The Future of Subscriber-based Music Licensing pt 2

Let's skip the review of the previous meanderings and get to the good stuff.

What do I want for my music and listening enjoyment?

The perfect world, for me, is to have access to my music where I want it, when I want it, and how I want it. That's really simplistic. And it's almost impossible to foresee for at least five to 10 years, depending upon technological breakthroughs in compression, bandwidth, and delivery. But let's look at one of those perfect-world scenarios:

I subscribe to Musat (Music Satellite, of course), the first satellite radio I'm willing to pay for that offers me the capability to 1) listen to the music I license on demand on my own station 2) listen to pre-programmed commercial-free radio programming on any of over 150 channels similar to today's XM or Sirius 3) program music from my collection on-demand 4) purchase music that is added to my collection with the touch of a button 5) listen to this music at home through my stereo, my PC, my portable device, etc. All of this could be a single unit that plugs in to my home stereo, the head unit in my vehicle, or that I carry around with me. Here are some of the technical things I want: I don't want to have 14 copies of each song in my collection on a hard drive anywhere that belongs to me. I want on-demand access to come from out of the ether, not off a flash drive or hard drive that is susceptible to failure.

I'm willing to be the first to experiment with the "permanent license" of music. That means I'm willing to rid myself of CD cases, lyrics, cover art, to have access to the music I've licensed. With that, though, I also want to know that I have access to that music any time and from any device that can access it, including my mobile phone, if it's so capable of interacting or receiving the transmission. One main problem with digital music is the requirement of needing to keep it somewhere. Why should we need to do this? Why am I suddenly responsible for the single 3.55 megabytes of information associated with "Dear God" by XTC? If something's in the digital realm, it should stay outside of my responsibility but be available whenever I want it. Isn't this exactly what movies-on-demand are supposed to be? For the right price, why wouldn't I be willing to pay per viewing of my favorite movie without having to keep it? And the argument is, "Dude, it's yours. And, you don't have to pay for it when you'll listen to it hundreds of times." Really? Let's take a look at that argument for a minute under the guise of two music service business models: pay-per-play and subscription services. And, sorry, but this is going to drop a little bit into game theory, not because I can but because it makes sense.

Okay, pay-per-play model. I am willing to pay-per-play for Jet's "Cold Hard Bitch". How much? Hell, I don't know. Let's say I'm willing to pay a penny. I've listened to that song 39 times on my iPod since downloading it from iTunes. It's a favorite. (There's no accounting for taste.) So, with this business model, Musat has just made 39 cents off of me from this one song. Wait a minute! That's not even close to enough money! The record industry is getting ripped off! You're contributing to the delinquency of a minor with that paltry sum! (Okay, I've gone off the deep end.)

Okay. So, we jack up the price. It doesn't matter. But say that when the month is done I've listened to a sum total of 204 tracks. That takes into account my 4 45-minute workouts for four weeks of the month plus the three 30-minute per week car trips I'm taking. I'm paying $2.04 per month for my music, which becomes $24.48 per year for my music. That's more than I pay for my car magazines. That's more than I currently spend on new CDs, for crying out loud. Maybe the model gets more complicated by making newer, hotter bands more expensive, or older music by still-hot bands less expensive, or whatever. The formula can be developed.

Now, let's move to the subscription service. Musat let's me listen to as much music as I want in the catalog (mine or theirs) for a flat rate of $9.95 a month. The radio would be on all the time under this model for me. I have no reason to ever turn it off. I might as well leave the thing on all night long, just humming to itself at three in the morning. I have no incentive to turn off the receiver because I'll be paying the same thing no matter what. Unlimited access, then, becomes a disincentive for me to have access to music. It also will result in more crowded bandwidth usage because more people will have their units on constantly.

The monthly fee does not sufficiently tackle my biggest issue with digital music: how are they going to give you access to what you already own and still charge you the flat fee? What if you only accessed stuff you already licensed? Is this like caller-to-caller bonus on mobile phones, in that you aren't charged because you've already paid? Wouldn't you be angry if you were constantly re-paying for the stuff you already paid for? Again?

This is why I believe the pay-per-play model is better. One, the music isn't yours in the first place. You're only licensing it to play it for your enjoyment. If you want to hear it from your channel on Musat, you can; it still costs a penny to play it, but "Dear God" has been sufficiently segregated from the other alternative music on the main channels that you can get to it efficiently on your own channel. Second, it removes an element of ownership that I think people are willing to forgo. Because of that, you never feel as though you've "lost" something you never had physical possession of. The only thing you could lose or break is the unit that receives the transmission, and we know that this device will eventually become a commodity so cheap that it will need to be replaced every year anyway. For those who can't live without their lyric sheets and cover art, the only place you can access them is somewhere stationary. You don't have a printer in the car (yet), and you sure as hell should not be reading the lyrics while you're driving from the driver nav system in the car. So, you'll get those where you have access to them: from a PC or other computing device with printer access, if necessary. Let go of the ownership feeling. I promise it will be liberating.

