George Howard Presentation Transcription

By March 8, 2016

Transcript

INTRODUCTION

Hi, I’m George Howard and I want to give a talk today about five key elements that are really going to shape the music business and fundamentally change it. Change it in a way that’s gonna get at this thing that I’ve been trying to get at for 46 years now. This idea that I’m on this planet to help artists create more sustainable music business models on their own terms, and we haven’t seen that. We’ve seen, up to this point, some people winning and some people losing, and a lot of people pointing fingers at what’s wrong. Forever, I didn’t even realize it, but for whatever reason, I’ve just been pushing. I’ve been pushing, whether it’s through starting companies, running labels, teaching, or getting law degrees, or all this crap to really try to help artists build more sustainable careers on their own terms. Because at the end of the day I believe with all my heart that more art equals less war. I may not be a great artist, I may not be a great business person, but I certainly want a world for my kids and everybody else’s kids where there is more art. I think there will be less war if we do that. In order to do that we need more musicians and more artists generally making stuff and being able to make stuff on their own terms. So today, I want to talk through five key points that I think will unlock and create a robust music industry that benefits not just the artist, but also all the stakeholders. Whether record labels, however they redefine and continue to define themselves, or entrepreneurs or anyone along the value chain, but also the fans. They get left out of this conversation an awful lot. So I’m going to talk through five key points that I believe will unlock the power of the music industry and allow for it to grow and flower.

POINT 1

Protools really was the first shot across the bow where the artist could say, “You know what, I’m not so sure that I want or need to give up the copyright to the sound recording in order to gain access to the studio. I can make my own recording.” That really fundamentally changed the way that artists and labels did business. Up to that point the labels would say “We will give you money to make your recording and then we, label, will own that recording forever. For life of the copyright.” After that point I will never forget it because I was running a label at that point, at that time. You know artists would come in and say, “I don’t need your money to make my recording. I just, I’ve got it right here.  And therefore you want it, label, you can use it for a period of time but you can’t have it forever.  So I’m going to license it to you.” So that was really the first moment where labels started to lose some of the control but it wasn’t the end right because then the labels would say, “Fine, sure, go ahead make your own recording but you still need us to distribute it.” Up until about 2004-2005 if you wanted to get your music into the marketplace, as hard as it is to believe, that meant an actual physical copy put into a store.  And only labels and distributors had the infrastructure and the means to do that. You could sort of do it, you could cobble it together, but in terms of a widespread way you really needed a label distribute more than anything else.

Then, of course along came Itunes and companies like Tunecore, which I had a part in, and others that said, “Maybe not”. Maybe you don’t need the label to do distribution for you because people are increasingly happy to download the music. People are increasingly reluctant to walk into stores and buy recorded goods. So now the artist comes back to the label and says, “You know I don’t really need you to either fund my recording, nor do I need you to distribute it.” And the label goes, “Well, okay but guess what? You still need us to promote it. You still need us to make people aware of your music.”

The third  sort of piece disintermediation which is still playing out today, is that idea of marketing and distribution. Arguably social media has addressed that.  Social media in its most idealized sense does allow for an artist to connect directly to their fans without needing a label to do that for them. Certainly the promise of social media has not risen to the level of expectation but we’re getting better. We’re getting better in the sense that increasing number of artists can  aggregate a number of fans and use the data and make them aware of their music and then hopefully get those fans to make their friends aware of it without the labels doing it. There are still some road blocks, big time radio being one. It’s still almost impossible to get your music up onto the big time radio stations, commercial radio stations, without a major label. There are companies out there and I am lucky to be a part of one, Music Audience Exchange that are trying to fix that too.

So through those three things Protools, digital audio recording, distribution and now social media it really did sort of disintermediate the need for someone in the middle. You don’t necessarily need the label. It doesn’t mean labels are bad. It just means their roles need to change. I believe disintermediation is really just beginning.

A technology that I am increasingly excited about, seems like the world is starting to join me on this, is this idea of blockchain technology. This idea that you can have a ledger that is distributed, not owned by any one person or any institution. Where you can put not only your content up there, but a set of your rights and rules around your content and other people can find that content and with no middle person; through something called smart contracts, use your contract and people get paid immediately and transparently.

