point to this trajectory. Total revenues for CDs, vinyl, cassettes, and digital downloads worldwide dropped 25 percent from $38.6 billion in 1999 to $27.5 billion in 2008, according to the International Federation of the Phonographic Industry (IFPI). The same revenues in the U.S. dropped from a high of $14.6 billion in 1999 to $10.4 billion in 2008.

As the stats show, sales of recorded music are headed one way — down. Sure, digital music sales have been on the rise in recent years, but they have only partially replaced physical sales, so the overall sales figures are still headed south. And it surely isn’t because people are listening to less music. It’s simply because the old adage holds true: why pay for something that you can get for free? In addition, artists, the ones with the talent, aren’t making money off digital sales. Artists get about $0.09 per song sold digitally on iTunes or Amazon. So for a million downloaded hits, an artist earns $90K. Subtract manager, lawyer, agent and other “fees”, and an artist selling one million downloads would barely make minimum wage off of the recording.

Source: CNN, Forrester

Already, there is a deluge of great (and legal!) sites providing free music — including Pandora, YouTube, Spotify, Grooveshark, MOG, Rdio, and other online destinations. This is a big change from the early days of online music, when free meant illegal. Today, music start-ups have caught on to the profit potential in “giving it away.” Companies like Pandora, which generated $67M of revenue in 2011 Q2, and Spotify with over two million paying users, don’t charge for entry-level service. Instead, these music innovators found a way to monetize music indirectly through advertising and other means. Music still comes at great cost — start-ups still pay high licensing fees to labels — but as the economics shift, licensing fees are likely to decline. (Yes, labels will do a lot of kicking and screaming.)

So how will labels offset the decline in recorded music revenue? How will artists capture more value for their creative work? The clear answer is from their fans. Musicians have really never engaged their fans, maybe every three years while they were on tour, but otherwise they just released albums and expected fans to buy them. Myspace was the first experiment with direct musician-fan engagement, and it started a trend that has continued. Now, over 300,000 musicians have BandPages on Facebook. Just about every musician has a Web site, e-commerce site, and a web strategy. Many are putting their music “out there” for discovery and promotion before it’s ever part of an album. Soundcloud has seven million users who upload their music and recordings, for example. YouTube’s most popular videos are music-related. Bands, managers, and labels understand this trend and are finding new and innovative means to monetize fans.

We anticipate a lot of “creative destruction” and changes to the value model based on fan-driven music marketing models. There are ways to make money from the music experience, and those channels — new and old, low- and high-tech — are creating opportunities for artists, labels, and music start-ups.

Here are some of the ways the music industry will make money going forward.

• Live Music
  While recorded music sales continue to decline, live music revenue has increased in the past few years. The industry has been following this trend closely and focusing more and more on live tours and events. There really isn’t a way to replicate or pirate the live experience. As cellist Zoe Keating joked about piracy at the recent SFMusicTech conference: “Go ahead, try copying me! Just try!”


Source: CNN, Forrester as above

• Patronage
  In the Elizabethan era, artists were supported by wealthy patrons; we’re headed back toward that world. Two models are possible here, and will probably coexist as supplements to the live music monetization. The first is corporate sponsorship, which is already used widely. Take the OK GO music video “This Too Shall Pass,” in which the band discreetly thanks State Farm for making it possible, or the somewhat distasteful product placements ($500K worth) in Britney Spears’s “Hold it Against Me” video. The Black Eyed Peas have become so intertwined with brands that The Wall Street Journal dubbed them the “Most Corporate Band.”

  The other sponsorship model is direct fundraising from fans – also known as crowdsourcing. In 2007, Radiohead released its album “In Rainbows” for free, asking fans to pay as much or little as they pleased. And more recently, Nataly Dawn from Pomplamoose used a Kickstarter campaign to fund her forthcoming solo album. She set out to raise $20,000 but fans overfunded her project by $104,788. This may not seem like a huge sum, but crowdsourcing will make all the difference for indie artists worrying how to pay their rent.

