Tuesday, September 26, 2006

Warner Music and YouTube

The media companies are lining up to either cooperate with or litigate against YouTube. This could be a watershed moment defining who gets the Internet and who doesn't. More interestingly, what will the business ramifications be? You can be the most forward-thinking company on the planet, but if it doesn't bring in the scratch, it doesn't matter.


I think this is a forward-looking change that will have interesting ramifications. I think it shows that Warner accepts the realities of the changed market, and that as a media company, they cannot profit from maintaining a totally artificial monopoly on distribution because what they might gain in slowing down piracy will be far outweighed by customer ill-will and bad reputation (cf. Sony). The media companies in general have been sacrificing the good in favor of the perfect and ending up with neither.

Whereas eMusic (no, I am not on their payroll ;-) ) has jumped with both feet into the Internet Age and seem to be doing a decent business despite themselves, the big media companies are still being dragged kicking and screaming out of a 19th-century mode of product distribution at the expense of the good will of their most well-informed (and often high-spending) customers.

Like I've always said, I don't support piracy, but I also strongly believe DRM and other similar tactics take far more from legitimate customers than illegitimate ones. We went through all this in the 80's with floppy disks and the marketplace voted DRM down by a landslide. It was a mistake then, and it's a mistake now. The only people who really benefitted, IMO, were the folks who made stuff like CopyIIPC.

I think making your product more convenient and less expensive is always the best way to increase revenue. I also really think most people would rather be honest than dishonest, but in a situation where the product you can get illicitly for nothing has much more value than the product you rightfully pay for, can you really expect people not to rebel? To wit, should I pay money for a low-resolution, DRM-encrusted video from iTunes that I can't even play on my TV, or should I download, at no cost, the same thing in higher-quality DivX at DVD or HDTV resolution from the file-sharers that I can do with what I want? iTunes may be catching up to this standard, but what they offer is still significantly less preferable to the pirated stuff even without considering the price. This is not a case of people simply wanting to rip off the companies, but literally companies wanting to rip off their customers under the guise of self-defense of an obsolete business model. It might be morally, legally and tactically valid, but as a business plan, I think it's bound to fail. It's not like it will ever stop Chinese bootlegs, for one thing.

Take a look at eMusic again. They carry no major labels, and not too many big name artists, (nor many of my personal favorites), yet they have 11% of the American download market. Gee whiz. They are not being destroyed by piracy... then why are the RIAA members so petrified? Could they be afraid of having to compete in a fair and open market? Could the be afraid of not having a stranglehold on promotion and marketing? Could they be afraid of having to find real talent, rather than manufacturing some fake, lame flavor of the month because their customers only ever hear what ClearChannel is pumping at them?

The interesting question here is:

Can Warner's openness to share their material be the basis for more revenue for them and You-Tube, or are they essentially giving stuff away free with no real benefit for either company? I guess it all boils down to: Do you punish the majority to pretend* to fight piracy, or do you accept a certain amount of loss and attempt to balance it with increased value and a better relationship with your customers? Also, can you make money when you, technically, aren't selling anything? It's a lot more complicated than the old TV/newspaper/radio model of selling eyeballs/earholes... I think advertising as it traditionally has existed is slowly becoming obsolete. While it's a strong basis for doing business, I don't think it will be forever, or if it is, it will have to change a lot.

Maybe I'm too optimistic, but I would pursue the better relationship with customers, and would attempt to change the culture for the better, not through strongarm tactics and intimidation, but by building a positive customer relationship. It's worked for Apple... people are more than willing to pay a premium for a product that is in many ways better (but not as much as a lot of people claim), but in reality Apple owes a lot of its success to intangible attitudes and mindshare won through many hard years of trying to truly serve customers in a way that the larger companies have not. Granted Apple sells hardware, and you can't download a Mac from Limewire, but I think the vibe it has garnered over the last 20 years earns it a lot of business it would not earn were its offerings considered solely on price, or even quality. After all, Microsoft is now what IBM was in the 70's and early 80's... something the typical business just assumes without considering the often superior alternatives.

