The streaming music business is dead, long live the streaming music business

apple_lala Apple’s acquisition of Lala yesterday is the coda to an interesting chapter in the evolution of the music industry. It comes on the heels of MySpace’s acquisitions of iLike and iMeem (both at similarly distressed prices to the reported ~50% discount in the Lala deal) as well as the launch of (nearly) inline streaming music in Google’s search results. Talk about mixed messages: the business of on-demand streaming music (vs. streaming radio like Pandora) is broadly being conceded as a failure just as the user experience is finally hitting the mainstream.

In the last 24hrs, I’ve read a lot of analysis across the spectrum and heard the thoughts of friends in various segments of the music industry. Here are some of the big issues that are front of my mind.

Whither the MP3 of streaming music?

Most of the people I respect in online music have been opining for on-demand streaming music for years. So, their first reaction has echoed that of my friend Lucas: music in the cloud will now be a reality. But *how* it will become a reality matters too, and I think that’s been lost a bit in the discussion so far.

In the download world, an open format (MP3) pre-dated Apple’s entry. So, they had no choice but to support it in order to make their software and devices backwards compatible. In fact, it’s easy to forget today that the market for iTunes and the iPod was largely built around satisfying the needs of consumers of illegally acquired music (the iTunes Music Store was actually launched over 2 years after iTunes debuted). If not for that pre-existing market condition, I don’t think it’s hard to believe the iPod would only play AAC music files (Apple’s proprietary format). Remember that no one could compete with the iTunes Music Store as a legitimate storefront for online music until less than two years ago, when the labels agreed to let Amazon and others sell in MP3 format so that customers could play the songs sold by retailers other than Apple on iPods. (This in itself was an interesting saga with Jobs publicly justifying why Apple would never support someone else’s proprietary format on their software/devices and why they would never license Apple’s DRM to others. In the end, the labels’ fear of Apple’s growing control of the online music value chain was greater than their fear of piracy and they called Jobs’s bluff by actually licensing MP3 sales.)

The relevance here is that there is no MP3 equivalent for streaming music — no pre-existing open standard that consumers will require Apple to support before they buy a wifi-enabled iPod (aka iPod Touch). Just like there is no (legitimate) way to play films or tv shows not downloaded from the iTunes Store on your Apple TV, there will be no way to consume on-demand streaming music from other sources in the native player on your iPod. You will of course continue to be able to install separate third-party applications, like Pandora or Spotify, to manage and play streaming music you acquire through those services. But, that silo will continue to be incompatible with iTunes and the rest of your music library while the native player will offer you an integrated consumption experience across downloaded and streaming music. Maybe this will still be good enough for the small number of power-users who care enough to want an alternative to the Apple offering (like those of us today who install the eMusic or Amazon download manager to have a somewhat equivalent purchase alternative to the iTunes Music Store).

However the segment for whom I think the lack of an open streaming music standard is potentially most harmful is the actual artists and the growing industry of direct-to-fan enablers, including my good friends at Topspin. Direct-to-fan sales are better for the artist because they get to own the customer relationship with the people who are *their* fans to begin with (see my boy Ian explaining to Wired how important this is) and they can have more control of the offering and better margins by cutting out middle-men like Apple. Today, I can buy an album directly from Topspin artists like Get Busy Committee or Fitz & The Tantrums (two of my current faves) in MP3 format and play it in iTunes and on my iPod. How exactly are they going to sell me streaming music outside of iTunes (or a 3rd-party service)? There are products like MobileRoadie, which artists can use to create their own branded iPhone/iPod app. But, I don’t foresee consumers being willing to switch apps every time they want to hear a new artist (and forget about a streaming playlist with multiple artists).

Licenses, schmicenses!

Several commentators on the Lala deal have noted that their licenses with the labels expire in the case of an acquisition. And I hear from insiders that Apple has already had requests for streaming licenses denied by at least some labels. Here’s why neither of those things matter.

Apple is going to build a kick-ass streaming experience natively integrated into their service/software/device stack of the iTunes Music Store, iTunes, and the iPod. They are going to get the thousands of independent labels, aggregators like TuneCore who represent individual artists, and at least one or two major labels (my bet is EMI will be first) to give them streaming licenses on a critical mass of music. Then, they are going to use the iTunes Music Store to promote the shit out of both downloads and streaming (most likely bundled) from the artists for whom they have streaming licenses while at the same time freezing out promotions for any hold-outs.