• Curation, Discovery and Network effect
  MP3 players were around for years before the iPod took them from the technophiles to the masses. Likewise, music services spread when they are easy to use and approachable. Pandora has managed to attract tens of millions of users to its radio service because of the KISS principal (keep it simple, stupid). While this sounds easy, it took them years to develop the music genome and “taste” algorithms that analyze billions of thumbs up/down votes to offer effortless music curation.

  Upstart Spotify made access and friends the top priority for its music service, and has unseated Rhapsody as the top dog in on-demand listening. Others like Turntable let listeners do the heavy lifting — letting anyone be a DJ and mix tracks via a competitive, social, cartoony environment. And still others, such as the Hype Machine, rely on the old-school expertise of hardcore music junkies, letting bloggers curate their own selections. The ad-supported model is all about building audiences, and it’s an ongoing cat-and-mouse game where new methods continue to emerge.

• Whales
  One dirty little secret in the free-to-play online gaming world is that “whales” — to use a Las Vegas term for big spenders — often account for a significant portion of the revenue. In many examples in the free-to-play world, the top 10 percent often contribute 50 percent or more of the revenue for virtual goods, game play, tokens, premium versions and more. In one recent example, one happy gamer spent more than $76K on a single social game buying the accessories he needed to build his fortress. Would “whale” fans of Arcade Fire spend tens of thousands of dollars to sit in on a studio recording session? Yes, and I’m offering!

  And beneath the mega-whales, there is a larger base of dedicated fans willing to pay to be a part of the experience, even if they don’t have thousands to spend. “Baby whales” mostly tend to buy merchandise: T-shirts, caps, branded toys, etc. These baby whales are still a small share of any overall fan base, but collectively, an extra $50 each from a small percentage of fans can really add up.

• Unique Experiences
  People love to engage with unique experiences — things you just can’t replicate — and will often pay top dollar for them. Concerts are one kind of unique music experience, but there are others. Nataly Dawn’s Kickstarter campaign offered big donors rewards, like their choice of a song for her to cover, early prerelease access to her album, and even a private in-house concert. In addition, there are now countless apps that let you be a part of the music, from the T-Pain auto tune app to ShapeMix’s tool that lets you remix songs yourself with isolated melody/bass/drums/vocal stems and post those to your friends. While, selling these extra experiences may not be a major monetization method, such methods do allow indie artists to generate income, and top artists to experiment with new avenues to engage and grow their fan bases.
• The Bottom Line
  Music is getting closer and closer to free. Distribution is becoming commoditized, so monetization must change. To this end, artists will have to pull out the stops to engage with fans more directly, and actively seek out fans and benefactors willing to pay more than usual for their work. The music startups that will make money over the long term are those that will connect artists with fans, help people filter and discover new music they love, and offer unique experiences. People will never stop listening to music — they’ll just change how they find it, hear it, and pay for it.

Hany Nada is a founding partner of GGV Capital (www.ggvc.com), a $1B venture capital firm with a dual focus on China and the U.S. Some of GGV’s investments include Alibaba Group, Pandora Media, YY, RootMusic, Buddy Media, Tudou, SuccessFactors, Square, and 21ViaNet.

In order to create the next revolution in digital music I believe that you must BOTH meet and exceed the bar set by Napster a decade ago. You guys have finally done it.

Sean Parker, in an August 25, 2009, email to Daniel Ek and Shakil Khan of Spotify

Under the terms of the agreement, Rhapsody will give the big box electronics retailer a stake in its company in return for its Napster subscribers and certain other assets. Best Buy acquired the digital music company for $121 million in 2008.

The transaction is expected to close by the end of November.

The companies, which are claiming to have the two largest music subscriber bases in the U.S., did not disclose how many they will have together. Rhapsody said it will also use the assets to add to its product line. Separately, Rhapsody has reported that it has surpassed 800,000 subscribers.

In a statement, Jon Irwin, Rhapsody’s president, said, “There’s substantial value in bringing Napster’s subscribers and robust IP portfolio to Rhapsody as we execute on our strategy to expand our business via direct acquisition of members and distribution deals.”

The two companies likely have felt additional pressure as new subscription and ad-supported music services enter the U.S. market, such as Rdio and Spotify.

