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
1

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
2

3

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
4

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 \"serious\" work
Selling music as a SERVICE is the consequence
Gerd Leonhard Music & Media Futurist www.mediafuturist.com
5

Mass Media > Niche Media >
Lifestyle Media
Source: IBM report
Gerd Leonhard, Music & Media Futurist www.mediafuturist.com
6

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
7

2 crucial paradigm shifts
USAGE
RIGHT
Monitored
CopyRIGHT
Controlled
2006 © Gerd Leonhard Music & Media Futurist www.mediafuturist.com
8

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
9

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
10

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
11

More choice = less hits
12
Gerd Leonhard Music & Media Futurist www.mediafuturist.com
12

My next book... and a good headline
The
End of
Control
13
13

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
14

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
15

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
16

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
17

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
18

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
19

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
20

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?
21

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?
22

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
23

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!
24

The MUSIC FEE is only the beginning: the real $$$ will come in from:
Music
Fees
(Pool)
25

And:
Cross-Selling
Music
Fees
(Pool)
26

And… (!!!!)
Sharing Advertising
Revenues
Music
Fees
(Pool)
27

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
28

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
29

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
30

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
31