Taipanway’s Weblog

I like the purchase by Sony though I am surprised it was not Sony music. Gracenote has a solid team - good technology, a commanding market share and is the only company I can think of that is at the absolute top of the value chain. That does not mean Gracenote was a good investment for their investors (they raised north of 50 million I believe) so maybe a 2 or 3x for them (guessing here).

As a company Gracenote has the opportunity to continue to push forward with some new tech (I like their ‘geo-locating feature) - I wonder if the Ps3 has some further designs on music that we are unaware of.

Mobile Music Firm Hurray Buys 30% Stake in Chinese Indie Label

Beijing - Hurray Holding Co., a Chinese wireless music distributor, announced on Thursday that it has invested $2.25 million for a 30% stake in Chinese independent record label Beijing New Run Entertainment. Artists on the label include popular singers who have charted hits across ringtones, ringback tones and full-track downloads to mobile phones in China.

This little deal got glossed over by pretty much everyone – and to some extent it should.  However, this is a rally interesting concept that I think I have written about before (and if I have not, I definitely have spoken about it quite a bit).  The expertise of what a record label does and what a technology or portal company does is getting blurred.

In general, a record label finds talent, funds talent, markets talent, helps improve talent (though this is debatable) and helps get exposure and distribution.  I have argued that it makes sense for an Apple a Yahoo, etc.. to sign artists to their own labels.  Why promote 50 Cent where Apple makes 28 cents (compared to 71 cents from the label) when Apple can promote X and make the whole 99 cents.  Of course Apple will have to pay the artists, but maybe there is a new model (actually a very old model) where artists are more like employees that have salaries (of sorts – though this is a bit of a tangent).

An Apple could easily find talent – maybe more efficiently then the labels because they are selling the music direct.  They are a retailer – they know the customers.  Where as the labels are wholesalers – they have no idea who their customers are.  Apple could watch the numbers and see an independent with traction, swoop in and sign them.  They could hire A&R, they could buy small (or even big labels if they wanted) – etc..

They obviously can market talent: They could bundle on their devices, run TV spots but include these artists instead of Eminem, they could promote off of iTunes, etc..

Improve talent – leave it to management and production

And most easily they could get the exposure and distribution locked up

The deal I quote above is a good test of this hypothesis.  I am assuming, and I could be very wrong, that Hurray Holding saw that they could make more money by owning the content then by reselling the content.  True it is very likely that ‘tech’ companies are bad at content but this is a new world.  Apple is as much a brand and marketing company as anyone and probably more so then a label.I   am very interested to see who else tries this strategy and if it works.

One more extension to this – I have argued for quite sometime that music as a primary driver is a bad business.  I have also argued that one of the main problems in the music business is that there is a misalignment of interests.  In the scenario I touch on above, music does not have to be the primary driver and there are no alignment issues.  Time will tell.

Now this is an interesting bit of news.  I am assuming you read the concept so to jump right in.

Does this really matter?  Apple has sold 70 million iPod’s - so if Uni had this deal with Apple, that’s 70 million to Uni and if reports are true, 35 million will be paid to artists (not sure how they will calculate but…).  35 Million is no game changer.  don’t get me wrong, I would like 35 million - but change the landscape for the industry, unlikely.  There are a couple interesting things to focus on for the future:

1) Will Apple in the next round buy into this concept?

2) This is some Pandora’s box MSFT opened up - now they will have to pay the other majors, the indies(?) - but what about the MPAA, TV, Producers - where does it stop?  Future versions of the Zune will not be about ‘music’ it will be about content.

3) How will mobile phone makers respond.  With 600+ mobile phones sold a year (give or take), there real money can be made by the music business by getting their fee on Mp3 phones (as they take market share). problem is that the industry tried to get the carrier/handsets to pay for DRM licensing (at the tune of a $1 a unit) and the industry said no f-ing way.

4) Should MSFT pay Uni for this.  Now I think it is a win for Uni (short term at the very least) but from a ‘moral’ perspective - Should Uni be paid for an MP3 player?  Does Panasonic pay Universal Home Video for a DVD player?

This is a fascinating topic and one where I have to say kudos to Universal and too bad for MSFT - I can’t wait to see how Apple deals with this…

(from Fierce Wireless):

5. Activefone, Bango bow user-generated D2C service

Marrying two emerging trends in the mobile content space, Activefone has unveiled a network that allows mobile subscribers to upload pictures and video to a sort of mobile blog site, and subsequently, to sell them to other community members using Bango’s direct-to-consumer platform. Users selling content keep 20 percent of each sale made through the service, dubbed momo.

