Subscription Models: The Search For Service And Price Utopia

Q. What is the right price for a music streaming subscription? 

Q. What additional features could be added to justify a higher price point? 

Q. Should we be lowering the monthly price point to encourage adoption by the 
non-music aficionados'?

Q. Outside of monthly subscriptions, could top-ups on a PAYG basis be a good interim step between ad funded and paid?

Q. How can the current per stream rates support artists, so they can continue creating new music?

Q. Does the current variable per stream rate help win the support of all the involved?

Just a few of the questions floating around the music industry news wires currently. In answer, there have been many opinion pieces promoting various arguments for and against, always normally with some sort of bias or creating as many questions as they attempt to answer.

The main point is, streaming is growing as a consumption model and looks set to be the dominant revenue source for those involved in the recorded music business in the next few years. Check this great article from Music Business Worldwide which gives a few different predictions on how streaming will develop:
http://www.musicbusinessworldwide.com/how-long-will-it-take-streaming-to-dominate-the-music-business/

For a while I have been considering a modification to the main aspect of the commercial structure that sits behind this brave new World (really it is as new as paid-for-downloads, both iTunes and the paid version of Napster launched in 2003).

The search for price utopia continues, and my take on this is to borrow from other industries (like Gym's and Telco's) that have been been charging monthly fees for a lot longer than the music industry.

I would like to see a variable subscription considered, rather than a fixed monthly charge to the music fan. Or, more simply put, a 'pay for what you use'.

That is not quite the same as the Pay As You Go (PAYG) which is now being trialled by Pandora as a day pass, or the fixed pay per stream from Psonar which locks the user to a pre-payment that is allocated against a certain amount of streams that can be used up completely. Both ideas require the user to reconsider on a regular basis whether or not they want to continue to top up. That decision will see them assess whether or not the value they have already gained matched the value of the payment. To avoid that 'customer acquisition' hurdle, a variable subscription is a bit of a mixture of these and a regular monthly fixed subscription.

The following looks at some of the main issues, as well as the viewpoints of the current subscription model from the main stakeholders, most importantly including the music fan.

One Size Doesn't Fit All

Some of the commentary has been focused on pricing. Nearly all services as I write this are at 9.99 (insert your own currency) per month. So regardless of how often you listen to music, you'll pay the same. There is some support for lower price points, as it is felt that for the critical mass needed to sustain the current model we need them all paying, as advertising can't alone be 'the other option', especially as many suggest that ad-funded music promotes a devaluation of music, albeit a great introduction to the format. At some point I am sure the argument becomes circular. Certainly there is truth in the idea that the music aficionado destroyed recorded music sales as they now have a price ceiling which they now don't need to break, see Mark Muligan's excellent piece on this:
https://musicindustryblog.wordpress.com/2015/02/05/why-the-music-aficionado-was-to-blame-for-declining-music-sales-in-2014/ 

Mark of course isn't actually blaming the music fan, let's face it with the amount of investment in advertising, subsidisation and R&D in creating great services really the music fan was just finally given a great alternative (addition?) to the CD, Vinyl and download - and they have voted with their feet.

More Than The Question Of Price

Price alone can't answer all the questions people have but maybe human curation rather than algorithms brings back that indie record store shopkeeper recommendation quality we have lost in the online age? Beats Music was certainly using that as their USP. Apple certainly thought so seeing as it bought the fledgling service back in May 2014.

A recent focus for differentiation and price adjustment has been on audio quality. In the streaming World, the most recent addition is Tidal (Norway's Aspiro company who have been in business with their WiMP service since 2010). These guys not only created a beautiful user experience via a browser as well as in a native application, but they also doubled the monthly cost to the user. It is early days, but some of the opinion pieces I have read suggest that users don't view the cost as totally prohibitive and are signing up. The French service Qobuz has been pioneering this for a while now, and like Tidal really paid attention to the extended experience to a music fan that wants more than just a play button. They follow the same pricing model, either 9.99 per month for standard definition or 19.99 per month for the higher definition audio experience.

Like with all innovation, there are some questions surrounding the actual value of higher definition audio, Neil Young's Pono service coming under particular fire on this subject.

Service Differentiation

As we continue to search for service and price utopia, we have to look back as well as forwards. When it comes to digital services be it download, subscription, streaming or radio there are different tools in the armoury.

Service differentiation:

• Classic: Exclusive content to a service/retailer
• Original: Online vs Offline access = price/value change
• New: Curation & High Definition

A while back there was a lot of talk about interoperability so users could share songs or playlists with other friends who perhaps aren't using the same service. A wealth of 'hacks/aps' cropped up to allow for playlists to be ported from one service to another. But that's not really quite the same thing. The recent Rhapsody and Twitter 'cards' creation is starting to get there, as you don't need to be a subscriber to listen to the track, but the artist/songwriter still get's paid. Certainly a user becomes a little hamstrung if the concept of exclusivity becomes more pronounced than it is right now amongst the various streaming services. We saw this dominate the download market largely by iTunes of course, or Beatport within the dance electronic communities, where labels favoured them over others to launch new albums with exclusive offerings. A dominant service in any part of recorded music's journey to fans is largely viewed as a bad thing, just look at how YouTube has been getting on with labels and artists of late. Choice as a concept to both the music industry and the music fans is fairly central to this debate. I know there are a few low cost subscription streaming services being looked at by established download niche retailers looking to get into the streaming game, which are designed to be a complementary source of music alongside the all you can eat dominant players. Almost proof in itself that choice is lacking in the experience music fans currently have as an option.

