Radiohead’s Thom Yorke has a striking interview in the Guardian in which he sums up the band’s realizations about what David Lowery calls the “New Boss” reality:
“[Big Tech] have to keep commodifying things to keep the share price up, but in doing so they have made all content, including music and newspapers, worthless, in order to make their billions. And this is what we want? I still think it will be undermined in some way. It doesn’t make sense to me. Anyway, All Watched Over by Machines of Loving Grace. The commodification of human relationships through social networks. Amazing!”
He is, of course, exactly correct. What does this “commodification” or the Americanized, “commoditization” mean exactly?
In a prescient 2008 book review of Nicholas Carr’s The Google Enigma (entitled “Google the Destroyer“), antitrust scholar Jim DeLong gives an elegant explanation:
Carr’s Google Enigma made a familiar business strategy point: companies that provide one component of a system love to commoditize the other components, the complements to their own products, because that leaves more of the value of the total stack available for the commoditizer….Carr noted that Google is unusual because of the large number of products and services that can be complements to the search function, including basic production of content and its distribution, along with anything else that can be used to gather eyeballs for advertising. Google’s incentives to reduce the costs of complements so as to harvest more eyeballs to view advertising are immense….This point is indeed true, and so is an additional point. In most circumstances, the commoditizer’s goal is restrained by knowledge that enough money must be left in the system to support the creation of the complements….
Google is in a different position. Its major complements already exist, and it need not worry in the short term about continuing the flow. For content, we have decades of music and movies that can be digitized and then distributed, with advertising attached. A wealth of other works await digitizing – books, maps, visual arts, and so on. If these run out, Google and other Internet companies have hit on the concept of user-generated content and social networks, in which the users are sold to each other, with yet more advertising attached.
So, on the whole, Google can continue to do well even if leaves providers of is complements gasping like fish on a beach.
Thom Yorke clearly feels exactly what DeLong anticipated:
Radiohead have often riffed on the edge of that thoroughly modern disjunction. From their landmark album OK Computer on, the band seemed like evangelists for the revolutionary possibilities of a digital world, self-releasing 2007’s In Rainbows on a pay-what-you-want download. Yorke is a bit more sceptical about all that now.
In the days before we meet, he has been watching a box set of Adam Curtis’s BBC series, All Watched Over by Machines of Loving Grace, about the implications of our digitised future, so the arguments are fresh in his head. “We were so into the net around the time of Kid A,” he says. “Really thought it might be an amazing way of connecting and communicating. And then very quickly we started having meetings where people started talking about what we did as ‘content’. They would show us letters from big media companies offering us millions in some mobile phone deal or whatever it was, and they would say all they need is some content. I was like, what is this ‘content’ which you describe? Just a filling of time and space with stuff, emotion, so you can sell it?”
Having thought they were subverting the corporate music industry with In Rainbows, he now fears they were inadvertently playing into the hands of Apple and Google and the rest.
Or as Lowery famously said, “Congratulations, your generation is the first generation in history to rebel by unsticking it to the man and instead sticking it to the weirdo freak musicians!”
Now there will be those who trot out the old canard of “if you really loved music you wouldn’t care about the money.” Right. The point isn’t only whether Radiohead is making money from non-commoditizable activities (like live shows), the point is that companies like Google are (a) indifferent to whether Google (or its labyrinthine ad network partners) serve ads on Radiohead or Pinky Lee, and (b) want to get everyone’s music for free or near free. As DeLong said–gasping for air.
Please take a minute to read and sign the petition!
Please sign the letter in the link below to the CEOs of brands that appear on multiple occasions on infringing sites. Ask them to take a pledge to keep their ads off of illegal sites. Keep in mind that this list is not a comprehensive list of brands that appear on pirate sites.
An Open Letter to the CEOs of Brands Advertising on Infringing Sites:
We, the undersigned, are just a few of the millions of artists and creators living, working, and creating across the United States. It has come to our attention that your companies are advertising on websites that illegally host or distribute creative content. We want to make you aware of the harm your companies do to independent artists and small businesses when you advertise on these sites.
