Gerd Leonhard's 2006 Presentation on the Future of the Music Industry

1. Gerd Leonhard, Music Entrepreneur & ‘Music & Media Futurist’
www.mediafuturist.com
www.gerdpresents.com
CEO, www.sonific.com
The “End of Control”
and the Future of
Music
gerd@mediafuturist.com
2006 -some rights reserved - Gerd Leonhard Music Futurist gerd@musicfuturist.com
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2. About me www.mediafuturist.com
• Music & Media-Futurist & Author, Speaker and Presenter,
ThinkTank Leader, Strategic Advisor
• 20 years in music & technology, EU and U.S.,
Entrepreneur, Musician & Producer
• Berklee College of Music graduate, Quincy Jones Award
Winner
• Digital Music Entrepreneur, latest venture: SONIFIC -
Soundtracks for your Digital Life, previously: LicenseMusic
• Speaking activities around the globe: “The Future of Music
& Media”, with a focus on business design for media
companies, and helping industry organizations plan for the
future
• Co-Author of the book “The future of music”, next book
“The end of Control” coming in late 2006
• Blog at gerdleonhard.net
Gerd Leonhard Music & Media Futurist www.mediafuturist.com
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4. Our future: selling Music to Digital Natives
90
80
70
60
50
40
30
20
Now 10
Soon 0
Tomorrow
Analogues Digital Immigrants
Digital Natives
Gerd Leonhard Music & Media Futurist www.mediafuturist.com
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5. About those Digital Natives (and why it matters)
Marc Prensky:
• They are surrounded by digital media to such an extent that their very brain
structures may be different from those of previous generations
• Digital Natives are used to receiving information really fast
• They like to parallel process and multi-task
• They prefer their graphics before their text rather than the opposite
• They prefer random access (like hypertext).
• They function best when networked.
• They prefer games to quot;seriousquot; work
Selling music as a SERVICE is the consequence
Gerd Leonhard Music & Media Futurist www.mediafuturist.com
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6. Mass Media > Niche Media >
Lifestyle Media
Source: IBM report
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
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7. Mass Media to Personal / Lifestyle Media (inspired by Paul Saffo)
No significant
Substitution!
Music = a Product you buy Music = a Service you subscribe to
TV as dominant force Web as dominant force
Anglo-American ‘hits’ dominate Diverse / niche content works thrives
Radio: on schedule Anytime
One-way ‘broadcasts’ Receiver also SENDS
Consume Participate / Usate
THEY pick YOU pick
Gerd Leonhard Music & Media Futurist www.mediafuturist.com
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8. 2 crucial paradigm shifts
USAGE
RIGHT
Monitored
CopyRIGHT
Controlled
2006 © Gerd Leonhard Music & Media Futurist www.mediafuturist.com
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9. Copyright becomes usage right
• Just asserting control, and restricting use, will not
generate revenues
• Allowing and encouraging ubiquitous use, and
tracking it, will (watermarking and fingerprinting
versus DRM)
• We must license digital music like we license radio
- but with a better share of overall revenues, and
with build-in up-sells
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
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10. And it’s a new game for music companies
Produce, select, Finding and being
deliver Found
Unknown Known
consumers participants
Seller controls Buyer controls
License Syndicate
Gerd Leonhard, Music & Media Futurist
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11. Mega-hits may no longer be the main objective
Point of
more
choices!
Seth Godin: “If your
marketing strategy
requires you to hit
#1 in order to
succeed, you
probably need a
new marketing
strategy.”
Gerd Leonhard Music & Media Futurist www.mediafuturist.com
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12. More choice = less hits
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Gerd Leonhard Music & Media Futurist www.mediafuturist.com
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13. My next book... and a good headline
The
End of
Control
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14. So...what does that mean?
★ In a digital content world:
• Un-Control means success (see myspace)
• Engaging Users and enabling Usators means
success (see YouTube)
• Being trusted means success (see ebay)
• Getting attention means success (see Apple)
• Just enforcing control means certain demise
(see SwissAir)
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
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15. To be more practical:
★ For us, this means
• We must offer / sell unprotected and universally compatible music
content, in order to really engage most of the users. On other
words: there is no Safety Net
• We must stop using legislations based on outmoded copyright laws
to shore up the beloved distribution and valuation models
• We must pursue a ubiquity model not try to maintain artificial
scarcity
• We should let the users do the rating, tagging, and viral marketing
• We must respect and expand user’s rights, and re-earn their trust
• We must carefully consider where to put the toll-booth, and be
much smarter with handling pricing, bundling and re-bundling
• We may sometimes need to forego immediate revenues for large
scale exposure
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
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16. So where is music commerce going?