20% to the user?  How come the little guy keeps getting screwed?  You all know I don’t use my blog to push Xingtone products - but for the love of G-d… we have been offering our self-help service as a fully launched platform since March of this year and we offer 50% of gross revenue (no deductions).  There is no excuse in the world where distribution is available, no cost of physical goods, etc.. to keep screwing the little guy.  The promise of the internet/mobile internet is opportunity - direct relationship with your fans, etc.. Why does the industry, in various ways and form give 50% to the majors and 20% to the little guy?  It makes no sense - and if you think it does go read the long tail!

I have posted on my blog and have expressed strongly, many times, that companies that use music as a secondary driver (MTV, WalMart, Apple, etc..) will be far more successful then those that use music as its primary driver (Napster, Rhapsody, etc..).

Spiralfrog and it’s ilk, seem to fall into the former category.  Use music to generate enough traffic and ad inventory to create real-estate to generate more money then they need to pay out.  So in that sense I like the strategy.  I would say, as an aside, it amazes me that the record labels insist on upfront fees and guarantees on revenue.  Yes there are administrative headaches in dealing with small companies, reporting, etc… But IF (and that’s a big IF) Spiralfrog will succeed, they could probably use that money for better purposes – like marketing.

But back to the topic at hand.  Anytime I review a business idea I look closely to see if it is a real business or just a product line extension or a marketing move. Someone once came to me with an idea for a BUSINESS to double the size of the little ketchup packets you get at fast food restaurants.  Now granted, I love ketchup and yes I would LOVE bigger packets – but would I really want to compete with Heinz on this one issue.  OR is this just an idea that Heinz should take under advisement.

In a previous blog I suggested that Yahoo would/should go free.  They already generate most of their money from advertising – they have millions upon millions of users – they have everything one would need to put this strategy to play – in other words – this would be just a marketing concept they have all the other parts of the equation locked down.  But Yahoo has not done this yet – why?

1)       They do not believe they can make enough money in advertising to make up for the licensing, marketing, services, etc..

2)       Advertising within a music store would be to invasive for the user to care

3)       This must be a WMA deployment – no iPod support so who cares

4)       Etc…

The most important issue is obviously #1.  So, if Yahoo can’t do it, why do we think Spiral Frog can?  I know I don’t. 

Motion Picture Industry Touts Shutdown of Pirate Bay (borrowed from Digital Media Wire)

The Motion Picture Association of America (MPAA) has just trumpeted the shutdown of The Pirate Bay, a massive source of unauthorized digital content. The BitTorrent tracker previously commanded an immense level of traffic and interest, and regularly thumbed its nose at agencies like the MPAA and RIAA. But recently, the MPAA tied with Swedish authorities to raid several

Pirate Bay facilities, resulting in the seizure of multiple servers and various individuals. "Since filing a criminal complaint in Sweden in November 2004, the film industry has worked vigorously with Swedish and US government officials in Sweden to shut this illegal site down," the MPAA noted in a Wednesday announcement. "Over 50 Swedish law enforcement officials executed search warrants and raids at 10 different locations which resulted in three arrests and the preclusion of millions of users trading up to 2 million illegal files simultaneously."

The PirateBay website, at piratebay.org, is currently down, though anti-copyright organization Piratbyran has posted an update on a separate blog. "The Pirate Bay and Piratbyran is down after a raid on our ISP…we will post more info as soon as we know it," the group stated. Just prior to its shutdown, The Pirate Bay reportedly offered a total of 157,000 illegal files, including blockbuster releases Da Vinci Code, Mission Impossible:

II, and The Poseidon Adventure. It was also ranked as the 479th most visited internet destination in the world according to Alexa.com.

I meant to write about this a long time ago – but who has time…  I find this almost comical, especially married against statements that P2P is under control (made by the RIAA this past week).  Since this statement, about 36 hours later, Pirate Bay was back up.  When the UK started making noice against allofmp3 – they moved from 1000 on Alexa to 200 almost overnight.  When will these jackasses learn that publicity does not help their case.  They just don’t get it. 

We had a situation, about 18 months ago, when xingtone software was hacked.  We went through all our options, what should we do:  We knew a lot about the hacker – we even had his cell phone number – should we call him, tell him to stop, hire him, make a loud statement, panic.

We chose to slowly, methodically, change some arcitechture so that this would not continue.  We did not take an aggressive stance – not because we did not want to, and certainly not because our Tech team was not angry – but we were 10 people at the time, did we really want to piss off the hacker community?  Did we really want to poke at what are basically anarchists? Just seemed like a bad strategy.  I am not saying the RIAA should not take steps, I am saying going public a) publisizes P2P and theft as being available and b) pisses off hackers, giving them fuel to a fire that already exists. 

"JupiterResearch Puts MySpace Above Rivals on Music Discovery MySpace Music is one of the most effective ways to generate community and spark discovery around an artist, according to a recent report from JupiterResearch. According to the finding, published Wednesday, MySpace generates far more community-related music activity than rival destinations Yahoo Music, AOL Music, and MTV.com. "Music marketers should leverage community sites, such as MySpace, to recreate the feel of personal recommendations of friends," said David Card, vice president and senior analyst at JupiterResearch and author of the report. The study noted that 48 percent of music discovery happens between friends.