You have to love that tech leaders like Reed Hastings and Mark Zuckerberg are partaking in public playlists and revealing that some of their mutual favorite listens are Madonna, Lady Gaga and Taylor Swift. (Did guilty pleasure pop music help break the ice when the Netflix CEO recently agreed to join the Facebook board?)

Hastings’s “LoveGame” playlist does have Gaga, but it’s also a mix of older and sentimental favorites like Cat Stevens’s “Wild World” and Savage Garden’s “Truly Madly Deeply.”

Meanwhile, Zuckerberg has some artist-specific playlists for favorites like Green Day and Jay-Z, as well as a curated mix of Top 40 stuff called “Like a G6.”

Facebook and Spotify have a close corporate relationship, and many other Facebookers appear to be active Spotify users. Facebook CTO Bret Taylor’s “Good Songs” includes selections from Death Cab for Cutie and The Shins, while VP of Product Chris Cox has curated an extensive collection of “Island Music.”

Quora’s Mark Bodnick has an impressive 75 public playlists, including lots of hip hop and a little bit of “Glee.”

Napster founders Sean Parker (an active investor in Spotify) and Shawn Fanning both have a bunch of playlists up, including Parker’s “effervescent groove” and Fanning’s “Prozac Plz.”

YouTube co-founder Steve Chen has a country playlist titled “Always On My Mind” and YouTube Director of Product Management Hunter Walk has a 218-track long “Hip Hopps” mix.

Spotify CEO Daniel Ek is of course an active user of his own service, with 198 public playlists, including some Swedish music and the slightly TMI “My girl.”

(Turntable.fm, another social music service, has also been enthusiastically used by tech folks, though you have to jump into a room in real-time to experience other users’ DJ choices.)

On the topic of social music, Ek said last week at the Fortune Brainstorm Tech conference that “in general people are comfortable sharing their music.” But he added: “It has two exceptions, though: Lady Gaga and Britney Spears.”

Not always!

My informed guess: Next week. Because that’s what Spotify reps have been telling U.S. label executives.

Or maybe later! Spotify is Spotify, so anyone who has paid any attention to this story will be reflexively skeptical that Spotify will show up in the U.S. until Spotify shows up in the U.S. Meanwhile, Spotify PR reps decline to comment.

While the service has agreements in place with three of the four big music labels, it still doesn’t have a signed deal with Warner Music Group, which normally would be a warning flag for this kind of guesstimating. But people I’ve talked to who are familiar with negotiations believe the two companies are close enough that a deal will be inked before the launch.

Meanwhile, if you’re in the U.S. and want to get a sense of what Spotify will look like, go check out Rdio or MOG or Rhapsody or Napster (for now — that last one may not make it much longer). Each one offers a similar service, where $10 a month gets you unlimited, ad-free, on-demand music on your PC or iPhone or Android handset.

The big difference between Spotify and its competitors is that in the past, Spotify has also offered unlimited free music, with ads, on your PC. But over time Spotify has cut back the amount of free music it offers, and now only gives away 10 hours a month in Europe.

It’s possible that some of those terms will change with the U.S. launch, but I’d expect them to stay quite similar. I also wouldn’t expect a grand PR push when Spotify does open up. Then again, they’re going to get plenty of (even more) free press on launch day.

Later this summer the Web site will begin selling access to two new premium Web radio services, which will let listeners enjoy digital radio via their iPhones — and later via iPads and Google’s Android handsets.

The offering is part of a larger move where AOL will use digital music start-up Slacker to power its free radio service, replacing longtime partner CBS.

AOL’s subscription service will also be based off Slacker. Slacker sells a “Radio Plus” offering for $4 a month and a “Premium Radio” for $10 a month, and AOL’s services should be priced similarly. Unlike the free radio service, both paid versions offer ad-free music and more interactivity than the free version, which is like Pandora except that it uses humans instead of algorithms to program music.

AOL Music chief Jeff Bronikowski says AOL’s existing radio service already draws around three million unique visitors a month, who listen to about 30 million hours of music.