I think one of the important effects of the Information Age is something I mentioned on a mailing list recently: whuffie. In other words, an intangible reputation based largely on public perception that is becoming too astute (and too cynical) to succumb to plain-old ordinary 20th-century marketing tactics. I think the idea of treating your customers as a commodity will become more and more dangerous as the flow of information increases, customers become far more informed and savvy because the information channels are no longer locked down by a powerful few. We've got quite a ways to go, but are definitely headed inexorably in that direction.

Whuffie is not likely to ever become the basis of an economy like it was in Doctorow's book, it will certainly translate into good business in the 21st century. The question will be, can you succeed without it?

* I say "pretend" because as we keep seeing, all these attempts to control copying are defeated within days, if not hours of their release.

Web 2.0? I'm still waiting for the music sites to catch up...

So there are plenty of ways to buy music online. I finally caved after holding out for years when my 80GB Neuros II arrived with a coupon for eMusic (why I picked the Neuros is another topic entirely, but I can say that I am extremely pleased with my choice). Let me first say that I really like eMusic a lot. I've been a subscriber since November 2005 and have gotten my money's worth times five. I'd looked at places like iTunes and the new Napster, and I was continually (and still am) unimpressed at the selection they provide. However, since eMusic is shunned by all the major labels, it is often only useful as a place to discover new stuff, and not so much a place to look for specific items. Why? Because eMusic doesn't treat you like a crook. They offer value instead of limitations. They don't shackle you down with DRM, which is why the Big Labels won't do business there (as if you can't readily download all the Big Labels' music already). As I've noted before, they are the second biggest (legal) music download site in the U.S.. Betcha didn't know that. Even I was completely surprised, and I've been an avid fan of their service for almost a year.

Anyhow, iTunes was probably the first breakout success of selling music electronically, but lots of others are joining in, making what appears to me to be a marketplace that is getting more crowded with indistinguishable choices.

Here are the four things I think no one is successfully doing... yet:

1. Thinking BIG.
2. Using imagination.
3. Doing something more than copying iTunes.
4. Targeting more than the casual music fan

If I were to design a music system, for instance, (it's one of my biggest interests, so I like to talk about it), I would want the following features:

1. Very comprehensive selection. This is something nobody does in my opinion. I'm talking about an amount of information similar to the Gibraltar Encyclopedia of Progressive Rock which is a resource that's been around for at least 10 years (on and off) and is one of the best sources of information for that genre. Looking at services like Napster or iTunes, 80-90% of what I look for is not there... and I'm not necessarily looking for really obscure stuff. It seems if it's not new, there isn't a very big chance either site will have it. Neither of those services are particularly "long-tail" about their offerings. I want everything. I want to be able to look up singles Pink Floyd released that never made it on to an actual album. I want to be able to find the discography for (to pull an obscure name off the top of my head) Itoiz, a Basque rock group from the mid-late 70's. I want to purchase the record Journey released solely to its Fan Club back in the 70's. Right now, you can get 10 times the selection on Amazon, if you're willing to pay for (and wait for) shipping physical media.

2. Detailed discographies. I would want not only a listing of what records the artists released, but when, and preferably in what format (LP, tape, CD, etc), including track times. And this is just the beginning. I would want to see track listings, writing credits, and most importantly for much of the music I personally enjoyed, who played what on each track, especially guest artists who might have contributed. I want to be able to say "Gee, the guitar player on this Stu Hamm song is really good, I wonder who he is and who else he's played with." Often the CD's liner notes will give you this info, but my CD's are all stuffed in boxes. I only carry around my Neuros, which doesn't have any of that info. If I hear a song on the radio I like (very hypothetical here, unless we are talking about the classical station), it would be cool to look up the song and find out who wrote it. Maybe that person has written for other artists and I might be interested in that stuff. What side projects is Mike Portnoy involved with these days? Who has Tony Levin done session work for recently?

3. Lyric database with full-text indexing. This would be a great resource for figuring out exactly what the heck Elton John is singing in some of those classics of his, but perhaps more useful is being able to locate a song by the lyrics. Again, there's the scenario of "I heard something on the radio, and I didn't catch the artist, but the refrain went like this..." and identify the song.

You might want to have a song with certain topics for a wedding reception (I personally used John Lennon's "Grow Old With Me").

Maybe your sweetie's name (like mine) is Jennifer... are there any songs that use that name? Styx did one? Hmmm, not too appropriate. What else is there...?

