Technology and the Music Industry: Part Two – Media Going Social

©2010, Cinemalogue

Photo: Rubin Safaya. Copyright ©2010, Cinemalogue. All Rights reserved.

In 1996, I wrote a paper on internet-based music distribution, which I saw as the inevitable evolution of the recording industry. Unfortunately, not many record labels saw it that way at the time, but Apple was already making plans. The roadmap toward a digital appliance-based approach to computing began here. Upon Steve Jobs’ return to Apple in the summer of 2007, a central strategy emerged redefining the computer’s role as only the digital hub of a lifestyle of mobile devices. Thirteen years and many iPods, iPhones and iPads later (we are informed as of today this market consists of an estimated 120 million devices), Apple announces its foray into social media with Ping and Game Center.

Game Center capitalizes on the user interface of the iPhone and iPad, and like the App Store brings a centralized distributor to social gaming—what the console market had sadly never understood because they don’t generally develop top-to-bottom product ecosystems the way Apple does. On the other end of Apple’s core competencies, multimedia delivery (of which gaming really is a part, if you think about it) is going to be transformed by Ping, Apple’s entry into music-based social media.

Ping essentially provides social interconnectivity between users of Apple’s iTunes and iTunes Store. Users can create and share lists, post comments, and, as with Game Center, be connected to people of similar tastes. With the installed base of 160 million iTunes Store subscribers, it’s easy to see how Ping could once again transform the music distribution business that Apple now dominates, but also how they will find themselves directly competing with behemoths like Twitter and Facebook.

For the recording artist, a number of possibilities are opening up. While social media networks allow them to keep in touch with fans and gain insight into what trends are emerging the instant they bubble forth, Ping has the potential, combined with other media such as HTML5-based interactive videos (see, to create a two-way channel of development. That is, the narrow-minded will only see the potential for viral marketing with their audience. But the truly adventurous artist will see it as an opportunity to test demo material, authorized “bootlegs”, impromptu recording sessions, videos, etc. and get the fan involved in shaping the creative process before the final product is done. The entire fascination with social media is that it elevates the average person to celebrity in their own right, so why not capitalize on this? Yes, yes, design by committee is the antithesis of good product but if you’re in the business of selling records to lots of people, then you’re already there. Accept it and reach out to your fans, and pull them into the control room with you.

In this regard, I still think the album is going away… but so what? If it costs $75,000 to make an album, and 76,000 to 142,000 copies sold to recoup the costs, then isn’t it more sensible to spend a fraction of that on just the good singles that are guaranteed to sell and forget the whole album business? True, mediocre artists still have to throw more darts to hit a bullseye… but at some point A&R people have to stop being lazy and find real talent that’s less expensive to promote, and can record a session in one take as opposed to four months. I understand that the impetus traditionally was that more esoteric material isn’t fit for radio. But for a retailer that this year is projected to surpass CD sales, one has to think differently. iTunes and Apple are the distribution AND promotion engine in one. The system of previewing and searching is totally dynamic, at the user’s command, uses information about the user to dynamically present titles relevant to their tastes, and exposes them to material they may not have thought to explore. This makes it a much more useful tool than radio for exploring music. The presence of the social network on iTunes will shift the balance of power away from radio, just as Twitter has shifted trend analysis away from comScore. I can count in one minute at least fifty talented artists whose material I found through iTunes that would never go into rotation on any commercial radio station even in a market as large as Dallas-Ft. Worth.

There are several other possibilities worth noting here, but the two that strike me as most relevant are: Apple’s test case for entering social media as a whole, and the potential for Apple to control the user experience to the extent that the convenience of file sharing can now take place within the legitimate domain of licensed, legal distribution. Let’s take a step back for a moment: In 1992, the Audio Home Recording Act made it perfectly legal for individuals to copy music for their own private use, and to some extent, for private, direct sharing with personal acquaintances. The Digital Millennium Copyright Act, one of the most poorly written pieces of legislation to pass Congress, altered the governance of the AHRA. Piracy, however, has never really been a threat to the industry so much as the potential for internet distribution to level the playing field with independents and essentially remove the barriers to entry that made major labels a necessity. The music industry didn’t spend hundreds of millions of dollars on attorneys to retrieve pennies on the dollar in actual collected damages. They did it to slow down the inevitable creep of a distribution paradigm they could neither control nor dominate.

But in attempting to dominate this distribution system, the product/program people at Apple understood that you have to treat piracy (read: “free”), however illegal it may be, as a real alternative to any pay based model if you are designing a system that has to compete with it. File sharing’s principal disadvantage, however, was the inconvenience of required technical savvy and/or a clunky user interface that offered no distinct advantage to file sharing other than cost. So, Apple set up a Trojan horse, first acclimating people to the iTunes interface in 1999, then deploying iPod in 2001, and then creating an end-to-end product ecosystem with iTunes Music Store in 2003. The interdependency is clear… It’s far more convenient now to surf iTunes, let it find and recommend based on your library and purchasing history, and click “buy” than it is to navigate the clunky interfaces of P2P file sharing systems with libraries of varying and unpredictable quality.

With Apple’s push toward cloud-based services, including the industry’s penchant for rental-based models, lower pricing for temporary access can be positioned as an advantage, in exchange for more freedom for the user to access a centralized library of content from multiple mobile devices tied to one account. Apple’s now using the Trojan horse in reverse, having already convinced the music industry to abandon DRM, they’re providing users an incentive to pay for the convenience of access anywhere, and making a compelling case by providing the data centers, the user interface, the products and the libraries to support it.

