The ArtLab

The week before Christmas, CNET News reported that according to a Universal executive, the company was pulling in "tens of millions of dollars" through YouTube. But just two days later, Warner Music began pulling all of its content off of YouTube, after the two companies failed to negotiate a revenue-sharing agreement. "We simply cannot accept terms that fail to appropriately and fairly compensate recording artists, songwriters, labels and publishers for the value they provide," Warner stated.

So why is everything coming up roses for YouTube and Universal just as negotiations seem to be tanking between YouTube and Warner?

Turns out that the two-year licensing deals reached in 2006 between YouTube and the major music labels are beginning to expire, and YouTube, now owned by Google, is driving a harder bargain. Google wants to scale back pay-per-play royalties and focus instead on ad-supported revenue sharing, which is far less lucrative for the labels; most companies currently receive only about $25,000 per month from YouTube in ad revenue; that's just a drop in the bucket of the "tens of millions" Universal is touting.

Warner was the first of the majors to walk away from Google's offer, though Universal and EMI have agreements that will expire in the next few months. Will the other labels follow suit and be willing to walk away from the revenue available through YouTube?

It's hard to say, but Silicon Valley Insider suggests that they might be more willing than you'd think: turns out the major record labels are now in talks to start a joint venture that would be to music what Hulu is to video. According to the Insider, "The labels agree that their content's future on the Web is ad-supported, but the $25,000 checks have them convinced they could do a better job selling sponsorships, pushing concert tickets, and music sales on their own site."

This could be exactly what the music industry needs to do: take control of its content and integrate its operations on the web so that different aspects of the music industry--CD sales, concert tickets, fan paraphernalia, and online ad revenue--can cross-subsidize one another without a third-party intermediary. The success of Hulu has been pretty phenomenal, and if the record companies can come together and work out the kinks, they can enjoy similar success.

Before video became the big thing in online content, there was music. And music was pirated far and wide by users of the original Napster and its successors. Defenders of piracy often claimed (and still claim) that this activity allowed new and independent artists to get exposure, skipping traditional distribution.

And while some artists may have been lucky enough to get exposure this way, it doesn't seem to have lead to an explosion in the profitability of the "Long Tail" (our previous thoughts on the Long Tail are here) or the number of indie artists jumping into the "Short Head." Indie artists need something more.

Today we're witnessing the next generation of attempts at marketing independent artists - making their music accessible, flexible and profitable. One of the more valiant efforts is indie911.

It starts out pretty straightforward: artists can register at the site, create a custom page for themselves, and start uploading their music and video to stream through the site's player. In a day or two, if the artist desires, the content is approved for sale, starting at the industry-standard rate of 99 cents for music tracks, $1.99 for video.

But one way indie911 sets itself apart is with the "hoooka" player, which is a high-functioning widget. Each artist or fan can create his own hoooka, complete with customizable skins and colors, which will showcase the music (accompanied by photo slideshows, if they like) and video they've identified as their favorites, as well as other media they've been checking out lately.

The widget operates not only at the indie911 site but anywhere: on your website, your blog, your social networks (like MySpace), or anywhere embedding is allowed. Interestingly, fans looking at that hoooka on those different websites can all chat with each other in real time and post comments about what they're watching and hearing.

And while artists can put up their content for free--and indie911 will help promote that content online--the site offers many avenues for monetizing content. The most straightforward is that if the artist has chosen to put his content up for sale, then when fans see or hear it, they can buy the non-restricted digital file in two clicks--every hoooka is a "digital store-front".

When other people view the hoooka you've set up, and they decide to buy content through it, you get a cut: 70% goes to the artist, 10% goes to the hoooka creator, and 20% goes to indie911. So if the music is purchased through the artist's own hoooka, the artist gets a full 80%.

For the artist, these are among the best rates in the business either way, but now fans have an extra incentive to try out independent works, find the good stuff and, in effect, do some of the retail groundwork to promote the artist.

indie911's current members are doing just that, although finding the artists that appeal to them is somewhat hampered by the lack of a solid search or auto-recommendation function.  While you can browse manually by genre, your best bet is to look for artists who cite influence by mainstream artists you already like.

In addition to retail through the hoooka, indie911 offers free opt-in digital distribution to outlets like iTunes, amazon.com, Rhapsody and yes, the new aboveboard Napster. And artists get 95% of all income indie911 receives from their songs that way. Also available for free through indie911 are opportunities for licensing songs for use in other media like movies, TV and video games, which can bring in licensing fees and royalties.

Now, artists can only post three tracks for sale under the free package, so if they want to put more songs out there, they pay a fairly low rate ($29.99/year, which can be recouped in just 38 direct downloads) to sell an unlimited number of songs.