We’re at the early days of that and to me if feels like it sorta did in 1995 or ‘96 with the internet. Where we’re going, “This could really change things. Not exactly sure how, but blockchain tech could do the same thing.” So we’re not done with disintermediation and we really won’t be until their is a good and fair and efficient system for artists to be able to connect directly with their fans, with as few middle people as possible. Doesn’t mean middle people have to go away.  It’s just increasingly that they have to really find value that isn’t born out of lack of transparency or lack of access.

POINT 2

Point two is really related to disintermediation. Point two that has to become far, far more pervasive in the music industry is transparency. You hear that a lot, “We need more transparency.” On one hand it’s an ethical issue, in the sense that if you’re doing business with someone and you do it in a transparent way then you’re generally moving society forward. That’s what ethics is. Ethics aren’t personal. Ethics are how can we create systems that benefit more people than less. So, there’s that, but there is also just the sheer pragmatism of it. In other words, if everybody is second guessing everybody else, if nobody trusts anyone, which is really the case in the music industry right now, nobody really trust anyone to do the right thing, because for so long why should they? Everyone was lying to each other. That distrust creates all sorts of inefficiencies. Inefficiencies that lead to inscrutable contracts. Relationships that aren’t born out of mutual value, but rather born out of necessity. I don’t want to be doing business with this label or whoever, but you know I don’t know if it’s good or bad. That’s a big problem with playing in the industry right now.

You will hear from whoever you talk to that the other party is screwing them. “Spotify is screwing me”, says the artist. And Spotify will say, “No the artists are essentially screwing us, we are paying them fairly.” And the problem is, we don’t know. We don’t know whether or not they are being paid fairly or not, because we don’t really know what is being paid because it’s so shrouded in archaic systems. So even if you wanted to be transparent it’s very hard to do. As the sheer volume of music has increased, and the sheer numbers of users of music increases, the ability to quickly and easily identify the rights holders is essential.

If we ever want to get to a point where I want to use more music and consume it, the only way an artist is going to go, “Great!”, is if they know how that’s being used. It doesn’t necessarily mean that they have to get paid. There are lots of artist that will demand to be paid, as they should, or artists that say, “Look, I’m happy I got my music out there because I think it’s good for the planet or I want the promotion etc..”

Right now you just don’t know. So transparency is really point two in terms of how the music industry needs to evolve. And again, not just an ethical issue, though there is that, it’s really a business issue because as transparency emerges, then bonds of trust  get tighter and when bonds of trust get tighter, transaction costs go down. Whether it’s the transaction costs of having to hire lots of lawyers, lots of verification systems or if it’s just transaction costs related to doing business. Retaining customers, retaining relationships are costs, and if those costs can go down, then profit goes up, generally. So transparency and again things like distributed ledgers, like blockchain tech, or just generally a movement towards some sort of fair trade of music. “This is what I need to be paid” and “I, customer, am willing to pay it.”  Customers are only going to be willing to pay that if they believe that what they are paying is actually going to find it’s way to the artist. So transparency is point two.

POINT 3

Point three is a term you might not of heard before and it’s something I am borrowing from some of my heroes, that in my estimation really wrote the book on the internet called the Cluetrain Manifesto. Related to that is this idea of VRM. VRM stands for Vendor Relationship Management and it’s an opposite or binary to CRM which is Customer Relationship Management. Historically the music industry has been all about Customer Relationship Management. Again a small number of people, suppliers of music, saying “We are going to dictate what you hear.” And they will dictate that either through, “We are only going to release this type of music” or “We’re only going to pay to get this music on the radio ect.” And the problem is, as I think it’s becoming more and more apparent, they’re not that great at knowing what people really want. So VRM flips that. VRM says, rather than me, customer waiting passively for you, curator, A and R person, label or whatever, to tell me what I like, it’s much more of the sense of you know here’s sort of what I want. This is the type of music that I like. You, producers of music, artists or labels or Spotify..give it to me. “You give it to me, here’s what I want, give it to me.” That’s VRM.