Advertising on these sites encourages…
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Greg Sandoval is one of the great reporters on tech and music. While I don’t always agree with him, I think he’s fair and one thing I know for sure–he is old school when it comes to getting facts and sources right. So when Sandoval says Spotify is going back to the well to drive down artist royalties even further, you better believe that I believe him.
According to his story at the Verge:
About 70 percent of Spotify’s revenues pays music-licensing fees while another 20 percent covers customer acquisition, these sources said. That leaves 10 percent to pay all of the company’s other costs, including its much praised technology platform. Insiders have told The Verge that this cost structure zeroes out Spotify’s profits.
So brace yourself–Spotify is about to do a Pandora-style argument about how artists should take even less because Spotify’s “profits” are consumed by royalties. (And yes, I do know that Spotify doesn’t pay most artists directly, but I also know that the reason that Adele held back her records from Spotify wasn’t because Beggars or its US distributor Sony weren’t making enough money.)
Since You Brought It Up
Since Spotify has put its profits at issue, then let’s discuss those profits. The good thing about Pandora is that it’s a public company. So when Pandora asks artists and songwriters to take less, the creators can look up the CEO’s salary (around $750,000) and can see that Tim Westergren is cashing out of Pandora stock to the tune of about $1 million a month. Just to be clear, I don’t mind at all if Westergren makes bank on the company’s stock. That’s they way it’s supposed to be in a free market, entrepreneurs should be rewarded. That $750,000 salary though…again, none of my business if the stockholders approve it, but it is my business if Pandora pays too much in executive comp and wants to take it out of royalties.
Spotify is a private company, and so we don’t really know what they pay their executives–but something tells me they’re not wanting for much. Why? Because Daniel Ek (Spotify founder and CEO) has a net worth of $310 million (or had) and showed up on the Sunday (London) Times 2012 Rich List as the 10th richest person in the music industry.
So since Spotify seems to be putting its profits at issue, perhaps they also need to be transparent about exactly why they make so little money. Do they have to disclose their executive compensation? Certainly not. But artists don’t have to agree to participate in the charade…sorry…license their music, either. And after all, Spotify are the ones who brought up profitability.
Maybe Their Management Team Is Incompetent
Given all the goodies that Spotify is rumored to have gotten from the labels and publishers, why is it that they are not doing better? Particularly given their spectacular valuation–while it dropped from $4 billion to $3 billion after the Facebook and Zynga IPO debacles, it’s still $3 billion. For a company whose sole product is distributing other people’s music.
And let’s not forget–this is an Internet company. Feeling a little bubbly down in the tummy, maybe? It’s still probably overvalued at $3 billion–as Peter Kafka put it in All Things D:
Investors already know what a digital subscription business looks like at scale.
That would be Netflix, which has some 27 million subscribers at around $8 a month….Netflix has a market cap of $4.3 billion.
Spotify says it has 4 million paying subscribers at around $10 a month. Bear in mind that if you value Spotify at $4 billion today, you’re really saying it will be worth three times that — $12 billion — in a few years, when it would presumably go public.
The two companies aren’t exactly analogous — Spotify, for instance, also has a nascent advertising business — but they sure look similar from a distance. They’re both international, they’re both dependent on rights deals for their content and they both face the perpetual threat of competition from the likes of Amazon, Apple, etc.
So even at $3 billion, Spotify backers will need to work hard to explain why their digital subscription business is worth so much more than Netflix when it comes time to IPO.
Notice–no crocodile tears from Netflix about mommy saving them from their royalty obligations.
Or Maybe It’s About Brand Sponsored Piracy
There’s another way to look at both Pandora and Spotify’s profitability problems–even discounting the grotesque executive salaries. Both are dependent on advertising, and both offer advertisers a shot at music fans. Just like the illegal bit torrent sites that major brands buy advertising from.