• Open, flexible, interoperable, intuitive, ‘heavy
lifting in the background’ - technologies
• Very competitively priced subscriptions that can
accommodate just about every user, everywhere,
and that may be advertising supported
• Flat fee deals that will just be the tip of the
iceberg of consumption (and payment!)
• Ad supported and P2P models, bundles and
‘content fee included’ products will create ‘feels
like free’ environments
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
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17. Selling Protected Music Won’t Work
• Users are staying away from protected music -
the value proposition is lousy
• Devices and services don’t connect
• CDs are still unprotected!
• DRM is an attempt at using technical solution
to solve a business problem
• One could argue that DRM is a major DRIVER
of online ‘piracy’
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
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18. And for the artist - label relationship:
★ The future is Change
• Artists will go a long way by DIYing before
even starting to look at label or publisher deals
• Labels will offer completely new services that
will create new reasons to consider them
• Record labels become music companies
• Agents become labels
• Labels become publishers
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
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19. Artists & Labels, and the Record
Company of the Future (RcoF)
• Rights ‘leasing’ will become the standard
• Composition and master rights will converge
• Labels will prove their value by offering access to a
vast NETWORK (rather than Distribution)
• Labels that are brands, in itself, will thrive
• A few online players will start RcoFs
• Model is based on revenue splits (25-50% for
RcoF)
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
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20. Today: A perfectly broken system
 The current market is not working
 Apple sells 45Million+ iPods - using music as a loss-leader
 Windows DRM-based services have serious problems if
used to-go, for now, and good services are destined for
failure because of out-moded policy decisions
 MP3 services work great but are effectively black-listed by
the majors
 80% of the market is STILL trying to control distribution
 The USER (aka consumer) is STILL severely under-served
 Digital music revenues could be 10x of what they are right now
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21. The fact is, we don’t control
distribution any more -
like it or not.
And why would we want to when
the USERs can do our
marketing for us?
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22. The REALITY of the digital natives
 Listening to music = getting music
 Performance = reproduction
 Access is outmoding ownership
So, why are we still trying to sell
MORE COPIES if we could
also sell ACCESS? Why do we
need the traditional copyright
mechanism?
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23. The Flat Fee for Music
 Everybody uses everybody pays: one flat fee gets every
user a LOT of content on any and all networks
 And: it will ‘feel like free’ (i.e. payments are bundled)
 Labels: you can’t refuse to be distributed on digital
networks - just like you can’t refuse to be on radio
 The flat fee is only the beginning for music commerce
 Selling only a la carte / by the ‘unit’ does not make sense
for CONTENT in the digital ecosystem
2006 -some rights reserved - Gerd Leonhard Music Futurist gerd@musicfuturist.com
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24. The basics
 A ‘Music Fee’ of approx 3-4 Euro /month (EU),
sign-up via ‘music registry’
 But: Cellcos / Telcos, ISPs, Media Companies
etc would soon want to bundle the fee into their
offerings
 Music Fee ID and password would give the
users access to any and all digital music
services (TV, Wireless / Mobile, Internet…) - and
builds a hugely valuable database!
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25. The MUSIC FEE is only the beginning: the real $$$ will come in from:
Music
Fees
(Pool)
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26. And:
Cross-Selling
Music
Fees
(Pool)
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27. And… (!!!!)
Sharing Advertising
Revenues
Music
Fees
(Pool)
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28. The new ecosystem: make $$$$$ with music,
beyond the COPY of a track
Advertising (2.0)
Up- & Cross
Flat Fee Selling
Music
Services
2006 © Gerd Leonhard Music & Media Futurist www.mediafuturist.com
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29. Changes reviewed
Content 1.0> Content 2.0
Distribution Attention
Shelf Space Mind-share
Niche Marketing
Mass Marketing Monolog
Dialog
Influence &
Control
Reputation
Control Attention & Trust
Gerd Leonhard, Music & Media Futurist
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30. Benefits for the creators and rights holders
 Levels playing field of distribution
 Monetizes what people already do
 Exploits ‘long tail’ effect, and gets the user to
EXPLORE
 Exposure translates DIRECTLY to revenues
 Provides equal market access
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31. Why all of this is good for musicians
• Direct market access, and a leveled playing field
• The tools of production, promotion, communication,
distribution, and marketing have become
increasingly available to anyone
• A lot more can be accomplished ‘DIY’ which
increases a potential deal value
• Music is everywhere, literally
• Attention can translate into immediate revenues
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
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