So, where does that get us:

• One size doesn't fit all, there are those that want a lot of music daily, and those that perhaps only want it weekly, monthly or more sporadically, therefore;
• Price differentiation needs to be achieved, but reducing the price from a low ceiling can't be the only option (or certainly not a universally welcome one)
• Just having curation as a focus or high definition as an experience differentiator isn't necessarily all that can be done to make one service more attractive to another
• Exclusive content will always be a negotiated element between services and the labels that provide the repertoire to them so they can hold onto or attract more users
• Being locked into just one service each month isn't necessarily what every music fan wants

Different Viewpoints

Let's look closer at the various stake holders in this relationship.

Rights Owners

For arguments sake, this will include recording artists as well as songwriters, their respective labels (sometimes via a distributor) and publishers. Aside from the reluctance to have any one service dominate often dictating how an album might be put together at retail, the main gripe it seems is with the price per play, and it's variable nature. It's a break from the old model which wasn't variable and sales tended to be front loaded into the first few weeks after release. This has an impact on cashflow in running the campaign, and setting up for new ones, as well as general confusion over what you'll actually get paid when you learn how many people have been listening to your music. So talk of lowering the price point in a monthly subscription is not a universally welcome move at the present time, despite the research others have done that suggest by doing so will increase adoption by the masses. There is also a price ceiling which has reduced the potential spend of a super fan to the same amount as a casual fan of an artist. This contributes to the cashflow problem for the rights holder as described above.

Streaming Services

There is a wrinkle in the current business model. The problem is a very simple balance of demand outstripping supply of cash. In any one month, due to minimum licensing conditions set by rights owners to protect the low per stream rate, there can be a shortfall in the fund that is distributed to rights owners if too many people use the service. It gets pretty complicated as a calculation because each country and product type (e.g. offline access vs online access) has its own fund that is divided by the number of streams, or marketshare as it is often referred to. So if lots of users, use the service, then the service can be left short due to the amount of money it has to pay rights owners versus the amount it received in either subscriptions or advertising revenue. This also throws light on the concept of breakage and correct distribution of monies, if there is no usage to match against. By being left short, really for those lower funded parts of the business, the streaming service would prefer less usage. Can you imagine creating something that you charge money for, which you'd prefer people not to use? Gym memberships spring to mind of course or all you can eat mobile phone tariffs, in fact that is the game that both the user and the service provider plays on a monthly basis. As for many people with the Gym Membership analogy, if you start to reduce your usage or cease to use it for a month or two, you feel less inclined to maintain the payment that is being taken from your account each month. In fact, you begin to resent it. This creates churn, which adds to the customer acquisition cost of each service, as they try to win them back. More unwanted costs.

Music Fan

The problem here is that the music fan hasn't quite got used to renting music. So this commitment to a monthly investment in music isn't easy for the laggard consumer, because they perhaps have never done the math on how much they might spend on music each month. So just because 9.99 per month sounds like a bargain to music creators and record company executives, that doesn't mean that Joe Bloggs has ever really added up all those impulse purchases they have made over the years, or indeed can really understand how they might get true value from this monthly commitment. This commitment to a direct debit each month, or adoption of the format, is further complicated because it changes how they might access the music. I think we are a long way past the worry of the car stereo or the separates system in the living room being the restriction, most people have moved to a desktop, smart phone or portable media device that they are plugging into headphones, line in jack or using Bluetooth, Apple Airplay, Wifi or something like a Sonos system. In fact that is a further complication of the adoption of this new access vs ownership model. Is the music service going to be compatible with the speaker they bought, does Sonos integrate, can they update their current living room sound system so that it will work hassle free? Then there is the interoperability aspect which means when they have a house party, or they are sharing online via a social network, or via instant messenger, email, etc will they be able to play the file? Amazingly DRM has rejoined the conversation, just no one has really noticed this time round, as it is being used to enable the existence of these services, yet brings the same restrictions to the user felt during the growth of downloads.

Variable Subscription
The main questions to me seem often interlinked. This is a recap from each of the three stake holders in the equation:

• Rights Owners - price too low, ceiling of spending for music aficionados, monopolistic dominance, transparency for fees
• Services - risk in too much usage, losing user to competitors, 
• Music Fan - renting music is new, interoperability, perceived value proposition, choice of consumption

My proposal, is to create a rolling variable subscription. Meaning that we move away from a fixed monthly payment, incorporate a micropayment element within a subscription framework. Instead of asking users to commit to a regular monthly payment, charge them at the point of engagement/signup, then only charge them based on a per play structure after that. There will, like with current subscriptions be a ceiling for the heavy users, but at a higher price point than we are currently at.

Within this structure various packages could be designed, to lower the ceiling in exchange for commitment, in a similar way to how millions of people commit to their mobile phone carrier.

