Sunday, November 6, 2016

Piracy is as good as dead. Now What?

It’s been 17 years since Napster came onto the scene, bringing with it the combination innovation/major threat of peer-to-peer (P2P) file-sharing. What began as an outlaw activity of uploading MP3s and making them available to anyone with a desire to hear the song and a decent Internet connection ended up providing a beatdown to the music industry that lasted well over a decade, with the carnage only settling down recently. And even now the music industry is, in many ways, still up for grabs.

You may have seen the headlines proclaiming that 2016 was the first year in which streaming revenues were the largest revenue source for music, eclipsing digital downloads for the first time, and taking a big lead over physical sales of all other physical formats combined. The pie below shows the respective shares for the U.S. market. To put things into additional context it's worth considering that the global music industry peaked in 1999 with revenues of about $30 billion, which, by 2005 had shrunk to $20 billion, and now hover just under $15 billion


It doesn’t take Nostradamus to see that the blue piece of the pie is only going to get bigger, while the red and green slices shrink. (The diet yellow slice, marked “synch”, refers to music synchronization, which are the revenues that come from licensing fees when songs are used in commercials, movies, TV shows, videogames, etc. I have no view on whether or not this chunk will grow though I understand it’s a valuable source of income for musicians both well-known and up and coming).

What we can extrapolate from these developments in the music industry is that piracy is more or less dead. Which is not to say that it doesn’t exist. Of course it does. But it’s dead in the sense that it is considered to be public enemy #1 of the industry. When pretty much any music you want to hear is available on demand -- whether via legit sources or unsanctioned ones -- the location of value shifts irrevocably, whether we like it or not. Where did it go? To the new intermediaries,  in this case the platforms that enable us to hear anything we want to, whenever we want to.

So what happens now? This discussion got underway at a Music Tech Meetup I attended at the end of the summer, at which the featured speakers were Steven Ehrlick and Noah Schwartz, both from Ryerson University’s Music Den, a music and tech incubator that brings creators together with technologists, in the hope of building apps, systems, or platforms, that identify, and hopefully propose a solution to, addressable problems in a new environment of possibility. Ehrlick and Schwartz shared their thinking around the experience of being a musician in the 21st century, the reality of which, in their view, is that you have to a digital media specialist in addition to being a performer and/or writer. 

But what does that mean?  We so often hear people with titles such as Chief Digital Officer tell the troops at organizations that were not ‘born digital’ that everyone’s thinking needs to be re-jigged.  Phrases such as ‘from now on the company will think like a digital company”, or “starting today we’re a digital first organization”. Erhlich & Schwartz see it this way: There are two kinds of companies: Tech companies that get into music and music companies that get into tech.

An example of the former:

Bandcamp: A music discovery platform that, as of Fall 2016, has paid close to $200 million directly to artists since its inception.

Examples of the latter:

MusicNet (b. 2001, d. 2005)  and PressPlay (b. 2001, d. 2003), services started by the music labels that tried to replicate the analog industry in the digital world. 

Why did they do that? Because that’s the business they knew well. Contrast with what Steve Jobs did with iTunes: unbundled the album, established a price point of 99 cents that was low enough to move people from Limewire, Kazaa, Gnutella, and created an ecosystem of beautiful hardware and easy to use software which for many became a way of life, not just music or gadgets, and resulted in Apple becoming (if only intermittently) the world’s most valuable company.

The enterpreneurial trick is this: Ask yourself "what is the problem you're trying to solve?" Apparently the investment community, particularly in Silicon Valley, wants to hear things expressed as verbs, not nouns. It’s about what people will do with what you’re making, not what it is.  Think Twitter, Snapchat, even Pinterest – hard to rationalize if you’re only describing what it is; easier to rationalize as a vision for a new way in which people communicate and connect.

Erhlich and Schwartz suggested that a company allows you to solve musicians’ problems e.g. where to play, where to stay, how to do your digital distribution. And you can start small and do so on a small budget and scale up, moving from local to global, with the costs of working globally being a fraction of what they were in the world of physical things and physical places.

They point to this example: DistroKid, where for twenty dollars per year musicians get the ability to do unlimited uploads to digital services such as iTunes and Spotify (and no, it’s not free to get your music onto those sites.)

As we approach two decades since peer-to-peer technologies effectively detonated the music industry,  some pieces are falling into place while others are still trying to find a way for the peg to fit the slot (Heck, Spotify, with its 100 million users of which about 40 million are premium users is still not profitable in 2016). But it's not all bad news, which is the rallying cry of this blog if there is one. I am reminded of the words of Clay Shirky when asked how the rapidly declining revenues of the newspaper industry might be stemmed. His response: What will work? Nothing. But everything might.