AOL used to have a monthly subscription service, but sold it off in 2007 to Napster. Why try selling music again?

“Users have actually asked us for a subscription offering for a while,” Bronikowski says.

The trick will be distinguishing AOL’s offering from the competition, which is growing all the time: In addition to Pandora’s radio service, which also offers a premium version, there are on-demand subscriptions from the likes of Rhapsody, Rdio and MOG; U.K.-based Spotify should also be in the U.S. by the time AOL is selling subscriptions again.

AOL ANNOUNCES PARTNERSHIP WITH SLACKER INC. TO DELIVER
ENHANCED ONLINE RADIO LISTENING EXPERIENCE

Slacker Inc. to Become AOL Music Network’s Exclusive Radio Partner

New York, NY – June 28, 2011 – The AOL Huffington Post Media Group’s AOL Music is re-launching AOL Radio in partnership with Slacker Inc., it was announced today. AOL Radio will offer an enhanced radio experience with fewer ads, new personalization features and premium subscription offerings. The new service will deliver three product tiers to users: free AOL Radio with personalization and customization by Slacker, ad-free and feature-rich Slacker Radio Plus and on-demand access with Slacker Premium Radio.

AOL’s partnership with Slacker Inc. will provide access to ad-free radio and enable users to create tailored radio stations, save favorite songs and stations, read album reviews, access artist biographies, review station histories, and skip up to six songs per hour, per station. The partnership will enable Slacker to deliver its new radio offerings to a larger audience, allow AOL Radio and Slacker to develop new advertising opportunities for mutual clients and integrate AOL Music’s original editorial voice across all its services.

“Slacker Radio is the perfect partner to significantly increase the quality of our offerings,” said Lisa Namerow, Head of AOL Radio. “By combining AOL Radio’s reach with the success of Slacker in mobile, we are increasing the distribution of our brands and further identifying AOL Radio as a leader in delivering superior radio experiences.”

“Both companies bring unique content and functionality to this new partnership,” said Jim Cady, CEO of Slacker. “Aligning our strengths will enable us to expand our reach to greater opportunities across multiple platforms. We are thrilled to work with AOL Radio to continue to improve how music lovers experience radio.”

Upon the launch of the new AOL Radio player, Slacker will lead advertising sales within the player, enabling AOL to package a portion of the inventory for premium AOL Music integrated sponsorships.

The new AOL Radio and its award winning iPhone App, which has been downloaded more than 3 million times*, will re-launch in late summer. Android and other platform launches will follow shortly thereafter. The new player will also continue to host AOL’s 250 expert-programmed original music stations, as well as additional new Slacker programming including stations and content from ESPN Radio and ABC News Radio, which will include additional offerings and stations for subscribers.

*According to Apple’s App Store (via iTunes Connect)

Lots of people, actually. We’re more than a decade past Napster, and eight years past iTunes, but the majority of the music industry’s revenue still comes from discs.

Even for new stuff! In the same week that Amazon all but gave away digital copies of Lady Gaga’s new album last month, discs made up almost half of her sales.

Amazing!

My hunch is that, increasingly, the people who are buying music in physical form are divided into two groups. There are the people buying it as an afterthought along with gum and other impulse buys stacked near the cash register. And there are the people buying it because they really like stuff — physical, tactile stuff — which might be as important as the music itself.

Here’s stuff for the latter group: Lavish boxed sets from Sony, via its Pop Market Web store. These are collections of ye olde timey music, designed to appeal to generations who remember the world before Netscape and who most likely remember the world before FM radio, too.

Perhaps the kind of people who would drop $99 on an 11-disc Aretha Franklin set. Or $80 on the Byrds. Or maybe even $269 on Miles Davis. (Thanks to Digital Music News for flagging.)

Some of you may be stifling the impulse to titter here. But these things do well for Sony, with good reason: As long as you have an interest in owning and/or playing compact discs, you’re getting good bang for your buck when it comes to the music, at least in raw tonnage.

And if you’re into looking at 5-inch by 5-inch reproductions of old album covers, etc., you’ll be doubly pleased. Nothing wrong with that.