Here are how I see the advantages, and how they address the main questions from each of the stake holders:

Rights Owners

• Prices Too Low & Low Ceiling - this format allows to establish a higher per play rate than the unknown or low minimum currently employed, as well as enabling a higher ceiling for heavy users
• Monopolistic Dominance - lowering the barrier to entry to the user with each service through removing the fixed monthly subscription, would mean that each service would have to constantly try and engage their users through an improved service offering as users could sign up to any number of services. From a marketing point of view for the rights holder, the value of exclusive repertoire or promotional content rises as every service would be asking for it in order to compete for engagement
• Transparency - a hotly debated topic. Currently there is no way of putting a price on a stream, and for some that is too difficult to contemplate. Whilst the idea of a ceiling would still exist, for much of the usage a per play rate would exist. Maybe there are many within each 'package', but at least you could confidently add this to a contract in a far more precise way than the 'if, then, maybe' concept we are currently faced with. Whilst I acknowledge minimum per play rates do exist, they are low, and therefore offer limited protection to the rights holder. Fixing the per play rate as with Psonar demystifies the cost, because everyone from the consumer onwards knows and understands what each play costs

Services

• Financial Risk - Control per play usage through established per play rates, allow higher ceiling for heavy users to limit exposure through higher usage
• Customer Retention - create a variety of packages that fit almost any wallet size, and match against users expected usage. With users who are unsure about committing to a service, they never actually need to leave, they would just stop using it. Therefore the barrier for re-entry to a service has been removed nearly completely

Music Fan

• New Format - for those unsure about renting music for a period of time if a financial commitment isn't met each and every month, they now need not worry. Their money can be used on a month to month rolling term till it is used up. It would essentially feel like an auto-top up should they continue to use the service, a bit like Skype minutes. The ceiling 'bonus' for high consumption starts at the point of top up, and runs for a month from that stage. This creates a transparent relationship between the user and the service, although I appreciate it makes the monthly calculation for the service more complicated potentially, but not impossible
• Interoperability - as the user doesn't have to make a monthly commitment, they will perhaps adopt multiple services. Whilst this isn't true interoperability, it certainly would start to demonstrate whether or not users wish to stay within one service, or whether choice is more important. It would potentially bring greater diversity into the consumer offering, as niche services could establish themselves. If nothing else it would certainly make the concept of exclusive repertoire important to all services, not just those desperate to try and gain marketshare. Even the dominant services would have to try harder to win over rights holders
• Value Proposition & Choice - An all you can eat music service that works for almost any user (there will always be many who can't or will never pay for music so ad based models will sit alongside this). Value to the user is matched to their consumption habits. In fact we turn the subscription into a reward based concept rather than its current state which is a barrier to entry; passionate music fans will still have a ceiling as they are not worried about the commitment, those in the middle whose usage fluctuates get the benefits of a ceiling at the top end but no wasted money in the months where they are less engaged, and for the incidental users they can get an ad free music listening experience without having to commit past their usage requirements. This finally introduces choice into the equation.

Much of this concept needs to be modelled from a financial perspective. Decisions would also have to be made as to; what that per play rate is, where the various ceilings should be, how they are defined, what happens to left over credit if the user tops up in a month to re-engage the ceiling, would it count as a discount toward that payment, or does it accrue as a useable balance later on. Maybe one option in an auto-top up model is for the price plan to adjust based on the previous months activity, or an average over the last quarter to always achieve the cheapest or most appropriate subscription plan. Whatever the outcome of these questions, I am confident that all parties involved would enjoy the results, rather than all trying to fit into one, or putting a few sticking plasters over the problem with ad funded and PAYG as the only alternatives.

Is this true Utopia, no not really, but getting to a perfect place for all stakeholders, means you need to consider all the angles. Personally I'm not convinced that has truly been done so far.

A message from A2IM: ♯FairDigitalDeal4Artists

A message from A2IM: "A2IM and the entire Worldwide Independent Network ("WIN") community made up of about 25 Independent music label trade organizations from around the world have been focused on music licensing and how some licensing deals are now being constructed so as to include elements such as advances (including advances which may not be fully recoupable), guaranteed payments, "breakage" and equity not related to music usage. While the total amount of compensation received by music labels is not overstated, the new allocation methodology offered by some digital services often has indie labels not receiving all of these forms of compensation from all digital services. A2IM and the worldwide community has been fighting for equity in this area. A recent chronology on various initiatives is here, including the music licensing filing we made with U.S. Copyright Office in May. The position of the WIN declaration is that the artists on A2IM's member music labels deserve the same equitable treatment as their indie labels. Further, the Declaration takes the position that music label owners need to ensure that artists' share of download and streaming revenues is clearly explained in recording agreements and royalty statements in reasonable summary form. Finally, the Declaration takes the position that music labels need to account to artists a good-faith pro-rata share of any revenues and other compensation from digital services that stem from the monetization of recordings (including unrecouped advances) but are not attributed to specific recordings or performances. Showing my support:

Apple, Could Be Good For Everyone

What's next for Apple? This is a regular topic of conversation in my World, as the music industry continues to step through the next format change, from downloads to streaming.

For the last half a decade or so there has been lots of talk about something being an 'iPod/iPhone/iTunes' killer. Be it a device or service, there is a level of fixation on 'what's next?'.

Today the headlines are about streaming, Spotify, and now Beats are the current media darlings. I'm pleased somewhat to see the levelling of the playing field, in terms of what each of these services represent to the labels I distribute, in terms of revenue and marketing opportunities. Pleased, other than the cashflow issue my CEO predicted in 2009 which hinders labels development of their artists as it takes longer to see a return on the investment. Although I do appreciate the smoother revenue line they deliver, rather than the peaks and troughs of our iTunes sales depending on the release cycle for hit records or seasonal changes. This helps my plotting and planning to a certain extent, albeit less exciting to observe. Whilst some nice healthy competition is good to see, these debates got me thinking again about iTunes' next move. Part of the discussion about streaming services is how they convert trial/free offers, to paid. What are the barriers, other than the leap of faith by the music fan to 'rent' music, a concept many still struggle with. Where they all focus on a 'subscription' element, iTunes could really benefit, without them actually needing to follow suit and launch yet another £/$/€10 a month all access service.