How will we reach the point of not having "our" music stored somewhere we're made responsible for it? And this, I think, will cheer the recording industry: All that music will be spread around the globe on servers. In offices. In companies. But not on your hard drives. The music industry will have private industry "host" the files, hundreds of millions of copies, all over the globe, on servers with extra cycles just waiting to push them out to the big wide world. And how will this be done? Time for some tech jargon: grids. Grid computing will create the largest controlled peer-to-peer network the world has ever seen. Except that the peers will not push files from one place to another to be stored and then manipulated. Files will simply be pushed out as they are requested in a one-way delivery to be directly transmitted. The receivers will be "dumb" in that they can only "play", not store. I'm discounting the current SkyFi or MyFi device that can currently store up to 5 hours of programming from satellite for later listening when you're in an area with no access, such as a subway. Within five years WiMax and other transmission forms will be so ubiquitous that the hard drive portion of the device will be unnecessary.

Why does this solution work for the recording industry? Because they have control. There will be no unauthorized versions of the music out there anymore (in a perfect world). The recording industry will have companies pay them to use their servers and those companies will become the middle men of the industry, to whom royalty checks will be cut based on usage of their equipment. The entirely digital distribution makes tracking successful artists that much easier. Reporting becomes a snap. Hootie and the Blowfish transmissions down for the third year in a row? Are they under contract? Not for long. (This is, of course, a rancid example, but I'm sure one that an A&R guy is pretty excited about.)

There's a ton of technical stuff to overcome in this perfect world. How am I interacting with the system in my car to tell it what I want to hear? (OnStar anyone?) How am I creating play lists on the fly? (Apple click wheel?) How much bandwidth would be necessary to beam all this personalized music to each individual? (Not nearly as much as it takes for video.) How am I going to push a button and add a selection to my channel easily? (Push the button and your credit card is charged?)

In the next installment, I'm going to tackle one, some, or all of the following:

How does this differ from what the recording industry seems to want?

Are there compromises?

The Future of Subscriber-based Music Licensing

Forgive me up front because this will be a very tangential thought dump. (And it's way off topic from my story of child-rearing selfishness.) But what I'm going to put here has been on the back burner for almost 18 months. And, with the latest patent request from XM Satellite Radio regarding a "head unit" that allows subscribers to "purchase" the piece they're listening to and then download it through a music store such as iTunes, I just have to give this a shot.

First, iTunes and personal music and data players. I own a 3rd generation iPod, a 20-gigger. I have loaded each and every one of our approximately 175 CDs onto that sucker. I have about 20 different song lists based on mood, activity, or band. I have a device that lets me run the iPod through the 87.9 FM band so I can listen in the car. I work out with it because music works better than TV (I can concentrate and use the beat).

The iPod is stylish, one reason it sells a whole bunch of units. It's also functional. It was first to use a hard drive to store a lot of music and manipulate it the way you wanted. All very cool. Now there seem to be an endless variety of these players with hard drives, flash memory, you name it. They all have a glaring weakness. They are not networkable. None of them can be used on your home wireless network or receive a transmission while away from home. The XM MyFi unit comes pretty close to this, but you're only receiving the programming from XM, not the music you "own". More on this limiation later.

I have used a number of the music services, including at one point experimenting with the original "illegal" ones. The initial foray into file swapping had two components for me: 1) the interface to the swapping software and 2) my purpose for using it: filling in my collection of songs with individuals that I didn't previously have. Now I use iTunes for this. I am still filling in my collection of music and occasionally purchasing new tunes. I purchase singles to experiement: How does the re-formed Pixies sound? It's worth 99 cents to find out and hear the whole song. I can hear snippets at Amazon and even in iTunes, but those snippets are 30 seconds and don't satisfy my need to be completely critical.

There are different reasons for people to use the music stores, whether they're pay by the song or subscriptions. I use iTunes to fill in the blanks and to sample new purchases. Of the hundreds of downloads I've done, though, only a handful have been for new music. And, as I age, I can see that continuing to dwindle. What I don't see dwindling, though, is my interest in ridding myself of all of our CDs and freeing up some space in the house. I am one of those who would be happy dumping all of those jewel cases, the lyric books, the cover art, and the CDs for a completely digital world. Except that I am concerned that today's systems would not afford me the ability to re-burn "my" music if it were ever lost to me, either by hard drive failure on the computer or the iPod. And, by following some message boards, this is certainly not something that Apple or the music industry is concerned with, as well.

