Umair On Digital Music

Fundamentally, I’m going to argue that consumers download music, as
much to derive extra value from getting something for free, as they do
because they want insurance against buying something they didn’t want
in the first place. File-sharing is as much about risk-sharing as it is about the ‘theft’ of value. Technological changes have made this possible
– but the way the business model of the music industry is at odds with
the implicit contract it signs with listeners is what makes it probable.

If you want to read the whole thing, click here.


#My Music#VC & Technology

Comments (Archived):

  1. jeremystein

    i think we will see a fundamental shift in record contracts. id like to see some data on the songs that are downloaded. i bet most of them are singles. it might upset album purists, but what if artists were not signed for a specific amount of albums, but rather in 3 song lots, maybe with an advance of $20,000-$30,000 per song?

  2. scott crawford

    The shift has already happened in terms of single “sampling” vs album commitment. And as much as I admire your thinking and musing Umair, this feels a bit like rationalization of white collar crime…just a little illegal.

    1. jeremystein

      it might have happened in terms of “sampling” but not in the underlying contract. artists are still forced to produce a full album, several at that. i am talking about a small song requirement, nothing more.

      1. scott crawford

        Jeremy, Old contracts do still exist, yes, but there’s also a growing number of artists selling direct single downloads off their own sites. You might enjoy checking into and digging into some of what Samantha and her cadre of artist friends are bringing about. Lots of stuff changing every day of course. Enjoy.

    2. fredwilson

      The association of the word crime with the passionate act of fans connecting with music is everything that’s wrong with this conversationFred

      1. scott crawford

        Fred, I remember my first downloading act as a passionate fan of maybe 9 years old. I stuffed an LP in my sweatshirt and walked out of the store. Did my passion make that act of not paying legal?

        1. fredwilson

          We are talking about sampling, streaming, not downloadingfred

          1. scott crawford

            My mistake. Sorry. I’ll go back to my cave now.

  3. Charlie Crystle

    Shawn made Napster to share tunes with his friend. His friend had a music library, so together, they had two. Then another friend installed Napster, and got 2 libraries but contributed 1. The next friend got 3, contributed 1, and pretty soon, someone contributed one library to the networks and got 100,000 libraries. Why? Because each got more than they contributed. They were rewarded with more than they gave.So Umair. Free is good, but getting more value than you pay for is the real driver. By law it’s theft. By economics–depending–it’s free marketing for the musicians. For non-performing artists it become strickier: how do you make money? You can’t sell the single. You can’t sell tickets. Maybe you can sell some albums and some branded shit like T-shirts.But what if the band were to do the Napster thing: create a system for each artist where you get more than you paid for, whatever the product is. It assumes you want the excess “value”.Wednesday late-night ramble….

    1. fredwilson

      I love late night (and early morning) ramblesKeep em coming!Fred

  4. Jay Parkhill

    That’s an interesting viewpoint. When I was a teenager I would buy tapes or CDs just because I liked the album cover or name of the band. I’m not willing to take that risk on music anymore . . . Don’t know where that leaves me, except that I understand the risk point.

  5. jackson

    Despite my well documented feelings on downloads, file sharing, and the quality of music being produced today, I do agree with Jeremy – and I believe Fred said it a while ago – the EP (forgive my archaic language) seems to be the logical successor to the LP.I will say this – again – bands need support, financial support, to acheive their potential. Without some kind of corporate sugar daddy, all you get is rich kids making music.Think about that.

    1. fredwilson

      I totally agree and believe it or not, the Gotham Gal and I are investing ina record label. It’s a record label run by super smart people we’ve knownfor a long time who understand the digital marketing process. Over 80% oftheir sales are digital. And they routinely allow the users to sample themusic. And they give a lot away for free. And they have several of the topacts on the charts right now and are making very good money for their acts,themselves, and hopefully us.Artists need partners to help them finance their work, market their work,and run the business side of what they do. That will never change, but themethods by which they do that are changing radically.As I said in my reply to your earlier comment yesterday, I am a hugeoptimist in the future. What we’ve been experiencing is a paradigm shift notthe end of the music business.Fred

    2. Sam

      I would softly point out that there is a rich tradition of well-funded kids making music, regardless of the level of corporate support behind them, because, to your point, the money required to make music was a large enough barrier in the past that it was difficult to live the life of an artist and finance the recording of music without some kind of existing (often family-derived) support structure in place. I’m not sure being rich made people worse artists, however. The Strokes are rich kids making music as is Vampire Weekend.Totally agree about the EP point. I am finding ‘packets’ of songs are a bit more fun to write anyway. You can create short-stories, as oppose to the novel-equivalent LP, and experiment with different styles and forms a bit more freely through an EP.Jeremy’s advance seems high (20-30K). I’m interested in concepts like RCRDLBL that still offer to monetize content but seem to have a long-tail approach to it.

  6. Ethan Bauley

    His notes on moral hazard/contract theory in that article are “baller”, as they say.I remember another phrase: “risk-free grazing”…and this is without clicking the link. I’ve got Umair’s shit memorized, sheesh!The major labels blew it when they stopped being trusted filters. And think of all the search costs they could erase if they would leverage those label names…completely wasted. (What’s the difference b/w Columbia, MCA, and Atlantic?)Paging HypeMarchine…

  7. Adam

    Great lesson in economics jargon. Not so full of insight for the real world. Totally ignores the reality that the record industry is competing with free.

    1. fredwilson

      Yeah, umair can be dense and overly academic. But his important point isthat the itunes or CD model doesn’t only compete with free use forever, italso competes with free sampling.And to me, free sampling is the key. I am happy to pay for something I useintensely. But I hate paying for something I use once and never come backto.fred

  8. phoneranger

    Sure I’m interested in Umair’s take on music -sharing. I spend a lot of my day on this project dsados dot com.But what caught my attention was the idea that kids are worried about buying a CD that is teh suck. So they get insurance by file sharing. I just can’t wrap my head around the idea of a 22-year old slacker consciously or subconsciously wanting insurance. Does he want to pay his auto insurance? Does he think he needs health care coverage? Whole life? Nah. He’s Limewiring because it’s fast and easy.But he would “pay” for two kinds of insurance: “bad job” insurance and “bad girl” friend (or boyfriend) insurance. Of course the financial models of AIG and Aetna won’t work here. But maybe the file-sharing model would. I share office space with a PR firm that cycles interns as often as dishes get washed at Le Grenouille. They get cheap labor; the “job-sharing” interns get to find out that PR is indeed “teh suck”. Now if someone could scale that model.As for bad girlfriend insurance, maybe the Mormons had something a hundred years ago.

  9. markslater

    i have been hunting for a music play now for 18 months. in your commment below fred this statement is where i have recently found myself focusing”Artists need partners to help them finance their work, market their work,and run the business side of what they do. That will never change, but themethods by which they do that are changing radically.”I think i found that company – PM me if you want take a gander.

  10. Marc Cohen

    Ad-supported music is a great way to sample.Check out the Ad-Supported Music Central blog:http://ad-supported-music.b