The happy marriage of hardware with various media consumption offerings; Movies, TV Shows, Ebooks, Music, Podcasts, Newspapers, Magazines, Aps/Software and direct consumer billing gives Apple quite a good footing to become 'the new money'. By that I mean, using your Apple ID to pay for the goods on offer.

A personal example is the monthly reminder email I get from Apple that my Netflix subscription is renewing. Why did I pay via iTunes? Simply, because I have an Apple TV, and it was easier that way. I just paid for it via my Apple ID rather than going to a 'third party website' (I'm being deliberately ironic) and going through the lengthy sign up process including the need to divulge my credit card details. I trust Apple with that information, I always have. So, convenience and security are two takeaways from that.

Another personal example, for what I consider Apple's potential to be, is my attempt at buying my brother a gift subscription to Wired Magazine for his iPad and iPhone. I couldn't do it via iTunes as I discovered, but oddly it was my default setting, rather than going to the Wired website. Presumably Apple makes a nice bit from my monthly Netflix subscription, so why wouldn't they let me gift a subscription to a magazine, and benefit from that too? I will often gift from iTunes, be it Apps, Music or otherwise, and it is really convenient, can be quite personal, and helps with my inability to plan ahead and buy gifts for people on time!

Going back to my first example, I wonder how much Apple could gain by adding Spotify, Deezer, Rdio, etc to their Apple TV? By making it easy to add music to their living room from these established services, it would further cement the device and the Apple ecosystem in a customers home. The trump card would be surely to also make it viable for those companies to have the subscription billed via a users Apple ID.

The viability question, I know from other companies like Bloom.fm is openly debated. There is a monetary reward for subscribers to pay Bloom.fm via their website rather than in-app. I know that Apple's 'cut' is too rich, when you have price points of £1 a month, hence why it is noted within the app that it is significantly cheaper to buy direct rather than from within the app. Apple is missing a huge opportunity here. Make it more cost effective for third party services to allow billing via iTunes, and get involved in the subscription game, without doing anything other than being a new currency or payment method.

We know from Spotify's recent label and artist manager presentations that they know new subscribers are originating from mobile devices, so making it nice and easy for them would be a huge win for the various players out there, and for the music industry in general - but most of all Apple, as they would share in the income every month from those millions of subscribers for the various services.

That's not to say that Apple shouldn't continue to develop their own products and services, we're all still waiting to see if they'll ever add 'on demand' streaming to their radio and locker service. They have a well documented history in delivering close to identical consumer products that already exist... just in a more slick manner. 

Tightening up iTunes service offering on the customer billing side seems like an easy win, especially as it will reinforce their central role in their customers leisure time.

Fan Feedback

I often wonder how someone becomes a fan of a particular band or artist. What was their entry point, and what made them convert that first experience into something that can sometimes verge on obsession.

I recently bought a rather simple little gadget for my iPhone, the Gliff. It's merely a piece of plastic that acts as a kick-stand to prop up the phone at a similar angle to a laptop screen, meaning I can enjoy a movie or video podcast handsfree. During the purchase process, the site asked me where I'd heard about the product. That got me thinking.

It reminded me of a conversation I had with long time industry friend Chris Thompson, who started DA Recordings (later Digital Animal). Years ago, he very patiently explained to me what was getting lost when a fan buy's a record from iTunes, Amazon, eMusic (pick any retailer). His point was really quite simple, what get's lost is the relationship between the person who made the record and the person buying the record.

Changes At Retail
I wonder how much thought most record company bosses put into that; that disconnection with their artists' fans at the point of purchase. My guess is they understand it and are aware of it, but haven't worried too long and hard about it, as for certainly most of their career the established retail model has worked well enough for them. Purchase these days includes in my opinion, adding an album to your favourites if using a streaming service, as much as it is buying the record from a download store of physically from mail-order companies like Amazon or Play.com. Some of this was discussed in an interview between Ian Rogers (Topspin) and my CEO, Robb McDaniels in Dec 2011:


Staying In Touch
Anyone running a record company today will certainly want to retain and develop that relationship if at all possible. The news is full of how things have changed in the record business today. Anyone these days can have their record racked in the same store as A-List artists, thanks to DIY distribution services like www.reverbnation.com. Fan engagement therefore has turned into the main focus for record companies rather than an additional thing to have to think about. Helping music fans cut through all that is available out there, making sure those fans pay attention to the artist they are promoting, means those record companies need to spend a lot more time understanding who these fans are, and making sure they don't lose track of them at the end of a project.

Fan Clubs
For as long as I can remember I've come into contact with artist fan clubs, I once belonged to the Feeder fan club when they released one of their first singles Stereo World in 1996. The CD came with a square postcard which I put my name and address on and posted back to The Echo Label (their Record Label):

That fan club knew who I was and where I lived, it sent me free posters and other paper based things in the mail like picture postcards of the band, or future release artwork. These were normally sent around the time when they wanted to tell me about a new release or a tour taking place. It was their direct to fan marketing. Consequently I went on to buy not just every single, but both versions of each single for about three years. They used to make a CD and a CDX with the same lead track, but different B-Sides. They are also the only band who got me to buy the same album twice. The reason? They added two extra tracks, and a video (although they also dropped a track). This double purchase was crazy enough, but to make it worse, I also owned nearly all these songs on the singles, meaning I had sometimes 3 or 4 copies of the same track on CD. But, at that time this was the band I was a huge fan of, and if memory serves me correctly, it was the video that was the main driver to buy it a second time. Music videos were a novelty for me, MTV in the UK only launched in 1997, not that we had Satellite in my house, so for me this was special and rare.

