David's Got It Right

David Hyman’s been around online music for about as long as anyone I know. He’s the founder and CEO of Mog, the blogging service for music lovers. He has a post about the future of music up on his mog that I completely agree with. Here’s the meat of the post in case you don’t want to click thru and read the whole thing.

Here’s what the labels need to do: drop that penny per track per
stream rate to about 10% of what it is today (that’s right – 1/10 of a
penny per stream). When that happens, the labels are meeting the market
and giving away music becomes lucrative; everybody and their brother
starts doing it. The labels turn all of online music consumption into a
revenue stream – every site with all-you-can-eat, on-demand music.
Thousands of sites innovate and create new value around how to discover
and consume music. By my estimate, that’s a $250 million per year
market for online ad spending alone.

Next, ensure that every streaming track links to the opportunity to download the track in mp3 (with Amazon
or whomever) and the labels have created the ultimate promotional
machine for mp3 purchasing (for the next 10 years, people will still
need to download for their portables and their car). Then slap on a
tempting upsell: offer users an ad-free, higher-bitrate subscription
service for a reasonable fee (say $5 per month). Suddenly the labels
have a shot at staying alive.

I’ll go one step further and suggest that while they are at it, they agree on an open api standard that allows connected devices (like sonos and squeezebox) in our homes to connect to these services. That’s a big opportunity just waiting to happen.

#My Music#VC & Technology

Comments (Archived):

  1. Robert Dewey

    I like this post.One of my favorite ways to listen to new music is to simply call up YouTube and hit my favorites. Tons of music videos saved… available on every PC with an internet connection.I also like that API concept… stream the stuff directly to my device, that’d be pretty sweet.

  2. messels

    interesting idea. i’m not sure i agree with charging for streaming since that still seems like a meatball sundae to me (i.e. ‘factory’ mentality).we should make streaming free, absolutely free in every case. the suggestions of purchasing the mp3 file for the portables and hard-drives is definitely the way to go. as seth godin discussed in a teleconference organized by escape from cubical nation (with chris anderson of wired mag, among other participants), the margins go to zero so the distribution cost goes to zero and what we’re purchasing isn’t the “song” (the “cog”) but the souvenir; it’s that special something we take with us. “we go to the talk for free and buy the book as a souvenir.” streaming should be free. it’s like charging to listen to the radio; it doesn’t work that well (sirius radio and xm are dying for a merger to compete against terrestrial radio–and simply because the distribution margins are extremely high, so they have to charge for the subscription, they have to charge for “device” in the car, etc; they offer a great service and it’s worth charging for but compared to the internet it’s not competitive).the music industry, like the print industry, is resisting the forces of creative destruction and it’s a status-quo maintenance effort that is killing them in the long run. they have the resources (mainly money but also the infrastructure of a large organization) to capitalize on the internet but it’s small mindedness and a resistance to change that is killing the head start these companies should have.i also sense a bit of greed powering this resistance; i mean, radiohead made millions on a donation system and from my understanding they grossed more than they did on their last cd release. and it’d be difficult to claim that sales are “finished.”http://www.longtail.com/the…http://marketingmarshall.co… (this is the link to the talk i referenced above).cheers!

    1. slowblogger

      Don’t be confused about fads with true creative destruction. While I was happy and excited about web2.0, longtail, crowdsourcing, I am a bit worried about the current craze about ‘free’. There is nothing that ‘should’ be free, but it seems like becoming a requirement. Like Haechul Shin (a famous Korean musician) said, “…the thieves sometimes give us a lecture”. Even worse, popular bloggers/gurus seem to support the thieves…http://hyokon.blogspot.com/

      1. fredwilson

        I wrote a post a long time ago about how free is a great way to make moneyYou should read itFred

  3. Hank Williams

    The big problem with reducing the price to 1/10 is the publishers. Publishers are at odds with record labels because publishers have no skin in the game. They can sit around and wait for the label to succeed or fail because they do not invest in artists. They have no interest in reducing the price. The labels have tried. The price for downloads is set by the library of congress. While on demand streaming is a negotiated price because no one knows whether it is a performance or some fraction of a mechanical, it is still a number that the labels would like to reduce so they can experiment with business models. Publishers have said no because there is no incentive riight now.

    1. david hyman

      isn’t the publishers “skin in the game” the same as the labels? they’re getting getting a fraction of the cost per stream. the drop in price that generates a small piece of the pie from a much bigger pie should benefit labels and publishers

      1. Hank Williams

        The “skin” is the upfront investment that the publishers dont make. In the record business the labels make all the investments and the publishers make much , perhaps all of the profit these days.In any case, the point is that the labels cant do any of this without the publishers, and despite years of begging and negotiations, the publishers are not budging.