So, I can't rid myself of my CDs. And, the music I do "purchase" is not really mine if I lose it. Much as it's not really mine if I sit on my CD and break it, either. Music on media is nothing more than software on media, and this limitation is exactly what the recording industry wants to continue to use as their leverage point into our wallets. The digital distribution of music, whether per song or by album, eliminates the final point at which they control the wallet share of consumers. I'm not an expert, but from what I've seen about the "middle men" of the music industry, this is why a CD can cost $19. Until the recording industry finds a suitable way to control the digital distribution of music, they will continue suing the users of file-swapping services.

Don't get me wrong. I like iTunes. It's not perfect, but it's right for what I do. I'll continue to use it. As I move away from having time to listen to music, it will fade away, as have a number of other hobbies such as collecting comic books (which are going to make a comeback, damnit). While I'm on this topic, let me throw out a hypothesis: As people age, new music becomes less of a priority and they remain focused on what they've known. For example, I grew up a teen in the 80s. My favorite bands are still AC/DC, Devo, and others. I have some music from the 90s (Nirvana) and even the 21st century (Jet), but my allegiance will always be to the music I grew up with. I believe this is the way it works for everyone, but they won't admit it. This is why our parents and I now say, "I can't understand a damn thing that band is singing," when we watch Saturday Night Live. The bands of today don't resonate with us. They resonate with the kids and teens who, in 20 years, will be saying the same thing we are today. They'll look back fondly and ask, "Why can't kids listen to stuff like Eminem anymore? I could understand that guy." This perpetual cycle is one that the industry certainly leverages. If not, they're a lot more dense than I've ever given them credit for. That said, there are plenty of people who, as adults, continue to buy new music, continue to expand their repertoire. But I believe the music-buying consumer by age is a bell curve, with the teen through mid-20s at the peak of the curve.

Second, satellite radio. I don't subscribe to either of the biggies, XM or Sirius, though my current vehicle has a built-in antenna and I could get a discount. Satellite radio has over 100 channels of commercial-free music and programming that is beamed down from the heavens to your vehicle, or your SkyFi or whatever device receives that transmission at this point. Satellite radio is, for all intents and purposes, at the same stage cable TV was in the late 1980s and early 90s. It's not too expensive per month, but it's still right on the cusp of "the tipping point", to use that now handily overworked and overwrought "paradigm". The tipping point is a theory that certain concepts, products, or services that, at one point are virtually dead or just haven't gone anywhere, can suddenly and explosively become a powerful trend or fad. A good example, and one directly from the book of the same name, is Hushpuppies shoes, which had an explosion in the mid-90s because some wonk found them and used them in a fashion show or something. From there, stars had to have them, and then they became the shoe. For a while. Tipping points are typically sociological events that catapult a product, service, or concept into the limelight. Satellite radio is still looking for the tipping point. The competitors are hoping they can create their own tipping point. Sirius has signed the self-anointed "king of all media", Howard Stern, who is supposed to bring 1 million of his loyal listeners over. For Howard, I see this as a coup: he can cuss and have as much as sexual material as his heart can take. His freedoms are unbounded. The listeners he does bring, as well as the existing Sirius subscribers, can sample Howard for all his kingness. I won't get started as to whether I think this will be successful for either Sirius or Stern. Game theory isn't our topic. And, since I don't know how rational Howard really is, it might not be applicable, either.

XM, on the other hand, has yet to find its tipping point, I think. Off the top of my head, I cannot think of a major acquisition or change to XM that would lead to a major jump in subscribers, though I believe they hold a 3.1 million to 1 million subscriber lead over Sirius, even with only two existing satellites to Sirius' three. Part of this is the substantial deal XM has done with car companies to pre-load XM capability into new vehicles. The problem with this pre-loading is that, while the ability to have XM is right there, at your fingertips, you still might have no reason to feel you need to pay for your commercial-free radio. I certainly don't. So, while getting the capability pre-loaded was a coup, I would bet that the implementation has not resulted in a major jump in subscribership. And that would portend exactly why Sirius has not made that many partnerships with car manufacturers in response.