Okey doke. I’m off to hear new stuff at Turntable.fm.

Which is why Parker tried, unsuccessfully, to buy part of Warner Music Group this spring.

I walked through some of this when I wrote about Parker’s bid back in March, but now the billionaire investor/entrepreneur is talking about it in his own words, at the e-G8 conference in Paris. Via the FT:

I think that there is a pretty dramatic change in the way music is monetized that is on the cusp of happening. Back catalogues of record labels are going to become extremely valuable…If you believe this transformation is occurring, if you believe the broken distribution systems are on the verge of being fixed, those recordings are dramatically undervalued.

In the last 10 years we have presided over the greatest destruction in value in the history of the music industry…Assuming we can stabilize things and restore growth, it shouldn’t be that difficult to preside over the greatest increase in value in the history of the recorded music industry.

Just to spell this out: As a co-founder of Napster, Parker played a big role in the “greatest destruction in value in the history of the music industry.” So it’s even more interesting to see him call a bottom now.

That thinking also explains his interest in subscription music service Spotify, where he’s an investor and advisor. Apple’s iTunes dominates digital music today, but Parker argues that subscription services, which make it much easier to discover and listen to older songs, are creating a “dramatic paradigm shift” in consumption.

We’ve heard this pitch before, for quite some time: Subscription music services have been around for about as long as iTunes, but they’ve never taken off. Doesn’t mean they won’t one day, though.

Parker recently proposed to Alexandra Lenas, a New York-based singer/songwriter, “his rep” told People.

Parker, popularly known for being played by Justin Timberlake in “The Social Network,” has something like a four percent stake in Facebook, meaning the -illions to his name begin with a b.

Parker is credited, both in fictional and non-fictional retellings of the story, for helping Mark Zuckerberg retain lasting control of Facebook. Parker has also played significant roles at Napster, Plaxo, Causes.com, Founders Fund and Spotify, and may be considering putting together a bid for Warner Music Group.

But Sittig is now back at the mother ship, having rejoined in January with the title “product architect,” as Kim-Mai Cutler at Inside Facebook reported Friday.

This comes at a time when Facebook has more than 2,000 employees, plans to move to a corporate campus within the next year and says an IPO is likely in 2012. It’s a lot different from when Sittig first joined in 2005.

Sittig had been away from the company only six months before accepting an offer to return. He told NetworkEffect that he felt the outside world lacked the “scale and ambition” of Facebook. Plus, he was lured by some of Facebook’s recent hires: Sam Lessin and Justin Shaffer, brought in through the acquisitions of their companies Drop.io and Hot Potato, respectively (both of which occurred while Sittig was away).

Here’s Sittig’s explanation:

I left Facebook last June because I’d been there for five years and wanted to see what else I could apply myself to. I didn’t expect at the time that I’d head back.

I spent my time off advising companies and looking for new ideas. But for each idea I wanted to build myself, I kept realizing that Facebook was the only place with the scale and ambition where I could build my ideas successfully.

So that, combined with the steady influx of talented people like Sam Lessin and Justin Shaffer, convinced me to say yes when I was approached with an offer to rejoin.

Prior to Facebook, Sittig worked at Napster, after it bought the Mac client Macster that he had helped develop. He studied philosophy at UC Berkeley. Sittig has made angel investments in companies such as Hearsay, which makes corporate social media management tools.

Please see the disclosure about Facebook in my ethics statement.

It was vintage Parker, who always tries to paint himself as more of a geek than the multicolored life of the digital party. In truth, he is very much both.

In these clips, he talks about the fabrications in the movie “The Social Network,” in which Justin Timberlake played him as a hyperactive version of Falstaff.

Parker thought the character was “morally reprehensible,” although that’s what made him so fun to watch.

Parker also took issue with other creative liberties about the social networking site in the movie and noted that the film was “a complete work of fiction.”

As an example, he pointed out how there are “no Victoria’s Secret models in Silicon Valley” as there were in “The Social Network.”

You’re kidding! Hollywood glamorized the nerdtastic tech scene in order to make it more exciting to audiences? I cannot believe it!