    2. fredwilson

      I guess we’ll have to get congress involved againFred

  4. Johan Karlsson

    Sounds like Spotify

  5. csertoglu

    We will be seeing a version of this play out in Turkey. It’s an interesting market. Piracy has all but killed physical CD sales and, online, people just don’t seem to be convinced to pay for music (i am excluding mobile here). So far, online sales have largely been subsidized by FMCG companies as promotions. Now TTNet, the Turkish broadband monopoly, has cut a deal with all turkish labels (turkish market is 90% local music) to offer the entire digital Turkish music catalog through a subscription. Then, they went ahead and included the subscription in their higher-end pricing, and are offering it at a nominal rate to other subscribers (nominal meaning $3-5/mo.) So it is now a utility. Supporting your last paragraph, Fred, I am watching to see how progressive they will get with this. The smart game is building a robust API and let tothers get creative.

  6. Tony_Alva

    No, David’s got it wrong…“There is nothing that ‘should’ be free, but it seems like it’s becoming a requirement. Like Haechul Shin (a famous Korean musician) said, “…the thieves sometimes give us a lecture”.Thanks Hyokon for this quote, if you don’t mind, I’d like to add it to my other often offered quote from an esteemed writer/producer/musician Chris Pace…”Flea’s (read: artists) essential point was that he wants you to hear the music the way it was intended. This is completely legitimate, and I’m tired of people forgetting that, for the vast majority of musicians (and recording engineers) this career is not about money. It’s about creating. Unfortunately, a lot of people have no understanding of this because they aren’t creative, they are pure consumers. Now they can add nothing and take everything.Consumers are so caught up in having it “their way” that they’ve forgotten that they have no “right” to this music and no “right” to receive it the way they want. Until not long ago, the only music you could hear was performed live. If you couldn’t play or go see someone play, tough. We’ve become so spoiled, so lazy, so quickly, that we forget that, for some of us, music (and sound) are sacred. It’s not just another commodity or way to get rich. It’s of an importance far deeper than someone like Bob (Bob Lefsetz admitted online music thief) can comprehend.”There’s nothing any artist or creator can do to stop what ever the money machine decides, but it will all be ruined as a result. Congrats…

    1. fredwilson

      ³Consumers are so caught up in having it “their way” that they’ve forgottenthat they have no “right” to this music and no “right” to receive it the waythey want.²I don’t buy that. Artists surely care about the way their art is consumed.But the consumption of art is a very personal thing and artists should nottry to control how that happens.fred

  7. evolvor music

    I really wish ya read my blog more Fred – I glossed over this topic (although in a slightly different angle) a few months ago. Give the lower quality stuff away and upsell to the die-hards who need the better quality, the fan clubs, the merch. etc. http://www.evolvor.com/2007

  8. anonymous devil's advocate

    “By my estimate, that’s a $250 million per year market for online ad spending alone.”now there is an awesome opportunity for a whole new sector …. not.it needs a bit more ambition to change the world

    1. fredwilson

      I think David’s off by an order of magnitude on that

    2. david hyman

      btw, that number is for u.s. only. and the reality is, it’s not as big of a market in the near term as cd sales. that was an inflated business created by bundling. but that’s at a $1cpm. a 2pm is $500million. : )but it’s bigger than the cd market, which will be zero.and it doesn’t take into account how it’s the ulitmate promotional tool on the planet for download purchases. every stream links to a purchase. also, doesn’t take into account ability to upsell to premium subscription services.

      1. fredwilson

        I think in 3-5 years, audio advertising in on demand music streams will be 10x that size

  9. Interesante

    Google is doing this in China using Baidu, except you keep the track. On the whole, consumers want to keep tracks and seed them to all their devices: computer, mobile phone, tv. Why not go one step further and cut a 30 second snippet of the track and create a ringtone out of it. There’s another money maker!

  10. Steven Corn

    David fails to take one important factor into consideration. For the past year, the labels have been doing just what he wants them to do. They have opened up DRM, licensed new, innovative services (like iMeem and LaLa) and have even teamed up with DiMA in the recent copyright rate battles. It used to be the services vs. the labels.But now, the bottleneck is being caused by the publishers and not the labels. They are relying on antiquated royalty formulae which do not mesh with the new business models being proposed on the web. Since labels are typically responsible for publisher royalty payments traditionally (e.g., mechanicals), they are beholden to the royalty schema that our present copyright laws dictate and which the publishers hide behind.There is a major battle being fought about the future of copyright royalties. DiMA and the labels have proposed rate structures similar to the ideas that David suggest.So, I think that he’s off the mark.