Here's another problem with satellite radio: I can't interact with it. Yes, the latest patent filing signals that you may be able to purchase what you're hearing in the future, but you can't tell someone, "Hey, I need a Christmas mix," or "Mix me some workout music with at least 120 beats per minute." And maybe we'll never get there. But I can dream. And you know what? I can almost do this, except not with my digital media. I can do with it with OnStar, the subscriber service offered on most GM vehicles that lets me get directions, talk on the phone, call for help, track my vehicle, or find out where the closest Chinese restaurant is. Ponder this for a minute. I want to come back to it.

Third, my perception of the music industry reaction to the download generation. I'll start by saying that the "licensing" concept of music is a tough one to find solutions for. When I buy a CD, I own the media on which the music is printed. I don't own the music, the lyrics, or anything else directly related to the property of the music. I can make copies of what I've licensed for myself and family members only. I've got this freedom. But if I break that CD, I'm off to the store for another one. This is exactly the same issue I'd have with a toy, a GameBoy, clothing that I ruined, or any other physical product. And while this is still the majority distribution method for media, we're all in the same boat.

Take a look at my history of music distribution since the 1950s. First, there were 45s. Kids trotted out and spent their allowances on these platters they could play over and over again until they were so scratchy and worn they had to buy another copy. You got two songs and an A and B side. The A side was the hit, the B side was, well, really filler. Unless you were Elvis, and then the B side was a huge hit, too. Go figure. Bands got together and barnstormed around the country, playing their hit, clearing the stage for the next band, and so on and so forth. Kids created huge collections of 45s. The next movement in radio and distribution was the album rock radio period, which has persisted in one form or another into today. This format pushed artists into the studios to develop whole albums, and we got story music, the kind of album that you could not look for one hit to make the radio. We got Iron Butterfly and even the Beatles White Album. Suddenly, radio was no longer about barnstorming with single hits, but selling entire albums of concepts. And what did kids have to do? Well, if they bridged the gap between the barnstormers and the concept albums, they replaced or supplemented their 45s with 33s, those two-sided grooved vinyls which took up more vertical space than their 45s but contained a lot more music. Unfortunately, those albums did not always satisfy. How could every artist be expected to hammer out 10 to 14 hits per album? When I was a kid, you were lucky if your favorite album artist had 3 to 5 really good songs.

(I'm skipping innovations of distribution with little impact. So, sorry, 8-track and Sony MiniDisc, you're out.)

And the recording industry probably took note of this incongruity. But, instead of fixing the real problem, which was radio hits supplemented with filler music, the industry latched onto a new invention: the CD. In the early 80s, the CD became the rage. This single-sided disc couldn't scratch, allowed music to be stored and heard "digitally", took less space, and didn't hiss or make scratchy noises when it played. And, if you were really good with the tape deck, you could make your own compilations a lot easier because your CD player would tell you how much time was left on each track as it played. That rocked. Unfortunately we were all left in the dust again, having to replace our entire album collection with CDs. And at first, some of those albums were nowhere to be found. As CDs quickly replaced 33s, we were hooked again. I gladly replaced my entire AC/DC and Oingo Boingo vinyl with CD. If I was lucky, the CD carried a bonus track. At first there was a furor over those albums that had stickers such as ADD or DDD on them. If you got an early CD of a remastered album that said ADD, you were getting a CD that had been transferred to digital media directly from its original analog recording. The trend-setters of the time were the DDD artists, those who recorded digitally and went direct to disc. That seems like a long time ago.

The trend here is that the recording industry has had control of the media distribution method since its inception. The physical representation of the media, whether vinyl, tape, or CD, has improved over time and we've gladly continued to re-work our collections as these media have improved. The recording industry has, of course, been glad to fill their pockets with our money in doing so. This is not inherently bad. The consumer argument of late has been, "The distribution method may have improved, but the product sure hasn't." This isn't the space to argue that point. The discussion is about the industry's interest in control.

Control is what suddenly disappeared with Napster and other file sharing networks. I don't believe that thievery or stealing is the industry's main argument. Yes, revenues of purchased CDs dropped the first few years of this century, but that could have happened anyway. A number of economic factors could easily have contributed to people having less disposable income for music. I hypothesize that control was lost so suddenly that the knee-jerk reaction was to do what's being done now. Suing consumers may or may not be the right thing to do. There are arguments for and against that issue we can discuss all day. But they don't get to the point of control. We'll talk about options for control soon.

The next post will discuss the perfect world scenario as far as I'm concerned, my perception of the issues that must be solved to get to that perfect world, what I think will eventually become the norm for both music and video distribution around the world, and conclude by wrapping everything together in a nice neat bow. Or just continuing to ramble with no empirical evidence.