August 30, 2006

Universal Music throws in the towel, price of music drops to $0.00

Universal Music has announced it is moving its catalogue to a "free with adverts" model:

Backed by Universal, Spiralfrog will become one of the first sites to offer free music legally. Fans will be able to download songs by the record company's roster of artists, including U2, Gwen Stefani and The Roots.

The service - which will be supported by advertising, unlike other legal download sites that charge for music - will launch in the US and Canada from December. It will become available in Europe in early 2007.

If the business succeeds, that will be the new standard price. If it fails, then it will take another year or two, I would predict, before the price goes back down to $0 (in delicious irony, the above article is now only available for a pound!).

There are a few reasons to believe that the business may not succeed -- massive lobbying by the others, duff selection, lousy adverts and plenty of time before now and then -- so this is a non-trivial question. Here's another reason:

Josh Lawler, a US-based music industry legal specialist, said news of the new service was "inevitable". He said questions over how artists would be paid may make some reluctant to agree to the free service. "SpiralFrog will have to find a way to pay artists from the advertising dollars they are generating," he added. "But they're not necessarily going to know how many advertising dollars there are and so some artists are going to be hesitant about it."

Here's my favourite quote, from a HMV rep who otherwise was quite positive (pay a pound for thereference) :

"What is a little concerning is that for a long time now, the trade body, BPI, has been anxious to put across an anti-illegal or piracy message, which suggests that music is of intrinsic value and people should be prepared to pay for it, so this may give a conflicting, mixed signal."

There's nothing "conflicting, mixed" about free. To see why this was inevitable:

"A report published last month by the International Federation of Phonographic Industries (IFPI) claimed 40 illegal downloads were made for every legal one in the US. The ratio, believed to be much the same in the UK,"

Now, I don't believe those numbers, necessarily, as I doubt the IFPI even bothered to pretend they weren't exaggerating. But even if in the ballpark, the amount of sharing dominates any other use, including practically everything else that isn't to do with music. If you believe the ISP grumbles, that is.

Time for a new model - the physics is the reality, the economics is the deal, and the legal stuff just has to keep up. BigMac suggests Pandora's Music Genome Project.

Another great quote:

"The US radio industry generates $20 billion a year in revenue and they give the product away for free," he said. "Record labels generate $12 billion a year and they sell their product."

Here's some clues on the new model:

Users can download an unlimited number of songs or music videos if they register at the site and watch online advertisements.

The tracks cannot be burned to a CD, but users will be able to transfer music to portable media players equipped with Microsoft Windows digital rights management software, Ford said. However, the service will not work with Apple Computer's computers or its iPod music players.

Funny source for the nitty gritty!

Oh, I forgot to mention -- what's the nexus with FC? That's easy -- all those payment systems that were banking on micropayments from music downloads can close up shop. They should have studied more economics and less marketing.

2nd addition, to stress the move to $0 content:

Sony to buy Sausalito's Grouper

Sony Pictures is expected to announce today that it has acquired Sausalito Internet video-sharing company Grouper for $65 million.

Teaming up with Sony further highlights the role amateur videos -- and the companies that host them -- are having in changing the Hollywood landscape.

Traditional entertainment companies are working with Silicon Valley start-ups to navigate a new, on-demand entertainment world. Tuesday, the popular video-sharing site YouTube announced a new video advertising platform, and its first client is Warner Bros., which is promoting Paris Hilton's debut album.

Grouper's technology allows a user to easily take a video from its site and post it on third-party sites such as a MySpace or Blogger page. Its videos can also be watched on devices other than your personal computer, such as a video iPod.

For more naysaying, see BigPicture as suggested by Frank in comments below.

Posted by iang at August 30, 2006 09:05 AM | TrackBack

This is a half-way measure. If the physical media have sensible prices, totally free and unrestricted may be the way to go.
1. Folks dislike annoyances.
2. Folks prefer convenience.
3. Books free on line still sell well.
4. Some listeners have no iPod and no computer.
5. Many listeners will not download at all.
6. Many downloaders will not create a disc.
7. We can't stop free sharing anyway.

Note: We can't keep weapons and illicit drugs out of maximum security prisons. Less stringent constraints work even less well. Live with it, you have no choice which avoids the practice, only the problems. Other constraints which don't work should also be abandoned in favor of harm reduction.

Posted by: Richard Karpinski at August 30, 2006 06:42 PM

In my opinion SpiralFrog is a solution nobody wants (except the labels) to a problem nobody has (again, except the labels). There's lots of free music available already for anyone who wants to connect to a P2P network and get it, and it comes unencumbered by ads or DRM.

For the sanest commentary I've found on the topic of SpiralFrog read Bob Lefsetz, whom I've linked from my hobby blog, wherein I indulge my obsession with the online music service eMusic.)

Posted by: Frank Hecker at August 31, 2006 12:04 AM

At 03:01 PM 8/30/2006, The Phoenix Dollar - Net wrote:
> I think an important milestone will be crossed when an artist is
> unsigned and sells a million copies of their album without any radio
> play, without any distribution or label support and without partnering
> with anyone but places like myspace. I think that time is really near
> and in fact it may have happened already, but I think the ones who get
> popular still are getting picked up by the labels.
> I think we need to look at how to mobilize independent unsigned
> artists to compete at the level of the major labels and not worry so
> much about what major labels are trying to do with artists.

I first wrote about the twilight of copyright in 1998. Besides 'piracy', which was a likely overall winner, my article,, offered 3 other alternatives:
- subscription (this would include the Universal approach),
- bounty (a Hollywood-like, completion bond, approach), and
- Teleread, a socialist funded dream (but one which is somewhat imbedded in media fees).

As noted in the article, the ease of piracy and almost zero cost of flawless reproduction and distribution of electronic entertainment means that there is no economically viable place for the current crop of publishers. Due to the costs and inefficiency of traditional 'push' media promotion channels Hollywood is 'star-driven'. This concentration of effort is its undoing as piracy naturally focuses on these same stars denying the publishers and distributors the fruits of their major investments. With the lowered cost of 'pull' Internet marketing and distribution the advantage of Hollywood's star machine becomes increasingly irrelevant.

Only artist-fan relationships may survive. But even with these relationships piracy will continue unabated unless the content acquisition 'friction' from the new legal music sources (i.e., those that give away content much as broadcast radio) is very low, not too much above the cost of bandwidth (e.g., allofmp3 sells content for 0.02/MB). In the end, publishers will be replaced by recommendations from popular entertainment bloggs and MySpace-style sites. Artists may have to accept that henceforth their income will come primarily from selling very inexpensive downloads, paraphernalia, concert gate receipts (similar to what was before the invention of the player piano and phonograph) or special artist-fan relationship premiums (e.g., being the first to get a newly released single or backstage passes).


Posted by: Steve at August 31, 2006 07:58 AM

SpiralFrog strikes deal with EMI Music
SpiralFrog strikes deal with EMI Music

Posted by: Lynngram at September 6, 2006 11:24 AM
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