Free Music Continued (responding to Steve and Dawn)

Steve Kane has come out of the closet. He has shred the grandegress pseudonym and is now commenting under his real name. For those of you who don’t know, Steve is a killer entrepreneur from Boston who we backed at Gamesville and he’s also one of the best regular commenters on this blog. He’s a thorn in my side, because he always provides the counter argument. But I love him anyway.

He wrote the following in reply to my post on The Free Music Business:

I think you are wrong in two of your seemingly basic assumptions:

1) money is not "pouring in" to "free" print publishers. newspaper
and magazine and other print publishers and distributors are
essentially all on the auction block now, as their rapidly diminishing
revenues and margins continue to erode — despite that essentially all
have been investing in new media channels and platforms for more than
decade. you cite the NYTimes — last time I looked, tht company is
under siege because new media has not been able to replace th revenues
and margins that new media itself has displaced.

2) as some other comments have also pointed out: across the board,
writers, editorialists and journalists are employees — fixed
unit-costs to publishers, who can renegotiate rates or reduce costs by
downsizing. musicians are not employees; they are creative artists who
– -at least until now — have been treated by publishers and
distributors as co-owners of content. it may be the case — the sad
case, IMHO — that in the future creative artists will be reduced to
wage earners, like in the early early days of Hollywood when directors
and writers and actors were salaried employees only. but if that is the
case, i don’t see that as a happy future. in the early days of
hollywood, the creative artists was abused while the corporate owners
and business managers became oligarchs.

Steve is right that traditional media properties, including print media, are struggling in the age of digital media, but if you look at those that have made an aggressive investment in online, their online properties are "printing money". The fact is that high quality page views on the Internet have never been worth more than they are right now and CPMs are headed higher as all these acquisitions like Doubleclick, Right Media, 24/7 Real Media, and aQuantive point out. Free has turned out to be a great business model online because the advertising opportunity is large and getting larger everyday.

Steve’s second point is even more confusing to me. I see the free music business opportunity to be a huge boon to the artists themselves. They won’t need a record label to sit between them and their audience. They won’t have to become employees. In fact, the exact opposite will happen. Just as blogging has freed journalists like Om Malik, Rafat Ali, and many others to be their own bosses, free music will do the same for musicians who can produce, distribute, and collect the royalties on their own, without the middle man.

I’d like to address one more point, that being this comment by Dawn:

And exactly where would the advertising be? In the verse or the
chorus? Or perhaps you want innane discussion about Coca Cola during
the musical bridge.

The ads are going to be served in the stream between songs. Just like radio. But I think free music will have many fewer ads than traditional radio because the costs to operate a free music service just aren’t that high. The royalties to the artists is the only significant cost factor and I think they can be covered with something like 2-5 minutes of ads for every hour of listening. So that’s somewhere around one 30 second spot between every song or every other song. And if you want to listen ad free, there’s always a subscription model (freemium) for somewhere between $1/month and $10/month depending on if its "radio" or "on demand".

There’s another model out there that is interesting which is being tried by We7. It’s a file based model, which I am not a big fan of, but it’s interesting nonetheless. You get free downloads (mp3s) but they have a pre-roll ad in them. If you listen to the song (and pre-roll ad) in them enough (I think it’s time based but it could be number of listens), the pre-roll goes away and you own the music for free.

What is interesting to me about both of these models is the ads are part of the listening experience. Others (including many p2p networks) are trying to offer free music supported by banner advertising. I don’t think that’s going to work myself. I think the advertising needs to be coupled directly with the music in order for it to be effective.

But in any case, we are seeing lots of experimentation around the free music business now. That’s a really positive sign. Because it’s the future of the music business. Free doesn’t mean you can’t make money. In fact, it often means you can make more money. And I am convinced that artists will make a lot more money in the free music business once it finally takes off.