I wrote this comment this week for publication in Ovum’s Straight Talk Daily publication, and so I’m linking to it in two spots where it can be found in the public domain online:
Ovum’s site – this tends to disappear after a period of time
Telecom Asia site – hopefully, this will be up longer.
It encapsulates (with a 700 word limit – more leeway than Twitter but still not enough to really develop an idea) some of the things I’ve been thinking about recently, and really the key themes of this blog going forward. I’ve previously covered telcos and social networking / web 2.0 separately but more and more I’ll be talking about how the two are coming together.
I’ll be expanding on some of the themes in the piece here in future. I’ve already posted on changing communication preferences previously here.
Billy Bragg is demonstrating why most people should stick to their day jobs – in his case being a musician (and secondarily a socialist activist) rather than an economist. His editorial in the New York Times and the response from TechCrunch owner and blogger Michael Arrington have created something of a firestorm in the blogging world, from all sides of this issue.
I have to assume Billy Bragg is being deliberately disingenuous to make a broader point here, because even he must know that what he is proposing makes no sense. Essentially, this is his argument:
…news reached Austin [where Bragg was attending the SXSW event] of the sale of Bebo.com to AOL for a staggering $850 million. Bebo is a social-networking site whose membership has risen to 40 million in just two years.
Estimates suggested that the founder, Michael Birch (along with his wife and co-founder, Xochi), walked away with $600 million for his 70 percent stake in the company.
I heard the news with a particular piquancy, as Mr. Birch has cited me as an influence in Bebo’s attitude toward artists.
…Mr. Birch came to see me at my home. He was hoping to expand his business by hosting music and wanted my advice on how to construct an artist-centered environment where musicians could post original songs without fear of losing control over their work. Following our talks, Mr. Birch told the press that he wanted Bebo to be a site that worked for artists and held their interests first and foremost.
In our discussions, we largely ignored the elephant in the room: the issue of whether he ought to consider paying some kind of royalties to the artists. After all, wasn’t he using their music to draw members — and advertising — to his business? Social-networking sites like Bebo argue that they have no money to distribute — their value is their membership. Well, last week Michael Birch realized the value of his membership. I’m sure he’ll be rewarding those technicians and accountants who helped him achieve this success. Perhaps he should also consider the contribution of his artists.
Bragg makes clear that he and Birch “largely ignored the elephant in the room” – namely the payment of royalties. And yet that was exactly the time to bring up that issue if Bragg thought he and other musicians ought to be paid them when their music appears on social networking sites. If not then, then at the time that he and others actually licensed their music to appear on Bebo. But it appears he passed up on both of these obvious opportunities to discuss this business model with Birch and others. He suggests that somehow this was because Bebo had no revenue to share as such – that may be so, but again, he had the option of signing on for a portion of future revenues or any sale of Bebo.
His next paragraph is the one which makes me wonder whether he is in fact serious, and is also the one which illustrates how shaky his grasp on economic realities is:
The musicians who posted their work on Bebo.com are no different from investors in a start-up enterprise. Their investment is the content provided for free while the site has no liquid assets. Now that the business has reaped huge benefits, surely they deserve a dividend.
Again, the difference is that the investors actually did sign the kind of contract Bragg and his fellow musicians didn’t: one which specifically stated what they would get in the event that their investment paid off. Bragg appears to believe this kind of thing can be done after the fact, which is naivety at its best.
Arrington, predictably, takes the line most likely to cause the biggest rumpus and therefore generate the most traffic to his blog (I am feeding this strategy by linking to and discussing his blog entry here). His headline is as provocative as possible: “These Crazy Musicians Still Think They Should Get Paid For Recorded Music” – something I believe he’s no more serious about than Bragg is about his ideas.
But he uses the article to make some valid points – in fact, some of the same points I make here. But he also takes it too far, especially in these sections:
Social networks have absolutely nothing to do with the decline in music sales. The fact that recorded music can be reproduced at a zero marginal cost is why music sales are declining. You can hate that or love that, but it’s simple economics that drives it.
…
Recorded music is nothing but marketing material to drive awareness of an artist.
Social networking sites do have something to do with the decline in music sales – they offer an opportunity – usually for free – to listen to music without having to pay for it. Now, the other forms of digital music distribution which allow listeners to keep the music and listen to it offline are more to blame, but social networking sites also play a part. The point, though, is that this downside is more than offset by the upside, which is that artists get the kind of exposure they’ve never had before to those who may not know them and often haven’t yet purchased any of their music. Arrington over-simplifies by suggesting economics is driving the money out of the music business – it’s the fact that multiple parties have been willing to enable the illegal distribution of music, and users have been willing to join in the party.
That second point is also stronger than the subtler reality it distorts. Musicians make money from selling their music. Certainly, some artists make a lot of money from concerts, endorsements and merchandising, but the music itself is still the major source of revenue across the industry. Those music sales – and not awareness of the artist – is what those artists are trying to drive, and to suggest otherwise is as disingenuous as Bragg’s assertions.
There’s an important debate to be had here, but it’s not helped by these over-simplifications and unrealistic demands from any quarter, although it is often stirred up by them, and perhaps that’s Arrington’s intention. What is clear is that the music companies, largely led by executives who were running them well before the Internet came along, are slowly adapting to the new realities, and haven’t yet figured out what the new business models are.
They’re experimenting in interesting ways with new distribution models and are focusing in part on the role of physical distribution, which still accounts for the lion’s share of music sales. At the same time, a major focus will need to be on removing the excuse frequently used by file sharers that “there was no other option,” which is sadly still all too true in many cases. The industry is going to have to deal with lower margins, from the record companies to the artists themselves. But it has survived cataclysmic changes before and will do so again. People do still value music, and are still willing to pay for it when the conditions are right. The challenge for the music labels and the artists is to recreate those conditions in the new world we live in.