This is where Apple’s ecosystem comes full circle, and poses an interesting threat to Facebook, Twitter and Google, only one of which has tried, and failed, to achieve Apple’s hardware-software integration with a physical product of their own. Google will continue to be successful licensing Android to other manufacturers, but there will always be the inconvenience of two vendors pointing fingers at each other when a customer service issue arises. Twitter and Facebook have substantial social networks, but they generate their revenue almost entirely from selling access to user demographic and trending data… completely intangible products that, as any website analytics will show you, are dubious products at best. But Apple’s strength is that they don’t see social media and intangible revenue generating systems such as advertising as the means unto itself. They see these services as merely the ecosystem which necessitates the hardware they design. It is precisely because of this that Apple has the potential to integrate Game Center, Ping and whatever else they come up with, into a social media network necessitated to far greater degree than Facebook and Twitter combined, because of the convenience and interconnectivity of all forms of media they will enable on hundreds of millions of mobile devices that they already design, manufacture and distribute.

Radio Goo Goo

How does one analyze a business model that is sprawled upon shifting sand?   Media pundits and industry insiders are treading with care; there is no longer a magic formula on which to pattern an artist’s career, no roll-out progression guaranteed to rake in enough profit to repay hefty recording advances.     Careful observation and analysis of light-speed trend changes rule in an era of a la carte purchasing.

The internet generation set this shift in motion more than a decade ago with the emergence of MP3 audio encoding.   File sharing services like Napster and Limewire became the distribution vehicle of choice, complete with a storm-cloud threat of a piracy law that seemed to garner little credence.   The record labels threw tantrums in their ivory towers; lawsuits were lobbed at a few unsuspecting Joe Publics, high-profile recording artists tested fan loyalty and the future seemed uncertain.  Then Apple swooped in with an entirely new business model; a virtual store peddling $0.99 cent songs.  It was radical in its simplicity and the dust began to settle as a brave new world was formed.

We live in an age of playlists, lovingly assembled on portable MP3 players and mobile phones.   Space is finite; we choose our songs carefully, based on mood or the call of childhood nostalgia.   We shuffle our songs to break up the monotony of genre or keep us on our toes.   The internet is like a smorgasbord of musical tastes, and we are free to pluck whatever we want from the table.

The conventional industry model, most thoroughly examined in M. William Krasilovksy and Sidney Shemel’s This Business of Music, dictates that an album of 12-13 tracks would retail between $12.98 and $15.98.   The public is titillated by a single – something indicative of the artists brand of “sound”, and catchy enough to earn radio spins.   The bulk of the label’s financial clout is placed behind this single, complete with music video and late-night television performance tour.    However, when expectations have been set to under a dollar per track, few artists can demand an all-or-nothing album purchase from a fickle and ravenous public.    Singles prevail and profits are barely enough to cover the album’s hefty advance.

Gimmick releases (think holiday albums, movie soundtrack compilations, Best-Of collections and cover recordings) are low-risk ventures with relatively high returns.   It is a cut-throat arena for an emerging artist, who must carefully balance between the lure of something new, and the safety of predictable pap.    In the rare instance of an album boasting multiple potential hits, the record label will carefully stagger the release of each new single with the standard publicity blitz each time.   It is expensive and risky; they are largely dependent upon radio (primarily Clear Channel) for embracing each song so that it may slowly accumulate station adds and audience exposure.   It may take months for a song to seep into the public consciousness, at which time album sales may be temporarily buoyed until the next single can be debuted.   It is a delicate and nerve-wracking process that can be only be undertaken by the industry cream like Beyoncé and Lady GaGa.

As a medium, radio allegedly died with the advent of MTV in the 1980’s, so how does it still wield such power in the music industry?   Essentially, people remember music that is experienced with other people; whether in a car, restaurant, nightclub, park, sports stadium, or family room.   Radio is everywhere.  Teenagers used to come home from school with their friends and visually connect with their favorite songs by way of the music video.   When Viacom-owned MTV became a reality television network its mantle was never picked up.  YouTube, now owned by Google, is the modern world’s music video headquarters, but the sensory experience is lonely and cold in front of a computer monitor.   Where is the sense of community that is so intrinsic to music?

It seems we are still trying to figure that out.   According to Wired Magazine, Univeral Music Group, Sony Music and Google are teaming up for the launch of VEVO, a video streaming site that will boast only professional content—think Hulu, but for music videos.  Will it be successful?  Some big name recording artists (Lady GaGa, Adam Lambert) have already signed up for ad campaigns to market the site.   The appeal lies in the exclusivity of its branding.   Again, warmth and approachability seems lacking in this business model.

The next chapter in the transformation of the music industry will, I think, be written in mobile cyberspace. Technological convergence devices such as iPhone bring about the potential for purchasing access to live, streaming concerts in high quality picture and sound from anywhere. Record companies have before them an opportunity to resurrect tour support, a form of promotional subsidy that hasn’t really existed since the 1970’s.

Recorded in high definition, distributed across mobile broadband networks to mobile convergence devices, the marginal income from pay-per-view live streaming of concerts could replace conventional channels of record promotion—e.g. radio—while simultaneously recovering costs of advances paid to the artist on singles released side-by-side on the same internet retail outlets. There is still hope for the album in the form of the iTunes LP, but the success or failure of that product—liner notes, extras and videos packaged with the album tracks—depends in part on whether or not the pricing relative to the value added is attractive enough to sway younger consumers who grew up with the digital single.