George Howard: So, I’m sitting here with Scott Kirby, my partner in crime in Music2020, and, Scott, I want to take this time to talk through what we’re getting at, you know? This idea that we are gonna try as best we can to raise the level of discourse around the business of music in order to create a more sustainable ecosystem for more players because, right now, it doesn’t seem to be working that great for that many people. And so my sense of it is that by talking with smart people and asking the hard questions but really listening, rather than advancing an agenda that is unique to any one particular party, but rather listen to more people. One of the key groups of people that have been left out of this conversation is the audience, music fans. But before we get to that, give me your thoughts. What are we tilting at here?
Scott Kirby: I believe strongly, George, that the music industry had a real crisis period initially when Sean Fanning came up with his original Napster, now about 16 years ago. And I don’t blame the record industry because they didn’t have hindsight. Maybe it would have been a great idea to take a look at this thing and go, “Oh my gosh, this internet has the power to send millions of music files around the world with the click of a mouse button. This makes our job very easy.” And I think the reason why the music industry got so incredibly screwed up is that they didn’t realize what they had in their hands.
GH: Which was, in their defense, hard to predict where that was going to go at the time.
SK: It was before Facebook, it was before all the social media, they didn’t know what the heck was going on.
GH: Yeah and not in their defense, they did what the music industry has historically done with any new technology since vinyl, piano rolls, they withdrew into themselves. And I was a part of the music industry at the time, but I knew immediately as soon as I saw the first mp3 player that was long before the iPhone or iPod that this is a game changer. So how are we going to get there? What are we going to try to do with Music2020 to address that issue that I think you’re right, that still exists?
SK: I think what we need to do, George, is recognize that we are in the information age and, people might have different opinions on this, but I don’t think the record industry ever got in the information age. I think the record industry, to a large degree, is still in the industrial age. I think they need to realize that the middle group of people that are the broadcasters, which are the Spotify’s and the Pandora’s and the Google Play’s and the Apple’s, have an enormous job on their hands. They need to connect with passionate, engaged fans, collect information and use that information as a bargaining chip with not only the record industry, but many many other industries. And on our Music2020 website is a film called “KILSWITCH”…
GH: Right, that you made.
SK: Well, thank you. ..about the payola law and how it broke up a very fledgling business relationship between the people that make music and the people that distribute it. And the people that distribute it still don’t quite understand that they are in the music industry today and we need to get them in the music industry.
GH: So I think you’re talking about synergy?
SK: Synergy is exactly what I’m talking about.
GH: Yeah… a better partnership where the stakeholders are working together in a more collaborative way rather than the very siloed, binary, “I win, you lose,” type of relationship. So how do we get there? What are the pillars of Music2020 to talk us through?
SK: I think what we do is we get into a very basic “roles and goals,” kind of establishment with the record and radio industry. And for this discussion, why don’t we look at the goal of the record industry?
SK: What the goal of the record industry wants to do is go out and get very compelling music that moves people and work with artists to help them do that in whatever capacity the artist needs. I think you and I both agree that labels are kind of morphing into the thing that management might be a better term than labels.
GH: Well, we’re at the spot now where it’s hard to distinguish between say what a label might do for an artist, what a manager might do for an artist, when an artist is essentially their own label. All these, and I think it goes to our initial point, of all arbitrary verticals that came out of, almost as you said, the industrialized version of the music industry, are changing. It’s increasingly difficult to say, “well a publisher does this… well a label does this… well a manager does this…” and I don’t much care. I mean, I think at the end of the day, I want the people that are participating in the music industry to do so in a way that’s transparent, that adds value, but value to the artists themselves and the fans and the other players throughout the entire value chain.
SK: I think the record industry, never has gotten out 16 years and I still think they look at themselves as “Oh, we manufacture product and send it around on trains, planes, and automobiles and then we inventory and if there are returns we have to deal with all this.” No! No, the internet has made all of these things obsolete. And so what the record industry needs to do is realize “Hey, we don’t have we don’t need these giant buildings as big as IBM anymore. We can scale down and focus on what’s really important now which is helping the band put out great music and having a smarter business relationship with the Spotify’s and the Pandora’s cuz they’re the ones taking on a much bigger role in 2016 than they did ever before.”
GH: And the labels would say, “Yeah, we know. We know we’re not in the business of the sale of recorded music anymore”, whether that’s through downloads or through physical goods for sure, even though vinyl continues to surprise people, I think for all the obvious reasons. Certainly the labels are investing either from an equity stake, in other words, actually part owners in businesses like Spotify. But you’re right, how do we make it so that…the issue with those relationships right now is that it seems the labels are benefitting far more from the relationship with Spotify than the artists themselves. Maybe that’s true, maybe that’s not true. Part of the problem is we can’t get at data to verify that. My sincere belief is that the labels are benefitting more than the artists from the relationship with Spotify. But that is not sustainable because eventually the artists go “I don’t want to do that anymore and I’ll just start going directly to my fans”. The labels will have to define, “What exactly is our value?” Maybe it is the curation. Maybe it is being a good team member of the artist.