It could answer long-held questions in music history... Did he really sing "The chair is not my son."?! Is "Louie, Louie" really dirty or is it just some weird pseudo-Jamaican patois? Did he just sing "'Scuse me while I kiss this guy"?!

4. Correlation with other media. iTunes does a bit of this from what I understand, but I envision it as being much more complete. What was that song I heard on so-and-so show (I won't embarrass myself by pointing out that the most recent show I could think of with a lot of musical content would be "Miami Vice")? Who does it? What album is it on? Who did the soundtrack to that movie I just saw? Who sang the "Gilligan's Island" theme song? Did they do anything else interesting? (For the first season it was The Wellingtons, who had a schedule conflict when they changed the theme for season 2 and couldn't do it again, but they showed up later as The Mosquitoes).

Did you know Mike Keneally once did a beer commercial? It's really cool, too. That kind of stuff would be linked. Of course, you can take link to other media a bit further: Adam Ant did a (non-musical) guest spot on "Sledge Hammer" in season 2. Who were all the jazz musicians that Bill Cosby introduced on his "Cosby" show as older relatives of his? IMDb is a great example of this kind of comprehensive linkage, except it only covers movies and television.

5. Reviews. I didn't realize for quite a while that eMusic's formal reviews are from All Music Guide, but regardless, they are really good. The reviews are well-written, detailed and thorough, and the reviewers are obviously very literate in the genres they review. Good detailed reviews are useful not only to help evaluate a particular piece of music, but also as a great jumping point to know where else to go from there (see #6). User-contributed material is, of course, very important. Feedback on reviews, similar to IMDb would be a good thing, as well as allowing users to acquire a reputation based on the quality of their reviews based on feedback from other users. User reviews are often more useful than profession reviews, because let's face it, who really cares what those pseudo-intellectual erudite snots think... will it play in Peoria? ;-)

6. Recommendations. This is another example of something eMusic does really well. They have two levels of recommendations. The first is like Amazon's, where they list "people who purchased this also purchased that". I've logged a lot of what I own into Amazon just to get improved recommendations from them. It's pretty tedious, but the results are sometimes very interesting and useful.

But eMusic also has extensive linkings to related artists, along with the ability to browse by very granular categorizations. For instance, "Rock" is not a genre: It is about 20 genres (and even that is conservative, you could probably come up with 40 without getting too obscure). It amazes me that some of these sites have a dozen classifications for different flavors of electronic or dance music (many of which boil down, essentially, to permutations of a single song), but lump everything else into "Rock" or "Rock/Pop".

For me, browsing by "Rock/Pop" or "Jazz" any of the other overly broad categories most sites use is essentially useless. By what standard are Herbie Hancock's "Head Hunters" and Ella Fitzgerald in the same genre? What about Simon and Garfunkel compared to Dream Theater? A fine-grained system of classification is a recommendation system unto itself.

Another good source of recommendations would be in the artist's biography itself. Who are the artist's influences? Who does he or she like? Looking at section 2, who has he or she worked with?

7. High-quality electronic downloads. I'm not one of those audiophile freaks who claims to be able to tell the difference between 320Kb/s MP3's and mint-condition, laser-tracked vinyl playing through a tube amp, but I would often pay more for the option of better (or even lossless) compression. Mindawn is the only place that I know of that does this, which is a shame. I think a lot of people would like this option. Even if that amounts to 5% of your customers, that could be a hefty increase in your revenue.

8. Topical and timely updates. Are any of my favorite artists in the news? Do any of them have a new record coming out? Are there any concerts in my area that I might be interested in? In each case (as with all of these features), there is a link to information that will be both interesting, and likely to lead to increased sales. The difference is that everything is tied together in a way that no one has quite accomplished yet.

There is nothing here that couldn't be done technically today. The worst problem is probably organizing all of the necessary information. So why isn't anyone doing it? Is it the best we can hope for to have 28 places to buy and download Britney Spears music, but nowhere to buy The Flower Kings?

I still feel like I'm missing something insanely useful and obvious, but since this is already a lot more than any current site does, I'll settle for what I've already got.

Is the "Long Tail" real or is it just another marketing fad?