Post Purchase
I'm not suggesting that buying any old inanimate object from Amazon, Tesco or other major online retailer is likely to inspire a great deal of due thought and emotion from the buyer, but I wonder how much value the record industry would put on an answer to a question like 'where did you hear about this Album?'.

I realise that nearly all music download and streaming sites offer the opportunity for the fan to give the album a 'Star Rating' (or similar) as well as leave a review. This is great of course, and is widely noted as a key driver for later sales of an album to other 'possible' fans. I know personally I use reviews left by previous buyers all the time, they are enormously helpful.

Data Collection
Thinking for a moment from a music industry professional's perspective. The company I work for spends a lot of time trying to understand what is going on around an album in the build up to the release date. We look at current and past events. Past sales of an artist or band are very useful in gauging what we think it might sell this time round (gives an indication of active fan-base). We look at Facebook stats, and the number of twitter followers. YouTube provide very useful territory based data, and of course there are things like Google Trends and services like Big Champagne. Data mining is very important.

During the week of release some of the music services like Spotify provide very useful systems where you can log in to see how an album/track/artist is doing each day. Likewise iTunes provide daily trend reports of sales. Excellent and invaluable data. We actually collate and consolidate this information into a useful common format, allowing for deep searches for our clients via their Client Console. But what else could be offered to help the record companies and their artists understand their audience better? It strikes me that they could quite easily help aggregate certain purchase information. Why not adopt the same principle as so many boutique online stores and simply ask (in more words than this) 'why are you buying this album'. More likely 'Where did you first hear about this album', answers could include; Radio, Magazine, TV, Online, Live or Word Of Mouth/Friend. Maybe go further and list some key publications, or break out options of 'Online' to Blogs, Feature on the store, Facebook ads, etc.

Improvements
Maybe I'm asking too much or forgetting that the inevitably present 'Other' option will always be selected. We've all done that I'm sure, leaving the comment section blank. However it strikes me that music fans have started their journey to mild or complete obsession with that purchase, and would likely want to offer some additional information. It is after all why they return to the site later to leave a review or make that star rating. Music fans like to talk about where they first heard an album, so why not give them that opportunity and pass that information back down the line.

I would suggest that the music service who enables this, is likely to start winning a few more '2 Week Exclusive's' of an album, or be used for the pre-order of an album. These buy links are then shared heavily by the various stakeholders (Distributors, Labels, Management Companies, Artists). If I was running a music service, this is the sort of attribute I'd add to help focus attention on my store.

Looking at the deal we, INgrooves Fontana, announced this week with Pledge Music, perhaps we're on the verge of seeing a shift away from the focus on a 'release date', and actually all this fan feedback will be given even before they have received the album, as the 'purchase' could happen even before an album is made.

The likelihood is we will see the two co-exist for many years to come. Record companies, artist managers and bands themselves will be able to go on nurturing those important fan relationships from the point of a campaign's inception, through week of official release and beyond. 

Fan feedback has never been more important.

Simplifying The Licensing Process

In April I was invited to join a round table discussion hosted by Microsoft for the International Institute Of Communications UK Chapter, where Richard Hooper presented his feasibility study of the Digital Copyright Exchange (DCE) proposal in the Hardreaves Review. Richard, who was appointed by Business Secretary Vince Cable, gave a presentation to get the discussion going, and afterwards invited me to speak with him specifically about how the company I work for INgrooves Fontana, like others, have started to create DCE's for our own commercial reasons as well as how I thought the current licensing process could be improved.

This post is a summary of that meeting, as well as opinions I heard from individuals at the round table discussion in April. As with everything in this blog, these are my own opinions, and not necessarily those of the company I represent in a professional capacity. Also, I want to state that much of what is contained herein is mostly a regurgitation of the original thoughts and established developments of the many individuals and companies I have come into contact with over the years.

Today
Currently for all online services wishing to use recorded music as part of their core business, or just as a supplement to it, the process is much the same as it always has been with a few improvements:

1. They contact rights holders, 
2. agree a deal, then;
3. arrange for the various assets to be sent to them for exploitation. 

Point 3, the delivery of album assets (Audio/Video, Metadata, Artwork) for the most part is now automated thanks to the development of software solutions like the One Digital platform. Even the language used in the data feed which links the rights holder to the online service is starting to become clearer. This clarity, provided by the ever increasing adoption of the DDEX standards, improves the speed of setting up the technical feed which in turn brings down the cost to both parties. What remains a huge cost however, both time wise and financially, are the first two points. Knowing who to contact, and coming to an agreement for the required exploitation of the albums.

Discussion Items
From what I understand, two main contenders for a solution are often discussed:

• Establish a blanket licensing concept, allowing music services an easy route to acquire the rights they require, similar to the way PPL licenses' broadcast rights, see my post 'Online Radio, Does It Pay' for more information, or;
• Create one huge database of all the known rights information to make the identification of rights and rights holders as easy as possible.