And all of this is non-exclusive: artists can post their work at indie911 and retain all rights to their work, and go on selling their work anywhere else they please. It's hard to see why any indie artist wouldn't want to opt in, at very least to the free package: it's all upside.

If an artist really wants to take their career to the next level, indie911 offers a set of more expensive promotional options like radio distribution and marketing. So indie911 really does offer a full range of means for independent artists to promote themselves and make a bit of money along the way.

Whether or not any given indie artist will make it, indie911 won't fail for lack of trying; and according to the site, they've succeeded so far at attracting more than 140,000 music and video titles from 30,000-plus artists and labels, and they've given everyone else a reason to participate. It would be nice to see that Long Tail come to something, so check it out and spread the word.

Yesterday I had a piece published online at Real Clear Politics about, well, online publishing. More broadly, the piece was about the future of the newspaper industry in the age of digital delivery. Pretty good timing actually, as it coincides with two pretty big shakeups yesterday in the journalism world: the Tribune Company's bankruptcy announcement and the Pulitzer Prize Board's decision to allow entrants for prizes in journalism from online-only media outlets. From my RCP article...

The future of online publishing is clearly in trouble, but the experience of the entertainment industry makes it seem likely that news outlets will be able to find ways to profitably deliver their content the way consumers want it (usually for free). Consider things like Hulu, imeem, and (increasingly) YouTube, all examples that rely on what Rubin calls the Three Cs: copyright, competition, and collaboration. I add a fourth C to that idea: content.

With collaborative solutions between content providers and content platforms, quality improves, and the need for users to traffic in infringing content is greatly diminished.

High quality content is critical in the realm of journalism, and as the Pulitzer Board's decision shows, much of that quality content is now online. Once the traditional news industry leaders embrace the Four Cs and look beyond site-based revenue streams and the traditional business models, the quality and availability of online content will be even better. As the Trib undergoes its reorganization -- and other papers look to improve their financial operations -- these collaborative solutions are something we need to be thinking about.

If you like geeking out over Pareto and Log normal distributions or gazing at linear curves on XY graphs, Andrew Orlowski has an exclusive over at The Register which is well worth the read and raises new questions about the validity of the "Long Tail" as a business strategy.

The Long Tail is a business and economic strategy first coined by Wired's Chris Anderson back in 2004 which suggests that producers can make a killing selling a large number of unique, hard-to-find items, but that each individual item itself is sold in relatively small quantities. Anderson later published a book about his theory called The Long Tail: Why the Future of Business is Selling Less of More (2006). The theory of "The Long Tail" has been evangelized by digital natives as a way to profit from the Internet.

As Orlowski highlights, economist Will Page and Mblox founder Andrew Bud analyzed the value of the "Tail" in digital music by producing a spreadsheet with an eye-popping 1.5 million rows of data. What they discovered is that instead of a Pareto curve (a graph where the values are plotted and arranged in descending order - think a blob on the left with a really long tail extending out to the right), sales of digital music follow a Log Normal distribution - and in this case one in which 80% of the digital music inventory sold no copies at all.

As Bud explained...

Now we've seen what happens when tens of millions of choices are thrown in the air and land on the floor...There are Tails where the Tail lives as a kind of welfare state. Not this one. You starve in this Tail.

Orlowski also points out that according to Bud's and Page's analysis, 80 percent of the revenue in digital music comes from about 52,000 songs - the typical inventory of a record store.

Why is this potentially significant? It may demonstrate that Internet consumers, and as importantly advertisers, are looking for high-quality content. User-generated content can be remarkably creative and engaging, but to date has been largely incompatible with product advertisers.

It's worth wondering if maybe that's why so many technology companies now seem to be in a mad-dash to cut entertainment deals with the producers of that high-quality content. MySpace Music for instance launched in October with the catalogs of the four major record labels and independent distributors. Ten days later it streamed its billionth song. YouTube and MGM just announced an agreement to show some advertising supported full-length television shows on the video sharing site.

Here's an interesting new revenue model for non-commercial file-sharing. Yesterday MySpace and MTV Networks announced a partnership that will allow MySpace users to continue freely sharing their favorite videos and songs in exchange for revenue-generating opportunities on the copyrighted content being shared.

Here's the short version of how it works: Using technology by Auditude, content from MTV Network's channels--MTV, VH1, Nickelodeon, and Comedy Central--will be identified by its audio and video "fingerprint." Auditude then allows the addition of a video overlay to the content, showing users where to buy or view full versions of the content as well as ads for related goods or services.