Where it’s actually the customer managing the relationship with the vendor. And again it goes back to the related points. You can only do that if you have mechanisms of transparency where those customers can, in marketing parlance, put out a request for proposal; in the same way businesses will say, “Look I need someone to come in and do an ad campaign for me and give me your proposal.” A customer should be able to say, “I like this type of music”. Then the vendors, again that could be a musician, a curation stream, what have you, “Let us super serve you, let us make you happy.” That really changes everything. When you do that, it’s not just about me as an individual fan of music, it could also be the business owners. The business owners right now who want to play music in their stores, in their restaurants, what have you, they’ve gotta pay a blanket license to play anything in the catalogs of the three performance rights organizations: ASCAP, VMI, CSET. So, even if I only want to play a little sliver of music in my restaurant, I gotta pay a fee to play everything. That doesn’t work for anyone, except for the very top level artists who are getting paid. Nobody is walking around to every store seeing what’s getting played. But as we move forward with transparency and with disintermediation, and the ability to say, “Hey I want this type of music”, and the artists to know, and again through machines, through smart contracts…then the users of music will much more readily say “Oh, I get it! I want this. It’s been supplied to me, hopefully directly from the artist, and I’m willing to pay that; rather than just paying some vague fee for music I don’t really want or use.” VRM (Vendor Relationship Management), me telling the marketplace what I want and the marketplace working to serve me rather than a small group of people saying we know what the market wants because they don’t right. VRM is point three.

POINT 4

Point four is the idea of curation. Data and the term everyone’s talking about these days, the Internet of Things. They’re all related. Increasingly we’re in an era where all this data, all this noise, we’re able to grab data from all sorts of sources. My watch is currently monitoring any number of things going on in my body. It can tell me how many steps I’m taking and what my heart rate is. All that is data. Google, Google’s a data company. They’re watching the things that you do and the actions that you take, so they can then provide you with other things. It’s the era of taking what used to be unstructured data and structuring it and sending it back to people. Now a way to think of that is curation. The problem with curation so far is it’s  been very bad. Where you generally tell some service the artist you like artist X. I like the Rolling Stones then they spit back at you well then you probably would like the Who, but you already know that. That’s not curation, that’s just one step from the source and that’s no good. But as we hurdle forward, what’s really going to help the music business is, where it’s several degrees of separation. Where you like the Rolling Stones, maybe I’m not going to recommend the Who, but maybe I’ll recommend Mississippi John Hurt or something you haven’t heard. Maybe I’m not just going to recommend music. I’m also going to recommend this book or this t-shirt or these types of things that enhance the overall relationship with music. Where music helps you contextualize your life. Music is information at this point and so that leads to this idea the internet of things. The internet of things is the idea that there are now these devices that talk to each other and relate to each other based on certain activities. So you drive up in your car a via sensor Near field communication (NFC) sensor it knows that you’re close to home. Therefore it talks to your Nest thermostat and turns the temperature up from 55 to 75 to make it warmer for you. At the same time that triggers your Hue light bulb to turn on. That also triggers your Sonos system to play, Paul Desmond. And so you walk home and it’s like some magic has happened. The problem to date has been that it’s been wonky. It hasn’t worked well together. You really have to hack these things together and so only a small group of people have been able to really take advantage of the whole Internet of Things.

What’s been interesting is that Amazon, with their Alexa product, Echo, it’s the first real sign of the Internet of Things that just delights the average user and it delights them because of music. So I can walk into my room and rather than having to swipe an Iphone thing and find my Sonos thing and take 10 steps to get music. I walk in and say, “Hey Alexa, play Paul Desmond”, and there it is. That’s the first toehold of an Internet of Things where it’s gonna get smarter. Pretty soon it’ll learn that when I walk into my bedroom at 11 o’clock at night on a Wednesday, I might want to hear Brian Eno,s Music for Airports. But if I’m in there on a Saturday afternoon working, I might want to hear something very different. It will start to learn and through that it will start to give better and better recommendations that aren’t simple vertical one standard deviation from the source, but rather a richer, more contextualized service. You can imagine, for instance, that you can have jukeboxes where, instead of people going into a diner and cueing up so they can her Born On The Bayou at some point, they walk into a store and an app lights up on their watch. It says currently what’s playing is this, and then you could chose from X number of songs right there on your phone, and say, “I want hear this”. Then you do what people did when there were jukeboxes…they stay in the store longer. Customers learn more about the store, and the store learns more about the customers. It’s done in a delightful way that doesn’t feel coerced, but actually rewards the experience. So taking that unstructured data weaving it into your life in a more organic way. Music is gonna be at the leading spear of that because music always is. Music is always sort of the first mover. Always sort of the canary in the coal mine that other technologies go after. And you can see it with what Amazon is doing with Alexa and were just at the beginning stage. So point four is the curation and data and the Internet of Things.