I, like others in the industry, think neither of those suggestions are the right path to pursue. Reasons given for the first point mainly come back to the disruptive nature of breaking apart the existing stakeholders businesses, be it a distribution company, record company or trade body linked service like Merlin. Also the value of music can't be given one price. I think it is fair to say that putting a price on licensing Adele's '21' album versus licensing Emily Baker's 'All At Sea' (listen below), who is an up and coming artist can't really be given the same dollar amount. One is just more popular and well known than the other, and therefore has a greater commercial worth, be it to a online music service, advertiser or music supervisor. Also the usage type, invented and yet to be invented, attract a different price point and I know many rights holders don't want that to be established by a centralised committee. It is the reason why the major record companies do their own deals, and many large independents have decided to do the same or look for a trusted digital partner to best represent them in deal negotiations. They then outsource the technical aspect of the process to a third party, or it is bundled in as part of the the digital partner's many additional services. The competitive aspect of licensing needs to be retained for the continued existence of a varied and dynamic spread of music services. I believe this variety of consumer propositions will drive those music services to push the boundaries of innovation, which in turn will attract more customers to their legitimate and licensed offering. The second point is discussed below.

If all those reading this blog understand that rights data changes constantly, then you'll understand why trying to centralise via a deliver of data to a closed database will never work properly. That central database will always be slightly out of date for reasons including; record companies licensing away territory rights to licensees, losing rights once they expire either back to the Artist or to the original licensor, or simply the rights holder wishes to make a change to a release date, album title, track order or one of many moving parts that go into making up an album in the digital world.

Solution
It seems that both Richard and I share similar approaches to a solution, one that is likely to be accepted by all the current stakeholders, retain the competitive aspect to the music industry and solve problems one and two above.

I am sure many of you will understand what an API is, and that it can be used to create a data transfer in 'real time' between two online databases. Most delivery systems keep their data on a web connected server. So if the government and the various official bodies and leading or just vocal companies in the music industry want to help simplify the licensing process they need to do two things:

1. Create a virtual marketplace where Music Services can go to find out who the various rights holders are, and
2. Establish a contract exchange process which would include all usage types and service attributes as well as the commercial aspects of the agreement trying to be reached

It does NOT need to be a centralised repository of rights information. This is nothing but duplication of what already exists, and replaces far too many existing stakeholders core businesses.

This would solve the initial processes that music services have to go through (points 1 & 2) in order to use music as part of their commercial proposition.

What would it look like? Two simple ideas below:

• Point 1: A Yell.com style searchable database where each company, be it a record company, distribution company or Artist could be listed and likely have their own profile page. Participation would be voluntary, free, and without obligation. It would also be extremely easy to use, requiring no technical knowledge. A later incarnation of this could include an API call on all connected databases to ascertain what catalogues are held and by who. This would help with targeting communications in the point below, but I don't think the industry is quite there yet.
• Point 2: Contract template as part of the UI, which once completed as a request by the licensee, can be securely sent to all rights holders who are relevant to the music service. They could be contracts sent to particular rights holders, blanket requests, or merely opt-in opportunities to anyone that wants to pitch their catalogue for a project. Due to the fast changing way in which music services are innovating and evolving, the contract template would have to be updated, but the idea is for these aspects to be for information purposes only, as opposed to actual technical integrations. For the most part many of the contracts agreed by companies like INgrooves Fontana with music services fit within a general structure of commercial terms, so individual requirements won't be too hard to cater for.

Point 2 is probably the hardest to imagine unless you work for a company who has already created it as part of their closed DCE system. It is also the part I would add to Richard's current stated approach. Most technology solutions in this space do two things when constructing their database. They house rights information for each album and are able to match it to a set of criteria determined by a contract in the system. In a similar way to how the collaborative nature of DDEX standards are proposed and agreed, it wouldn't take too long for the various stakeholders to establish what should be included in that virtual contract template. To help explain, the following would be obvious elements to add, which could be optional selections by the music service when setting up a contract:

Commercial Aspects

• Wholesale Price; or
• % of Retail Price; or
• % of Net Retail Price, including what makes up Net (Mechanical deduction, sales tax, etc); or
• % share of income (advertising/subscription)
• Territories Required
• Genre Restrictions
• Label Lists (Include/Don't Include)
• Explicit Content Restriction
• etc

Usage Types

• Download
• Streaming
• Subscription
• etc

Service Attributes

• Album Only/Bundling Of Tracks
• Pre-Order availability
• Individual track pricing
• Audio and/or Video
• etc

Once the rights holder has been identified, the contract requirements are then sent, perhaps with a long form template as an attachment (PDF) or by using services like DocuSign. It can be accepted or negotiated using the traditional methods of face-to-face meetings, phone calls, emails and instant messages. After that, the technical connection can be made, in the same way it occurs today.

Summary

This won't make licensing music instantaneous. It will however give new music services a powerful resource in order to start the licensing process. It is possible for the music service, like Apple did for iTunes, to simply post an agreement on the centralised platform, and state "this is the offer, take it or leave it". I think many music services would be surprised just how many rights holders would sign up, especially if they offered deal terms similar to other music services and included Most Favoured Nation language in the agreement. If the opportunity is interesting enough, many companies would either sign up, or have only a few points they want to add or negotiate. Things like advances on royalties, delivery fees, set up fees or other financial and perhaps marketing guarantees are common requests especially in the early days of a music service launching. The deal has to have a measurable value for it to be worth doing.