SK: Well previously George, we still have it and it’s still out there, MusicRevolt.org, our motto was for “Fans and bands a choice to choose”. And what we think artists should have, the choice to do, the ability to do, is sign a deal a contract with whomever they want. In other words, Netflix now is not only a curator and an aggregator, they actually producing content. I want that same model to work in the music industry. So, yes, I think the three major labels are not being fair to bands. If you talk to Taylor Swift, or Adele, or Portishead there is just an endless litany of stories of bands that are feeling like they’re getting cheated and if the bands could go, “Well OK, you’re offering us this horrible deal, I’m just going to go to Spotify. They’re going to reach millions of people, which you don’t reach anybody, and orchestrate a deal with them”.
GH: I could care less about Adele or Taylor Swift, I think they are doing just fine. Portishead is probably not in the best deal in the world. I’m vastly, as I know you are, more concerned with emerging artists, the ones that are just trying to gain some traction some attention out there, and are really not represented in any way. Yeah, I think we will, Apple to a degree already is, creating their own content. Certainly, Pandora, Spotify, and others could very easily go to a model of “Hey, come on and create something that’s specifically ours” in the same way that Netflix does with House of Cards, or whatever. At that point to me they just become like another label. But your point is, correct me if I’m wrong, the artist should be able to disseminate their music through as wide – I think rather than there being, and I’m stealing this from Andy Weissman, rather than there being four dominant streaming services there should be 4000. You should have yours, I should have mine, the artist should have their own. It becomes the idea of “How do you find this stuff?”. And that’s where technology comes into play.
SK: Yesterday, George, I was listening to Bloomberg surveillance, a Wall Street sponsored podcast, and they had an Italian guy on and he said, “The genius of the American marketplace is competition”. And what Andy Weissman said is absolutely correct; if you have 1000 or 2000 streaming sites it would bring out the best in everybody. But having 4 or 5 that are all colluded and in bed with major labels, you’re looking at failure upon failure for months and, hopefully not, but years to come. That’s the whole thing about Music2020. We’re trying to get people to go, “We’ve got to try to fix this by the year 2020”. We’re not saying we have all the answers.
GH: No, it’s a conversation.
SK: We saying “Let’s get smart people together to look at the problems of the fans, look at the problems of the artists, and say, how can the people in the middle, the middlemen, work to make the artists happy and fans happy and make more money, do better making the fans happy and the artists happy.”
GH: I think that’s right. I think, generally, and I’m with you on the capitalist element, but I do think it is no longer the Darwinian, binary “I win, you lose”. I think it’s more about trying to create a sustainable business to just increase the overall pot. I’ve had the good fortune to run labels to run streaming services, and to work with big artists. It ain’t easy on any side of the vertical, right? And, so, while I believe Spotify could improve, and I believe Pandora could improve, and I believe Warner could improve, I also believe artists could improve, and I believe the fans can improve. And I believe that there is a way, and hopefully we’ll uncover a lot of this with discourse to say, “Well, who are the stakeholders that are really not being represented well and how can we use technology, how could we use just a different viewpoint to make this have more winners than losers?”. That’s what we’re getting at.
SK: We want more winners than losers. And I think if you wrote out a list of the grievances of fans, they’d say “We’re not exactly sure, even if we never took Economy 101, the pricing structure of the record industry is unique to itself and maybe not good for the fans.” I think artists would say “We want transparency. We think we’re getting a bad deal from the record labels and we would like to have the ability to see on a day to day, week to week basis exactly who likes our music, and how we we can get in touch with them and engage them more intently.” I don’t think either camp is happy.
GH: No, you’re right. And the streaming services have been very vocal about it. Pandora has been saying, “Hey look, if you make us pay more royalties this isn’t going to sustain.” Spotify is hemorrhaging money. The labels aren’t merging because they want to. They’re merging because they have to. So, it really is a problem of untapping asset classes that have yet to really be untapped or maximized. Maybe that happens through technologies like blockchain or others. Maybe help comes through some education of fans and maybe it comes through education of artists to operate better. Maybe it comes through innovation that comes from some of the laws out there that govern the music industry, payola and others that really need to be looked at. Those are the types of topics we’re gonna be pushing on and talking to smart people about. As you say, we’re not coming here with a particular agenda in my mind, but more one of how can we raise the level of discourse? How can we put some information out there that allows us to analyze these things in a way that isn’t just trying to advance one particular agenda?
SK: My way to conclude on this, George, is to say that the music industry has three building blocks: it has music, it has information/feedback, and it has capital. Music needs to go to the fan, then the fan needs to somehow, since it’s a music business, get the money back in a fair and legal way to the artist and get feedback, especially the 10% of engaged proactive fans. That’s who the artist wants to hear from. It is a very inefficient way right now how we distributing those three building blocks, as I see it.
GH: We’re moving from the era of unstructured data. The idea that you know, the most recent wave has been lots of data. We’re able to gather information about everything from our wearables, how many steps we take in a day, to where somebody’s downloading a song from in really precise ways and structuring that in a way that can benefit all parties here, including the consumers. That is going to untap some interesting things. It may not be what we think it’s going to be. But it does come down to this idea of let’s look at this from some different vantage points, rather than just the same ecochamber of “Well, you’re ripping me off”, or “I’m ripping you off” and that’s what’s exciting to me about this.
SK: What’s the definition of insanity? Doing the same thing over and over and expecting different results. I think we have to figure out a way to engage the proactive fan, and get their information out there, so that the really great bands start to rise regardless of whether they’re signed to Warner music group or Uni or Sony. So that the really good music rises and get the politics out, and get the fan engaged so that their information really distills into successful bands.
GH: I’m with you man, it’s gonna be a fun journey.