(And, frankly, Parker seems to be enjoying the attention as much as he does tweaking the film.)

Parker also talked about Facebook being a neutral platform, making a much more interesting observation about what the true power of CEO and co-founder Mark Zuckerberg really is.

Enjoy:

]]> http://allthingsd.com/20110124/video-sean-parker-on-no-victoria-secret-models-in-silicon-valley-what/feed/ 3 http://allthingsd.com/20110118/another-music-service-you-didnt-pay-for-shuts-down/ http://allthingsd.com/20110118/another-music-service-you-didnt-pay-for-shuts-down/#comments Tue, 18 Jan 2011 16:20:34 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=28214 Here’s another swing and a miss by the big music labels: “Comes With Music,” a plan to bundle music downloads with Nokia phones, is going away.

It’s not a complete failure, apparently, as Nokia will continue to support the service in six countries, including China. But it will pull the plug in 27 other countries. (It never arrived in the U.S.)

The idea, pushed in large part by Vivendi’s Universal Music Group, was that consumers would pay a premium for certain Nokia phones and get access to all-you-can-eat music.

A couple of problems, per Reuters: Consumers didn’t want it, and carriers didn’t support it.

It’s possible that the Nokia plan was sunk because of a complicated digital rights management scheme that more or less locked the music onto the phones. But it may be that people just aren’t that interested in paying for all-you-can-eat music, whether that payment is bundled into the price of the phone, or via a month-to-month subscription service.

In the U.S., there is no shortage of the latter–Rhapsody, Best Buy’s Napster, MOG, Rdio, Thumbplay, etc.–but they haven’t caught on despite years of effort. In Europe, for now, Spotify seems to be gaining some traction–people familiar with the company say it now has one million paying subscribers, up from 750,000 last fall, but that’s still not mainstream.

Subscription services were supposed to get more popular once they started playing nicely with Apple’s iPhone, but that has kicked in over the past couple of years without any noticeable bump. Now subscription advocates are pining for another boost from Google, which they imagine will end up partnering with one of the services instead of building its own.

And if Google wanted to, say, provide every Android buyer with a couple months of free subscription music, they argue, then subscriptions might finally catch on.

Could be! But I wouldn’t count on it.

]]> http://allthingsd.com/20110118/another-music-service-you-didnt-pay-for-shuts-down/feed/ 5 http://allthingsd.com/20110110/youtube-for-music-thats-soundcloud-says-alexander-ljung/ http://allthingsd.com/20110110/youtube-for-music-thats-soundcloud-says-alexander-ljung/#comments Mon, 10 Jan 2011 12:00:18 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=27875

YouTube for videos. Flickr for photos. SoundCloud for music.

That’s Alexander Ljung’s pitch, and while it’s an audacious one, it has a couple things going for it. For one thing, people are flocking to his four-year-old music file-sharing service: Last May, the company had a million registered users; now it’s up to 2.6 million. Prominent placement in Apple’s new Mac App store won’t hurt, either.

And SoundCloud’s ambition is now being underwritten by two name-brand investors: Late last year Index Ventures and Union Square Ventures led a $10 million funding round for the company, a follow-up to a $3.3 million investment from Doughty Hanson Technology Ventures.

Ultimately, I’m not sure that there’s anything like the YouTube or Flickr userbase for SoundCloud, which makes it very easy to post and share audio files. Especially if SoundCloud is serious about making sure it isn’t used as Napster-like pirate service.

Because even though it’s easier than ever to make music — or any other kind of audio — it doesn’t mean it’s easier to make good music. And while people might flip through mediocre vacation photos you took, or a scan a semi-funny video of your kids, there’s a very limited audience for your guitar noodlings.

Still, 29-year-old Ljung (a Swede who has set up shop in Berlin, but is expanding into the U.S. via a San Francisco outpost) and his backers don’t need to reach YouTube-scale to be a success. And if they keep growing at the rate they’re going, they might find Google, Yahoo or other deep-pocketed buyers showing up sooner than later.

Here’s a quick interview I taped with Ljung this weekend, just after he’d announced his newest funding round.

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