This is a non-issue IMHO and every song you can buy as a download from the iTunes Music Store today will be available for streaming within a year of launch (just ask NBC how well playing chicken with Apple works).

Sustaining innovation doesn’t work.

This post is already way longer than I intended, so I’ll leave this point as more of a footnote. On-demand streaming music is the future. Everyone I respect believes it, Apple believes it, it is the logical conclusion of the path the music consumer experience has been on since Napster. And yet it is a business widely viewed as “toxic” by investors, several of whom in recent months have demonstrated they think so little of its future potential that they are willing to take steep losses on their investments to get out. What gives?

Not only were these businesses endorsed by the major labels, both iMeem and Lala actually had labels as investors (as does Spotify). The reason that on-demand streaming music is a great product but shitty business is because the license fees demanded by the labels make it impossible to make money with any kind of offering that consumers will think is reasonable. It’s somewhat counter-intuitive that a vendor who is an investor wouldn’t be willing to adjust their pricing in order to preserve the value of their investment. But Warner Records, in particular, made it clear that are happy to spend tens of millions of dollars co-opting companies they see as potential threats and running them out of business in order to prevent hundreds of millions of dollars in (perceived) cannibalization.

This is Clayton Christensen 101:

By only pursuing ‘sustaining innovations’ that perpetuate what has historically helped them succeed, companies unwittingly open the door to ‘disruptive innovations’.

In other words, by trying to take an innovation and use it only to perpetuate and/or protect legacy business models, incumbents give new entrants the opportunity to do things the way the market actually wants them to be done regardless of how they have been done in the past. By trying to force LaLa from being a potentially disruptive innovation into a sustaining innovation, Warner Music and the other major labels unintentionally drove them into the arms of Apple, still the biggest threat to the legacy model the labels are trying to preserve. (Studios and networks trying to “de-fang” Hulu, take note.)

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The Ringers Rocking LA

The Ringers are an LA band fronted by Joe Hursley (aka White Gold). I first caught them opening for Fool’s Gold at one of Little Radio‘s Summercamps in August (see 3rd video below) and they stole the show. The music has started to grow on me, but the performance is pure LA punk and cannot be ignored. If you like to rock, don’t miss a chance to see them live.

“Beaver Fever” and “Keepin’ Your Head Up” at The Viper Room on October 16, 2009 (Joe takes my camera on stage about 2min in):

“Scene You See” at The Viper Room on October 16, 2009:

“Scene You See” at Little Radio Summercamp on August 30, 2009:

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Delicious Bookmarks for September 24th through March 8th

These are my Delicious links for September 24th through March 8th:

Delicious Bookmarks for September 2nd through September 6th

These are my Delicious links for September 2nd through September 6th:

  • Taking the Initiative: Carl Pope’s Blog – Sierra Club – This is as depressing as it is sickening. We progressive Americans who were finally so galvanized by our reaction to 8 years of Bush/Cheney coupled with the bright promise of the change Obama could bring have reverted back not just to complacency, but worse to underestimation. Just because *we* are immune to the politics of fear, does not mean they have lost their power — no matter how absurd the claims in question (whether it be death panels, Obama's racism, or Van Jones's "extremist views and coarse rhetoric"). Remember how much we underestimated George W. Bush in the 2000 election? We have to stop assuming people fact check outrageous claims and recognize that inflammatory propaganda must be stopped in it's tracks and those who perpetuate it must have their credibility undermined so they can't continue to spew it. Say something enough times (especially on tv) and too many people will start to think it's true.
  • Facebook Connect Plugin Directory – Facebook Developer Wiki – List of Facebook Connect publishing platform plugins by 3rd party developers.
  • 16 Best Facebook Connect Plugins for Your Blog, Forum, Wiki, or CMS – List of Facebook Connect plugins to add community functionality to your publishing platform.
  • Kareem Mayan’s Weblog – How I Discovered My Life’s Purpose – I've never really thought about coming up with a mission statement for my life, but that's what my friend Kareem has spent the last 18 months doing. I'm very excited that he feels he has come up with a verbal distillation of his life's purpose (even if I personally find the actual language to be a bit vague). I look forward to seeing the ways he comes up with to pursue this purpose.

    I agree with a lot of Kareem's thinking on these matters (which is probably why we're friends ๐Ÿ™‚ ) and greatly admire (and somewhat envy) his courage to so aggressively pursue these questions. So, it's great to be able to ride along on his journey even from afar. My favorite line from this post is: "The opposite of quiet desperation, I reasoned, is magnificent fulfillment."