The record industry today is far too fractured for this to become centralised beyond my suggestion. However I firmly believe rights holders want to be found, and for opportunities to be presented to them. Most bands want their music to be heard by as many people as possible, otherwise they wouldn't sign a record deal. Most record companies want to have that music used in as many different ways as possible, assuming it conforms to their artists or perhaps their own set of ideals and brand identity. For distribution companies, their main value is to connect with as many worthwhile music ventures as possible and manage those relationships to ease resources on both sides. So given all that 'good will' to be connected, if the opportunity to be part of a global marketplace exists, all these stakeholders will eventually see its value. As long as the following three things are considered, a centralised DCE can exist.

Don't make it complicated. Don't make it mandatory. Don't duplicate what others do already.

Online Radio - Does It Pay?

This post looks at what is broken in the way online radio services gain licenses from rights holders of recordings for their public performance. I want to explore how it could be improved without the need for a major overhaul of the system or even making any changes to the current stakeholders.


Introduction
Customised Radio is becoming an increasingly popular feature for music services. It brings one-button-push, user-tailored recommendations to online streaming. Depending on the service a user can specify their favourite Artist, Genre, Mood, Album or Track which provides a pre-determined constant stream of music, and sometimes further selectable recommendations past their original choice (my favourite service for that feature is: bloom.fm). On services like Last.fm, Nokia Mix Radio and We7, a few clicks and the user is listening to music, which they'll probably enjoy. As far as I am aware, none of these services inject audio adverts into the 'playlist', unlike many of the 'freemium' interactive/on-demand streaming services from companies like Spotify. Without these audio ads, the result for these radio services is that they are quite pleasant for the listener, hence their popularity. The main reason for the lack of adverts is that the cost to the provider is much lower per play than the interactive/on-demand streaming which is normally offered once a user subscribes to a service. That 'cost to the provider', are the royalties due to record companies. But are they all being paid?


Background
For those unfamiliar with the differentiation, when an online service has music streaming which is non-interactive or billed as 'Radio' (or Customised Radio Service), they can in the UK get one license for the performance of the record from the PPL. This is in place of a direct license from the record companies or distribution companies like INgrooves Fontana. The songwriters and publishers, like with all online music services are paid by the PRS for the performance of the song, note this is different from a mechanical payment which occurs when a copy (download) is made, so in this case that isn't due. Most other key digital markets have equivalent societies, and normally reciprocal deals exist so that money flows between them for exploitation in the various territories, it is also a way of sharing data between the societies. 


The below concentrates on the the PPL license, and the need for greater interaction between record companies and membership societies like the PPL.


The performance of a recording
This post won't go on to suggest the work the PPL do is sub-standard. It is more to highlight a process inefficiency that in today's music industry can be solved using technology correctly.


The PPL is a membership society, and all record companies and performers are welcome to sign up to it and register their recordings, or their performance on recordings.


Any record company or performer who would like to know more, can visit: ppluk.com


The PPL are in a difficult situation. They rely on record companies and performers coming forward and registering their recordings or performances. They can collect revenue from a variety of sources, be it on TV, FM Radio, in a bar or hairdresser's, etc. Historically, for the PPL new members coming forward has been their only real option in linking royalties generated with the owner. They want to make payments to rights owners, as once collected, it is their main function. They can collect these royalties, as well as many others, but they need to know what is represented and by whom. This is the message displayed when you click on the above link:
"If you have performed on recorded music that has received UK radio or television airplay, or has been played in public, we could owe you money."

and

"If you are a record company, self-releasing artist or any other owner of the rights to recorded music, we could be making you money."

So where is the problem?
When speaking specifically about licensing music services for online Radio, and not necessarily about full membership to the PPL, it initially it exists in two places:

1. Awareness of this form of exploitation, and its increasing value
2. Laborious and, for this form of exploitation licensing, an over complicated registration process

The lack of participation created by these problems, leads to a further two issues:

• Licenses being granted by societies to music services, where the performance right isn't actually represented by them, so consequently;
• Incomplete royalty reporting after exploitation has taken place for those recordings

To be clear, I am not suggesting a change to the current process of collective licensing for this usage type. Customised radio services serve as a fantastic way to introduce music to the listener, and the last thing that needs to happen is to make obtaining the required license more difficult before a service can launch.

What is the solution?

In short, there should be better integration with the record companies by the collection societies, and responsibility for un-matchable royalties should be shared with the music service. Identifying recording ownership is critical to solving the incomplete royalty distribution that occurs today.

This isn't as hard as it sounds, for two reasons:

1. These days record companies have their catalogue information digitised and residing in an online database somewhere, like the One Digital platform. These platforms communicate on a regular basis with;
2. Music services, who receive clean data from companies like INgrooves Fontana. Their 'Radio' service is often an introductory or supplementary service, using the same assets (data, audio and artwork), as an on-demand consumer paid for service, normally on a subscription basis

What collection societies need to do is work harder at finding a way of importing that data from both entities. This will give them a much better chance of knowing who owns the rights to the recordings, even if from a legal point of view they can't distribute the money till a membership mandate or two is signed. The main point here is that they should be proactive in trying to connect with the record companies in the way that record companies want to operate in the digital space. This is not, via an online form which requires them to input data duplicating the work they have already done (see point 1 above).


Relationships
I know there are exceptions to point 2 above, like US based Pandora, who do not for the most part accept asset deliveries from record companies, and therefore have no relationship with them. This can't be helped, and consequently there will always be an element of 'fuzzy matching' taking place. The PPL and the other societies have a role to play, that is not in dispute.