As part of the study, JupiterResearch tracked promotional activity on pop group Black Eyed Peas across MySpace, Yahoo, AOL and MTV online. The research group noted that MySpace generated hundreds of thousands of friends, and profile views and song plays in the millions. In contrast, the more mainstream music destinations generated far smaller communities.

Meanwhile, the study also found that 53 percent of those surveyed also discover music through videos, while 87 percent find new music through the radio."

Some of my friends in the music industry have said that if myspace.com disappeared tomorrow, they would have no online marketing strategy.  Currently myspace has over 80 million members.  Does it really take a full study by Jupiter to concolude that one of the most heavily trafficed websites in the world in the perfect demographic, is the best place to market music?  (on a seperate note - I believe there is a point of diminishing return here - that I may go into on a seperate blog).  I hope that Jupiter is just giving this data away and no one commissioned this.  If my company ever commissioned a study like this I would quit on the spot for wasting time and money.

“Virgin Mobile USA, the MVNO pioneer which is seeing a flatline-to-decreasing growth in its business, is starting a new service inspired in part by others: the service, called SugarMama, lets people earn one minute of talking time by watching 30-second commercials on a computer or receiving SMS on their phones, then answering questions to prove they were, in fact, paying attention. The subscribers can earn a maximum of 75 minutes per month, by watching these ads from the likes of Pepsi, Microsoft’s Xbox game console and a youth antismoking campaign called Truth.”

I don’t know if this will work ultimately – there are major problems with this – not the least of which, do you really want to market goods to people who can’t afford them.  Pepsi yes, X-Box no.  What I love about this is that this follows a principal I have been filtering through that deals with the have and have nots.  In today’s world, it is my belief that high end goods and low end goods will do very well, where as mid-tier will struggle.For example, in Los angeles, we have the Arclight movie theater.  The Arc-light is $14 to see a movie, which is about 30%+ more then you can see it elsewhere.  Now though I am far from rich, if I have my druthers, I go OUT of my way to see the movie at the Arc-Light.  They have a restaurant, bar, assigned stadium seating, etc.. Most importantly, they have NO commercials and only three previews before the movie gets started.  They even have an usher announce the movie who stays in the theatre for 10 minutes to ensure the picture and sound quality are up to snuff.

The service described above is for the have not’s, kids, etc.. I don’t know if THIS will succeed, but based on my analysis it is a market that makes sense.

The internet/web 2.0 is blowing up primarily because of social networking and social media.  10’s of thousands of video files a day of user generated videos are uploaded and viewed by millions of people.  As is always the case, we are now seeing the conversation to mobile – but this is NOT an easy transition.  Why?  Lots of reasons:

1)       File formats – online you have 1 or 2 file formats that you might be working with – and typically if you have Windows Media or Quicktime (maybe Real or Divx) installed on your computer, it will work – in mobile this is not the case

2)       Handsets – out of 207 million mobile subscribers in this country, about 5 million can do video

3)       Carrier networks – 1) they can not maintain, at this point, the bandwidth necessary for users sending the amount of data moving on sites like youtube/myspace

4)       Carrier interopability – if I send a piece of content to my phone, I want my friends to be able to see it, even if they are on a different carrier.  Walls, tangible or intangible, screw up this process.

But there are much bigger reasons, for example, Xingtone could solve the first two, with on the fly encoding and carrier networks will eventually get up to snuff.  The real issue comes around the philosophy and the legal liability around user generated content.  User generated content works because it is real, raw and unedited.  It is a voice for ‘kids’ everywhere.  There are illegal things (music videos, or music in the background), there are jack-ass type videos, there is porn type videos, etc.. All of these ultimately are what the consumer wants.  The user also wants things in real time.  They do not want to upload a video today and have their friends watch it in a week – that want it now.  If they cant have it now, they will move on to the next thing.  Additionally, the cost in verifying the veracity and legality of every piece of content is too much for virtually any company to absorb, let alone most of the companies focused on mobile user generated content (saying nothing of just user generated content).

Carriers claim that they are worried about the FCC, worried about legal liability, about an angry consumer who downloaded a video and saw a penis by accident.  I call bullshit and believe it ultimately comes down to control.  Carriers continue to focus on their ability to market, distribute and sell mobile content.  If the world of mobile moves to free content, especially P2P user generated content, carriers are worried that they are just dumb pipes.  This issue begs the question of net neutrality, which is for a different time….

The solution, which I am not going to give away here, is relatively simple.  The value chain must focus on delivering what CONSUMERS want, NOT want the ecosystem needs for self preservation.