Politics is getting depressing again…

I’ve been quite absorbed with my startup the last couple months, but it’s been hard to escape the derailment of the Obama administration’s political agenda — in the form of the current healthcare “debate” — less than a year after sweeping to office with a seemingly overwhelming mandate. As much as I’ve pushed these concerns to the back of my mind, I can’t help but at least subconsciously find the reemergence of the politics of fear depressing.

The right-wing extremists we united to vanquish only 10 months ago haven’t disappeared; they just went underground long enough for us to lose focus and for them to prepare their insurgency. This political battle is Afghanistan, not Iraq (or more accurately, what Iraq was supposed to be) — it’s not quick or sexy and the minute we let up, the enemy will take advantage with sneak attacks.

With enough stability regained that the everyone no longer feels we’re in crisis mode and Obama in office long enough for people to realize he’s not some kind of miracle worker and that the solutions to the problems we face are going to take meaningful time and effort, the right-wing has turned up the intensity of their guerilla war by reengaging in the politics of fear. Healthcare is obviously the most conspicuous theater (‘death panels’, really?!), but Glenn Beck’s unabashed claims that Obama is a racist, the “outrage” over Obama’s back-to-school speech, and now the forced resignation of Van Jones are all part of a pattern we cannot afford to ignore.

This post was prompted by one from Carl Pope, Executive Director of the Sierra Club, on the Van Jones debacle entitled “We All Blew It“. I couldn’t agree more, and it made me realize this is a problem that is only going to escalate if we don’t do something to stop it. We progressive Americans, who were only finally galvanized by our reaction to 8 years of Bush/Cheney coupled with the bright promise of the change Obama could bring, have reverted back not just to complacency, but worse to underestimation.

Just because *we* are immune to the politics of fear, does not mean they have lost their power — no matter how absurd the claims in question (whether it be ‘death panels’, Obama’s racism, or Van Jones’s “extremist views and coarse rhetoric”). Remember how much we underestimated George W. Bush in the 2000 election (regardless of whether he legitimately won, none of us thought it would ever even be close)? We have to stop assuming people fact check outrageous claims and recognize that inflammatory propaganda must be stopped in it’s tracks and those who perpetuate it must have their credibility undermined so they can’t continue to do so much damage. Say something enough times (especially on tv) and too many people will start to think it’s true. The more unsubstantiated and/or downright false claims we allow the Glenn Becks of the world to shout from the rooftops, the further they will push the boundaries. We cannot afford to let these extremists define the terms of engagement — if you have to answer questions on ‘death panels’, you’ve already lost.

The politics of hope are a challenge of patience and understanding, while politics of fear pander to our desire for quick fixes and to blame others. Getting people to think beyond sound-bites and seek substance is no easy task, but we have proven it can be done. Let’s not let all that hard work be squandered by neglecting to follow through.

I won’t lie, I’ve found the continued emails from the White House and Equality California (the No on Prop 8 folks) annoying. But I realize now that’s because they remind me I can and *should* be doing more. I’m going to start by phone banking for Equality California this week, because if I don’t participate then I don’t have a right to complain.

What are you going to do?

Delicious Bookmarks for September 2nd

These are my Delicious links for September 2nd:

Delicious Bookmarks for July 21st through August 31st

These are my Delicious links for July 21st through August 31st:

Delicious Bookmarks for July 20th

These are my Delicious links for July 20th:

  • Ed Ulbrich shows how Benjamin Button got his face | Video on TED.com – A look at Digital Domain's process for creating the fully CG performance of Benjamin Button's head for the first hour of the film. Using high-resolution 3D scanning and the F.A.C.S. methodology they developed a template for creating a digital library of facial components that could then be animated using the actor's actual facial expressions.

Delicious Bookmarks for July 9th

These are my Delicious links for July 9th:

  • Universal/TuneCore deal opens major doors for indie artists – Ars Technica – By offering their marketing services to independent musicians on a fee basis with no transfer of rights required, Universal Music Group is basically turning into a music marketing agency. The decline of physical distribution (for which labels were gate-keepers) and the ascendency of relatively open digital channels coupled with the elimination of barriers to entry in production costs means that mainstream marketing is really the only differentiated competency the labels have left. Universal's recognition of that and this play to those strengths is a smart move. It will be interesting to see if other labels (and ultimately studios, who are subject to the same technological market shifts) will follow suit.