Any service who has a relationship with the record companies for another reason, should be in a good position to help the societies complete their royalty distribution, or perhaps even take on the responsibility of contacting rights owners on behalf of the PPL. Whether they actually send the money on to the record company or not is another matter, but they could easily produce a statement detailing what was generated, and point them in the direction of the PPL for payment (which would require sign up and official data submission). If this were to happen, a record company or their digital distribution partner, would then be in a position to make an informed business decision about how much resource they dedicate to claiming these royalties, rather than where we are today which is just 'unknown'. Interestingly for current 'direct' members it would act as a form of audit against their society statement, as it is data coming from the source. Technology can provide transparency.


This segway's into another point. Whilst I understand why the PPL only make annual reports and payments from 'offline' exploitation, why should this mean that royalties generated from customised online radio services be treated in the same way. There is no argument for this at all, especially when the services they are collecting from make a monthly or quarterly distribution for their on-demand services to record companies. In fact SoundExchange in the USA makes quarterly reports and payments to members for this form of exploitation.


What happens to the un-matchable royalties?
Not working for either the PPL or a music service with a radio feature, I can't actually state clearly the process. But my understanding is that the money is offered back to the service by the PPL in either a payment or a credit against future royalty distribution. In other words, revenue is un-coupled from the exploitation which created it. The hope is that it's sitting in an escrow account somewhere.


Conclusion: Implementation
Technology is already in place to implement successful owner and Recording identification outside of what is already sitting in the central repertoire database of a society like the PPL. Societies should move away from focusing solely on a self-registration solution that requires all data to be completed for every exploitation type via a web form. As discussed, the PPL can collect not just non-interactive online performance royalties, but traditional radio, TV and other public performance royalties. I concede there are complications with individual performer information. This isn't necessarily going to be centralised in the online databases used by the record companies, but once the record company owner has been identified, research is possible in order to find the correct Performers.


It is a shift in thinking that is required. Data feeds from any repertoire owner should be pulled into each society's database, regardless of missing 'mandatory' information like 'country of recording', and 'performer line-up'. These are not necessary for the distribution of the royalties due to the record company. It would do half the job, but 50% is better than 0%. As a by-product it would likely increase awareness of the missed opportunity in revenue collection, and due to the normal close knit relationship of performers who appear on indie record company albums, that data would soon appear to claim the now quantifiable royalty due i.e. the other half of the record performance royalty which has now been paid to the record company.


Record companies have a tough time. They exist to develop and promote the artists signed to them. Administration of 'metadata' or 'label copy' is a necessary evil, and for indie record companies, this administration is often performed by someone as a secondary role (or more likely, one of many secondary roles). Thanks to the popularity of digital retail services which now provide a significant portion of their revenue, they have either invested in technology in-house, or have found a digital partner who they have outsourced this to. The societies need to play catch up. They can learn from their music service customers like Spotify, We7, Deezer, Last.fm, etc on how to work with multiple data feeds and provide regular reporting and payments, which today get's easier thanks to developments like DDEX. In most cases the data exists, it just needs to be used.

Fan Engagement: Q & A With AM & Shawn Lee

Below is a quick update to supplement the original post I made on AM & Shawn Lee’s digital and traditional promotional exploits for ‘Celestial Electric’.


They saw the post, and very kindly agreed to answer a few questions that came up when I was putting it together.

This is what I sent them, the answers are theirs and unedited.

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Not forgetting that the music is central to your public messaging, and that you do what you can to meet fans in person, I'd like to ask about all the technology you use to do it 'virtually'.


Q. You use quite a few different web services to connect with your fans. Was it a careful plan, where you knew each service and how they linked together, or did it just grow organically?
A. I think you’re just trying things. Some things end up really working for you and others don’t. Soundcloud for instance is great for me, because it’s ALL about music. I post DJ sets monthly that I do in LA at our Rendezvous night. It’s the one place people can see what I’m listening to and I can see what others are listening to and/or creating.

Q. How much time each week or month do you spend updating your news feed(s)?
A. Not sure really. I try to post something when I feel I have something to post. Sometimes that’s a few times a day. Sometimes it’s every 3 days...just depends. But I don’t have a schedule.

Q. Which platform do you head to first when you want to say something, and is it different if you want to share text, images or video?
A. Twitter or FB...Instagram too. I like working with images so often I’ll hit instagram and feed to Twitter and FB. I hit soundcloud too with DJ mixes and stuff.

Q. How effective, in terms of 'feedback', is the exclusive relationship you have with fans via Pledge Music? i.e. is it worth spending time creating special content/communications for that platform?
A. Absolutely. That is the whole idea. We give the folks that pledge the first look always. They’re putting their faith in us so we really respect that.

Q. When touring, how much do you rely on your record company, booking agent or other professional entity for publicity versus social media messaging.
A. Booking agents are VERY important. I’m grateful to have a good one. I remember when I had to book my own shows and it was no fun. Publicists are helpful too. You need more arms out there spreading the word. Social media is key though. Your fans are coming straight to you for the word.

Q. Did your Publicist or Record company help you with any of your online presence either in terms of financial assistance (website creation, etc) or ongoing maintenance, content creation, etc?
A. Nope.

Q. Do you have any words of wisdom on self-promotion for artists who are just starting out?
A. I wish I did. I always assume I’m doing everything wrong...and I think most of us do. No one REALLY has the answers. I’d say just do your thing and do it regularly...that’s actually not a bad philosophy over all.