This is similar to YouTube's "click to buy" feature except that the MySpace/MTV/Auditude solution is--for lack of a better term--way, way cooler.

Under click to buy, YouTube works with companies to provide links to products or services related to the video. That's a good first step, but since the links only appear below the official video posted by the partner, it doesn't fix the problem of non-commercial but technically illegal use of copyrighted content by your average YouTube users. If you make your own music video for your favorite song, the songwriter doesn't get anything, and your video will probably get yanked when the music label spots it.

Auditude, on the other hand, seeks out the copyrighted content, whether it's officially posted by the network or posted by a user. I can put a funny clip from the Colbert Report on my MySpace profile to share it with my friends, Auditude can sniff it out and add links to buy or watch the whole episode, and MTV Networks gets the traffic or revenue generated by the links. Auditude also has the very cool benefit of detailed analytics. As RWW explains it:

With Auditude ads - and the analytics to monitor them - MTV Networks can build a mini-Nielsen-esque view into how their content is being used on MySpace. They'll be able to see any number of interesting metrics and trends. Who is uploading content? Which shows get posted most? Which shows get watched most? What are the demographics of the people posting the shows? Which users are getting the most click-throughs?

This is a win-win-win situation. MySpace wins because its product retains its value to its users--in fact, it may prove that MySpace becomes even more valuable to its users. Users win because they get to continue sharing files in a non-commercial manner. And MTV wins because it captures revenue for its content that otherwise wouldn't have existed and gets information about the people consuming its content.

Nokia's pre-loaded devices launching under the brand "Comes with Music" is a great offering for consumers who want the instant gratification of having at least some of their favorite music pre-loaded for listening on a portable device.

Pre-loaded music that is either niche or genre based is a very intriguing idea, and you can think of a few different way this offering could be sliced, diced and priced.

But what is also interesting about the offering is that it is not going to be available in the US or outside of the UK in Europe (at least according to the announcements). Why might that be?

Rights clearance for these preloaded devices is very complex, particularly in the US and especially if the device maker does not want to pay the full statutory rate for the songs (remember, each recording has two copyrights, the song and the sound recording, not usually controlled by the same person).

This is potentially a great opportunity for the more flexible independent music community to step up, and also for songwriters to get a payday, albeit not necessarily 100% of the statutory rate (assuming the devices are not priced at a price point that could justify the full rate).

It would be fairly straightforward to base a license on a percentage of the retail price for the device with a sliding scale depending on the number of recordings. What is not so straightforward is where a technology company would go to obtain all the rights they need.

This is a lot easier to do in the UK given the unilicense that is available for publishing, and points out a frustrating hole in the licensing process for legitimate technology companies trying to use music--and pay for it.

-- Chris Castle

The other night, NPR's All Things Considered had a really interesting segment on Jayme Stone's quirky new collaboration with West African musicians called "Africa to Appalachia". Stone is a Juno-winning banjo player and composer who picked up his passion for music from an eccentric music-loving uncle. His inherited musical eccentricities are never more evident than on this musical partnership with West African songwriter and singer Mansa Sissoko.

What's fascinating is that this musical collaboration really is a full-circle historical exploration of the banjo and banjo stylings. Banjo history in our country has typically been associated with traditional bluegrass, country and jazz, but the instrument itself can be traced back to travels across the ocean on slave ships coming from West Africa in the 1600s and 1700s. "More than anything," says Stone, "it was the blueprint of the banjo that traveled over in musicians' minds, and they built a similar thing with what they had here: dried-out gourds, goat skin, whatever they could find."

In Africa, the banjo's early predecessor's had as few as one string and as many as 21 and many different names depending on the region and dialect - ngoni, the two-stringed konou, the akonting and the one stringed juru keleni. Despite the parallel evolution of the instrument, the "sound of the notes are complementary" Stone says. "You have this nylon against metal, but the playing style and the melodic sensibility is quite similar."

So why is this all interesting? Africa to Appalachia is something different. It's a coming together of two traditional styles of banjo and banjo-like instrumentation from different parts of the globe. It's a blending of what most would probably think are two completely distinct and different musical cultures that - as it turns out -- have surprising similarities. The result is a new creation, a brand-new musical style - call it Afrilachia or maybe Aprika.

What does this all mean for the future of music? Increasingly collaborative efforts from musicians across the globe are rapidly blending rich and distinct musical styles and influences to create entire new genres of music. What happens when we combine British Ska and country or Irish folk and Latin salsa -- not simply "remixing" existing songs and styles electronically, but rather getting musicians from different cultures to sit down and actually collaborate to blend influences? It's anybody's guess, but if Stone and Sissoko's ingenuous Africa to Appalachia is any indicator, the blended results will be a polyrhythmic smorgasbord for the ears.