POINT 5

My fifth and final point: and these all tie together; it’s a mosaic of all these pieces that I believe play together nicely that untap what has been hidden asset classes or under utilized asset classes. We’ve long thought of music as this very specific thing that could only be an unlocked asset class through sales or through streaming. What I’m positioning through these five points is that no, no, no music should be way more pervasive and transparent and there should be way less intermediated. There should be way more connections between makers and consumers and the payment structures and the usages. So the last point is related to artificial intelligence and bots and wearables and health. It’s not just music for enjoyment, though there’s that. Increasingly, people are saying, “You know what, if someone with alzheimer’s or parkinson’s is suffering, we’re seeing amazing results from playing music to them.” I’ve been fortunate to work with some companies and cover some companies and just watch miracles happen. And this isn’t new.

Music therapy is a long structured discipline, but increasingly we’re able to integrate music into people’s health in ways that we’ve just begun to untap. Think about virtual reality. Think about things like seasonal affective disorder. Where virtual reality might be something where, rather than wearing some vague sort of light on your head in the winter time, you actually put on a headset. You really think music isn’t going to be going to be a part of that? That helps people, that heals people. And music has long healed. But now, with wearables, and with VR, music just beginning in terms of how it’s going to intersect with people to not just enhance their lives but to help them heal. Similarly, artificial intelligence and bots; this is new and emerging. But increasingly, we’re integrating and intersecting with our technology, where that line between it being just a computer and more something that is serving our needs in an organic process is diminishing. Somebody texted me yesterday. I was suppose to meet them for coffee and they said “I’m here, do you want me to get you a coffee?”. I got the text on my watch and it knew by parsing that data to give me a canned response: one of which was, “No thank you, I would prefer tea.” That’s artificial intelligence. That’s a bot. That’s parsing data and allowing you to interact.

So imagine if, for instance, you’re working on your laptop and you’re listening to some music. The curation gets better and there’s sort of technology that’s integrated in suggesting music to you based on the type of work that you’re doing. “Oh, it seems George like you’re really focused right now and you’re pounding away and you’ve got your notifications turned off.” Well maybe they’re not going to give you anything but maybe there’s a subtle gentle sort of beeping on your arm that wow here’s some productivity music etc. It starts to integrate more into our lives. Whether it’s through a wearable or through a bot or all of a sudden music is, is everywhere and it’s feeding us, feeding our souls but also feeding our health. So point five is AI and bots, wearables whether that’s VR or watches and its relationship to health and how that’s going to expand the music business generally.

SUMMARY

To wrap up, I’ve just presented five key elements that I believe will be hugely important over the next several years in terms of creating a music industry that adheres to the principles defined by Music2020. Each one of these points is going to represent a benefit, not just for artists, but also for entrepreneurs, for existing music business stakeholders, and for businesses who desire to use music; and of course for the fans. At its core, we at Music2020 believe that a combination of disintermediation, transparency, and technological advances will all begin to combine to result in a flowering of the music industry. So, it’s going to be a fun ride. We’re just at the beginning. Jeff Bezos is fond of saying, “We’re at day one of the internet.” It feels, again, like we are at the day one of music business. The key is to stop being confined and adhering to the past structures, and instead start thinking about, how to integrate music. Integrate music in a way that has more winners than losers. If we do that then more artists will have sustainable careers on their own terms, and I can keep tilting at the windmill.