Imagine if that illegal inventory wasn’t available? I think there’s at least a plausible argument based on supply and demand that those advertisers would be buying advertising from legitimate services like Pandora and Spotify in even greater quantities. Perhaps at higher prices, which is what one would expect.
Is Google shedding any tears over Pandora and Spotify suffering from the ads that Google serves to pirate sites? Not really. Lower royalties help Google in its quest to commoditize all culture. If Google can drive down royalty rates by selling advertising to pirate sites and driving traffic to those sites from search–while skimming ad revenues away from legitimate sites–all the better for them, right?
The Most Important Man in Music Has Never Made a Record
What I think should happen here is that Spotify should put its books out into the public. After all, as Forbes told us, “Spotify’s Daniel Ek [is] The Most Important Man In Music”. How did we ever get along without him?
Maybe Mr. Ek would like to open his books and show us all what we’re doing wrong? And why we need to help him make a profit so he can say on the rich list.
Après moi, le déluge
Attributed to King Louis XV of France
Right after Google’s YouTube acquisition, Googler Zahava Levine appeared on a bar association panel in Los Angeles and sneered at the assembled entertainment lawyers that even though YouTube was using their clients’ works without permission, YouTube would continue to rely on the DMCA notice and takedown. Unless, of course, “Hollywood” wanted to stop playing whack a mole and make a deal.
And the assembled room witnessed the birth of an urban legend: The Notice and Shakedown.
And what many told me they thought (after where do they find these people) was why would Google want to play whack a mole. Surely this game of “catch me if you can” is going to come back to bite them? (See Parlophone.)
Fast forward a few years and enter the multichannel network (or MCN), somewhat shadowy groups of content producers and aggregators on YouTube. If I had to bet, my bet would be that when Google contract with MCNs, Google place a fig leaf on clearances for music used in MCN programming–they place the burden on the MCN. If Google then gets a claim for infringement, they simply tender it to the MCN as an indemnity claim.
Enter the Very Successful MCNs. These MCNs make real money and attract real investment, sometimes from Google itself. Based on the announcement of the Universal deal, it now becomes apparent that there must be a significant amount of uncleared music on these MCNs. And, of course, if Google invests in an MCN that has a contract with YouTube…Google will have diligenced the MCN as part of its investment (or certainly had the chance to do so).
So what does that mean for Google’s “see no evil” version of its Notice and Shakedown defenses? I think it’s called “actual knowledge” that appears under a red flag.
Why is this meaningful?
Hard on the heels of the news of Universal’s deal with Fullscreen and Makers, the National Music Publishers Association made it clear that just because one publisher made a deal with two MCNs doesn’t mean that those two MCNs don’t have a problem with other songwriters, and that other MCNs don’t have a problem with all the songwriters.
‘Recent news that two large multi-channel networks (MCNs), MakerStudios and Fullscreen, have reached a licensing deal with Universal Music Publishing Group is an important first step in compensating songwriters. But let me be clear – all MCNs must be licensed for the use of all songs. This agreement between two MCNs and one music publishing company does not solve the entirety of the problem. As the popularity of digital entertainment has grown, MCNs have significantly profited, often without compensating the songwriters whose work is being used.
Those who use the works of songwriters in videos must fairly compensate those songwriters and music publishers, and NMPA is committed to finding a complete solution.”
So let’s crystallize that for the MCNs: If you get down on your knees and beg to be sued, don’t be surprised if someone sues you.
And your good buddies, you know, your “partners,” at Google? They will throw you under the bus in a heartbeat. If they haven’t already.
Listen up–Google advertised the sale of prescription drugs to kids. They distributed sex club apps that exploit teens. Do you really think people who can do that give a damn about an MCN?
And ask yourself this Mr. MCN investors–why do you want to play whack a mole? What possible motivation could you have? Because you don’t make as much money as Google, so your profit motive is radically different than theirs.
I’d say there’s another element of brilliance to the Universal deal–they got their songwriters’ money out first.