More choices for safe, legal content are emerging...

Nokia ... launched its free music package on Thursday, issuing a challenge to Apple Inc's dominance of the digital music market. ... Nokia said all major music labels and most independent labels will offer their tracks as part of Nokia's 'free' music bundle "Comes with Music," raising the total number of tracks to around 5 million.
[...]

The battle for mobile music is increasingly crowded. Sony Ericsson launched its music package this month in Sweden, and South Korea's LG Electronics plans a service similar to Nokia's.

Nokia's package will differ from others on the market since users can keep all the music they have downloaded during the subscription period of 12 or 18 months. There are no charges for tracks downloaded as the cost is bundled to the phone price.

Analysts said the choice of a relatively cheap model was a clear indication Nokia was trying to win over consumers who often are not paying for music but getting it through file-sharing sites on the Internet.  "If you have access to everything, what's the need for pirated music?" said Universal's Rob Wells.

Those of us who toil in the vineyard of online music subscription services are quite, quite familiar with the difficulties of obtaining licenses for songs for on-demand streaming.  (Remember, there are two copyrights in a sound recording--the song and the recording of the song--and record companies only control the sound recording.)  The task of obtaining rights to even the big songs much less the more obscure long-tail material is an effort worthy of legend.  I'm never sure if I prefer the analogy to Dante's fourth circle of hell, or Hercules' fifth labor.

The Songwriters Guild of America led by A+L advisory board member Rick Carnes, the Nashville Songwriters Association International, led by Bart Herbison, and the National Music Publishers Association led by David Israelite and his fine team finally reached an agreement with the major online music services and the RIAA that finally established rates for on-demand streaming and limited downloads.

You can read the details in the press release, but the fact that it happened at all is a MAJOR step forward.

The agreement is now submitted as proposed regulations to the Copyright Review Board which will take into account the proposed regulations in determining the final rates and regulations for subscription services.

This caps what is essentially a decade-long struggle to get licenses for the technology companies who want to do it right in the legitimate online music space.  I know that David Israelite in particular spent a lot of time in recent years trying different legislative strategies to bring this package home, and it looks like he may have finally done it.

Too often these achievements are so inside football that the participants feel like they just made the immaculate reception in a silent stadium, instead of getting Franco Harris-level cheers.  Hopefully there will be no doubt about who scored a touchdown when the CRB issues their ruling.  But in the meantime, I'll stand up and give a cheer and hopefully others will, too.

This is a fine example of technology companies working with the creative community toward a common goal--creating a legitimate market for music online that can generate income for creators, in this case the songwriters whose ranks have been decimated by net pollution.

- Chris Castle

MySpace has just debuted MySpace Music and the reviews are generally good so far.  But whatever users think of the style and songs of MySpace Music, there's a deeper point here that Jordan McCollum touches on when she writes "they just might have revolutionized music online..."  The fact is, MySpace is trying a new business model - one that is going to make the world better for both consumers and artists.  PaidContent hits the nail on the head.

MySpace Music says it wants to make finding and listening to music as easy and flexible as piracy, which is a pretty good bar to set.

This, as A VC notes, is "progress".

In an interesting post, TechCrunch's Michael Arrington suggests this is the business model that will work...

...MySpace has done something incredible at a big picture level: they've created both a compelling music experience for users as well as a realistic, long term business model for labels and artists in a world where recorded music moves towards free.
[...]
The Future Of Recorded Music Is Free, And MySpace Just Took Another Step In That Direction

Just a year and a half ago it wasn't clear if the music industry would ever give up on DRM. People were calling me crazy for saying that the price of music must inevitably tend towards free because anyone can copy any song for free.

But today the labels have all but given up on DRM, and users can now play virtually any song ever recorded on demand for free. MySpace has created the first ecosystem that has a shot of producing sustainable revenue streams for artists based on advertising, merchandise and concert sales.

If it works, the next step is the fall of per-stream fees and download fees. Instead labels will see music consumption for what it really is - free marketing. Labels will compete to encourage song downloads and streams to move those songs up the charts, attracting premium advertisers, merchandise sales and sold out concerts.

Is Michael Arrington right?  Maybe.  But Arts+Labs wasn't created to pick the winning business model.  That's not our role.  We believe that consumers and artists can be the best judge of that.  Arts+Labs simply wants to ensure that new business models are allowed to flourish, giving consumers a variety of quality, safe content and artists the opportunity to earn fair compensation for their work. 

MySpace Music is a valuable new choice for both consumers and artists, and we applaud that.